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(ASX: IGO) | IGO LTD

May 14, 2024

Sentiment: Sideways

Type of Trade: High Growth, Speculative

Industry: Lithium, Nickel and green. metals

Sector: Materials

As per 1HFY24 and 3QFY24 Business Update


IGO owns and operates the Nova nickel-copper-cobalt operation, the Forrestania Nickel operation and the Cosmos Nickel operation – all in Western Australia. IGO is also invested in a lithium focused joint venture ( Tianqi Lithium Energy Australia -TLE) with the company’s partner, Tianqi Lithium Corporation, which comprises a 51% stake in the Greenbushes and Lithium Mine and 50% interest in a downstream processing refinery at Kwinana producing battery grade lithium hydroxide, whereas IGO only has 24% of the actual Greenbushes production.

IGO is also focused on discovering the resources of the future and has an enduring commitment to investing in exploration to ensure the world has a sustainable supply of clean energy metals.

Greenbushes

🚩 in 3QFY24, lower QoQ production and sales, driven by reduced offtake nominations.

🚩 Lower QoQ sales revenue and EBITDA reflect lower spodumene prices and lower sales, as the new pricing mechanism comes into effect.

🚩 3QFY24 average realised price (chemical and technical grade) of US$1,034/t FOB Australia.

Greenbushes

Train 1 production rates show improved trends, although still below the nameplate.

✅ Quarterly production of 954t was a 55% improvement in QoQ (2Q24: 617t).

Throughout the quarter, we witnessed a steady enhancement in production, marked by month-on-month improvements. This progress notably reflected better asset reliability and operational control, resulting in heightened consistency at our current operational levels.

Furthermore, we successfully resumed sales of lithium hydroxide, marking a significant milestone. In parallel, discussions and advancements in qualification and contract negotiations with potential customers have shown promising developments.

Looking ahead, we anticipate that sales reaching 200kt will facilitate Greenbushes’ ability to maintain full production throughout CY24, reinforcing our commitment to operational excellence and growth.

Nickel Business

Cosmos

🚩 Focused on a safe transition to care and maintenance.

🚩 Work commenced to transition the site into care and maintenance, prioritising our people and the preservation of assets.

Total costs incurred for the Quarter were $61M, comprising $52M operating expenditure and $9M infrastructure costs.

Nova

5.5 year mining life.

The short term operational issues are impacting production, but margins remain robust, according to the most recent report.

🚩 Weaker production due to poor weather which extended a mill shutdown and unplanned maintenance.

✅ Positive free cash flow generation of $50M despite operational challenges.

Forrestania

Cashflow and EBITDA positive towards end of mine life. The end of mine is obviously a negative factor.

🚩 Lower production driven by transition to campaign milling post the Flying Fox mine closure, partially offset by higher feed grades and recoveries.

Exploration

The company has been optimising and refocusing our exploration strategy, Focus on commodities critical to the energy transition – copper, nickel and lithium

Financial Results in 3QFY24

The majority of the decrease in the fundamental EBITDA had already been anticipated and factored into the pricing.

🚩 The softer revenue is primarily attributed to decreased sales volume at Nova and Forrestania. It’s important to emphasise that the potential impact of the Forestonia end-of-mine situation will adversely affect the company’s future earnings. Production at the Flying Fox underground mine ceased in November 2023. EBTIDA positive could have been the result of no mining and only production.

✅ Strong balance sheet maintained with $276m cash, no debt.

✅ Interim Dividend of 11c was pid.

Outlook

It looks like IGO is far more focused on lithium than ever before, moving forward.

  • Full Production on Greenbushes (lithium)
  • no debt
  • Complete exploration.
  • Uplift in production in Kwinana, producing battery grade lithium dioxide.

Technical Analysis

  • IGO is currently trading 2% above the SM40 and 26% below the SMA250. While this indicates that IGO may seem exceptionally inexpensive based on the long-term trend, it’s crucial to consider certain factors.
  • Notably, two of IGO’s nickel businesses are closing down, and Nova Mine only has a 5.5-year mine life. These fundamental aspects are exerting a significantly negative influence and must not be overlooked.
  • On a positive note, the RSI (Relative Strength Index) shows a constructive pattern, indicating a bullish divergence, which is encouraging.
  • Currently, IGO is trading sideways within a range of $7 to $8. However, unless there’s a remarkable rebound in commodity prices, the potential for significant upside appears limited, or it presents a greater-than-ideal risk for a company of this stature.
  • Purchasing IGO at the bottom of the range would offer a 19% trading range, which falls short of the effectiveness criteria outlined in the BGS 20 Strategy. However, trades within the range of 15-19% can still be executed.

ENTRY DETAILS (AVAILABLE FOR VIP MEMBERS ONLY, login required)

  • Capital Flow into the stock
  • Entry Prices
  • Risks
  • Targets BGS20 and BG Trading, Stop loss.
  • Shareholders trend.

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