The IGO Ltd (ASX: IGO) share price is running higher for the second consecutive day, seemingly getting a boost from a broker upgrade.
Shares in the nickel and lithium miner added 3.85% to reach a two-week high of $12.11 in early trade. In comparison, the S&P/ASX 200 Index (ASX: XJO) is up 0.24% at the time of writing.
The IGO share price gain today is on top of Friday’s 5.1% surge after the company announced its first and consistent production of battery-grade lithium hydroxide from the Kwinana Lithium Hydroxide Refinery in Western Australia.
IGO share price boosted by de-risking milestone
The news significantly de-risks the project, according to UBS. The broker took the opportunity to upgrade IGO shares to buy.
It also helps that the IGO share price is looking even better value after it fell around 20% in the last month.
Another positive is that IGO is getting closer to acquiring Western Areas Ltd (ASX: WSA).
Biggest valuation driver
The Kwinana Refinery is a joint venture (JV) between IGO and its Chinese partner Tianqi Lithium Corporation. This JV accounts for around 75% of UBS’ valuation on the ASX miner and it includes IGO’s indirect 25% ownership in the Greenbushes mining asset.
The next step is a four- to six-month qualification period with its four off-take partners as production from Kwinana increases.
Risk factors to consider
But it isn’t all good news. Additional capital will be needed to expand the project and it costs three times more to build capacity in Western Australia compared to China.
Further, the broker thinks volumes might disappoint given the disappointing track record of Kwinana. This drags on UBS’ valuation on the IGO share price, although the volume issue is partially offset by the broker’s above-market commodity price forecast.
UBS commented:
The growth and earnings potential from Greenbushes was becoming clearer, but the Kwinana downstream had been perceived as a risk given its history.
We maintain our structurally bullish view on lithium and nickel in the medium and long term, looking through potential short-term volatility…. We reduce our PT [price target] to A$12.15/sh on lower realised spodumene prices but upgrade to Buy on a lower share price.
How is the IGO share price performing?
The IGO share price has gained close to 65% over the past year while the S&P/ASX 200 Index is up 1.4%.
It isn’t only IGO that has outperformed on the back of surging lithium prices. The Allkem Ltd (ASX: AKE) share price and Pilbara Minerals Ltd (ASX: PLS) share price have both more than doubled over the same period.
The post Why the IGO share price is rallying on Monday appeared first on The Motley Fool Australia.
Wondering where you should invest $1,000 right now?
When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for over ten years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*
Scott just revealed what he believes could be the five best ASX stocks for investors to buy right now. These stocks are trading at near dirt-cheap prices and Scott thinks they could be great buys right now.
*Returns as of January 12th 2022
More reading
- 5 things to watch on the ASX 200 on Monday
- Is the CBA share price a buy following the bank’s digital mortgage launch?
- Is QBE considered an ASX dividend share?
- These were the worst performing ASX 200 shares last week
- Here are the 3 most traded ASX 200 shares on Friday
Motley Fool contributor Brendon Lau has positions in Independence Group NL and Orocobre Limited. 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.
from The Motley Fool Australia https://ift.tt/BxadHPv
Leave a Reply