Mineral Resources share price drops despite incredible earnings growth

Lithium is the commodity of the moment and this miner is making huge profits from it…

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Key points
  • Mineral Resources has released its half-year results
  • Thanks largely to its lithium operations, the company delivered stellar earnings growth
  • However, its earnings have still fallen short of the market's expectations

The Mineral Resources Ltd (ASX: MIN) share price is falling on Friday.

At the time of writing, the mining and mining services company's shares are down 4% to $81.61.

This follows the release of the company's half-year results.

A man raises his reading glasses in a look of surprise.

Image source: Getty Images

Mineral Resources share price falls despite incredible earnings growth

  • Revenue up 74% to $2,350 million
  • Underlying earnings before interest, tax, depreciation and amortisation (EBITDA) up 503% to $939 million
  • Net profit after tax up 1,890% to $390 million
  • Operating cash flow up 333% to $281 million
  • Interim dividend of 120 cents per share

What happened during the half?

For the six months ended 31 December, Mineral Resources reported a 74% increase in revenue to $2,350 million.

The was driven largely by a huge increase in lithium revenue, which was supported by modest increases in iron ore and mining services revenue. Mineral Resources' lithium revenue came in at $997.2 million, up from $143 million a year earlier.

It was a similar story for the company's EBITDA, which came in 503% higher at $939 million. Management notes that this reflects record lithium earnings from the conversion of both Mt Marion and Wodgina spodumene concentrate into lithium battery chemicals. It was also supported by consistent mining services earnings and an improved contribution from iron ore business on the back of higher achieved prices.

However, as strong as this earnings growth was, it has fallen short of expectations. The consensus estimate was for EBITDA of $1.06 billion. This may explain the weakness in the Mineral Resources share price today.

Nevertheless, this ultimately allowed the company to bring back its interim dividend. It declared a fully franked interim dividend of $1.20 per share, which represents a $233 million return.

Management commentary

Mineral Resources' Managing Director, Chris Ellison, commented:

MinRes had a strong and stable first half, with solid earnings set to deliver shareholders a $1.20 fully franked interim dividend. We are well set-up for an excellent year, with our balance sheet and performance across all areas in a great position.

Our first half was headlined by record lithium earnings from conversion of Mt Marion and Wodgina spodumene concentrate into lithium battery chemicals. This was underpinned by consistent mining services earnings and a return to positive iron ore earnings due to improved product discounts.

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. This half has seen us take the business from a mining services contractor and upstream miner to a leading downstream supplier of lithium to global auto manufacturers.

Outlook

Looking ahead, Mineral Resources' guidance for FY 2023 is unchanged. It has also provided guidance on its lithium operations. It expects:

  • 7 to 7.3Mt iron ore at Yilgarn
  • 5Mt to 11.5Mt iron ore at Utah Point
  • 160k to 180k dmt of spodumene from Mt Marion
  • 19kt to 21.3kt lithium battery chemicals from Mt Marion
  • 150k to 170k dmt of spodumene from Wodgina
  • 5kt to 12.5kt of lithium battery chemicals from Wodgina
  • Mining services volumes of 270Mt to 280Mt

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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