IGO dares to be brave in WA lithium push

Cloak it all with the ESG allure of becoming a supplier of a full suite of battery materials for the green revolution, which is true for a time only, and the summary of IGO's A$1.9 billion plunge into lithium in its WA joint venture deal with China's troubled Tianqi is complete.Rarely if ever has a leading ASX miner made such a daring and transforming move.Well done to IGO boss Peter Bradford for getting the deal across the line with his board because it really is about exchanging the certainty of gold (30% of the Tropicana gold mine) and nickel-copper-cobalt (the Nova mine) - both with 60% EBITDA margins - for a bet that lithium will come good in a big way, eventually.In the normal course of events, the great leap into lithium at the expense of gold, and demoting nickel into shade, was not required.IGO's investor base was happy with the idea that as Tropicana's circa $1.4 billion value was not being properly recognised in the company's market value, IGO should test the waters for a sale of the asset.That is happening now, with non-binding indicative offers due in the week before Christmas.Should a sale occur, shareholders might well have preferred a thumping capital return. But they won't get one now as the gold proceeds on a sale taking place will get consumed retiring the $1.1 billion in debt put in place for the lithium plunge.IGO's investor base was also happy with the idea that Nova's mix of nickel, copper and cobalt gave IGO all the battery materials it needed to be seen as a company positioned for the green revolution, making it worthy without lithium for an ESG premium.While Nova is fast depleting, it is still good for at least six or seven years of mine life which is plenty of time for IGO to find Nova Mark II or Tropicana Mark II in the Fraser Range, or a substitute copper-gold deposit up in the Paterson Range, or nickel in the Kimberley and elsewhere.It could also have bought an operation or advanced project in Australia or overseas to keep the nickel, copper and cobalt battery metal theme alive and well beyond Nova.But again, it is lithium and not nickel, copper and cobalt that IGO has decided to bet big on as the world decarbonises through the move to electric vehicles and the storage of renewable energy, underpinned by (nickel, manganese, cobalt and graphite heavy) lithium-ion batteries.So for the foreseeable future, IGO will be marked on its lithium exposure and the progress the $1.9bn plunge makes on becoming earnings positive in the 2023FY, according to company projections anyway.The big time pivot to lithium is a much riskier strategy than the way things were, but Bradford and his board obviously think the risk is worth taking.And there are good reasons for that $1.9 billion show of confidence, all of which goes back to the Greenbushes deposit in WA's south-west. In times gone by, it was mined for its tin, and then its tantalum.Now it's all about the lithium, with the deposit the biggest and highest-grade hard-rock source of lithium in the world. It has been hidden away for years in a partnership between Tianqi (51%) and America's Albemarle (49%).It is one of the few if only hard-rock operations to remain profitable since the lithium price crash in 2018 although surprisingly, key metrics revealed for the first time by IGO indicate it is not as low-cost as most had assumed.Still, it is widely considered to be the best in class. Normally, Tianqi would have continued to hug its 51%.But the group's poorly timed acquisition in 2018 of a 23.8% interest in SQM, Chile's lithium champion, for US$4.1 billion has China's state-owned banks knocking on the door asking for the repayment of loans.Tianqi will be whisking proceeds received from IGO off to its bankers and in return, IGO gets an indirect 24.99% stake in Greenbushes and a 49% indirect interest in Tianqi's lithium hydroxide plant at Kwinana, the first value-add project of its type in Australia but one yet to produce after a cost blow out to $700 million from design issues.Greenbushes and Kwinana come with embedded expansion options.But the timing of the expansions remains dependent on lithium's bounce back, itself dependent on current over-supply and inventory being absorbed by demand from the EV and renewable energy storage sectors.In the meantime, Bradford reckons he has got a bargain on a tier one asset at the bottom of the cycle.He will be right if the super-charged growth in demand pans out as most forecasters suspect. Afterall, the rise in the market cap of Elon Musk's Tesla - just one of the global EV players - to a staggering $616 billion is kind of telling us something.Mind you, it was more nickel that Musk recently called on miners to deliver, not lithium.*Barry FitzGerald writes a regular column for www.miningnews.net

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