Motley Fool Australia

Why the IGO (ASX:IGO) share price is tanking today

Two men react in shock at Evolution share price drop record profit
Image source: Getty Images

The IGO Ltd (ASX: IGO) share price went into a meltdown after it released it latest quarter report today.

The IGO share price tumbled 3.5% in morning trade to $6.56 – its lowest level in 2021. In contrast, the S&P/ASX 200 Index (Index:^AXJO) lost 2.5% while other miners are also in the hole.

The Fortescue Metals Group Limited (ASX: FMG) share price lost 3.5% to $22.85, BHP Group Ltd (ASX: BHP) shed 1.8% to $44.22 and OZ Minerals Limited (ASX: OZL) share price gave up 4% to $18.38 at the time of writing.

IGO share price dragged lower by sentiment

This tells me that the sell-off in the IGO share price is probably more to do with market sentiment than its quarterly, although there were a few black spots in its report.

For one, production at its flagship Nova mine was down. Nickel output dipped to 7,024 tonnes in the December quarter compared to 7,276 tons in the previous quarter.

Copper at the mine was also weaker at 3,171 tonnes vs. 3,278 tonnes in the three months to end September 2020.

Underlying earnings before interest and tax (EBITDA) was also a little weaker at $120.9 million in 2QFY21 compared to $121.4 million in preceding three months.

Bad news not that bad

However, the earnings dip is largely due to exchange rates and hedging. If anything, cash from operating activities improved 20% to $132 million. This is largely a result of increased revenue receipts from Nova and its Tropicana joint venture gold mine.

Management also pointed out that Nova’s cash costs fell 15 cents to $2.10 per pound of nickel in the latest quarter.

Meanwhile, gold output at Tropicana was up 5% to 112,050 ounces with all-in sustaining costs (AISC) staying largely flat at $1,537 an ounce.

Bigger driver for the IGO share price

But the production figures are really a sideshow in many respects. The recent surge in the IGO share price is due to its deal to buy a stake in Tianqi Lithium Corporation’s lithium mine and processing plant.

In case you haven’t heard, the global electrification of vehicles is a real thing. With the latest transaction, IGO now owns a quarter of the Greenbushes Lithium Operation in Western Australia. Greenbushes is the largest and lowest cost hard rock lithium mine in the world.

IGO also picked up a 49% interest in the Kwinana Lithium Hydroxide Plant.

Profit takers delight

The miner undertook a $766 million capital raising to help fund the transaction. Today’s sell-off in the IGO may also have something to do with the fact that management priced the new shares at $4.60 a pop.

This leaves a lot of room for profit taking, and I see today’s share price weakness as nothing more sinister than that.

Where to invest $1,000 right now

When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for more than eight years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

Scott just revealed what he believes are the five best ASX stocks for investors to buy right now. These stocks are trading at dirt-cheap prices and Scott thinks they are great buys right now.

*Returns as of February 15th 2021

Motley Fool contributor Brendon Lau owns shares of BHP Billiton Limited and OZ Minerals Limited. Connect with me on Twitter @brenlau.

The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

Related Articles…