All images: Independence Group.

 

BY REUBEN ADAMS

 

THE March quarter was a mixed bag for Independence Group, but the miner’s medium to long term fundamentals are sound. The flagship Nova operation continues to ramp up and generate good cash flow, while a $50 million exploration program and downstream processing studies could deliver massive cash flow generation in the years to come.

 

Independence Group (IGO) is transitioning into a cash-generative business, as growing free cash flow from its operations – especially Nova – results in an ever-shrinking debt pile.

Building cash reserves is an important part of the IGO strategy.

It gives the company flexibility for potential acquisitions, or development options should a $30m exploration program on its highly prospective 14,000sqkm Fraser Range landholding unearth ‘the new Nova’.

To this end, IGO has been systematically attacking its debt pile, which totalled $164m at the end of FY17.

By the end of the March 2018 quarter this had more than halved to $73m and, if this was sustained, the miner could potentially be debt free before the end of the calendar year.

While March quarter results were a bit of a mixed bag for IGO, highlights included a 14 per cent quarter-on-quarter boost to EBITDA to $73.7m, and a massive 387 per cent bump in underlying free cash flow to $56.5m.

 

March Quarter Focus

 

At Long nickel mine, near Kambalda, it’s the end of an era; after almost 40 years the operation will close, with suspension of mining scheduled for the end of May.

But exploration will continue, IGO managing director and chief executive Peter Bradford said.

“We undertook an EM survey at Long North, to test for potential extensions of the Gibb and Long deposits and are reinterpreting historical seismic data with new and improved technologies that we are using with the Nova survey and this is still on-going,” Mr Bradford said.

Jaguar, 300km north of Kalgoorlie, disappointed with a lower than expected mined tonnage and grade in the March quarter.  But the news isn’t all bad.

Higher grade stopes became available at Jaguar in late March, which should result in higher metal production in the final quarter of FY18.

IGO also progressed a number of Life of Mine (LOM) scheduling scenarios during the quarter, including Bentley Deeps, the proposed Triumph Project, a potential re-entry of the Jaguar Mine, and the depth potential of the Teutonic Bore deposit.

 

“Many of these options have upside potential, but it is important that the business case remains robust to support the investment that would be required over the mid to longer term,” Mr Bradford said.

 

“We are also undertaking multiple exploration activities at Jaguar with ongoing drilling at Bentayga and surface drilling of several base metals and gold targets.”

About 250m south of the Bentley Decline, the Bentayga Lens was discovered mid-2017 by exploratory underground drill testing.

Significant new drill results in 2018 has seen IGO shift priorities towards Bentayga’s potential early development.

To define the likely mineral resource for Bentayga, a 240m underground development drive from the Bentley Decline kicked off in in March and was 70 per cent complete by the end of the quarter.

The company stated that this drill drive would readily convert to a mining access should an ore reserve be defined.

Tropicana (30 per cent IGO) – which poured its 2 millionth ounce in January – also produced a softer quarter, but was still well placed to achieve full year guidance.

Gold production in the quarter of 103,603 ounces brought year-to-date production to 352,887oz (100 per cent basis).

Construction has started on the installation of the second 6 megawatt (MW) ball mill, which will enable processing throughput to be matched to the increased mining rate, as well as improving gold recovery by up to 3 per cent to about 92 per cent.

The installation is expected to be completed by the end of the calendar year.

The Boston Shaker Underground Concept Study was also completed during the quarter and, as a result, the JV has approved acceleration of a Pre-Feasibility Study (PFS) due for completion by the end of the calendar year.

 

 

 

Nova: Adding Value

 

Having just completed its third full quarter of commercial production, Mr Bradford said Nova was proving it could achieve – and even beat – nameplate mining and processing rates and deliver improved metallurgical recoveries.

Nova development may be behind schedule (it is now expected to end FY18 towards the low end of primary metal production guidance) but with March quarter sales of $95m expected to be surpassed next quarter IGO remains well placed.

That’s without mentioning the operation’s massive exploration upside, and the potential to add significant value through downstream processing in the medium term.

Mr Bradford said the focus for the final quarter of FY18 was de-risking the Nova resource model, ongoing improvement in mining rates, and the delivery of planned higher grade ore.

“Overall the Nova team has delivered a solid result so far,” he said.

“Nickel production and costs have been tracking in line with expectations during the operation’s start of commercial production, and we are pleased with the results.”

IGO was “cautiously optimistic” that the nameplate 1.5 million tonne per annum (mtpa) production rate – delivered in the March quarter – could be maintained, if not improved, as Nova transitions to mining larger stopes, Mr Bradford said.

“We expect mined grades to continue to increase, generating a strong fourth quarter of production,” he said.

The process plant was also operating to expectation, demonstrating its capacity to deliver above nameplate throughput.

Metallurgical recoveries were also steadily improving and performing in line with, or better than, design.

The Nova resource model is being de-risked, with a grade control campaign at Nova and Bollinger to be completed by the end of the financial year.

“Over the last few months we completed the grade control drilling at Nova Main and are now completing drilling at Bollinger, Conductor 5 and Nova Upper,” Mr Bradford said.

“We are also currently undertaking the resource and reserve estimation process with the targeted completion of this work scheduled for July 2018.”

 

 

 

Downstream Processing: Adding Value

 

Nova hasn’t even been in production for a year, but already IGO is deep into studies aimed at using the asset as a hub for downstream processing of nickel sulphate for the burgeoning battery market.

A number of analysts have nominated nickel among their best commodity picks over the next two to five years due to the rapid rise of electric vehicle (EV) use.

The view echoes a consensus positive outlook from miners, who have been quick to study the value-adding benefits of downstream processing.

In April last year, Western Areas green lit its Mill Recovery Enhancement Project (MREP), which would create a product for the EV battery supply chain from a specific cut of the live tailings stream that was previously discarded.

BHP Nickel West wants to become the world’s biggest exporter of nickel sulphate by initially producing 100,000t a year by April 2019, using existing infrastructure at its Kwinana facility.  A proposed stage two expansion to 200,000t a year would leverage off the initial investment in stage one.

Alpha Fine Chemicals has also completed its pre-feasibility study on an Esperance Nickel Sulphate Plant in WA, with a final investment decision pending this year.

IGO, with the unique metals mix in its Nova concentrate and growing interest from the EV battery manufacturers for reliable sources of nickel and cobalt sulphate, completed a scoping study last year.

 

“The downstream processing of sulphide concentrates to produce sulphate would clawback a significant amount of revenue lost as a result of the terms of standard sulphide concentrate smelting and refining agreements,” Mr Bradford said.

 

At Nova, IGO has the unique benefit of having a strong cobalt credit in its nickel concentrate.

With the cobalt price more than tripling over the last two years, it is another financial driver to evaluate downstream processing, in addition to the increased payability the miner would receive for its nickel production.

The metallurgical test work was progressing well and on schedule to fit with IGO’s plan of completing a PFS by the end of the 2018 calendar year.

Mr Bradford said it was too early in the work program to discuss details on the kind of processing options IGO was investigating.

“IGO is looking to leverage significant benefit from improving nickel market dynamics and improved nickel price in line with the expected market demand and growth from the Electric Vehicle Battery and Energy Storage trend,” he said.

“These are exciting times for IGO and, as we charge forward into the fourth quarter, we will continue our focus on discovery and the delivery of strong financial and operational performance to solidify IGO’s strong position as a world-class base metals producer aligned to the growing trend in energy storage metals,” Mr Bradford said.

Advertisement