IGO Limited (IGO)
HOLD

Ka-ching and kerplonk

 31 Aug 2023
Sector: Materials

RESULTS ANALYSIS

Need To Know

  • Final dividend 44cps well ahead of market 27cps, plus 16cps special.
  • FY24 production guidance unchanged, capex $980-1,110m.
  • Impairment of Western Areas assets and review of Cosmos project underway.

Investment Implications

FY23 results overview (vs consensus):

Revenue $1,024m vs 1,016m

EBITDA $1,987m (+177%) vs $1,998m

Underlying net profit $1,528m vs $1,571m

Underlying free cash flow $1,098m +252%

Dividend – final 44cps, special 16cps fully franked

Impairment charge $968m against Forrestania and Cosmos assets

FY23 result. This was mostly pre-released and therefore in-line with market expectations other than the positive surprise of the capital management via the dividend. IGO paid out $560m in total dividends over FY23 in accordance with its updated capital management policy which allows for ‘higher returns’ when liquidity exceeds $1bn. Otherwise, 20-40% (was 15-25%) of underlying free cash flow is distributed. Much of the excess cash flow came from the $1,184m dividend received from the TLEA joint venture which also allowed IGO to repay $540m of debt. IGO ended the financial year with cash of $775m, more than double what it started with.

The blemish on the result was the $968m impairment of the WSA assets prompting a review of the Cosmos project (FY23 capex $338m). We are uncertain if a future tax benefit has been recorded against the impairment.

The Kwinana Refinery Train 1 performance was not up to scratch delivering just 1,884t of lithium hydroxide. Production ramp up in FY24 will continue after rectification works are completed. Train 2 FEED is underway with FID to follow..

Outlook. The Tianqi Lithium Energy Australia (TLEA) joint venture produced 1.49mt of spodumene concentrate in FY23 (+31%) and underlying EBITDA of $9.51bn (100% basis). By FY27, the JV could be producing 2.5mtpa from the Greenbushes mine.

Greenbushes is expected to produce 1.4-1.5mt of spodumene concentrate in FY24 at a cash cost of production A$280-330/t and accompanying capex of $850-950m.

IGO did not provide production guidance for Kwinana given the missteps at Train 1. Capex here will be $35-45m.

IGO is aiming to produce 29-32.5kt of nickel, 8.5-10kt of copper and 700-800t of cobalt in FY24. Total capex $30-40m.

Investment View

The TLEA JV is working well and certainly delivering the goods for IGO in terms of dividends and subsequent distribution to shareholders. As the Greenbushes project expands to 2.5mtpa by FY27, it provides a source of dependability in IGO’s earnings profile that the nickel and copper assets currently do not. TLEA’s earnings are of course subject to the direction of spodumene and lithium hydroxide prices, and the successful expansion of the Kwinana Refinery.

The impairment of the WSA assets and review of Cosmos spoils the fun and leaves the incoming CEO Ivan Vella (starts December 2023) with a puzzle to solve, if it hasn’t been done in the meantime. These are not bad assets but appear to have challenges ahead.  

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Stock Overview

Share Price

Company Overview

IGO is an Australian exploration and mining company that focuses on discovering, developing, and operating metals for clean energy. The company also invests in lithium mines and operates a processing refinery for lithium hydroxide.

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