IGO share price surges on potential sale of Tropicana

The IGO Ltd (ASX: IGO) share price is a rare bright spot on the market today as it considers putting its stake in Tropicana on the auction block.

Shares in the miner jumped 4.8% to $4.61 in early trade when the S&P/ASX 200 Index (Index:^AXJO) tumbled 1.2%.

Other mining stocks also lost ground as commodities retreated. The OZ Minerals Limited (ASX: OZL) share price fell 1.4% to $14.40, the Rio Tinto Limited (ASX: RIO) share price slipped 0.6% to $99.86 and BHP Group Ltd (ASX: BHP) gave up 1.3% to $36.49.

Sun shines on Tropicana sale

But investors were clearly taken with IGO’s decision to explore options for its 30% holding in the Tropicana gold mine.

Tropicana is a pain in the posterior for shareholders. It was a blemish on IGO’s otherwise pleasing full year profits that was boosted by its outperforming Novo nickel mine.

It seems management may be finally biting the bullet and there’s no better time to flog an underperforming asset than during a bull run.

Unlocking value in the IGO share price

The gold price is trading near record highs of just over US$2,000 an ounce and IGO confessed that unsolicited suitors have been knocking on its door.

This prompted management to undertake a strategic review of Tropicana, which will involve an analysis of various opportunities to unlock value in the asset.

This doesn’t only include selling it off to the highest bidder but to look at underground development and exploration.

IGO will work with its joint venture partner on Tropicana, AngloGold Ashanti Australia, to undertake the review.

IGO to focus on green energy

Investors should stay tuned as this work is expected to be completed in three to six months. That’s also enough time to firm up any offers for the asset.

“Tropicana is clearly a high-quality and significant asset within IGO’s portfolio, however IGO’s strategic focus is on commodities that are critical to clean energy,” said its CEO Peter Bradford.

“In the current gold price environment, we do not believe that IGO’s share price fully reflects the value of Tropicana.”

IGO generates most of its earnings from nickel, which is a key ingredient in the manufacture of batteries.

Is the IGO share price at a turning point?

The miner reported record FY20 revenue and underlying free cash flow of $892 million and $311 million, respectively.

Despite this, IGO is underperforming many of its peers. The IGO share price is down close to 30% over the past year when others like OZ Minerals have rallied by over 50%.

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Motley Fool contributor Brendon Lau owns shares of BHP Billiton Limited, OZ Minerals Limited, and Rio Tinto Ltd. Connect with me on Twitter @brenlau.

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. 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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