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IGO cuts pricing and output

IGO (ASX:IGO) has confirmed that the huge Greenbushes lithium mine will cut output because customers have not been buying as much as they did earlier in 2023.

IGO has clearly separated its lithium update from what will be bad news, and possibly another big write-down in the value of its nickel business in its quarterly and half-year production and sales reports on Wednesday.

IGO, and its main partner, US group Albemarle, indicated late last year that undelivered lithium spodumene tonnages would be stockpiled pending market developments.

Suggestions in late December and early this month (Albemarle announced cuts in spending and production earlier in January) were that orders had not picked up.

On Monday, IGO revealed that the output from Greenbushes would be “marginally reduced over the next five months because mine owners had ordered less spodumene and would take less in the coming months.

The mine’s main customers are IGO (it has a troubled hydroxide refinery in WA), Albemarle, which has three trains of a refinery already on stream or under construction, and Chinese group Tianqi.

The aim is to try to reduce production to match lower demand, with a discount being offered to potential buyers and customers.

IGO said the pricing mechanism for Greenbushes spodumene had been revamped with an eye on keeping sales prices as close to market prices as possible – in effect, price cuts where necessary.

In Monday’s statement, IGO said, “As previously announced, over recent months, TLEA and Albemarle Corporation, the joint venture partners of the Windfield Joint Venture, have been considering spodumene concentrate offtake volumes and discussing pricing arrangements that apply to spodumene concentrate sales from the Greenbushes Operation, which is operated by Talison Lithium under the Windfield Joint Venture.

“IGO can advise that the Windfield Board has agreed to amend the pricing mechanism which will be applied to SC6.0 spodumene concentrate offtake volumes effective 1 January 2024.

“Under the new mechanism, pricing will be reset monthly, based on the average of the previous month, referencing the average of four price reporting agencies, including Fastmarkets, Asian Metals, Benchmark Minerals Intelligence, and S&P Platts, less a 5% volume discount, FOB Australia.

“The JV Partners have also indicated their spodumene concentrate volumes for the second half of FY24.

“Indicated volumes are below forecast, and as such, it is likely that production at Greenbushes will be marginally reduced during this period, to effectively match inventory build with product logistics.

“IGO expects that sales for the second half will be approximately 20% lower than production as inventories build on-site.

“As a result, IGO’s stated FY24 production guidance from Greenbushes has been revised to between 1.3Mtpa to 1.4Mtpa (previously 1.4Mtpa – 1.5Mtpa) of SC6.0 spodumene concentrate.

“While there is no change to cash production cost guidance at this point, IGO expects these to be above the top end of its guidance.”

Talison is finalizing its CY24 budget, after which IGO will provide any required update to cash cost and capex guidance within its Half-Year reporting on 22 February 2024.

IGO CEO, Ivan Vella, was confident in a brief comment in Monday’s statement.

He said that “Despite the short-term weakness in the lithium market, the JV Partners at Greenbushes are strongly aligned on continuing to drive value from this world-class operation.

“IGO is pleased with the new arrangements which balance near-term market weakness while maintaining the leading position of this world-class asset, including the commitment to CGP3 development.” (That’s the third Chemical Grade Processing Plant at Greenbushes)

IGO impaired the value of its Cosmos nickel operations by $968 million last July.

The assets were bought in the $1.3 billion takeover of Western Areas, and some analysts believe that the rest of the value in its nickel business will have to be impaired because of the slump in prices.

Nickel prices have fallen further since that decision last July. IGO announced a review of its nickel business, which was promised by the end of last year. It didn’t come, and it is now due this week.

Now that Greenbushes is not going to be as productive in the six months to June or generate as much cash, will IGO have to write down its value?

The pricing and small production cut announced on Monday suggests IGO is trying to avoid making that impairment.