Cash flow from gold saw Independence again chasing growth, but Nova's purchase is likely a misstep.
We maintain our AUD 2.50 per share fair value estimate for Independence Group. The sell-off in the shares from near AUD 5.00 highs in November now sees Independence Group only marginally overvalued. Any further near-term volatility could provide an opportunity. We maintain our no-moat rating. Mining is cyclical and capital-intensive. While we forecast returns on invested capital to modestly exceed the company’s cost of capital by fiscal 2021, short reserve life makes those difficult to sustain. ...Independence Group is a mining, development and exploration company. Co. has brought into production the Nova Nickel, Copper & Cobalt Project, located in southern Western Australia effective Jul 1 2017. In addition, Co. produces gold, nickel, copper, zinc and silver from three other mining operations in Western Australia comprising the Tropicana Gold mine located east northeast of Kalgoorlie; the Jaguar zinc, copper and silver mine and processing operations north of Leonora; and the Long nickel mine in Kambalda. Furthermore, Co. is actively exploring in the prospective Albany Fraser Range as well as the prospective Lake Mackay region in the Northern Territory.
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