Source: FactSet, Shaw and PartnersWhat is MMI and what does it...

Source: FactSet, Shaw and Partners
What is MMI and what does it do?
▪ MMI operates the Bauxite Hills bauxite mine in far north
Queensland. The company ships ~5Mtpa of bauxite to China
and is in the process of expanding to 7Mtpa.
Why do we like the stock?
▪ Bauxite market strength: The bauxite market is strengthening
due to strong demand from China at the same time as
Indonesia implements export bans. China is becoming more
dependent on import as it has overwhelmed its natural
endowment of the commodity in much the same way it did iron
ore in the past 20 years.
▪ Management strength: CEO Simon Wensley has a strong
record in the industry and previously ran Rio Tinto’s alumina
business. He is bringing RIO discipline and resilience to the
operations.
▪ Economies of scale as the business expands: In 2024 Metro is
planning to ship 7Mt of bauxite. The economics are compelling
with MMI’s bauxite sold at ~A$60/t into China. Mining costs are
expected to be ~A$18/t, freight at A$14/t and royalties and
overheads at ~A$7/t. MMI should generate a margin of
~A$21/t, which implies ~A$140m EBITDA in 2024.
Why is it a top pick?
The market does not yet believe MMI can deliver of the earnings
numbers we are forecasting. The stock is trading at 1.4x PE and
1.2x EV/EBITDA in 2024. As MMI delivers the results the stock will
re-rate.
Forecasts
YE 31-Dec FY22 FY23E FY24E
Earnings cps -1.4 0.3 1.5
Dividends (AUD) cps 0.0 0.0 1.0
PE x -1.0 5.7 1.3
Yield % 0.0% 0.0% 52.6%
Franking % 0% 0% 100%