The Mineral Resources Ltd (ASX: MIN) share price is up 20% after the mining company revealed its $1.3 billion Onslow sale was going ahead, as well as a business update.
Mineral Resources is a diversified resources business, with operations across iron ore mining, lithium mining and mining services.
$1.3 billion sale to go ahead
The Foreign Investment Review Board (FIRB) has given unconditional approval for the sale of a 49% interest in the Onslow Iron haul road to investment funds managed by Morgan Stanley Infrastructure Partners (MISP) for $1.1 billion upfront and possible total proceeds of $1.3 billion.
All conditions have now been satisfied, so the transaction can occur within 15 business days.
The additional deferred cash component of $200 million will be paid if Onslow Iron achieves a run-rate of 35 million wet metric tonnes per year in any quarter before 30 June 2026.
After receiving the $1.1 billion upfront cash payment, the company will cancel its US$750 million undrawn bridge facility.
Onslow Iron has now shipped more than 1 million tonnes of iron since the first iron ore went on a ship in May. It’s expecting to ship 720kt of iron ore in September 2024, up from 532kt in August and 134kt in July.
The project will be operationally complete once the haul road is ready in October. Onslow is on track to reach its nameplate capacity of 35 million tonnes per year from June 2025.
Mineral Resources expects Onslow to be cashflow positive from October 2024 at the current iron ore price, while still in the process of ramping up production. As cashflow increases, the balance sheet will rapidly deleverage, according to Mineral Resources.
Capital and operating cost reductions
Amid a challenging environment for commodity prices, the company has been exploring ways to reduce capital and operational expenditure across the business.
Approximately $180 million of FY25 capital expenditure and $120 million of operational cost savings have been identified, which includes the lithium division.
Changes in the lithium division include a reduction to operational headcount by changing work rosters at the Mt Marion and Wodgina operations. Employees have been notified and these changes will take effect over the next four to six weeks.
However, there has been no change to the FY25 guidance for lithium production or mining services volumes.
Leadership commentary
Chris Ellison, Mineral Resources Managing Director, said:
Importantly, under this unique partnership, MinRes maintains majority exposure to the stable earnings that the haul road will deliver over the project’s life.
Onslow Iron is scheduled to be operationally complete next month, with the ramp-up progressing to plan and the project cash flow positive for MinRes from October.
As foreshadowed in our full year results, MinRes is focused on reducing costs and preserving cash in response to a period of low lithium prices and a softer iron ore price.
We continue to identify measures to reduce capital and operational expenditure to suit the business environment.
As the haul road partnership demonstrates, we have many non-dilutionary levers at our disposal across the business to release additional value for shareholders.
Final thoughts on the Mineral Resources share price
The company has recovered a sizeable chunk of its valuation decline in 2024, but with commodity prices much lower than nine months ago, there is a long way to go.
I’m not convinced the iron ore price or lithium price will reach their former heights, which may mean investors need to wait quite a while for the Mineral Resources share price to recover. After today’s rise, I wouldn’t call the ASX miner a clear opportunity. I think BHP Group Ltd (ASX: BHP) and Rio Tinto Ltd (ASX: RIO) could be more appealing for their copper exposures.
