Since the start of the year, the mining and mining services company’s shares have more than doubled in value and are up 109%.
Is it too late to invest?
According to a note out of Goldman Sachs, its analysts believe that all the good news is factored into the Mineral Resources share price and it is now fully valued.
This morning the broker retained its neutral rating but lifted its price target by a massive 30% to $34.50.
This compares to the current Mineral Resources share price of $34.56.
What did Goldman Sachs say?
The Goldman Sachs commodities team has just upgraded their forecasts for a number of metals.
It has lifted its iron ore price forecasts by ~30% to US$120 and US$95 per tonne for 2021 and 2022, its long-run forecasts for lithium spodumene by 7% to US$570 per tonne, and lithium hydroxide by 18% to US$13,000 per tonne.
The latter two upgrades are due to an improving supply/demand outlook and higher implied industry utilisation rates. This is being driven by an upward revision to the broker’s global auto team’s electric vehicle adoption and sales assumptions.
Given Mineral Resources’ exposure to both iron ore and lithium, these upgrades have had a major impact on Goldman Sachs’ earnings estimates.
It commented: “The iron ore and lithium forecast changes have driven a significant uplift to earnings and valuation for MIN. Our 12-mth TP is up +30% to A$34.5/sh, with FY21/22/23 EBITDA up +35%/+53%/+32%.”
However, given its strong share price rise, the broker is holding firm with its neutral rating for the time being. Though, it has acknowledged that a strong iron ore price could make it change its mind.
“MIN appears fully valued, trading at 1.19xNAV (US$62/t long-run Fe) and pricing in US$75/t long-run Fe, and we retain our Neutral rating. However with ongoing iron ore price strength, we see likely consensus earnings upgrades over the next few quarters based on the significant operating leverage in MIN’s iron ore business.”
“If spot iron ore and FX (US$150/t, 75c AUDUSD) held for the remainder of FY21, our EBITDA and EPS forecasts would be +16%/+21% respectively to A$1,942mn/A602cps, and MIN would generate an additional c. A$200mn in free cash flow above our base case,” it concluded.
This might be one for investors to keep a close eye on.
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