Mineral Resources in good standing despite delay at Wodgina – report

Wodgina lithium project. Photo by Mineral Resources

Mineral Resources’ BB/Stable rating is unlikely to be affected by delays in the commissioning of the new features of its Wodgina lithium operation.

According to Fitch Ratings, the Australian company will no be immediately affected because it has benefited from stronger iron ore prices and lower discounts on low-grade iron ore in the second half of FY19, a situation that is expected to continue in the short term.

Should the delay in production at Wodgina be prolonged, Fitch then expects Mineral Resources to implement countermeasures to maintain a strong balance sheet

“We expect that Mineral Resources’ leverage to have improved to within the guidance for its current rating, to around 2.5x at FYE19,” a report by the market analyst’s reads. “We previously forecast leverage to have been 4.0x at FYE19.”

In a previous assessment, Fitch had predicted that the Wodgina mine would add to Mineral Resources’ revenue from the beginning of FY20, helping the company reduce its FFO adjusted net leverage to below 3.0x, the level at which Fitch would consider negative rating action.

The delay in the kickstarting of the operation was caused by the Western Australian Department of Water and Environmental Regulation, whose officials have not approved the commissioning of train 2 at the mine.

The department has also requested additional information about the water balance at the tailings dam. However, Mineral Resources has said that the tailings dam is functioning as expected and engineered, so management does not expect the delay to have any material impact on the project and on the company’s financial position. 

Additionally, the miner should receive a cash injection soon, as Albemarle should pay, by year-end, $1.15 billion from the sale of half of its stake in Wodgina.

“The proceeds will push Mineral Resources’ balance sheet back into a net cash position. Fitch believes the strong balance sheet position will allow the company to withstand the delay in production at the Wodgina mine and weakness in spodumene price over the short term while maintaining its credit metrics at a level commensurate with its rating,” the report concludes. 

Wodgina is located in the Pilbara region of Western Australia. It started operations in April 2017, mining lithium direct shipping ore or DSO. However, in 2018, Mineral Resources decided to expand the site to enable the production of lithium spodumene concentrate and, potentially, lithium hydroxide. The company’s plan is to create the country’s first fully integrated downstream lithium operation located on one site.

Among other things, the miner is building a spodumene concentrate plant with three modules. Once completed, 833,000 wet tonnes or 750,000 dry tonnes of 6% spodumene concentrate will be produced every year.

Mineral Resources is also undergoing a feasibility study for a 56,800 – 113,600 Ktpa lithium hydroxide plant that will be in charge of converting spodumene concentrate to lithium hydroxide.

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