Gold and base metals miner Independence Group NL (ASX: IGO) jumped to a more than three-year high this morning following yesterday's quarterly activities report that prompted at least one broker to upgrade the stock.
The stock jumped 4.2% to $4.93 in morning trade and is up 7.2% over the past two days.
Underlying earnings before interest, tax, depreciation and amortisation (EBITDA) jumped to $57.4 million in the December quarter compared with the $38.4 million the miner posted for the same time in 2013; while free cash flow increased more than 14-fold to $49.9 million.
Independence Group is effectively debt free with over $90 million in cash and that means either greater capital returns or an acquisition.
Brokers were impressed with the result, especially output from the group's Tropicana gold project in Western Australia, which has produced 137,901 ounces of gold at a cash cost of $536 an ounce for the three months to end December 2014.
This is ahead of what UBS was expecting and the broker has upgraded the stock to "buy" from "neutral" with a price target of $5.10 a share. The broker was only forecasting production of 123,400 ounces at a cost of $593 an ounce.
UBS is expecting an uplift in dividends to 11 cents a share for the current financial year compared with 8 cents a share in 2013-14.
Independence Group should have little problem meeting its 2014-15 production guidance with all of its projects delivering at or above expectations.
This means another potential pleasant surprise for shareholders. Production guidance could actually be upgraded and this could happen when the group hands in its half-year result next month, according to Citigroup. The broker reiterated its "buy" call on the stock with a price target of $5.70 a share.
The group is also better insulated from waning commodity prices as all of its projects are based in Australia. The weak exchange rate will offer some protection as its costs are largely denominated in the local currency, which is currently trading around US79 cents.
Independence Group's other projects include the Long nickel project and the Jaguar copper and zinc mine. Both projects delivered production figures that were ahead of management's guidance in the quarter.
