IGO withholds sharing the spoils

Company News

by Glenn Dyer

For a company reporting its fourth record underlying EBITDA result in a row in the 2021-22 financial year to June 30, IGO (ASX:IGO) was pretty circumspect so far as rewarding shareholders.

Full year dividend was left unchanged at 10 cents a share with a steady final of 5 cents a share.

The explanation for that can be found in the nature of the underlying record results in the past two years.

The group posted record underlying earnings of $717 million for the June 30, 2022 year, up 51% on full-year revenue to $903 million, which rose 34%.

Revenue from continuing operations, which comprises primarily the Nova nickel operation, was $A903 million or 34% higher than the previous year’s comparative result of $A672 million.

But due to the one-off after-tax gain on the sale of its Tropicana operation of $385 million in the previous year, statutory net profit after tax (NPAT) in the latest financial year was down 40% to $331 million.

Still that also clouded what was a turning point year for IGO – it finally got control of fellow WA nickel miner, Western Areas after a fight – for well over $1.2 billion – but more importantly management and shareholders got a good sighting on the riches flowing from the investment in lithium – just as shareholders in Pilbara Minerals, Allkem and other companies are now seeing

The fourth consecutive year of record underlying earnings for the group came from strong operating performance at its Nova nickel business (and will come from the Western Areas nickel mines this financial year) and the first annual profit contribution from the company’s investment in the lithium joint venture Tianqi Lithium Energy Australia Pty Ltd (TLEA).

We pointed to the emergence of that contribution a month ago when we examined the enormous cash flows through the joint venture, as well as though Pilbara Minerals and Allkem.

Now that’s a reality.

The lithium joint venture with Tianqi Lithium Corporation’s fully integrated lithium business saw the commissioning of two new concentrators at the Greenbushes operation – in which IGO holds a 24.99% economic interest – resulting in record operating and financial results for Greenbushes in FY22.

The first train at the Kwinana Lithium Hydroxide Refinery was also commissioned and produced first battery grade lithium hydroxide in May 2022.

Tianqi delivered IGO a share of net profit of $177 million and an inaugural dividend payment of $71 million.

IGO reported cash on balance sheet of $367 million at June 30 and $900 million of debt after the $1.26 billion Western Areas takeover.

Western Areas delivered to IGO a portfolio of operating and development stage mines, including the Forrestania Operation, which comprises the Flying Fox and Spotted Quoll underground mines and the Cosmic Boy processing facility, the Cosmos Project, which comprises the Odysseus underground mine development, plus a substantial broader exploration portfolio to IGO. The net assets of Western Areas have been included in IGO’s accounts from June 20, 2022.

It will provide a big boost to IGO’s nickel business thus year as well as its financial performance.

CEO Peter Bradford said in Tuesday’s statement that the high-quality nickel and lithium businesses, combined with the portfolio of belt scale exploration projects – focused on discovery of nickel, copper, lithium and rare earths – gives the group a great platform to leverage off the growing demand for clean energy metals.

“Our focus over the coming year will be to continue to consolidate our transformative growth over the past two years, to build lithium capacity at Greenbushes and the Kwinana Refinery and bring Cosmos to first nickel production,” he said.

IGO shares rose 3.8% to $13.15.

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