The Minerals Resources Ltd (ASX: MIN) share price has surged approximately 40% in the past month, making it one of the best-performing S&P/ASX 200 Index (ASX: XJO) shares in that time period.
The iron ore and lithium miner is one of the largest positions in fund manager L1 Capital's portfolio, but the investment team are still confident on further gains from here.
L1 likes to focus on businesses that are good value, with a relatively low price/earnings (P/E) ratio and appealing free cash flow yield, as well as solid earnings per share (EPS) growth. These businesses provide a "compelling medium-term return profile in spite of a slowing macro backdrop".
Let's take a look at what L1 still likes about the Mineral Resources share price.
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What has happened to cause the big surge?
L1 said the ASX mining share has surged because lithium prices are recovering from multi-year lows on the back of speculated supply cuts, most notably in China.
The iron ore price has also increased, driven by expectations for "potential Chinese policy addressing overcapacity and supporting steel margins."
L1 also noted that during July, Mineral Resources released its FY25 fourth quarter update, which showed the continued ramp-up up of its Onslow iron ore project. In the month of June, Onslow reached 2.7 million tonnes (mt) of iron ore shipments, representing an annualised run-rate of around 32.4mt compared to expected full capacity of 35mt per year.
The company has guided that production will be between 30mt to 33mt for FY26.
At the full run-rate and an iron ore price of US$100 per tonne, the company expects Onslow could generate around A$1.3 billion of operating profit (EBITDA), which would significantly contribute to de-leveraging the company's balance sheet. This could be very supportive for the Mineral Resources share price.
The quarterly update also revealed strong cost improvements at the Wodgina lithium mine, which are "particularly encouraging given the difficult lithium price environment", according to L1 Capital.
Additionally, the company also recently announced two "highly respected" new independent director appointments, being Lawrie Tremaine and Ross Carroll. Combined with the new chair, Malcolm Bundey who started at the beginning of July, L1 is "very encouraged by the progress made on the broader board and governance reset."
Is the Mineral Resources share price still attractive?
At the time of L1 of writing the following commentary, the fund manager was still optimistic on the shareholder returns the company could deliver. The investment team wrote:
We continue to believe that each of the company's core segments should see material improvement from current levels over the medium term and we believe the risk-reward at the current share price remains compelling.
