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The share price of Mineral Resources Ltd (ASX:MIN) has surged by 20% following the announcement that the company’s $1.3 billion sale of its Onslow Iron project will proceed, along with an important business update.
$1.3 Billion Sale Moves Forward
The sale of a 49% interest in the Onslow Iron haul road to investment funds managed by Morgan Stanley Infrastructure Partners (MISP) has received unconditional approval from the Foreign Investment Review Board (FIRB). The transaction involves an upfront payment of $1.1 billion, with potential additional proceeds of $200 million contingent on achieving a production run-rate of 35 million wet metric tonnes per year before June 30, 2026.
With all conditions now satisfied, the sale is expected to be finalized within the next 15 business days. The initial $1.1 billion payment will be used to cancel a US$750 million undrawn bridge facility.
Since May, Onslow Iron has shipped over 1 million tonnes of iron ore, and it is anticipated to ship 720,000 tonnes in September 2024, up from 532,000 tonnes in August and 134,000 tonnes in July. The project is expected to reach its full capacity of 35 million tonnes per year by June 2025. Mineral Resources expects Onslow Iron to become cashflow positive from October 2024, contributing to a faster deleveraging of the company’s balance sheet.
Cost Reduction Initiatives
In response to a challenging commodity price environment, Mineral Resources is focusing on reducing capital and operational expenditures. The company has identified approximately $180 million in capital expenditure cuts and $120 million in operational cost savings, which include adjustments in the lithium division.
Changes in the lithium division will involve a reduction in operational headcount by modifying work rosters at the Mt Marion and Wodgina operations. These changes are set to be implemented over the next four to six weeks. However, the guidance for FY25 lithium production and mining services volumes remains unchanged.
Leadership Insights
Chris Ellison, Managing Director of Mineral Resources, commented on the developments:
“Under this unique partnership, Mineral Resources retains majority exposure to the stable earnings generated by the haul road throughout the project’s lifecycle. Onslow Iron is scheduled to reach operational completion next month, with the ramp-up proceeding as planned. We expect the project to be cash flow positive for Mineral Resources starting in October.”
Ellison also highlighted the company's focus on cost reduction and cash preservation amidst lower lithium and iron ore prices. He emphasized that the haul road partnership demonstrates the company’s ability to leverage non-dilutionary strategies to enhance shareholder value.
Future Outlook
Despite the recent rise in share price, the company has yet to fully recover from the valuation declines experienced in 2024. Commodity prices remain lower compared to nine months ago, suggesting that a complete recovery may take time. While the company’s current initiatives and the Onslow sale are positive steps, there is uncertainty around whether iron ore and lithium prices will return to previous highs.
As a result, investors may need to monitor developments closely before expecting a full recovery in the Mineral Resources share price. Other major players in the sector, such as BHP Group Ltd and Rio Tinto Ltd, might be considered for their diversified portfolios and copper exposure.
