Mineral Resources Ltd (ASX: MIN) shares are ending the week in a disappointing fashion.
In afternoon trade, the mining and mining services company's shares are down 7.5% to $70.13.
Why are Mineral Resources shares sinking?
As well as the broad weakness in the battery materials industry today, investors appear to have been selling Mineral Resources shares in response to the release of a bearish broker note out of Goldman Sachs.
According to the note, the broker has reiterated its sell rating with a reduced price target of $57.00.
This means that even after today's decline, Goldman sees scope for its shares to fall a further ~19% over the next 12 months.
What did the broker say?
Goldman highlights that the company has once again changed its agreement with lithium giant Albemarle Corp (NYSE: ALB). And while it expects the new terms to be good news for its balance sheet, it has a negative impact on its valuation. The broker explains:
MIN has recut the recently recut lithium JV with Albemarle and will now not invest US$660mn (~A$1bn) into ALB's two Chinese Lithium Hydroxide (LiOH) plants, but will divest its 15% stake in the Kemerton LiOH in Australia to ALB, and will now pursue studies and construction of its own LiOH plant in Australia. MIN believes the new agreement is a win-win for both parties.
Removing the LiOH exposure increases our FY24 EBITDA (due to our spodumene vs. LiOH price forecasts; similar effect on EBITDA as with the recent removal of the Mt Marion toll LiOH processing with Ganfeng JV), and removing the A$1bn payment is also positive for the balance sheet, with net debt now peaking at A$2.2bn in FY25E vs. our prior A$3.7bn. However, removing the life of mine (LOM) LiOH production from Wodgina has reduced our NAV by ~A$13/sh, the opposite effect of when we included the Chinese LiOH exposure which we valued the investment at ~A$2bn or ~A$10/sh NAV.
Goldman has also warned investors that it continues to believe that Mineral Resources will be cash flow negative in the coming years, which it expects to weigh on dividend payments. It adds:
[W]e still forecast a more than doubling of group lithium volumes (spodumene) to >100ktpa of LCE, doubling of equity iron ore volumes to >30Mtpa, and a doubling of mining services volumes (mostly from internal projects) to >400Mtpa. However, due to a step-up in growth capex at Ashburton, and our below consensus lithium price forecasts, we forecast low/negative FCF across FY23-25 and a FCF yield of -6%/+3%/-4% over these years.
In light of this, the broker is forecasting a dividend yield of just 0.6% in FY 2024 and no dividends in FY 2025.
