According to CEO Chris Ellison, Mineral Resources is going to suffer before things get very much better from a big expansion plan set in train in the past year in lithium in particular.
Investors ignored that hype and sold off the shares after it chopped its interim dividend off the back of what was a very weak profit for the six months to December.
On top of that, the company – notable for its plunge into Lithium in the past couple of years in WA produced an uncertain outlook for the rest of the year, which added to the downward pressure on the shares.
They closed off more than 5% at $16.84 after having fallen as low as $15.85 (down nearly 11%).
The interim dividend was almost halved to 13 cents a share from 25 cents previously.
But yesterday Mr. Ellison made it clear it was a case of pain before gain.
“This has undoubtedly been the most significant year in the Company’s history. The financial results for the first half of FY19 reflect our strategic decision to invest in a number of longer-term growth projects,” he said in a statement with the results.
“These projects will assist us to maximise the value of our lithium ore bodies while the infrastructure and innovation initiatives we have been developing over the past 3 to 5 years will provide us with additional, industry-changing mining services capability.
“Together, these projects will create long-term shareholder value through the development of our world-class resources assets and increased annuity style earnings from enhanced mining services offerings.”
The company yesterday revealed the pain – a 92% slump in first-half profit to just $13 million which rose to a still weak $34 million if an unrealised capital loss on its investment in Pilbara Minerals was added back. The $34 million figure was still down 63%.
The weaker result came on a 35% slide in revenue for the six months to $555 million which the company blamed on the suspension of direct shipping ore activities from its Wodgina lithium project in the Pilbara and delays in the ramp-up of the spodumene plant at the same project.
Capital expenditure during the period jumped nearly 600% to $494 million as the company spent up big developing its Wodgina and Mt Marion lithium projects as well as the acquisition of the Koolyanobbing and Kumina iron ore projects.
Cutting the dividend was due to the lower returns in the half from the slide in revenue and earnings and the company’s discipline in setting dividends as 50% of net profit over the year with one-third of that being paid as an interim
Mr. Ellison described 2018 as the most significant year in the company’s history.
“The financial results for the first half of full-year 2019 reflect our strategic decision to invest in a number of longer-term growth projects,” he said.
MinRes said that “at this time the company is not providing updated guidance, other than to note that it remains on track to deliver the forecast EBITDA based on the assumptions (including commodity pricing) made at the time of its guidance at the AGM in November 2018 of between $280 million to $320 million. $240 million of that would come from its mining services division.
The company says 65% of EBITDA would come in the current June half.
While it noted recent material price movements both for iron ore (positive) and lithium (negative), the company didn’t provide any further explanation on how that would impact the full year results.
