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IGO takes profit hit

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2024-04-30

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Unlike lithium rivals such as Pilbara Minerals and Core Lithium, as well as Albemarle and SQM, Perth-based IGO (ASX:IGO) has not only survived another significant hit from the slump in demand and prices for the key renewable mineral but also endured another miserable period for its other key metal, nickel.

In its March quarterly report released Tuesday, IGO revealed that its underlying EBITDA took a massive hit in the quarter, plummeting to a loss of $15.0 million from a profit of $533 million in the March 2023 quarter. The loss was also sharply lower than the $158 million profit reported for the December 2023 quarter.

IGO stated that the fall in underlying EBITDA reflected lower lithium prices and nominations at Greenbushes, together with lower sales volumes at the Nova and Forrestania nickel mines. Sales revenue fell 32% for the period to $161 million from $235 million in the same quarter of 2023, driven by an enormous 78% slump in sales revenue from the Greenbushes Lithium Mine due to lower sales volumes (down 34% to 183,000 tonnes) and weak lithium prices.

Additionally, lower sales nickel volumes at Nova and Forrestania were attributed to operational challenges at the Nova mill relating to weather, unscheduled maintenance, and product logistics challenges at Forrestania. "The Forrestania Operation continued to benefit from the impact of hedges executed in the September 2023 quarter,” IGO said. However, those hedges are set to expire soon, putting more pressure on IGO’s nickel business.

IGO reported that its free cash flow of $79 million was up 182% from the December quarter but was due entirely to $24.5 million in dividends received from TLEA (Greenbushes JV with China’s Tianqi) and an income tax refund of $106.1 million. The company's production took a hit during the quarter. Spodumene production totaled 280,000 tonnes, representing a 21% fall from the 356,000 tonnes in the March 2023 quarter. The consensus estimate was for spodumene production of 282,000 tonnes and sales of 245,000 tonnes.

CEO Ian Vella was realistic about just how tough the quarter had been, saying in a statement with the report that "IGO's March Quarter results reflect a period in which nickel and lithium markets remained subdued, while sales were also lower compared to the prior quarter. While this resulted in IGO recording a small EBITDA loss of $15M, our balance sheet remains strong with $276 million cash on hand and no debt. At the end of the March 2023 quarter, IGO reported net debt of just over $9 million and $441 million in cash. The lack of debt this time is a positive in the present market."

At Greenbushes, production and sales were lower as expected, as the mine was worked to manage production and inventory levels in response to the lower offtake requirements by shareholders. "Realized SC6.0 spodumene pricing was also lower quarter on quarter following the amendment in price-setting frequency from January 2024; however, it has been encouraging to see spodumene prices improving this calendar year," IGO’s CEO said.

The most important news in the announcement (and the one investors liked and pushed the shares up 10% at one stage) was about the immediate future of the huge Greenbushes mine. IGO revealed that the sale of an additional 200,000 tonnes of spodumene concentrate to Tianqi Lithium Corporation (IGO’s partner in its Greenbushes JV) was agreed post-March 31. This appears to have more than appeased the market today. This means the Greenbushes operation will now stay active for the remainder of the year and not have to be scaled back or suspended.

CEO Vella acknowledged the impact this sale will have on Greenbushes. "Furthermore, we are pleased to announce that after the Quarter end an additional sale of spodumene has been agreed with shareholders, whereby TLC will purchase 200kt of spodumene concentrate over and above their previously nominated formal offtake volume for the June quarter. Greenbushes is expected to operate at full production for the rest of this calendar year.”

After hitting a day’s high of $8.08, IGO shares retraced to around $7.71 just before midday Tuesday, still up 4.6% or so.

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