The Mineral Resources Ltd (ASX: MIN) share price is up 8% after the ASX mining stock got a boost from the broker UBS calling it a buy.
UBS described the situation with Mineral Resources as being "darkest before dawn".
The broker explained that its previous sell rating was based on the company's exposure to the weakening outlook for lithium and iron. UBS was also concerned by the increasing levels of debt on the balance sheet as it completed the Onslow iron project. Governance issues at the end of 2024 "further complicated matters".
UBS said that while those concerns haven't been fully resolved, it has assessed funding and operational scenarios and upgraded earnings per share (EPS) for FY26 and FY27 by 6% and 45%, respectively.
New Mineral Resources share price target
A price target is where analysts think the share price will be in 12 months from the time of the investment call.
UBS has decided to put a price target of $28.60 on the ASX mining share, which implies a possible rise of approximately 20% from where it is today.
The broker said it factored in haul road repairs, a guidance downgrade for FY25 Onslow shipments and mining services tonnes, conservative low grade discounts, a reduced weighted average cost of capital (WACC) to 10.3% (down from 12%), and tonnes from Wodgina train four from the 2029 calendar year. But, UBS said there is "more to do".
Under the above scenario, the ratio of gross debt to operating profit (EBITDA) trends down from 9.3x in the first half of FY25 towards 2.4x in FY30, while interest cover is at its lowest of 2x underlying EBITDA in the first half of FY25 and lifts to 6.1x by FY30.
What does the ASX mining stock need to do?
UBS explained there are three things Mineral Resources needs to focus on for the company to deliver on the broker's thesis:
Key gateposts for our thesis include: 1) Onslow haul road repairs. A 3 quarter period of repairs are critical to enable the haul road to operate at nameplate. We assume no fatal flaw and a 1-2 quarter slower ramp than guidance implied. 2) Onslow site tour. Scheduled for late May, MIN will seek to demonstrate the quality of the underlying mine, haul road and port/trans-shipping operation. 3) Deleveraging. While MIN assert peak net-debt is now, we model a slower albeit unmistakeable de-levering of the balance sheet into the medium term without a recapitalisation beyond current facilities.
Mineral Resources share price valuation
UBS is projecting that the ASX mining stock could generate $227 million of net profit after tax (NPAT) in FY26. That puts the current valuation at 21x FY26's estimated earnings.
