PERTH - IGO Ltd (ASX:IGO), an Australian mining company, has seen its share price fall below $9, marking a yearly low, as the global lithium market grapples with an oversupply, primarily from Asian producers. SQM, the world's second-largest lithium producer, has projected a decline in prices due to the glut despite anticipating a 20% surge in global demand driven by the expanding electric vehicle industry.
The lithium market downturn has notably impacted firms like IGO Ltd, with its shares experiencing a significant drop of 40% since early September and 45% since July 2023. The company, however, remains in focus for potential investors due to its strategic partnership with Tianqi Lithium Corporation. This collaboration affords IGO Ltd a 51% stake in the Greenbushes Lithium Mine and operational control over the Kwinana processing refinery, which produces high-grade lithium hydroxide used in batteries.
Despite the current market challenges and low share prices, IGO Ltd is positioned as a promising long-term investment opportunity. The company's diverse portfolio extends beyond lithium to include nickel, copper, and cobalt operations in Western Australia. This diversification provides some resilience against fluctuations in the lithium market.
Moreover, IGO Ltd's valuation appears attractive to investors. With its share price now under $9, the company is trading at less than eight times its forecasted FY24 earnings and could potentially offer a grossed-up dividend yield of over 5%. This valuation is drawing attention as it suggests an opportunity for those looking at the longer-term horizon.
SQM's strategy in response to the current market conditions includes increasing its inventory to prepare for an expected rebound in purchasing activity. While demand has slowed outside China, SQM and industry analysts are preparing for a robust comeback fueled by consistent growth in sectors that depend on lithium, such as electric vehicles and various battery applications for home and industrial use.
With an eye on the future, IGO Ltd and other players in the lithium market are navigating through the present oversupply with strategies aimed at capitalizing on the forecasted demand growth that could eventually outstrip supply.
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