IGO Ltd (ASX: IGO) shares are falling on Monday morning.
At the time of writing, the battery materials company's shares are down 2.5% to $7.29.
Why are IGO shares falling?
Investors have been selling IGO shares this morning after the company released an update on its lithium operations.
The company notes that its 49% owned Tianqi Lithium Energy Australia (TLEA) business and Albemarle Corp (NYSE: ALB), the joint venture partners of the Windfield Joint Venture, have been considering spodumene concentrate offtake volumes and pricing arrangements from the Greenbushes Operation. This project is operated by Talison Lithium under the Windfield Joint Venture.
According to today's update, the Windfield board has agreed to amend the pricing mechanism which will be applied to SC6.0 spodumene concentrate offtake volumes effective 1 January 2024.
Under the new mechanism, pricing will be reset monthly. It will be based on the average of the previous month, referencing the average of four price reporting agencies, less a 5% volume discount, FOB Australia.
In addition, IGO revealed that its joint venture partners have indicated their spodumene concentrate volumes for the second half of FY 2024 will be below forecast. As a result, it expects production at Greenbushes to be marginally reduced during this period to match inventory build with product logistics.
IGO expects that sales for the second half will be approximately 20% lower than production as inventories build at site.
Production guidance and cost update
In light of the above, IGO's SC6.0 spodumene concentrate production guidance from Greenbushes for FY 2024 has been downgraded to between 1.3Mtpa to 1.4Mtpa (previously 1.4Mtpa – 1.5Mtpa).
And while its cost guidance remains the same at present, it expects to be at the very top end of its range.
IGO's CEO, Ivan Vella, commented:
Despite the short-term weakness in the lithium market, the JV Partners at Greenbushes are strongly aligned on continuing to drive value from this world class operation. IGO is pleased with the new arrangements which balance near term market weakness whilst maintaining the leading position of this world class asset, including the commitment to CGP3 development. I am looking forward to continuing to build our relationship with two industry leaders and realise the full potential of our asset and its impact on this nascent industry.
IGO shares are down 55% over the last 12 months.
