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Mineral Resources shares: half-year results and Norwest acquisition update

Strong half-year results, positive brokers, and a solid acquisition could send Mineral Resources shares higher.

lithium Source: Bloomberg

Mineral Resources (ASX: MIN) shares have had a volatile 2023 thus far. Despite stellar pandemic-era years, the ASX 200 company is now only up 4.5% year-to-date to AU$78.49, despite rising to as high as AU$96.26 on 24 January.

Of course, much of this recent fall can be attributed to the short-term falling price of lithium. But multiple brokers consider that a new record could be achieved this year.

Mineral Resources: half-year results

February’s results brought a mixed market reaction, despite the strong numbers.

Revenue rose by 74% to $2.35 billion, while underlying EBITDA increased by a whopping 503% to $939 million. Net profit after tax spiked by 1,890% to $390 million, operating cash flow rose by 333% to $281 million, and the company announced an interim dividend of 120 cents per share representing a return of $233 million.

These numbers were driven predominantly by the huge increase in lithium revenue derived from the conversion of both Mt Marion and Wodgina spodumene concentrate into lithium battery chemicals — which increased from $143 million in the same period last year to $997.2 million. Revenue was also supported by slightly increased mining services earnings and higher prices achieved for its iron ore.

However, the analyst consensus EBITDA estimate had cautiously been for $1.06 billion, so despite sky-high numbers, much of the results had already been priced in.

Managing Director Chris Ellison enthused that ‘over the past 12 months, the business has been restructured for growth in each of our four business pillars. We have locked in substantial growth in each of these business divisions for the next five years and built the foundations that will set up MinRes for the next 50 years.’

Where next for Mineral Resources shares?

FY23 guidance remained unchanged — including 160,000 to 180,000dmt of spodumene and 19kt to 21.3kt lithium battery chemicals from Mt Marion, and 150,000 to 170,000dmt of spodumene and 5kt to 12.5kt of lithium battery chemicals from Wodgina.

But unchanged guidance is often the best news. Markets enjoy certainty.

Bell Potter analysts have a buy rating and a $110 price target on the ASX 200 stock, noting that the company generated more profit in the six-month period than in the entirety of FY22. Accordingly, they expect the dividend yield to reach a solid $9.39 per share in FY24.

The analysts also expect that ‘as the business transformation is completed, MIN’s growing production volumes, and improving margins, supported by strong commodity prices, will result in significant earnings growth’ over the next two years.

Meanwhile, Morgans analysts also have a buy rating, with a slightly more modest $102 target. The team considers that the company will be a key beneficiary of China’s reopening, also arguing that ‘MIN’s diversification leaves it far more capable of tolerating volatility in lithium markets than its peers in the sector.’

Norwest Energy takeover

Mineral Resources first announced plans to take over its minority JV partner of the Lockyer Deep gas project in the Perth Basin in mid-December last year. At the time, Elision noted that the project ‘may be the largest onshore gas find in Australia.’

As of 2 March, MIN owned circa 70% of Norwest’s shares, and has advised shareholders who have yet to accept its best and final offer — one Mineral Resources share for every 1,300 Norwest — that if it acquires over 80% they ‘may be eligible for rollover tax relief.’

Today, MIN extended its offer period under its off-market takeover bid to 30 March, noting that Norwest’s directors had unanimously recommended that remaining shareholders accept the deal.

The remaining holdouts may think they can get a slightly better deal regardless, as MIN would need to either seek compulsory acquisition or apply to de-list Norwest from the ASX. The miner would likely wish to avoid either of these scenarios.

But ‘best and final’ often means just that.

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This information has been prepared by IG, a trading name of IG Australia Pty Ltd. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.

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