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Ground Breakers: Nova fire could hit IGO earnings, says RBC, and iron ore charges into New Year
Mining
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- A fire could cost IGO millions in earnings this quarter from its Nova nickel mine
- But, it has toasted commercial production at Australia’s first lithium hydroxide plant
- Iron ore price runs on property support in China, setting up miners for a big day
IGO (ASX:IGO) will shut its Nova nickel mine down for at least two weeks after a fire in the diesel engine room at its hybrid power plant.
The 10MW power station run by Zenith Energy powers the remote mine, some 180km east of Norseman off the Eyre Highway.
The fire was contained to that room, which was extensively damaged, but the recovery will require a staged return, with mining expected to resume within two weeks subject to approvals and full power supply expected to take around four weeks.
“While this incident will result in the Nova operation being offline for several weeks, we are thankful that all of our people are safe and unharmed,” IGO’s acting CEO Matt Dusci said.
“I am also grateful to our Emergency Response Team for their quick and professional response and for restricting the fire to the engine room.
“We have activated our contingency plans and are working closely with Zenith to re-establish operations at Nova as quickly and safely as possible.”
With nickel, copper and cobalt prices at strong levels the low-cost Nova operation is a money-spinner for IGO (ASX:IGO).
RBC says Nova is valued at $1.3 billion, around 11% of IGO’s total NAV, making around 15-20% of its operating cash flow and EBITDA this financial year.
“For every month Nova is not in production, we estimate EBITDA and FCF reduces by ~A$50-70m per month, or 3-4% for FY23, while our group NAV declines ~A$0.10/sh per month (~1%),” analyst Kaan Peker said.
Yikes. Expect some potential production and cost updates in its December quarterly report in January.
Australia’s first lithium plant ‘commercial’
Ameliorating the pain somewhat this morning is the, admittedly well timed, news that IGO and its 49-51 JV partner Tianqi hit commercial production on November 30 from the TLEA lithium hydroxide plant in Kwinana.
Product qualification and certification with offtake customers is ongoing while the first train of the long overdue plant ramps up over the course of 2023.
Fed by spodumene from IGO and Tianqi’s share in the Greenbushes lithium mine in WA’s South West, the world’s largest hard rock lithium operation, the plant is the first of at least three hydroxide plants to open in WA, where there is a push to expand its dominance in the lithium raw materials market into processing.
CRU Group anticipates downstream processing could eventually create a $30 billion battery supply chain industry for Australia.
Peker said it was a “key de-risking milestone”, with the largest operational risk now the plant’s ability to produce battery-grade hydroxide at its name plate capacity.
It expects IGO and Tianqi to hit the plant’s Train 1 24,000tpa name plate by the December quarter.
Hydroxide is currently paying US$81,867/t (575,000RMB) in China according to Fastmarkets on Friday, down 15,000RMB on its last assessment, though its China, Japan and Korea CIF price was unchanged at US$85/kg.
“IGO has not provided Lithium Hydroxide production guidance for FY23, which is expected once the operation has reached commercial production (possibly DecQ results in Jan 2023),” Peker said.
“We forecast 2kt (100%) for FY23, with operating costs ~US$55k/t of hydroxide.
“We also conservatively assume no revenue is generated over the product accreditation process. With elevated lithium hydroxide prices (spot at $70-80k/t CIF North Asia), the ramp-up of the Kwinana plant is expected to support FCF generation for the Lithium JV/IGO over FY23 and beyond.”
IGO (ASX:IGO) share price today:
Iron ore-some
Iron ore miners are looking healthier than they have at any point since June after iron ore prices rose to around US$107/t in Friday on the back of property sector support in China.
That saw strong support for iron ore, which has been buoyed by expectations of a quicker than expect wind-down of China’s austere Covid-Zero policy in recent weeks.
Shanghai joined Beijing, Shenzhen, Guangzhou and others in easing testing rules so PCR results aren’t needed to access public transport and shared spaces, ANZ’s David Plank said in a note.
The big bank’s commodity index lifted a massive 7.4% last week, with energy commodities up 10.3%, industrials 6.7% higher, bulks up 3.4% and even precious metals lifting 2.6%.
Having bottomed out below US$80/t in late October, Australia’s biggest export commodity is up 2.77% today to US$108.85/t in Singapore, levels not seen since August.
Rio Tinto (ASX:RIO), BHP (ASX:BHP) and Fortescue Metals Group (ASX:FMG) are all near six-month highs, up 3.33%, 2.67% and 6.56% respectively.
South32 (ASX:S32) and MinRes (ASX:MIN) are also up 3.22% and 1.79%, with Champion Iron (ASX:CIA), copper miner Sandfire Resources (ASX:SFR), mineral sands producer Iluka (ASX:ILU) and Deterra Royalties (ASX:DRR), which makes bank off its royalty over BHP’s Mining Area C deposits, among the top mid-tiers.
The materials sector rose 1.85% this morning, with LME copper and nickel prices also up 1.4% and 4.6% respectively on Friday to US$8450/t and US$28,862/t.
