17-July-2023: Impairment-of-Western-Areas-Assets.PDF

I sold out of IGO today on the back of that announcement. I reinvested that money into MinRes (ASX: MIN), who are Iron Ore and Lithium instead of IGO's Nickel and Lithium.

This smacks of a reset to me. Peter Bradford, IGO's highly regarded CEO and MD passed away suddenly in October (2022) - see here: https://thewest.com.au/business/mining/igo-boss-peter-bradford-dies-suddenly-c-8561534 and here: https://www.swtimes.com.au/business/mining/ceo-of-miner-igo-peter-bradford-has-died-c-8567054 ...and IGO have had their chief operating officer (COO) Matt Dusci also performing the role of acting chief executive (CEO) while they searched for a more permanent replacement for Peter.

On 13th June, IGO announced that Ivan Vella - who has worked for RIO (Rio Tinto) in Mongolia (at Oyu Tolgoi) and within their Aluminium business globally - would be IGO's next CEO and MD: Ivan-Vella-appointed-as-CEO-and-Managing-Director.PDF

Today, Matt Dusci has announced that IGO intend to write down the carrying value of the Western Areas nickel assets by almost $1 billion (a non-cash pre-tax impairment expense of between A$880M and A$980M), which is a BIG write-down considering that IGO paid A$1,263 million ($1.26 billion) for all of WSA last year - see here: https://themarketherald.com.au/igo-asxigo-increases-takeover-offer-of-western-areas-asxwsa-2022-04-11/

They are writing down somewhere between 70% and 77.6% of the purchase price only a year after they acquired the business.

And the previous head (MD and CEO) of nickel miner Western Areas (WSA), Dan Lougher, turned up as the CEO and MD of gold miner St Barbara (SBM) after IGO acquired WSA, only to quickly sell off Gwalia and all of their WA assets to Genesis Minerals and then retire on June 30th. He was originally slated to retain a director position on the SBM Board, but it appears he has left completely and SBM are renewing their Board (details not yet announced other than the Chairwoman, Kerry Gleeson and the MD, Andrew Strelein, who was an internal promotion). I've now sold all of my SBM and IGO shares.

The following paragraph from today's "Impairment" announcement also has me concerned:

"IGO’s Board and Management team acknowledge the quantum of this impairment is significant and have engaged a group of leading independent consultants to assist with a comprehensive review of the Cosmos Project to better understand risks and opportunities to the current life of mine plan, capital cost estimates and schedule. This review is underway and expected to be completed in the December Quarter and will result in a revised plan which will detail how IGO will drive optimum value from Cosmos. The Company expects to be in a position to provide further detail of this review in the June Quarterly Results, scheduled to be released on 31 July 2023."

It seems like they are resetting valuations and expectations lower, i.e. clearing the decks for the incoming new CEO/MD (Ivan Vella) so he can earn his incentives in future years. And such "reset" periods can be rough for shareholders in my experience.

I had invested in IGO assuming that their nickel assets (Nova and the WSA assets they recently acquired) were solid, and my main interest was in their lithium assets, because they are vertically integrated and value adding. IGO own 49% of their JV with Tianqi Lithium Corporation (51%) whose WA lithium assets comprise of a 51% stake in the Greenbushes Lithium Mine (49% owned by Albermarle Corporation) and 100% ownership of the Kwinana Lithium Hydroxide Refinery.

IGO could still play out well for investors from here, but I'm sensing there could be more bad news coming in the near term, as in this calendar year. That update with the June Quarter results (due late July) will perhaps make things a little clearer.

For now, I'm out of IGO. I did not own them here on SM, just in my largest RL portfolio, and I've swapped that capital into MinRes (MIN) now. Mineral Resources has come back about 22% from just over $90/share to just over $70/share over the past 6 months, and while I usually wait for the trend to change, as MIN can trend the same way for quite a while and then change direction and trend in the opposite direction for quite a while too, I reckon Chris Ellison is management worth backing right now, with the FY23 full year results not too far away. As MIN's largest shareholder (with 22.3 million of their 194.5 million shares on issue, or around 11.5% of the company) Chris tends to make decisions from the POV of a business owner, not just a business manager. He is usually on the better side of the deals he makes, even when the other side is a massive global corporation like Albemarle. Chris Ellison usually gets the better of all of them in the end. In my SMSF I've helf MIN now for a few years, and done very well out of them, and they're now back in my other RL portfolio as well. I'll have to add them back in to my SM portfolio as well at some point, once I sell something to make way for them.

But happy to step out of IGO and watch from the sidelines for a little while.