Nickel and spodumene prices continue to sizzle, while IGO’s key assets steadily expand.
TLEA JV (IGO 49%). The Tianqi Lithium Energy Australia JV has two key assets. The Greenbushes spodumene mine (IGO 24.99%) is operated by the Talison JV (Albemarle/Tinqi/IGO). The JV will need to decide on a revised transfer pricing mechanism soon, particularly as the ATO is focusing on the fair transfer pricing of commodity exports. The current arrangement is a biannual review which is clearly not reflective of the rapidly changing market prices. The use of an index such as Platts with more frequent pricing is the logical change and this would be positive if pricing keeps going up. The TLEA JV paid an inaugural dividend of $71 million in June 2022.
Greenbushes delivered underlying EBITDA of $1,348 million in FY22 (100% basis). The FY23 priorities include construction of the CGP3 (Chemical Grade Plant). Production should increase 20-30% throughout the year with the ramp-up of CGP2. Capex for this project will be around $600 million (100% basis) with first production in 1H of CY25.
Kwinana LiOH. Train 1 was commissioned in FY22 and produced its first battery grade LiOH in May 2022. Production will ramp up in FY23f with a decision on Train 2 to be made this year. Capex for this asset will be around $300 million (100% basis) with first production in 1H of CY25.
Nickel. IGO has outlined options of blending Forrestania concentrate with Nova to reduce penalties due to arsenic levels. It could also improve the mine plan optionality for Forrestania which is nearing the end of its reserves, perhaps by 2025.
The Cosmos development plan is expected to deliver first nickel concentrate mid-CY23. The process plant is being expanded to 1.1mtpa which will deliver more than the 17.5ktpa of nickel concentrate previously guided. A scoping study on the large, low grade Mt Goode deposit is due mid-CY23 and will inform the more significant downstream processing feasibility study and potential FID also due mid-CY23.
Investment view
FY23 guidance was unchanged from the 4Q production report, but there is plenty of development activity underway and scope for future projects to enhance the story. Meanwhile, commodity prices are still adding to earnings and the TLEA dividends (fully franked) are very attractive.
We see limited additional upside to the share price given its lofty valuation metrics, although the outlook for the company remains positive.
Risks To Investment View
Exposure to spodumene and nickel prices and the AUD:USD are factors which could affect earnings. IGO has development risk across its assets although this is minimal in many cases due to asset maturity.
Recommendation
We have retained our Hold recommendation.
FIGURE 1: CONSENSUS EARNINGS
