The shocking performance by MIN has weighed on our performance, and again, we must ask if this cluster has simply become too hard. MIN was hammered yesterday after revenue and underlying earnings beat consensus, but lower iron ore guidance and higher capex at a time when debt is elevated saw a capitulation-style sell-off. The psychology is half the issue here and it feels like the market has lost faith in some of the rhetoric being espoused by the company.
We have again contemplated our holding, but averaging into something so out of favour is challenging. That begs the question, should be simply move on to an alternative with similar underlying exposures without the leverage associated with MinRes? An obvious alternative is RIO, which is likely to slip 3-4% this morning after reporting softer results overnight:
- MIN: is very “cheap” in our opinion and reminds us of Fortescue (FMG) when it had debt issues. The height of negativity in FMG provided a fantastic medium term buying opportunity. However, the pertinent question is how long it will take to regain the market’s confidence and whether or not MIN can navigate high debt levels without raising money.
- RIO: has fallen in tandem with MIN since early 2024 except for the recent capitulation. RIO has the advantage of a fully franked yield of ~5%, copper exposure plus iron ore and now lithium (Li) after its $6.7 billion acquisition of Arcadium Lithium (LTM).
The downside for RIO is its strong correlation with BHP, which we already own, and its recovery, when it eventuates, is likely to be less dramatic than MIN’s. Arguably, it would make more sense to increase our BHP position and add a leveraged Li play like Pilbara (PLS) when we believe the sector has bottomed, but this is a fluid statement, depending on moves in the respective stocks. At this stage, we are sticking with comments in yesterday’s Match Out Report, “our focus with our MIN position is re-weighting up to our target”.
- We are unlikely to switch from MIN to RIO at this stage, MM owns MIN in its Active Growth Portfolio.
MM is cautiously bullish MIN ~$24
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Mineral Resources (MIN) & RIO Tinto (RIO)
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Mineral Resources (MIN) & RIO Tinto (RIO)
