IGO slashes value of Western Areas assets to almost nothing

Blowouts, rising costs and project delays mean that IGO’s $1.3bn acquisition of Western Areas is turning out to be an expensive failure.

IGO will slash the value of the ­assets it acquired in the company’s $1.25bn takeover of Western Areas to almost nothing when the company releases its full-year ­financial report in August.

The West Australian lithium and nickel producer flagged potentially significant writedowns at its March quarter production report, and said on Monday it might slash as much as $880m-$980m from the value of the assets it acquired based on a reassessment of the operating and capital costs of the two operations acquired in WA, Cosmos and Forrestania.

That is likely to constitute the overwhelming majority of the value of the assets acquired through the acquisition, given IGO had $152m in cash at the end of March 2022, shortly before shareholders signed off the friendly takeover in June, along with a 20 per cent stake in fellow WA nickel miner Panoramic worth about $102m at the time.

While the value of the Panoramic shares has since fallen sharply, if the eventual writedown comes in at the top end of IGO’s estimate, it suggests that the company will effectively be writing off the entirety of the value of the ­assets acquired

IGO also appears to be facing more challenges to get Cosmos into production, with the company withdrawing previous ­guidance over the mine’s entry into the market.

In October 2022, a few months after completing the Western Areas takeover, IGO rejigged the development for the under-construction mine, flagging a near-doubling of its project cost above the $425m disclosed in Western Areas’ takeover documents.

The company said at the time it expected to have to spend another $370m-$400m on top of previous plans, including $150m on the ­expansion of the planned miss, and another $140m in items that were not previously included in the project’s capital costs.

At the time, the company said it expected to complete work on the processing plant by the first quarter of the current financial year, and the main shaft by the end of 2023.

IGO did not give revised guidance on completion of the mine, saying it expected to be able to ­further update the market in its June quarter results, due for release on July 31.

“IGO’s board and management team acknowledge the quantum of this impairment is significant and have engaged a group of leading independent consultants to assist with a comprehensive review of the Cosmos project to better understand risks and opportunities to the current life of mine plan, capital cost estimates and schedule,” the company said.

“This review is under way and expected to be completed in the December quarter and will result in a revised plan, which will detail how IGO will drive optimum value from Cosmos.”

IGO shares tumbled sharply on the announcement, closing down 72c, or 4.5 per cent, at $15.40 on Monday.