Lithium move downstream delivers for Mineral Resources
Financial fortunes have turned around for Chris Ellison’s Mineral Resources after the WA miner switched to selling lithium hydroxide to battery manufacturers instead of just shipping ore for others to add value to.
Ellison, MinRes’ managing director, said the first half was dominated by record lithium earnings from the conversion of the spodumene concentrate it produces into lithium battery chemicals.
The $16 billion company produced a $390 million net profit for the six months to December after a paltry $20 million a year ago.
“This half has seen us take the business from a mining services contractor and upstream miner to a leading downstream supplier of lithium to global auto manufacturers,” Ellison said.
The Mount Marion lithium operation produced earnings before interest, tax and depreciation of $584 million for the six months to December compared with $67 million a year before.
The earnings boost came from MinRes switching from selling the spodumene concentrate it mines in WA’s Goldfields region and instead paying for it to be processed into lithium hydroxide in China and selling the higher value product.
Its Wodgina lithium operation in the Pilbara also improved with an EBITDA of $177 million after a $6 million loss a year ago.
Ellison wants to process the output of his lithium mines in WA, but costs are a challenge. He said a lithium refinery built in the south-west of the state for $US1.5 billion ($2.2 billion) would cost only about $US600 million in China.
Slow approvals from an overloaded Environmental Protection Authority in the state are also a problem, with Ellison saying the process is taking a lot longer than a few years ago.
MinRes’ original business of mining services suffered increased costs for parts and labour, shrinking its margin from 27 per cent to 21 per cent to generate an EBITDA of $255 million, down nine per cent from a year ago.
The two iron ore operations – Yilgarn and Utah – achieved a turnaround in EBITDA from $104 million in the red 12 months ago to a positive $37 million after achieved prices jumped 18 per cent, offset by lower volumes.
The results of the diversified WA iron ore, lithium, gas and mining services group came a day after it announced a restructure of its lithium joint venture with US-based Albemarle.
RBC Capital Markets rated the half year as weaker than expected, mainly due to higher costs at the Wodgina lithium operation but was pleased by the better-than-expected fully franked dividend of $1.20 a share.
The Mineral Resources share price was almost unchanged at the close of trading on Friday at $84.91 a share.
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Source: Thanks smh.com