AUS
NZ
UK
CA
USA
FRA
GER
ESP
ITA
NLD
PRT
SWE
GRC
IND
POL
BRA
ZAF
RUS
CHN
UAE
Mineral Resources has decided not to issue a final dividend for the first time in over a decade as it focuses on preserving cash amidst a prolonged slump in lithium prices and concerns about the viability of high-cost iron ore operations.
Founder and managing director Chris Ellison emphasized that the company’s Onslow Iron operations, which began shipments in May, are expected to provide strong returns throughout commodity cycles. Ellison reassured that Onslow Iron would support substantial growth in Mineral Resources' mining services division and infrastructure earnings, even as BHP recently warned about declining Chinese demand for iron ore.
In response to challenging market conditions, Mineral Resources will defer expansion projects, focus on cost-cutting, and prioritize cash preservation in the 2024-25 period. The company ended the financial year on June 30 with net debt nearly double compared to the previous year. Ellison highlighted that this more cautious approach is reflected in the board's decision to forgo a final dividend, marking a shift since 2013.
The decision comes after Mineral Resources announced the shutdown of its high-cost iron ore operations in the Yilgarn region of Western Australia and the subsequent effort to relocate roughly 1,000 affected workers. Additionally, the company is reducing its workforce by 140 employees at its Perth head office. The Pilbara Hub iron ore mines, another core asset, have also faced profitability challenges due to high costs.
Despite the downturn, the mining services division of Mineral Resources has been a positive highlight, delivering record underlying earnings with increased production volumes. The company has also earmarked substantial capital expenditure for 2024-25, despite financial pressures and difficult market conditions. The budget includes significant investment for further development of the Onslow Iron project.
Mineral Resources achieved a lower average price for its lithium output compared to the previous year, while the average iron ore price showed a modest increase. Market analysts have noted that the company's financial leverage appears more stretched than its peers, particularly given the ongoing low or declining prices for iron ore and lithium.
Ellison mentioned that the company aims to reduce its debt levels as Onslow Iron reaches its full production capacity and turns cash flow positive within the next year. In efforts to strengthen its balance sheet, Mineral Resources has pre-sold a significant amount of iron ore and recently announced the sale of a stake in the Onslow Iron dedicated haul road to Morgan Stanley Infrastructure Partners.
The Mineral Resources share price has experienced a significant decline since mid-May, closing at $44.18 on Wednesday.
