Souring lithium sentiment weighs on upbeat announcements by IGO today

Thu 23 Jun 22, 1:20pm (AEST)
wary investor

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Key Points

  • A lithium-wary market snubbed IGO's two positive announcements today
  • IGO's share price has fallen from $14.64 early April to $9.93
  • Consensus on IGO is Moderate Buy

IGO (ASX: IGO) was down -3.65% at the open despite the battery minerals miner reporting what appears at first glance to be progress with two new joint ventures.

Firstly, the company advised that wholly-owned subsidiary, Western Areas Limited (ASX: WSA) – now suspended - has satisfied the Stage-1 requirements of its Earn-In and Joint Venture Agreement (EIJVA) with Metal Hawk Ltd (ASX: MHK).

Having already spent $3m on exploration across the JV projects during the Stage-1 agreement, IGO is now entitled to a 51% JV interest in Metal Hawk’s Kanowna East, Emu Lake and Fraser South projects.

What's not to like?

Some investors may be irked by the requirement for IGO to spend another $4m - on exploration within Stage-2 of the EIJVA - to earn an additional 24% joint venture interest.

Diamond drilling is due to recommence at Kanowna East in July, while at Emu Lake moving loop ground electromagnetic (MLEM) surveys are scheduled to commence in the third quarter 2022.

At Fraser South, a heritage survey is scheduled for July 2022 to allow access for a reconnaissance AC drilling program planned to commence in October.

Metal Hawk retains 100% of the gold rights at Kanowna East and Emu Lake.

Commenting on recent progress, Metal Hawk managing director Will Belbin noted.

“We have been really pleased with the pace and quality of exploration carried out by our joint venture partner… the election by IGO to progress to Stage-2 is a tremendous outcome for Metal Hawk that will see a substantial step-up in exploration expenditure without drawing on shareholders’ funds.”

What else did IGO announce today?

Following on from the company’s successful takeover of Western Areas, IGO today also announced a JV partnership with St George Mining’s (ASX: SGQ) E29/638, the exploration licence at the core of the Mt Alexander Project.

Under the JV agreement, E29/638 – which covers the high-grade Cathedrals, Stricklands, Investigators and Radar nickel-copper-PGE discoveries - IGO retains a 25% non-contributing interest until there is a decision to mine.

With the seismic survey of 13-line kilometres now complete, drilling is scheduled to commence in approximately four weeks.

IGO share price: A three month snapshot.


What do brokers think

While IGO is still up 31% for the 12 months, the share price has fallen from $14.64 early April to $9.93.

The stock came under greater pressure early June following a warning from Goldman Sachs regarding battery material prices.

Based on an assumption that between 2022 and 2025, there’ll be a 33% increase in lithium supply, the broker sees lithium falling from $53,982 a metric ton in 2022 to $16,372 a ton in 2023.

Consensus on IGO is Moderate Buy.

Based on Morningstar’s fair value of $12.04 the stock appears to be undervalued.

Based on the five brokers that cover IGO (as reported on by FN Arena) the stock is currently trading with 24.50% upside to the target price of $12.49.

Credit Suisse, which has the highest price target on IGO ($15.90 and Outperform) expects lithium supply will meet demand in a balanced market in 2023-24, before supply exceeds demand creating surplus in 2025.

The broker likes IGO's tier-1 lithium exposure and believes the company can fund both upstream and downstream growth. (02/06/22).

Citi recently (15/06/22) lowered its target price for IGO to $15.70 from $16.20 and retained a Buy rating following the implementation of the $1.3bn Western Areas scheme acquisition.

Last month (23/05/22) UBS upgraded IGO to Buy from Neutral given the recent share-price retreat and remains structurally bullish on lithium and nickel in the medium and long term.

Target price dipped to $12.15 from $12.40.

Written By

Mark Story


Mark is an award-winning investigative financial journalist and editor who started his career working for Marathon Oil in London. He has a degree in politics/economics, a diploma in journalism and has completed the Institute of Directors course. Mark has worked on 70-plus newspapers and financial publications across Australia, NZ, the US, and Asia including: The Australian Financial Review, Money Magazine, Australian Property Investor and Finance Asia. Mark is passionate about improving the financial literacy of all Australians through the highest quality content.

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