Gold and base metals miner Independence Group NL (ASX: IGO) could not hold on to early gains despite posting record full year revenue and net operating cash flow.
The stock slipped 0.5% to its lowest point this calendar year of $3.91 in late afternoon trade, after rallying 3.6% in the morning on the back of its fourth quarter production report.
The fall in the stock is particularly disappointing given that the mining-heavy materials sector is the best performing sector on the market today thanks to a 2.5% rise in BHP Billiton Limited (ASX: BHP) to $26 and a 1.2% jump in Rio Tinto Limited (ASX: RIO) to $51.90.
The fact is Independence Group turned in a bit of a mixed bag in terms of its results for the final three months of the year.
While 2014-15 revenue is up by a quarter to $498.6 million and net operating cash flow surged 58.3% to $201.7 million, the result was below market expectations with analysts polled on Reuters forecasting full year sales of $516.4 million.
This works out to a net profit of $76.8 million for the last financial year and that's below the $91 million that analysts were tipping.
The miner is probably facing a downgrade in consensus earnings for the current financial year and this isn't only due to the disappointing June quarter. Management has given a sombre full year production guidance for 2015-16 that suggests lower production volumes and higher costs.
Independence Group said the Tropicana gold project (which it has a 30% stake in) will produce between 430,000 and 470,000 ounces of gold this year compared with 2014-15's 496,413 ounces.
Its Long nickel project is expected to produce 9,000 to 10,000 tonnes when it delivered 10,198 tonnes last year; while zinc production from the Jaguar project will range between 35,000 to 40,000 tonnes when it produced 44,999 tonnes last year.
What's more, all-in sustaining costs (AISC) for Tropicana are expected to rise to $820 to $910 an ounce from $795 an ounce. The cash cost of Long will reach $4 to $4.50 a pound from $4.01 a pound and Jaguar's cash cost will come in between 40 cents and 60 cents compared to 43 cents in 2014-15.
Independence Group looked good value to me (and I own the stock), but the latest result puts it in the "fair value" range and anyone thinking about buying the stock can take their time as I see further downside risk to the stock.
One piece of good news is Independence Group's planned $1.8 billion acquisition of Sirius Resources N.L. (ASX: SIR) that is expected to generate significant cash flow for the merged entity from 2017. This thanks to Sirius' Nova-Bollinger nickel/copper project that's under construction.
Independence Group will need to fall towards $3 before bargain hunters should get excited.
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