Mineral Resources Limited (ASX: MIN) has seen its share price rise more than 43% in the past week or so, including another 12.7% today to $5.64.
The company is a bit of an oddity when it comes to trying to classify it. It’s part miner, part mining services contractor, owning and operating mines both on its own behalf as well as for clients.
The give you an idea of the group’s diversity – Mineral Resources operates across 26 sites and for 5 different commodity types, including iron ore, lithium and manganese.
But recent financial results show that despite the combination, Mineral Resources is performing admirably, particularly in such a depressed market as the iron ore sector.
In the six months to end of December 2015, Mineral Resources saw its revenues sink by 23% to $577 million, mostly on account of the falling iron ore price, but still managed to post a profit of $48 million – down just 5% over the previous year. Mining services represent 65% of earnings, with the remaining 35% coming from the group’s commodities business.
Iron ore exports increased by 8% to 5.9 million tonnes, and cash costs fell by 22%. Net cash increased by $56 million to $174 million between June 2015 and December 2015.
Mineral Resources is, in fact, swimming in so much cash that it announced at its AGM in November 2015 that it would allocate $40 million to a combination of fully franked dividends and an on-market share buyback.
In addition, Mineral Resources has a 30% interest in the Mt Marion lithium project, and the first product shipment is expected within 60 days of commencing operations – likely to be later this year. The Mt Marion project is in partnership with Neometals Ltd (ASX: NMT) and China’s leading lithium producer Ganfeng Lithium Co.
Mineral Resources says it expects earnings before interest, tax, depreciation and amortisation (EBITDA) for the 2016 financial year of between $250 and $290 million (at an average benchmark iron ore price of USD$42 a tonne). For the first half, the company reported EBITDA of $132.8 million.
Mineral Resources model of mixing mining services with owning mines (or stakes in) has been proven to work, and despite the low iron ore prices, the company is still producing reasonable profits at decent margins – unlike many other junior iron ore miners.
Unfortunately for investors, the recent run-up in the share price means there are now better opportunities out there.
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