The IGO Ltd (ASX: IGO) share price is having a poor start to the week.
In morning trade, the battery materials miner's shares are down 5% to $13.70.
Why is the IGO share price falling?
There are a couple of catalysts for the weakness in the IGO share price on Monday. The first is a poor start to the week in the battery materials industry today, which has seen many lithium shares drop into the red.
In addition, the company released its quarterly update this morning. Here's a summary of how it performed:
- Quarterly underlying EBITDA up 19% quarter on quarter to a record of $636 million
- Underlying free cash flow up 34% to $381 million
- Lithium spodumene production up 11% to 395kt
- Nickel production up 14% to 9,549t
What happened during the quarter?
For the three months ended 30 June, IGO finished the financial year strongly with another record quarterly financial result.
Thanks to solid quarter on quarter production growth for spodumene and nickel, IGO reported a 19% increase in underlying EBITDA to $636 million.
In respect to its spodumene production, the company revealed that its Greenbushes operation performed very strongly. So much so, it led to full-year spodumene production coming in ahead of the top end of its FY 2023 guidance range.
Things weren't quite as positive for its Nova nickel operation. Although it delivered solid production growth during the fourth quarter, this couldn't stop it from falling just a touch short of its guidance for FY 2023.
IGO reported free cash flow of $381 million for the quarter, which lifted its cash balance by 76% to $775 million at the end of June.
FY 2023 earnings
For FY 2023, the company's underlying EBITDA came in at $2,003.6 million with underlying free cash flow just over half that at $1,098 million.
While the former is in line with what analysts at Goldman Sachs were forecasting, the latter has fallen short of the broker's free cash flow estimate of $1,200 million. This may explain some of the weakness in the IGO share price today.
Management commentary
IGO's acting CEO, Matt Dusci, commented:
We are pleased to have recorded another strong set of underlying financial results for the Quarter, with quarterly record EBITDA of $636 million and record underlying free cash flow of $381 million. Greenbushes continues to perform above expectations, with a record quarterly production result driving full year production to 1.49Mt on a 100% basis, which was above our guidance range. Despite a modest increase in the cost of goods sold, EBITDA margins at Greenbushes remain more than 90%, demonstrating the world-class nature of this asset.
Capital management policy
Also failing to give the IGO share price a boost today is news that it has adopted a formal Capital Management Policy (CMP).
The company notes that with the ongoing transformation of its business and exceptionally strong financial performance, the Board and management concluded that adopting a formal CMP was appropriate.
IGO's CMP seeks to balance reliable and consistent return of capital to shareholders with maintaining both balance sheet strength and the flexibility to respond to organic and inorganic growth opportunities as they arise.
This will ultimately see target returns range between 20% and 40% of underlying free cash flow when liquidity is below $1 billion. And when liquidity is above $1 billion, the Board will use its discretion to consider a dividend payout in excess of the 40% threshold.
IGO's CFO, Kath Bozanic, commented:
While IGO is highly focused on delivering growth across our lithium and nickel businesses, we have been careful to ensure our business can withstand market volatility and the cyclicity of the sector while also sharing in the exceptional returns currently being generated as a result of strong lithium prices.
