On Monday, Goldman Sachs adjusted its stance on Mineral Resources Limited (MIN:AU) (OTC: MALRF), upgrading the stock from Sell to Neutral. The firm also revised the price target to AUD43.00, a decrease from the previous target of AUD47.00. The shift in rating comes as the company, known for its efficiency in building and operating crushing plants and mining projects, faces a period where its impressive track record of generating high returns on capital will be challenged.
The analyst from Goldman Sachs acknowledged Mineral Resources' notable 20-year history of high returns on capital, with an average Return on Invested Capital (ROIC) exceeding 20% since its initial public offering. This performance, according to the analyst, is a result of the company's capability to construct and manage its operations more rapidly and with less capital than many competitors.
Despite the positive historical performance, the company is projected to be free cash flow (FCF) negative in FY25 based on Goldman Sachs' forecasts. Additionally, there are uncertainties looming over the outlook for lithium prices, which is a significant aspect of Mineral Resources' business.
The decision to upgrade the stock to Neutral is grounded in the current share price, which is now hovering around the newly set price target. The analyst believes that at this level, the stock and its underlying asset base present value. This reassessment follows a period since May 2, 2023, during which the share price of Mineral Resources declined approximately 45%, in contrast to the ASX200 index, which rose by 12%.
The analyst's commentary underscores the company's historical ability to deliver high returns and the current market conditions that have led to the reevaluation of the stock's rating. The upgraded status to Neutral reflects a balanced view of the company's prospects in light of both its operational strengths and the financial and market challenges it faces.
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