Ground Breakers: IGO tanks despite high lithium, nickel prices as mining stocks suffer Monday blues
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Industrial metals prices tumbled on China fears overnight, despite calls from the Asian economic powerhouse to keep its economy strong amid an ongoing Covid wave.
According to ANZ Research, prices across the industrial metals complex including base metals fell lower, with an overall drop of 4.4% last week, with precious metals falling 2% and bulks off 0.3%.
“Industrial metals led the complex lower, as China’s pro-growth policy measures failed to offset fears of weaker demand amid the spreading wave of COVID-19,” ANZ’s David Plank said.
“The rising numbers of new cases in Beijing have raised fears of a hit to economic activity like that felt by Shanghai.
“This was compounded last week by a rising USD. Copper found support following the announcements by Beijing that it would boost infrastructure spending. However, the spending programs were light on details.
“This saw support for the base metals sector wane over the week.”
That included a 3.7% to close the week’s trading for nickel, poor timing for IGO (ASX:IGO) which released its March quarter results after market on Friday.
It suffered an almost 7% fall this morning as the materials sector tumbled with the broader market, falling 1.17% with weak performances across iron ore, gold and base metals.
Despite the recent stagnation in nickel prices, higher commodity prices drove a big rise in NPAT for IGO across the March quarter.
Nickel infamously hit a record US$100,000/t, albeit briefly, on an unforeseen short squeeze.
That translated into a 38% rise in realised nickel prices in the March quarter for IGO from A$27,217/t to A$37,637/t from its Nova nickel-copper mine.
The battery metals miner saw sales revenues increase 31% from $188m to $245.5m, with underlying EBITDA up 89% from $122.9m to $232.6m and NPAT up 154% from $52.3m to $133m, with IGO defying Covid-19 obstacles faced by other WA miners to keep its costs in check.
However, net cash fell 23% from $569.8m to $440.2m, with underlying free cash flow down 216% to negative $83.5m due to income tax and dividend payments.
While Greenbushes is the most impressive hard rock lithium mine in the world grading at a rollicking 2% Li2O, IGO is also seeing a lag in pricing from the operation compared to some of its peers.
By way of comparison, Allkem (ASX:AKE) expects to pull in US$5000/t on a 6% spodumene concentrate equivalent basis for its Mt Cattlin lithium mine.
IGO and its partner Albemarle and Tianqi were making just US$592/t in the first half of 2022, ramping up to US$1770/t in the March quarter, with contract pricing pegged at US$1770/t again for the June quarter.
That price increase, limited by technical grade lithium sales for non EV applications, led to a 146% increase in the Greenbushes JV’s sales revenue to $546.2 million. IGO’s share of net profit from its 49% JV with Tianqi on the 49% share of Greenbushes owned by Talison Lithium increased by $52m to $61m.
Spodumene sales from Greenbushes rose from 259,000t in the December quarter to 270,000t in the March quarter.
IGO boss Peter Bradford told analysts on a conference call it could be in the mine’s interests to end the production of technical grade spodumene if the gap between demand for product in the battery market and outside the battery market persists.
Lithium spot prices are currently well over US$5000/t, with Pilbara Minerals (ASX:PLS) fetching a price of US$5650/t for a shipment sold through its Battery Material Exchange auction platform last week.
Pilbara Minerals and other smaller lithium miners have been seen as more nimble to stunning recent price increases for the key battery metal with contracts tightly linked to spot than the big legacy producers whose contracts are negotiated over longer terms.