IGO Limited

IGO Details

Lake Mackay Project Update: IGO Limited (ASX: IGO) is a mining and exploration company focused on metals that are critical to energy storage and renewable energy. Recently, the company’s Joint Venture (JV) partner, Prodigy Gold NL (ASX: PRX), who holds 30% JV interest in Prodigy Gold holding, provided an update on diamond drilling underway on the Lake Mackay Project. As per the update, the diamond drilling at the Phreaker Prospect has intersected 30.6m of disseminated and semi-massive sulphide over a 44.4m downhole interval. Notably, Lake Mackay is a well spread area adjoining the western Australian border and the project has ~15,630 sq km of exploration licenses and applications. 

Update on Gold Anomalies at Empress Springs: On 23 March 2021, IGO’s JV partner, Moho Resources Ltd (ASX: MOH) provided an update regarding the discovery of 90km hydrogeochemical gold anomalous zone at Empress Springs. Apart from Gold anomaly, tin and other metal anomaly has also been reported.    

Financial Highlights for 1HFY21: IGO has posted a 3% YoY decline in its revenues in 1HFY21 to $462.5mn as compared with $474.7mn in 1HFY20. The company has registered a decline in Gold production and sales from Tropicana project and lower Nickel Prices at Nova project. The company has posted a decline of 46% YoY in its NPAT to $54.2mn in 1HFY21. The company has posted a 29% YoY increase in its total assets at $2,969.1mn in 1HFY21 and a significant increase of 132% YoY in its Cash to $1,186.1mn during the same period.

Assets and Liabilities (Source: Company Reports)

Outlook: IGO has entered into an agreement to acquire 49% stake in Tianqi Lithium Energy Australia Pty Ltd for a total consideration of ~US$1.4 billion. The completion of the transaction is expected in June 2021 quarter followed by Tianqi shareholder approval and a number of conditions related to the transaction. 

Valuation Methodology: EV/Sales Based Relative Valuation Method (Illustrative)

Data Source: Refinitiv, Thomson Reuters, Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks. 

Stock Recommendation: In the last one month, IGO has decreased by 5.73% and increased by 2.45% in the last three months. The current market capitalisation of IGO stands at ~$4.72bn as on 23 March 2021. The stock is currently trading slightly above the average 52-week price level range of $3.236-$7.760. On the technical analysis front, the stock has a support level of ~$6.06 and a resistance of ~$6.5942. We have valued the stock using an EV/Sales multiple-based illustrative relative valuation method and arrived at a target price with a correction of high single-digit (in % terms). We believe that the company can trade at a slight premium as compared to its peer average, considering rise in the cash position, low debt levels, and an improved gold price environment. For this purpose, we have taken peers Alkane Resources Ltd (ASX: ALK), Newcrest Mining Ltd (ASX: NCM), Evolution Mining Ltd (ASX: EVN), etc. Considering the rising cash balance, decent exploration progress with its JV partners, ongoing acquisition (49% stake) of Tianqi Lithium Energy Australia Pty Ltd, valuation, and current trading levels, we recommend a “Hold” rating on the stock at the current market price of $6.250, up by 0.160% as on 23 March 2021.

IGO Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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