Ground Breakers: Investors cheer as IGO takes a chill pill

IGO (ASX:IGO) shares shot up almost 10% in early trade after investors responded with jubilation after the company confirmed it had pulled out of talks to buy Glencore’s CSA copper mine in New South Wales.

IGO has been a willing acquirer – and seller – of assets in the past couple of years.

The company traded away its $900 million 30% stake in the Tropicana gold mine in WA to Regis Resources (ASX:RRL) in 2021 as it moved to take a 49% stake in Tianqi Lithium’s WA lithium business for US$1.4 billion.

That commitment to enhance and narrow its focus on so-called battery metals went a step further with the $1.1 billion acquisition of WA nickel compatriot Western Areas (ASX:WSA).

The logic behind that deal was clear. IGO have been unsuccessful in finding major new sources of nickel at its Nova nickel-copper mine since it opened five years ago. It has just five years to run on current reserves.

Western Areas’ Odysseus mine and broader Cosmos nickel complex in the northern Goldfields will be in operation for more than a decade at least.

The roughly $1 billion it would likely be forking out for Cobar, a 50,000tpa copper mine located in regional New South Wales, may have seemed a step too far for investors with the all cash WSA still to complete and the full benefit of rising lithium prices yet to be seen from its stake in the Greenbushes mine in WA.

They cheered hard on IGO’s announcement today it would be dumping the proposed deal, suggesting its shareholders reckon the $9 billion miner should chill a while.

“IGO advises that discussions with Glencore have now concluded with no commercial agreement being reached. As such, IGO and Glencore have discontinued negotiations with respect to a potential acquisition of
CSA,” the company said in a statement this morning.

“IGO regularly evaluates opportunities to grow its business via disciplined mergers and acquisitions in line with its clean energy metals strategy. The Company will only complete transactions which it believes will deliver strong and accretive returns and are in the best interest of shareholders at the time.”

Reports have suggested Metals Acquisition Corp, whose directors and advisors include Nev Power, Bill Beament and Black Mountain Metals’ Rhett Bennett and Ashley Zumwalt-Forbes, were keen on the Cobar asset and made it late into the process.

IGO share price today:

Coal, lithium and uranium stocks on a tear

Surging prices have stirred massive turnarounds for coal and lithium stocks, two polar opposites when it comes to their sides in the climate debate.

While lithium prices have run over 500% over the past year on tightness as sales of EVs have surged, with customers effectively willing to pay producers just about anything to get their hands on the good stuff, coal prices have run up as demand for traditional energy has run against chronic undersupply from years of underinvestment in new reserves.

Yancoal (ASX:YAL) may turn out to be the biggest beneficiary with the Chinese-Australian coal miner announcing one of the largest mining payouts of the earnings season outside the iron ore majors late on Tuesday.

YAL shares soared by more than 14% after it announced an eye watering $930 million dividend for 2021, including an unfranked 50c a share dividend with a special 20.4c per share dividend on top of that.

Despite rising costs from $59 to $67/t on the back of diesel inflation, demurrage, output falls at its Moolarben mine, wet weather and Covid, Yancoal posted a more than 300% rise in operating EBITDA from $748m in 2020 to $2.53b in 2021.

Its profit before tax swung incredibly from a $218m loss in 2020 to a $1.41b profit in 2021, with NPAT up from negative $1.04b in 2020 to $791m in 2021.

Both EBITDA and revenue ($5.4b) were at record levels thanks to a coal price that rose to in excess of US$200/t in the second half of the year.

They have maintained that level into 2022, with Yancoal potentially in line to improve on the average prices of $134/t and $180/t it received for thermal and met coal products respectively last year.

With $1.5b in the bank as of December 31, that will help fund Yancoal’s dividend even after a US$500 million early debt repayment in October.

Yancoal is expecting to see some additional headwinds in 2022, with costs forecast to rise to $71-76/t (35-38Mt of saleable coal production) and capital expenditure to rise from $269m in 2021 to $600-650m in 2022.

Lithium miner Allkem (ASX:AKE) meanwhile rose more than 8% after releasing its financial yesterday, revealing a turnaround from a US$29.14m first half loss in 2020 to a US$12.96m first half profit in 2021.

Both spodumene and carbonate prices are expected to keep rising in the second half of FY22, boding well for Allkem’s full year earnings.

Lithium carbonate prices from its Olaroz mine in Argentina are expected to rise 125% of the first half and 25% on previous guidance to US$25,000/t FOB.

Spodumene shipments for the March quarter from the Mt Cattlin mine in WA are expected to fetch around US$2500/t for 6% lithium oxide concentrate, up from an average price of US$1186/t since Allkem merged with Galaxy Resources in August.