MinRes delivers best half ever. Why falling debt changes the story

Mineral Resources (ASX: MIN) delivered its strongest half on record today, with earnings beating estimates and debt reduction underway heading into the second half. 

But for Ben Clark of TMS Private Wealth, the headline numbers are not the real story.

"The more important thing right now is operational consistency and a clear line of sight on a sustainable level of leverage."

Below, Clark unpacks the results and how he is thinking about the stock.

Key Numbers

• Revenue up 33% to $3.1bn vs. ests of $3.11bn (0.3% miss)
• EBITDA up 286% to $1.20bn vs. ests of $1.10bn (9% beat)
• Underlying NPAT of $343m vs. unclear if comparable to $228m ests
• Net debt fell $471m to $4.9bn during the half, with POSCO Holdings deal (US$765m for 30% of Wodgina and Mt Marion stakes) expected to complete in 2H26, delivering ~$1.1bn in proceeds and accelerating the path to the 2.0x net debt/EBITDA target
• No interim dividend declared as the Board prioritises balance sheet repair

• Onslow Iron hit 35Mtpa nameplate capacity in August, generating $519m in EBITDA at a FOB cost of $52/wmt, tracking toward the lower end of $54-$59/wmt full-year guidance; sixth and seventh transhippers due June/August set to push capacity toward 40Mtpa
• Mining Services had record production of 166Mt and EBITDA of $488m, up 29% on prior year, underpinned by Onslow ramp-up and external contracts; FY26 guidance lifted to 305-325Mt with annualised EBITDA approaching $1bn
• Lithium EBITDA of $167m with Wodgina hitting 70% recovery rates and prices recovering

Do you currently hold Mineral Resources and what is your rating?

Rating: HOLD

Yeah, we own it. I'd say it's probably a HOLD at the moment, but I'd counter that by saying if you're bullish on the iron ore price or the lithium price, it's probably a buy.

What matters from the results?

Looking at the result, revenue was basically bang in line, and the company delivered a pretty decent beat at the earnings level - EBIT and NPAT levels.

But Mineral Resources has had a pretty unusual year with a lot of external issues. I'd say the main thing the market was looking for was operational consistency. It wants to see the various mining assets delivering on guidance, and the mining services division as well. 

The market has also been very focused on the balance sheet. 

So while revenue and earnings were good, the more important thing right now is operational consistency and a clear line of sight on a sustainable level of leverage. There have been concerns about the amount of debt on the balance sheet and the ability to service that debt.

Debt levels are coming down and should come down quite significantly in the next half. The company has guided that by June it will get to a net debt to EBITDA ratio of 2.0x, which is what the market really wants to see. That’s happening because NPAT is doing well, bringing down debt, and there’s also an asset sale during the half.

The line of sight on getting back to a sustainable balance sheet is paramount at the moment.

How do those outcomes affect the outlook?

It’s hard to have a medium-term outlook without a view on iron ore and lithium prices. As we’ve seen in the last 12 months, predicting that is trying to predict the unpredictable.

What I can say is that the mining services division is the Rolls Royce of this business. It’s a fantastic business that looks to have had a margin upgrade and should keep delivering very sustainable levels of profit for many years.

Then you’ve got the swing factors. Onslow, the big iron ore production mine, has now hit nameplate capacity. So future profitability will be determined by the iron ore price. The good news was that cost guidance for Onslow is at the lower end of forecasts, which means margins should be better whatever iron ore does.

On the lithium side, the two lithium mines - Mount Marion and Wodgina - that the company owns are now fully profitable. If the lithium price holds, they’re going to be very profitable over the next 6 to 12 months.

The business can only control what it can control. 

First, make sure you don’t have to worry about debt. I think they’ve ticked that box after a really dicey period. 

Second, produce as much volume at as low a price as possible. They’re price takers in their markets, except for mining services, and they’re moving down the cost curve nicely. How profitable they are will depend on commodity prices.

What should investors be paying attention to as the story unfolds?

On the upside, lithium is the key driver. The Bald Hill mine looked like genius when they did it, then not so good after the lithium price crashed. 

They’ve now said they’re considering bringing that mine back online, which would make them a three-asset producing lithium company. Mount Marion and Wodgina are two of the best lithium mines in the world.

Mining services should continue to grind out very consistent profit. I can’t see the iron ore price taking off back to $110 or $120 a tonne. It should generate solid profit, but there’s not a lot of production growth from here.

On the downside, iron ore is the risk. The iron ore price has weakened recently. The company is doing all it can to keep margins as strong as possible, but we are seeing more global supply. I think the iron ore division will continue to generate great profits, but they may not be at the level of the last six months.

What could you be wrong about?

Onslow relies on a critical piece of infrastructure, the long-haul road. That created a lot of question marks. It sounds like it’s now dialled in and operating well, and the issues have dropped away.

But that infrastructure is critical to getting the iron ore to port, and the deleveraging and profitability of the business rely on it. 

Mineral Resources has gone through a similar ramp-up phase to what Fortescue experienced, where there were concerns about infrastructure being dialled in.

I don’t think it’s going to be an issue, but it could be a blind spot. There have been issues in the past, and if they arose again, it could trigger another wave of loss of confidence.

On governance, the company says it has made good progress. There is still a question mark about who will be running the business in the future. Malcolm Bundey has come in as chairman and has really got the company back on the rails. The question is what happens with Chris Ellison.

Personally, we’d like to see him keep going, but others in the market would like to see a transition. There is always risk around leadership. I think he’ll always be involved in some form. In the next 6 to 12 months there’s probably less risk because the infrastructure is dialled in and he is seen as very strong operationally. But if he stepped back, the company could lose a little bit of its lustre to us.