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Highlights
- Mineral Resources and IGO identified as undervalued stocks amidst lithium price declines.
- Recovery in lithium prices predicted by 2025, potentially boosting sector performance.
- Strong market fundamentals and production adjustments highlight potential for growth.
Australia’s lithium sector has come under focus, with Morningstar identifying Mineral Resources and IGO as standout performers in a market that remains undervalued. Despite lithium carbonate prices hitting multiyear lows of around $US10,500 a tonne, both stocks are being recognized for their strong longterm potential.
The decline in lithium prices has triggered a major selloff in ASXlisted stocks this year, with companies like Liontown Resources and Pilbara Minerals seeing reductions in output. During the pandemic, lithium carbonate prices soared to $US80,000 a tonne, driven by high demand from the electric vehicle sector. While oversupply has dampened recovery in 2023, Morningstar maintains that a market balance is achievable by 2025, paving the way for price improvement.
Mineral Resources (ASX:MIN) Challenges and Future Prospects
Mineral Resources has faced a challenging year, with its stock price declining 50% amidst falling commodity prices and corporate controversies. The company's founder, Chris Ellison, is stepping down following a tax avoidance scandal, adding to investor concerns. Despite these setbacks, Morningstar has rated the stock five stars, estimating its fair value at $64, significantly above the current trading levels.
Production curtailments, including the recent mothballing of Bald Hill operations, have been paired with actions to strengthen financial stability. The sale of gas assets in October for $800 million, along with an expected $300 million pending conditions, has bolstered the company’s cash position. This development has positively influenced Morningstar’s valuation of Mineral Resources by 3%. The company’s strong positioning could benefit from forecasted lithium price recovery by 2025.
IGO (ASX:IGO) A Balanced Portfolio with Growth Potential
IGO has also seen its stock price decline by more than 40% this year, with its shares currently trading at $5.06. Morningstar has highlighted a fair value of $7 for the stock, citing its robust lithium operations and minority stake in the Greenbushes site, considered one of the most efficient and lowcost hard rock lithium mines globally.
The company’s financial stability remains a significant advantage, with no debt and $468 million in cash reserves as of June 2023. Additionally, it has $720 million in undrawn debt facilities, providing flexibility for future growth. The valuation of IGO places 90% of its worth in lithium operations, with its Nova nickel mine contributing the remainder.
