Mineral Resources Ltd (ASX: MIN) shares are having a positive session.
In afternoon trade, the mining and mining services company's shares are up over 1% to $74.24.
While this is positive, one leading broker is warning that the gains may not last.
In fact, its analysts suspect that the Mineral Resources share price could fall heavily from current levels.
What is being said about Mineral Resources shares?
According to a note out of Goldman Sachs, its analysts have retained their sell rating and $59 price target on its shares.
This implies a potential downside of just over 20% from where they currently trade.
Goldman notes that the company has just released an update on its lithium and gas businesses. It wasn't impressed with the lithium side of the update, commenting:
MIN has provided a business update across lithium and gas, downgrading lithium guidance again, but announcing a further gas discovery in the Perth basin. Spodumene sales at Mt Marion for FY23 have been reduced on a delayed shipment, volumes at Wodgina are expected to be at the bottom of the range and unit costs at Wodgina have increased by ~10%, but in-line with GSe.
In light of this, the broker has warned that Mineral Resources' guidance for FY 2024 in August could come in weaker than the market is expecting. It adds:
This downgrade follows delays to the two lithium expansion projects at Mt Marion (~6-9m) & Wodgina (~12-15m) with MIN's 3Q production report. We think FY24 guidance (to be released with the FY results in late August) could be weaker than the market expects for both Li & Fe volumes and costs.
What else?
Another reason the broker is bearish on Mineral Resources shares is that it expects the company to be generating negative free cash flow in the coming years. It said:
[D]ue to a step-up in growth capex at Ashburton and payments to Wodgina JV partner Albemarle, and our below consensus lithium price forecasts, we forecast negative FCF across FY23-25 and a FCF yield of -8%/-4%/-6% over these years.
Clearly, negative free cash flow is not a good thing. As well as putting significant pressure on dividends, the broker expects Mineral Resources' debt to balloon.
Goldman has "forecast a doubling of MIN's net debt to >A$2bn at end of FY23, and a further increase in net debt to ~A$4bn by the end of FY25, and assume MIN takes on A$1.7bn of new debt by the end of 2024."
It seems that there could be challenging times ahead for Mineral Resources.
