MENU

Which leading miner is expecting fatter profit margins in FY19?

It’s unusual for any company to forecast rising margins during this reporting season, particularly a miner, as rising power and labour costs are putting the squeeze on profits.

You only need to look at the commentary from our mining majors BHP Billiton Limited (ASX: BHP) and Rio Tinto Limited (ASX: RIO) to see evidence of rising cost inflation.

But this doesn’t seem to be an issue with Independence Group NL (ASX: IGO) as it reported record revenue and underlying earnings before interest, tax, depreciation and amortisation (EBITDA) for the year ended June 30, 2018.

The stock initially surged 6% on the news but gave up most of the gains to trade 0.6% higher at $4.34 in after lunch trade when the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index added 0.4%.

Some of the highlights from Independence Group’s FY18 results include:

  • An 85% jump in revenue to $781 million and a 125% increase in underlying EBITDA to $339 million.
  • Net debt dropping to just $4 million from $164 million thanks to a big increase in underlying free cash flow.
  • The strong result was largely driven by the commercial start of its Nova nickel mine, which has established itself as the lowest cost nickel producer in Australia.
  • Its 30% joint-venture (JV) Tropicana gold mine is also enjoying strong margins. While the gold price in US dollars has been constrained, Independence Group benefitted from the waning Australian dollar as the average price of the precious metal increased $79 to $1,729 per ounce over the year.
  • All-in Sustaining Cost (AISC) for Tropicana was $1,061 an ounce.
  • The good performance from Nova and Tropicana offset losses at Jaguar and Long. Jaguar has been sold and Long has been put into care and maintenance.

Management has given an upbeat outlook as well on the production and cost front. Nova’s FY19 nickel output is forecast to rise as much as 35% to between 27,000 to 30,000 tonnes, while Tropicana’s gold production is tipped to increase by up to 18% to between 500,000 to 550,000 ounces.

What’s more, Nova’s cash cost is forecast to drop from $2.78 per pound of nickel to between $1.65 and $2.00 a pound and Tropicana’s AISC is predicted to drop to between $890 and $980 per ounce of gold.

Investors may be disappointed by the lack of capital management initiatives on the back of such a good result and the doubling of its final dividend to 2 cents a share won’t appease those hoping for a bigger capital handout.

However, I see further upside in the stock given the performance of Nova, my expectations for more gains in the nickel price, and the weak outlook for the Australian dollar, which will pad Independence Group’s operating margin.

Independence Group isn’t the only stock that is well placed to outperform the market in FY19. The experts at the Motley Fool are tipping these other stocks to power ahead this year.

Follow the free link below to find out what these stocks are.

Top 3 ASX Blue Chips To Buy In 2018

For many, blue chip stocks mean stability, profitability and regular dividends, often fully franked..

But knowing which blue chips to buy, and when, can be fraught with danger.

The Motley Fool’s in-house analyst team has poured over thousands of hours worth of proprietary research to bring you the names of "The Motley Fool’s Top 3 Blue Chip Stocks for 2018."

Each one pays a fully franked dividend. Each one has not only grown its profits, but has also grown its dividend. One increased it by a whopping 33%, while another trades on a grossed up (fully franked) dividend yield of almost 7%.

The names of these Top 3 ASX Blue Chips are included in this specially prepared free report. But you will have to hurry. Depending on demand – and how quickly the share prices of these companies moves – we may be forced to remove this report.

Click here to claim your free report.

Motley Fool contributor Brendon Lau owns shares of BHP Billiton Limited and Rio Tinto Ltd. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.