The Mineral Resources Ltd (ASX: MIN) share price closed higher yesterday, up 0.4% to $38.69. However, one broker believes there is still more fuel in this company's tank.
Considering Mineral Resources is a mid-cap share, its performance over the past 12 months has been nothing short of jaw-dropping. Strap yourself in for this one… In the past year, Mineral Resources shares have returned 179%, outstripping the S&P/ASX 200 Materials Index (ASX: XMJ) by over 130%.
Iron ore demand 'steels' the show
Mineral Resources has largely benefitted from the strong demand for its iron ore. This insatiable demand comes predominantly from China, as its steel production soars.
As a result, the company has lifted its production volumes and exported its product at a much higher price per tonne. Consequently, Mineral Resources' profit margins have increased to 56%, which is remarkable for a mining company.
Notably, Mineral Resources doesn't just own iron ore assets, it also produces lithium. Despite the poor performance of the lithium segment in the last half, plenty of speculation is still swirling around future demand for the battery-making resource.
Broker's take on the Mineral Resources share price
Macquarie Group Ltd (ASX: MQG) has recently increased its rating to 'outperform' on Mineral Resources shares, accompanied by a $50.50 price target. This represents just over a 30% upside on the current Mineral Resources share price.
The investment bank noted several aspects that it likes about the mining company. These included Mineral Resources' joint venture (JV) with United States lithium giant Albemarle, which involves the development of the Kemerton hydroxide processing plant. The project is expected to be ready for production in 2022.
Including the planned upgrades, Macquarie forecasts Mineral Resources production from the JV to reach 60,000 kilotonnes per year by 2027. According to Macquarie, the tantalising prospect is also expected to be self-funded through the company's strong cash flows.
The broker cited the main risk to near-term earnings as being iron ore price movements. Coincidentally, last night iron ore futures dropped by 10% in a sudden dumping.
#China's most actively traded #IronOre futures contract on Dalian Commodity Exchange hit limit-down, plunging 10% to hit 1,031.5 yuan/tonne, the lowest since Feb 9. pic.twitter.com/6tJmEiSBcS
YUAN TALKS (@YuanTalks) March 9, 2021
Macquarie forecasts Mineral Resources to produce an underlying profit of $938 million for the 2021 financial year, with the company to pay a dividend of $2.35 per share.
