This is looking interesting to me if you take a longer view that supply assumptions for the coming decade are overcooked. A lot of broker analysis appears to be assuming that many if not most of these Australian projects come online, whereas if low prices remain many of these operations won’t be producing the IRR necessary to get them off the ground. Makes a genuine tier-1 asset like Greenbushes so much more attractive, even if you can only access 25% of it via the ASX.
Anyway, here’s my *very* rough guesswork at what Q2/24 might look like on the Greenbushes front (all 100% basis)
Comments:
Production: Q1/24 was 413kt but I’m assuming this’ll drop back since they’re stockpiling. Can’t see why they’d go full steam ahead in these circumstances. Q2/23 was 379kt so I’m assuming a bit under that too. My figure of 363kt would be -12% on prior quarter. Still too high?
Cash costs: knock-on effect of lowered production will be increase in costs which is already trending up, if production is off bigly then I’d say mid-point of guidance would be fair, say $305/t (plus royalties etc on top).
Price: am using the average price as flagged in the prior quarterly, and converting at AUDUSD 0.67
Sales: previously they flagged due to much cheaper stock available on spot, “sales… are likely to be approximately 25% lower than forecast production for the quarter”. I’ve gone with -30% given continued weakness in the spot market.
Guidance: I also think there will be a downgrade to second half production which will need to be factored in to broker’s models (they don’t seem to make these changes until they actually happen sometimes).
Multiple: basic EV (market cap less cash) is currently A$5.20B so annualizing the above figures gets you to 5.2x
The potential catalyst is if they can get the pricing mechanism resolved so it isn’t so backward-looking. As for the rest of the portfolio, I have no idea how to value Kwinana given its struggles, so am ignoring it. For me the nickel ‘assets’ are a collective zero (the operating ones are just a drag on Greenbushes earnings) so there’s a free option on nickel if something terrible happens in Indonesia. But another write-down is coming on WSA and if the lithium market price environment remains depressed I imagine the 1,400-1,500kt guidance on Greenbushes will be revised. All in all, I don’t think the low is necessarily in for IGO already but it’s definitely looking more attractive and the low might come after the quarterly. That said, the day they announced the Cosmos project update (that it was close to being canned), the stock did bounce pretty hard after that, from memory almost cracked $9. It suggests to me that the market sees the nickel side as a pure net-negative drag right now and is only focused on Greenbushes. Happy to hear from others who have followed this one longer. Is the above too optimistic/pessimistic?
(20min delay)