Mineral Resources (ASX:MIN) could be in for a big reversal in fortunes in the second half of 2022 after dumping its dividend at the half year.
The Chris Ellison-led miner ran a shock $36 million underlying loss, as receipts for its iron ore nosedived in the first half of FY22.
Along with the collapse in prices, which included widening discounts for its lower grade ore, higher freight costs and inflation torched the company’s normally solid earnings.
But that could be in for a big turnaround in the second half of the year after iron ore prices ran from a low of US$87/t in November last year to a year to date high of US$162.75/t for benchmark 62% iron ore fines on Monday.
Prices have held firm in early 2022 as Chinese steel demand has shown signs of a rebound following a collapse towards the end of last year.
A recent run has also been powered by Force Majeure declarations from high grade Ukrainian producers.
The country which has been invaded by Putin’s Russia was the 5th top iron ore exporter in 2021.
Freight rates, the cost of which is typically carved out of a company’s realised iron ore price by the purchaser, have also subsided to normal levels.
Macquarie’s commodity desk thinks MinRes presents earnings upside of 60% currently on its FY22 estimates. $9 billion MinRes’ shares are down 20% year to date, but rose 2.22% this morning.
Meanwhile BHP (ASX:BHP) has earnings upside of 43%, with momentum building across the sector, Macquarie says.
Macquarie has a $76 price target on MinRes ($48.03) yesterday, and Macquarie says it remains positive on iron ore stocks with outperform ratings on every iron ore stock outside Fortescue (ASX:FMG).
Macquarie says it expects infrastructure spending to pick up (bullish for steel demand) after China set its economic targets for 2022 at the National People’s Congress this week, with steel mill margins in China rising sharply in recent weeks.
“Macquarie’s Commodity Strategy team expects infrastructure spending to accelerate after the NPC meeting,” they said.
“The team also saw increased property policy relaxation from city level governments to incentivise house-buying, though property sales remained weak year-to-date.”
“We note the average CY22 YTD iron ore price is US$138/t, 26% higher than the US$110/t average in the December quarter in 2021.”
Iron ore miners share prices today:
Nickel Mines calls a halt
Nickel Mines (ASX:NIC) shares have collapsed in early trade, copping a savage beatdown after a dramatic short squeeze that doubled prices to over US$100,000/t in just hours of trade prompted the London Metals Exchange to shut the market.
The $3 billion capped miner saw 22.7% of its value wiped this morning before placing a pause on trading in its securities.
Until yesterday LME nickel had never traded above US$55,000/t. Stocks have been tight in recent weeks, a situation compounded by Russia’s war with Ukraine.
Russia’s Norilsk is the world’s largest producer of refined nickel for stainless steel and EV batteries.
The emerging Indonesian nickel pig iron producer, which says its expansion plans over the next two years will make it a larger producer than mining giant BHP, is closely linked to Chinese nickel and stainless steel behemoth Tsingshan.
Tsingshan through its subsidiary Shanghai Decent is a major investor in Nickel Mines, and has stakes in its RKEF NPI plants.
Reports suggest Tsingshan and its boss Xiang Guangda – a Chinese trader and entrepreneur colloquially known as Big Shot – could be out billions on short bets they made on the price of nickel falling after this week’s market madness.
The price has been pegged at US$48,063/t, Monday’s close, with trades made yesterday cancelled and no certainty on when the market will reopen.