The Mineral Resources (ASX:MIN) share price is down 5% this last week. Here’s why

The company’s shares have failed to bounce back after the company’s acquisition announcement on Friday.

| More on:
Close up of a miner wearing a hard hat with a solemn look on his face, with an oil drill in the background.

Image source: Getty Images

The Mineral Resources Limited (ASX: MIN) share price has been on the decline since last Friday. This follows the company’s announcement to the ASX regarding its acquisition of the Red Iron Ore Joint Venture (RHIOJV).

At Tuesday’s closing bell, Mineral Resources shares ended the session down 0.22% to $60.14, representing a 5.3% fall since last Friday.

What did Mineral Resources recently announce?

According to its last release, Mineral Resources advised it will take over the 40% interest in RHIOJV held by Red Hill Iron Limited (ASX: RHI). The remaining 60% interest is controlled by the Australian Premium Iron Joint Venture (APIJV).

The mining services company said the purchase price for the assets was to the tune of $400 million. This comprises a $200 million cash payment on completion of the transaction. The remaining $200 million would be paid when the first commercial shipment of iron ore extracted from RHIOJV departs the port.

In addition to the payments, Red Hill Iron will receive a royalty fee of 0.75% of free on board (FOB) revenue.

The proposed acquisition is expected to enhance Mineral Resources’ strategy in expanding its resource inventory around the Ashburton Hub.

The RHIOJV tenements, located in the West Pilbara region of Western Australia, contain a mineral resource of 820 million tonnes (Mt) with a grade of 56.44% iron ore.

Although the Red Hill Iron board recommended shareholders vote in favour, it won’t be until early September 2021 for the deal to be completed.

What’s going on with the Mineral Resources share price?

A possible catalyst for investors selling Mineral Resources shares could be a series of brokers weighing in on the company.

Analyst at Goldman Sachs maintained their neutral rating on Mineral Resources, indicating a 12-month price target of $61.00. The broker noted that that company’s fourth-quarter result was broadly ahead of its estimates, despite softer than expected iron ore shipments.

Goldman Sachs further commented that the recent acquisition of RHIOJV could further consolidate Mineral Resources interest in the West Pilbara Iron Ore Project. This would potentially improve the economics of developing the Ashburton Hub.

In addition to the Goldman Sachs report, Citi and Morgan Stanley raised their 12-month price targets by 27% to $65.00, and 10% to $49.70, respectively.

However, it appears that investors are taking Morgan Stanley’s underweight rating into stronger consideration. The broker believes that the market is not factoring in the risks associated with project development, along with discounts applied to low-grade iron ore.

Based on the current Mineral Resources share price of $60.14, this implies a downside target of around 17%.

Should you invest $1,000 in Mineral Resources right now?

Before you consider Mineral Resources, you'll want to hear this.

Motley Fool Investing expert Scott Phillips just revealed what he believes are the 5 best stocks for investors to buy right now... and Mineral Resources wasn't one of them.

The online investing service he’s run for nearly a decade, Motley Fool Share Advisor, has provided thousands of paying members with stock picks that have doubled, tripled or even more.* And right now, Scott thinks there are 5 stocks that are better buys.

*Returns as of August 16th 2021

Motley Fool contributor Aaron Teboneras 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 Bruce Jackson.

More on Share Fallers