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Why the IGO share price could outperform other ASX stocks on this gloomy day

Nickel Element Magnified

ASX mining stocks are likely to outperform this morning but it’s the IGO Limited (ASX: IGO) share price that will be under the spotlight.

ASX miners will be supported after commodity prices firmed overnight even as futures pricing is tipping a weak start for the S&P/ASX 200 Index (Index:^AXJO).

IGO could get a bigger boost though. The nickel and gold miner’s flagship Nova project beat management’s full year production guidance.

Production going nova

Management reported that it produced 7,181 tonnes of nickel in the June quarter to take its full year output to 30,436 tonnes. This is slightly ahead of its guidance of 27,000 to 30,000 tonnes.

It was by-products copper and cobalt that was the bigger standout though. The miner produced 3,210 tonnes of copper in the quarter with full year production hitting 13,772 tonnes. This compares to management’s forecast of up to 12,500 tonnes.

Meanwhile, cobalt production for the latest quarter came in at 277 tonnes to take the full year number to 1,142 tonnes. Management initially thought FY20 production would top out at 950 tonnes.

“At Nova, production of all metals exceeded guidance, with nickel production slightly higher than the top end of guidance, while copper and cobalt production were ~10% and ~20% higher, respectively,” said IGO’s chief executive Peter Bradford.

Going for gold

What this means is that operating costs at Nova may be lower than what analysts were expecting given that the miner would sell by-products to cover the cost of producing its key commodity, nickel.

IGO also produces gold at its Tropicana joint-venture project. The mine produced just over 102,000 ounces of the precious metal in the quarter to take its full year number to 463,118 ounces.

IGO’s share of the gold sold in FY20 was 141,169 ounces and the figures are within management’s production forecast of 450,000 to 500,000 ounces and gold sold estimate of 135,000 to 150,000 ounces for the year.

Convoluted outlook for base metals

The nearer-term outlook for base metals like copper and nickel are dividing analysts. These commodities are closely linked to global production, which have been hit hard by the COVID-19 pandemic.

Coronavirus cases in many key economies continue to escalate at unprecedented rates and large parts of Victoria are going into a second lockdown.

This means base metal producers like the OZ Minerals Limited (ASX: OZL) share price, South32 Ltd (ASX: S32) share price and Sandfire Resources Ltd (ASX: SFR) share price may be in for a bumpy ride.

Foolish takeaway

However, IGO has a slight advantage over many of its peers thanks to its gold exposure through Tropicana.

This could help the miner weather the upcoming storm a little better given that the price of gold will benefit from the growing uncertainty.

IGO didn’t provide any other details like costs or average prices it sold its commodities at. That will come on July 29.  

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Motley Fool contributor Brendon Lau owns shares of OZ Minerals Limited and South32 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.

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