26/10/2021 - 11:05

MinRes dumped on ore pricing

26/10/2021 - 11:05

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Shares in Mineral Resources fell sharply this morning after the iron ore miner revealed its realised selling price was less than half the benchmark price.

MinRes dumped on ore pricing
Mineral Resources managing director Chris Ellison. Photo: Att

Shares in Mineral Resources fell sharply this morning after the iron ore miner revealed its realised selling price was less than half the benchmark price.

The stock was down nearly 10 per cent to a low of $39.55 this morning but by midday had partly recovered to trade at $40.01.

This reversed the gains it made on Monday after the company announced it would reopen its part-owned Wodgina lithium mine.

In its September quarter report, Mineral Resources said its iron ore sales agreements provide for pricing based on the benchmark 62 per cent Platts price index (P62).

Most iron ore miners adopt a similar practice.

Mineral Resources said its pricing is typically finalised in the month or two after the shipment month.

For the three months to September 2022, the company sold 4.6 million dry metric tonnes (5.0m wmt) of iron ore at a realised price of US$78.32/dmt.

“This represented a realisation of 48 per cent to the Q1 Platts 62% average for the quarter,” it said.

“This result was impacted by negative adjustments for FY21 shipments totalling US$33.8 million.”

That equated to a penalty of $A45 million.

The company added that shipments sold and finalised during the September quarter – when P62 averaged $US119.65/dmt – achieved a realisation to P62 of 76 per cent.

In other words, an average price of $US90.93/dmt.

Investment bank JP Morgan said it was a soft quarterly report, as iron ore shipments of 5mt were below its forecast.

In addition, spodumene shipments from its Mt Marion project and spodumene prices were both below forecast.

JP Morgan said the market was likely to factor in much higher iron ore discounts for MinRes, adding that it was likely to also be a negative for Fortescue Metals Group.

Morgan Stanley also described the quarterly as a soft start for FY22.

It expressed concern about planned big investments in the Ashburton and South West Creek iron ore projects.

“Our concerns on MIN relate to significant capex spend on low grade iron ore projects,” the investment bank said.

Macquarie Group was more positive, maintaining its outperform recommendation on the stock.

It described the quarterly report as mixed, with stronger iron ore production offset by lower shipments and the wider low-grade discounts.

“The re-start of Wodgina is now expected to occur within the next 12 months and should see MIN’s lithium business become a larger earnings contributor from FY23,” Macquarie said.

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