• Independence Group NL is engaged in mineral exploration, nickel, copper and zinc mining and the development of the Tropicana Gold Project. The Company operates in four segments: nickel mining, copper and zinc mining, Tropicana Gold Project, and feasibility and regional exploration activities. The nickel mining segment is responsible for Long Nickel Operation and produces primarily nickel, together with copper. The copper and zinc mining segment is responsible Jaguar/Bentley Operation. It produces copper and zinc concentrate. The Tropicana Gold Project segment represents the Company’s 30% joint venture interest in the Tropicana Joint Venture. The Tropicana Gold Project segment comprises Tropicana Gold Mine and exploration activities. The Project is located approximately 330 kilometers east northeast of Kalgoorlie in Western Australia. In April 2014, Independence Group NL announced that National Australia Bank Limited ceased to be a substantial shareholder of the Company.

 

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• First Full year production contribution drove Tropicana performance: Independence Group  NL(ASX:IGO) Tropicana joint venture revenue surged 59% on a year over year basis during fiscal year of 2015 as it witnessed full year of production for the first time. The total segment assets improved 46% yoy on the back of continuing contributions by IGO. The segment incurred cash calls payment of over $142.5 million during the period. Meanwhile, capitalized inventories rose by 97% yoy to $43.8 million, due to group’s current grade streaming strategy wherein mining was more for the processing plant than required leading to stockpile of lower grade portion. Capitalized run of mine stockpile comprised an ore of greater than 0.6g/t which resulted to a total of 8.2 million tons grading an average of 1.09g/t, against 3.2 million tonnes at 1.22g/t in the prior corresponding year. IGO estimates to finish construction of the 292 km long gas pipeline by this year ending leading to the first delivery of gas to Tropicana by early next year.

      

       Tropicana is a low cost long life gold project among Australian open pit gold operations (Source: Company Reports)

• Acquired Sirius which led to addition of world-class Nova Project: Independence Group announced its Sirius acquisition in the month of May, wherein Sirius shareholders got 0.66 IGO shares and 52 cents cash for each Sirius share as well as a pro-rata holding in the S2 Resources( a new company would formed to hold the Sirius non-Fraser Range assets). With this acquisition IGO built a solid portfolio of high margin and long-life mining assets, across a range of base and precious metals. Moreover, Sirius world-class Nova Project along with the Independence group’s assets would lead to a better cash flow generating projects. Mark Creasy, Sirius’ major shareholder also approved to the transaction. Meanwhile, IGO entered into a syndicated facility agreement with National Australia Bank, Commonwealth Bank of Australia and ANZ for a $550 million committed term finance facility on an unsecured basis to refinance Nova project as well as the acquisitions costs.

      

      Nova Project Schedule (Source: Company Reports)

• Solid Tropicana andJaguar business drove Independence Group’s FY15 performance:The Group reported a revenue increase of 24.1% yoy to $495.3 million in the fiscal year of 2015, driven by solid Tropicana gold and Jaguar Operations. The Tropicana gold operation revenues rose 59% yoy on the back of total year’s production after commissioning which led to an improvement of gold refined sales by 51% yoy in FY15. Even Jaguar Operations led to a further 16% improvement in revenue during the period. Jaguar Operation reported a solid increase in zinc revenue of 48% on a year over year basis on the back of a combination of 30% higher payable zinc sold coupled with 18% improvement of realized prices. This rise was boosted by outstanding Bentley underground mine performance, as the ore mining rose 13% yoy while the ore milled improved by 11% on a year over year basis. On the other hand, Long operations partly offset the overall improvement in revenues as its revenues fell by 6% yoy in FY15, due to 6% decrease in payable nickel sold. Meanwhile, IGO reported a 58.1% yoy increase in profit from ordinary activities and accordingly the basic earnings per share surged to 32.78 cents during the period against 20.8 cents in the pcp. IGO paid a fully franked interim dividend of 6 cents per share during March 2015 leading to a final dividend pool of $13 million during fiscal year of 2015.

 
   
     
 
      NPAT analysis in FY15 (Source: Company Reports)

• Balance sheet Highlights: Independence Group’s net cash flows from Operating Activities surged by 57% yoy to $201.7 million in FY15, boosted by its revenues while its cash surged by 113% yoy to $121.3 million. On the other hand, Cash flows for investing activities declined by 12% yoy, as the group cut its development capital expenditure by 42% yoy to $44.1 million. IGO incurred higher construction and development spend at Tropicana during FY2014, as Tropicana was in its final stages of construction. But property, plant and equipment expenditure rose by $7.7 million to $16.6 million led by Jaguar operations while IGO also acquired 33.8 million shares of Gold Road Resources Limited leading to $13.1 million cost during 2H15. IGO boosted its cash by 113% yoy to $121.3 million during the period and repaid its $25.0 million in debt with National Australia Bank.

     

     Cash flow highlights (Source: Company Reports)
 

• Bumblebee Prospect Discovery highlights: Independence Group’s alliance with ABM Resources Lake Mackay recently reported an outstanding first drill results for its Bumblebee Prospect Discovery, which is situated at 55 km north east of the town of Kintore and 400 km west of Alice Springs in the Northern Territory and also a part of the wider Du Faur Project area or Warumpi Margin Project. The drill results from the oxide, supergene and fresh-rock (sulphide) zones at Bumblebee Prospect comprised 2 meters averaging  of 1.3g/t gold, 34.6g/t silver, 7.4% copper, 1.3% lead, 1.6% zinc and 0.09% cobalt  at 25 meters below surface. The prospects also witnessed 7 meters averaging of 3.3g/t gold, 37.7g/t silver, 3.2% copper, 0.9% lead, 1.3% zinc and 0.08% cobalt  at over 30 meters below surface. The drill results includes 5 meters averaging of 2.4g/t gold, 12.4g/t silver, 1.4% copper, 0.2% lead, 1.0% zinc and 0.1% cobalt  at over 48 meters below surface. Based on the Metal association and geology, similarities to Cloncurry style iron oxide copper gold (IOCG) deposits were seen. Independence Group and ABM Resources intends to prolong its alliance in the region and expects further explorations to include geophysics, geochemistry and drilling.

     
     
       
       Bumblebee drilling cross-section view west (Source: Company Reports)

 

• Finished the initial, broad-spaced RC and diamond drilling program at the Bryah Basin Project: The group finished the initial RC diamond drilling at the Neptune prospect within Alchemy’s Bryah Basin Copper Gold Project. RC and diamond drill holes combination were drilled on five sections nominally 500 meters apart which was targeted at 2 km of strike of the earlier delineated zone of geochemical anomalism and electromagnetic conductors at Neptune. Accordingly the results from the RC drilling delivered multiple mineralized horizons having solid copper and gold anomalism in the potential Narracoota – Karalundi volcano-sedimentary range. The firm reported that its diamond drill core through mineralized horizons were sent for assaying and intends to undertake down-hole EM surveys on the drill holes to delineate any off-hole conductors.

 
 
      
 
      Bryah Basin Project indicating prospects (Source: Company Reports)
 

• Focus on operations to enhance Long performance: The group’s is seeking several options to change its mining plan in its 100% owned Long Operation in Kambalda to enhance this project’s operational efficiencies which would partly offset the project’s performance. The volatile nickel prices hampered the mine’s profitability during fiscal year of 2015. Long Operation mining activities would now concentrate on longhole stopping, buoyed by twin boom jumbo development. The group stopped mining methods like mechanized cut and fill, air-leg mining and single boom jumbo from last month. Accordingly, IGO estimates to reduce its Long Operation operating costs in the range if 11% to 13% driven by its revised mining plans. Subsequently, the group estimates its contained nickel production to be over 8,500 to 9,000 tonnes during fiscal year of 2016.

      
      IGO Daily Chart (Source - Thomson Reuters)

• Stock Performance: The shares of Independence group fell over 37% during this year to date (as of Oct 5) owed to the falling commodity prices on the back of tough market conditions. On the other hand, the shares rallied over 10.2% in just last five days, partly driven by positive Bumblebee Prospects and favorable RC and diamond drilling program’s initial results. Moreover, with the acquisition of Sirius, the group has built a solid long term portfolio. Investors hunting for bargain opportunities could consider adding this relatively attractive valuation stock in their portfolio. With a relatively cheaper P/E of 8.6x and a decent dividend yield of 3%, we give a “BUY” recommendation to IGO at the current stock price of $2.84

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