IGO Limited (ASX:IGO)

April 26, 2018 | Price: $5.25

Growth Portfolio

Overview: Independence Group NL (“Independence Group”, “the Company”) is an Australian mineral resource company with a diversified portfolio of gold and base metal producing mines across Western Australia (WA). Independence Group’s 100% owned assets include the Nova Mine (nickel-copper-cobalt), the Jaguar Mine (zinc-copper-silver), and the Long Mine (nickel), while the Company produces gold from the Tropicana Gold Mine Joint Venture (30% owned). Independence Group also owns exploration assets across WA and NT. The Company was founded in 2000 and is headquartered in Perth (WA).

Catalysts: Independence Group’s earnings are highly leveraged to gold, nickel, and cobalt markets, which are showing signs of firming. The Company’s cash flow profile has improved due to the inclusion of the recently commissioned Nova mine after commercial production commenced in H1 FY18. Delivering consistency across all producing assets has the potential to deliver earnings growth. The Company has a significantly improved balance sheet as free cash flow is directed towards debt reduction. Exploration at Independence Group’s brownfield and greenfield assets offers additional upside.

Hurdles: Whilst Independence Group has a track record of successful mine operations, the Company’s historical revenues and earnings are somewhat volatile and there is no guarantee it can achieve forecasted guidance at a reasonable cost. Global commodity prices are volatile and any cyclical decline may negatively impact Independence Group’s financial performance and commercial viability of its assets.

Investment View: Independence Group offers profitable exposure to global commodity trends through a diversified portfolio of producing mines. We are attracted to the Company’s improving cash flow profile, the magnitude of its assets, and strengthening the balance sheet. Operational risks and exposure to volatile commodity price trends are principal hurdles. As the Nova operation progresses towards nameplate production, we see the potential for the Company to reinvest cash flow into further balance sheet initiatives and exploration activities. Independence Group appears well-positioned to take advantage of any cyclical recovery in the base metal and gold market, and following an eleven-year downtrend, we initiate coverage with a ‘buy’ recommendation to monitor its turnaround and growth potential.

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S3 Consortium Pty Ltd (CAR No.433913) is a corporate authorised representative of LeMessurier Securities Pty Ltd (AFSL No. 296877). The information contained in this report is general information only. Any advice is general advice only. Neither your personal objectives, financial situation nor needs have been taken into consideration. Accordingly you should consider how appropriate the advice (if any) is to those objectives, financial situation and needs, before acting on the advice.

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