Apparently the market just woke up and decided to factor in the Wodjina DSO sales....
Wodgina Boosts Mineral Resources’ Lithium Stakes
Mineral Resources is shaping up to be a significant supplier of lithium. Deutsche Bank has upgraded the stock to Buy, judging it will be a number one producer globally after its two key projects ramp up.
-Current resource at Wodgina could increase to 200mt based on recent drilling
-Weakness in iron ore prices took the shine off first Wodgina shipment
-Wodgina and Mt Marion now contribute 50% of Deutsche Bank's estimated FY18 EBITDA
By Eva Brocklehurst
Mineral Resources ((MIN)) is shaping up to be a significant supplier of lithium. The company is ramping up its sales of direct shipping ore (DSO) to 300-500,000 tonnes per month at Wodgina and should start producing spodumene during 2018. Mining of the ore began in February and the first cargo of DSO grading 1.64% lithium dioxide was dispatched in April.
The company's other key project, Mt Marion, is approaching nameplate of 400,000 tonnes per annum of spodumene. The company appears set to become a 100,000tpa lithium carbonate equivalent producer, and possibly the largest globally, once Wodgina and Mt Marion are both in production.
Deutsche Bank upgrades to Buy from Hold, enthusing over the potential with the inclusion of direct shipping ore at Wodgina. The upgrade means all three FNArena database brokers covering the stock now have Buy or equivalent ratings.
The inclusion of DSO has increased the Deutsche's valuation of Wodgina to $795m and the project's internal rate of return is calculated at over 200%. Deutsche Bank upgrades FY18 and FY19 estimates for earnings per share by 85% and 32% respectively. The broker believes lithium can offset weak iron ore product discounts.
Morgan Stanley observed a couple of months ago that the first shipment from Wodgina was overshadowed by the downward movements in iron ore prices, but also believes context is important. The broker upgraded the stock to Overweight earlier this year, although acknowledges recent weakness in iron ore prices have rubbed the shine from the stock.
The reason for the continued optimism centres on the view that a
majority of the company's operating earnings should come from lithium production from FY19 onwards, and this would offset any negative moves in the iron ore market. Morgan Stanley agrees further details on Wodgina offtake will be a positive value driver and a key catalyst for the company.
The broker awaits further information on the offtake contract, achieved pricing and production rates. Initial production rates of 1.2mt in FY18 and a further ramp up to 2.4mt in FY19 are incorporated in estimates.
https://www.fnarena.com/index.php/2017/06/13/wodgina-boosts-mineral-resources-lithium-stakes/
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