ASX 200 stocks hit with the biggest broker downgrades last week: Sayona, Gold Road

Gold Road Resources (ASX: GOR) shares took an almost 20% hit last Monday, following the release of the company's 2024 production guidance, which was around 13% below consensus expectations.

The stock rallied around 10% the next day after a rather odd mix of broker updates – Most of which retained a Buy rating but cut target prices by 10-20%.

"While the softer guidance clearly disappointed the market, we highlight that free cash flow in 2024 remains attractive at circa 9% ... a slower recovery of mining operations likely has lower gold production risk than perceived," said Goldman Sachs analysts.

"With GOR the only name in our coverage without significant upcoming growth capex spend/lower capex risk, we reiterate our Buy rating."

Similarly, Macquarie analysts retained an Outperform rating but cut its target price by 20% to $1.60. The guidance and selloff was viewed as a rebasing of expectations, and a steady improvement in operations is expected over 2024.

"Despite the clear 2024 guidance weakness ,we still see visibility to a 350,000 ounces per annum run-rate at Gruyere," the analyst said.

The Biggest Broker Downgrades

'Target price' is an aggregate of Refinitiv broker target prices. % Dif compares target prices between Thursday, 25 January and Friday, 2 February 2024

IGO announced plans to place its Cosmos Nickel Project into care and maintenance last week in response to challenging market conditions and high costs.

The announcement was pared with its December quarter result, which outlined:

• 1H24 underlying EBITDA of $515m which was below market expectations as higher lithium earnings was offset by nickel and corporate/exploration expenses

• No dividend was announced from the TLEA joint venture

• The joint venture did not disclose key JV metrics such as debt and cash to the market

• Train 1 at Kwinana is still struggling at approximately 10% of nameplate capacity and EBITDA losses continue to mount

• The joint venture still has no mechanism agreed to sell lithium to spot/third parties which means the structure of the JV places a lot of things outside IGO's control

The result was met with a mixed response from the market. IGO shares gapped down 8.2% as the market opened on Wednesday, 31 January 2024. By market close, the stock settled just 2.2% lower – Implying investors were happy to buy the dip.

"While news of a Cosmos impairment is disappointing given the $392m spent since a review was flagged, it makes sense for the new CEO to cut the losses," said Citi analysts, which retained a Buy rating on the view that bad news had peaked/new CEO is clearing the decks.

Likewise, Goldman Sachs reiterated a Buy, where the stock is trading at less than 0.9 times its NAV (net asset value), at a discount to peers and retains near-term free cash flow yields of more than 5%.

Putting it all together: IGO has pulled the plug on the Cosmos to focus on better things such as spodumene and lithium hydroxide. This move may have influenced the intraday rally (from an -8.2% drop to just -2.2%). The Greenbushes project remains one of the most economically viable lithium projects but the company is still working its way through a number of issues such as the Kwinana ramp up.