The Independence Group NL (ASX: IGO) share price outperformed its peers yesterday but at least one top broker thinks there is still more room for the miner to run following the release of its quarterly report.
The IGO share price jumped 2.7% to $4.58 while sector heavyweights, including the BHP Group Ltd (ASX: BHP) share price and Rio Tinto Limited (ASX: RIO) share price, only managed to keep their heads above breakeven.
As I had pointed out on Tuesday, Independence Group posted a strong quarterly update although its share price fell on that day due to the broad based sell-off on the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index (click here to read more).
Why Independence Group is looking like a "buy"
But don't be put off by the volatility. The fact is, Independence Group's Nova mine is kicking goals in my view, and the positive take on the miner is shared by Macquarie Group Ltd (ASX: MQG), which upgraded the stock to "outperform" from "neutral" on the back of the quarterly.
"Nova produced 8.4kt of nickel, 3.7kt of copper and 0.3kt of cobalt in the 3QFY18, 21%, 26% and 35% ahead of our forecasts respectively," said the broker.
"We now expect production guidance for FY19 to be beaten, and note that operating costs have also come in lower than expected."
Nickel is the new gold
Independence Group's Tropicana gold mine was the weak link in the result but was more than offset by Nova, which had reported record production and record low costs. Nova can be regarded as one of the world's lowest cost nickel mines.
There is also further upside from the miner's Downstream Sulphate Study, which is due for completion at the end of this calendar year.
"We do not currently include the project in our forecasts as we expect IGO's key concentrate customers will lift payabilities to match the potential returns on the project given the scarcity of nickel concentrate," said Macquarie.
"Incorporating the strong 3QFY19 result has driven a 50% upgrade to our FY19 earnings. We have also lowered our operation cost assumptions at Nova to reflect recent trends, which has translated to 6% upgrades to FY20 and FY21 earnings and a 5% lift for FY22."
Foolish takeaway
What this translates to is a 4% increase to the broker's price target on Independence Group to $5.10 a share.
The two stock catalysts on the horizon is the miner securing higher payability terms for Nova by year end and a potential production upgrade at Nova.
Management said it was "only" on track to meet its full year production guidance, but the bullish quarterly update has convinced Macquarie that the forecast might be too conservative.
