Why is the IGO share price jumping 10% today?

Weak lithium prices weighed heavily on this miner's performance. But something has got investors excited.

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The IGO Ltd (ASX: IGO) share price is jumping on Tuesday.

At the time of writing, the battery materials miner's shares are up almost 10% to $8.08.

Why is the IGO share price jumping?

The lithium miner's shares are taking off this morning following the release of its third-quarter update.

For the three months ended 31 March, IGO reported a 10% quarter on quarter decline in sales revenue to $160.8 million.

This reflects a sizeable 78% decline in sales revenue from the Greenbushes Lithium Mine due to lower sales volumes (down 34% to 183,000 tonnes) and weak lithium prices. In addition, lower nickel sales volumes at Nova and Forrestania weighed on its top line.

IGO's underlying EBITDA was down 110% quarter on quarter to a loss of $15 million. Management blamed this on lower spodumene sales and prices at Greenbushes.

Nevertheless, this couldn't stop the company from delivering underlying free cash flow of $79 million for the period. This represents a 182% increase on the previous quarter.

Though, this was driven entirely by $24.5 million in dividends received from TLEA and an income tax refund of $106.1 million.

Production declines

The company's production took a hit during the quarter.

Spodumene production came in at 280,000 tonnes, which represents a 22% on the previous quarter. Whereas nickel production was also down 8% to 6,527 tonnes.

How does this compare to expectations?

The consensus estimate was for spodumene production of 282,000 tonnes and sales of 245,000 tonnes.

So, while it has delivered with its production, it has fallen well short of sales volumes.

Though, it is worth noting that a sale of an additional 200,000 tonnes of spodumene concentrate to TLC was agreed post the quarter end. So, this appears to have more than appeased the market today.

Particularly given that it means the Greenbushes operation will now stay active for the remainder of the year.

Management commentary

IGO's CEO, Ivan Vella, acknowledged that it was a tough quarter. He commented:

IGO's March Quarter results reflect a period in which nickel and lithium markets remained subdued, while sales were also lower compared to the prior quarter. Whilst this resulted in IGO recording a small EBITDA loss of $15M, our balance sheet remains strong with $276 million cash on hand and no debt.

At Greenbushes, production and sales were lower as expected, as the site teams worked to manage production and inventory levels in response to the lower offtake requirements by shareholders. Realised SC6.0 spodumene pricing was also lower quarter on quarter following the amendment in price setting frequency from January 2024, however it has been encouraging to see spodumene prices improving this calendar year.

Vella also commented on the aforementioned additional spodumene sale and the impact this will have on Greenbushes. He adds:

Furthermore, we are pleased to announce that after the Quarter end an additional sale of spodumene has been agreed with shareholders, whereby TLC will purchase 200kt of spodumene concentrate over and above their previously nominated formal offtake volume for the June quarter. Greenbushes is expected to operate at full production for the rest of this calendar year.

The IGO share price remains down 40% over the last 12 months.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. 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 Scott Phillips.

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