Partners in the massive Greenbushes lithium mine are holding onto cash, as IGO closes another nickel mine
New IGO boss Ivan Vella has entered the battery metal baptism of fire, mothballing the company’s Cosmos nickel mine before it opens.
The beleaguered nickel sector has been hit with another mine closure and the loss of another 400 jobs, with IGO to mothball is under-construction Cosmos nickel mine in response to the nickel price plunge.
IGO has faced twin hits over the last six months, with the price of both of its core commodities — nickel and lithium — plunging as battery and other critical minerals struggle in the marketplace.
The company told shareholders earlier this week that the partners in the giant Greenbushes mine in WA’s south west — Albemarle and Tianqi Lithium, which has a joint venture with IGO — would take less product this year, and would slow mine production as a result.
In the face of the flood of cheap nickel from Indonesia, IGO’s ill-timed move on Western Areas – which cost shareholders $1.3bn — will now be almost completely written off at IGO’s half year results in February, with the company flagging a fresh $160m to $190m impairment on the value of its nickel assets.
And the plunging lithium price has also hurt IGO’s cash position, with its TLEA joint venture with China’s Tianqi Lithium electing not to pay a December quarter dividend as it looks to finalise the 2024 budget at a time of falling commodity prices.
IGO said in its December quarter production report it had put the further development of its Cosmos nickel mine on ice, with about 400 jobs — including about 200 IGO staff and another 180 workers of mining contractor Perenti — set to go at the mine.
New IGO managing director Ivan Vella told analysts on Wednesday the decision was a difficult one, but necessary given the price of the steel and battery making metal is about half its value from a year ago, at around $US16,150 a tonne.
And, while IGO said its Nova and Forrestania mines are making cash at current prices, that is largely because production from Forrestania is hedged at $US32,000 a tonne until December 2024.
But, despite saying its lithium assets had helped deliver underlying earnings before interest, tax, depreciation and amortisation of $152.8m for the quarter, even given plunging lithium prices, IGO’s cash position went backward for the period after TLEA decided not to pay a dividend.
IGO chief financial officer Kath Bozanic told analysts Greenbushes was still generating plenty of cash despite the falling lithium price.
“But we are in an extremely volatile market, and therefore prudence around working capital has played into that decision not to pay the dividend,” she said.
“They’re in the middle of doing their budgets and everything, so it’s a bit premature to start to comment on dividends in the next two quarters. The other thing that is worth noting is that there’s a reasonable amount of growth capital that’s happening at green bushes, and that needs to be managed as well through the cash flow.”
Albemarle and Tianqi buy concentrate from Greenbushes to feed into their own downstream processing operations, and Mr Vella confirmed to analysts that some production would be stockpiled, with the mine’s sheds having the capability of stockpiling about 200,000 to 250,000 tonnes of concentrate.
But Mr Vella said the partners were not considering selling the excess production into the spot market, or to other downstream lithium processors.
“Obviously that’s something that’s been considered a different points over time and the two partners, Albemarle and Tianqi, are integrated lithium market players and they really deeply understand the value of that spodumene concentrate coming out of greenbushes and they’re very reflective of how they best use that in their businesses,” he said.
“At this point we’ve taken a decision not to proceed with any third party sales, as the market is still very uncertain at this point.”
IGO spent $106.7m on development work at Cosmos, and cleared its $369.9m in outstanding debt. And, to add insult to injury in the Western Areas takeover debacle, IGO had to cough up $51.2m in stamp duty for the failed acquisition.
IGO finished December with $276.4m, down from $805m at the end of September.
IGO shares closed down 17c to $7.56.