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Perth-based IGO faces massive losses due to nickel and lithium price slump

Perth-based IGO (ASX:IGO) is grappling with severe damage inflicted on its businesses by plummeting nickel and lithium prices, as well as mining challenges at its acquired Cosmos mine in WA.

According to the December quarter and half-year report released on Wednesday, IGO is on track to incur a significant interim loss for 2023-24. The report revealed a second impairment of its nickel business, substantial drops in revenue and distributions from its lithium investments, and a decrease in cash flows and available cash.

The company disclosed a 38% decline in earnings before interest, tax, depreciation, and amortization (EBITDA) to $515 million. Unlike the December 2022 report, the latest release did not include a net profit after tax figure, which stood at $591 million a year ago.

IGO had already reduced the value of its Cosmos nickel business by $968 million late last year. On Wednesday, they announced an additional impairment ranging from $160 to $190 million, not only affecting the Cosmos operations but also the company’s Forrestania mining business.

This adds up to a total impairment for the half-year of $1.128 billion to $1.158 billion, indicating a gross loss of over $600 million for the period. There is no indication of impairment for the Greenbushes investment, but the new pricing structure will lead to rapid reductions in returns.

Additionally, there will be costs associated with redundancies and maintaining the Cosmos nickel mining and processing business. Cosmos will become the fourth nickel mine in WA to be idled, following similar moves by Panoramic Reserves, First Quantum, and Syloo Metals.

IGO had paid $1.3 billion for Western Areas’ nickel mining businesses, primarily the Cosmos mine, but significant write-offs last year have now pushed impairments past the $1 billion mark.

Revenue for the December half was $427.1 million, down $111 million or 20% from the $538 million reported for the December 2022 half-year period.

Distribution from its lithium joint venture at Greenbushes dropped by 21%, from $631 million in the final half of 2022 to $495.2 million in the latest half.

As of December, IGO had net cash on hand of $276.4 million, compared to $444.5 million, along with $720 million in undrawn debt.

The company paid an interim dividend of 14 cents a share last year, which is unlikely to happen this year. The 60 cents a share dividend is also in jeopardy, as the company might need to utilize its undrawn debt.