September 2019 (?) I think... Western Areas (WSA) is one of a small number of pure nickel plays on the ASX, and probably the most prominent one. Nickel prices have been rising since December (up around 20% over the past 3 months). I don't have a view on the company specifically in terms of management, balance sheet, etc., but purely as a nickel play, it would be one of the more obvious ones. Warehouse levels are falling. The price is rising. The perception of future demand is that we are going to need more nickel for EV and other batteries to store energy. There are not currently many new nickel mines that have been approved for development and construction. WSA is a smaller company, and doesn't get much attention, but if nickel goes for a run, they will get a lot more. They are a producer now, not an explorer or a developer, so they get the full benefits of a rising price as it happens. They also have two of the highest grade operating nickel mines in the world in Flying Fox and Spotted Quoll (at Forrestania in WA) - see here: http://www.westernareas.com.au/operations/forrestania-australia.html
22-Apr-2020: Nickel prices are smashed now - they've been coronered along with all base metal prices - and I reckon copper will turn positive first, and then nickel will follow, so I'm not actually holding any WSA currently. I do hold Sandfire (copper) (SFR) and I'll probably buy IGO & WSA when copper heads north again and nickel follows. I think IGO and WSA are the best nickel plays on the ASX. I also still hold S32, who do produce some nickel, but I hold them on a valuation basis - coz they look cheap - and they're reasonably diversified across alumina/aluminium, met coal, nickel, zinc, lead, silver and manganese. I don't mind holding them through the cycle, and SFR, but a pure nickel play like WSA is a little riskier when the global growth outlook is so negative.
27-Apr-2020: 5 Brokers have upgraded their calls on WSA this morning (or over the weekend):
Citi rates WSA as a Buy
March quarter production was in line with expectations. Western Areas offers leverage to nickel, which Citi expects will recover in the second half.
While there are delays to equipment, Odysseus remains on time for first production in late 2022.
Cosmos should also add to output and maintain the production pipeline as Forrestania winds down, the broker notes. Buy rating retained. Target is reduced to $2.50 from $2.85.
Target Price (TP) is $2.50 Current Price is $2.10 Difference: $0.40
Credit Suisse rates WSA as Neutral
Credit Suisse assesses Western Areas is on track for FY20 guidance from both a production and cost perspective. A decline in spot nickel suggests margin compression in the June quarter.
There has been some delay to infrastructure sourced from South Africa because of the pandemic but this is not expected to impact the timing of the Odysseus project. Neutral rating retained. Target is reduced to $2.35 from $2.50.
TP is $2.35 Current Price is $2.10 Difference: $0.25
Macquarie rates WSA as Outperform
Western Areas March quarter result was mixed, the broker suggests, but FY guidance remains unchanged and cash flow was better than expected.
Development work at Cosmos is proceeding and work on the Flying Fox mine plan could result in a one-year mine life extension, the broker notes.
The broker retains Outperform, while acknowledging downside risk at current nickel spot prices. Target falls to $2.90 from $3.50.
TP is $2.90 Current Price is $2.10 Difference: $0.80
Morgan Stanley rates WSA as Overweight
Western Areas is expected to meet guidance in FY20. The lock-down in South Africa, if extended, may delay the delivery of key equipment to Odysseus but, overall, no delay to the project is expected.
Morgan Stanley retains an Overweight rating, In-Line industry view and $2.60 target.
TP is $2.60 Current Price is $2.10 Difference: $0.50
UBS rates WSA as a Buy
UBS considers the quarterly result was generally in line with market expectations. However, production guidance of 21-22,000tpa implies the lower end of guidance will be attained rather than the top.
The broker retains a Buy rating and $2.50 target, noting the share price is trading at a -15% discount to valuation.
The business is highly leveraged to the nickel price which faces downside risks over the short term because of a lack of demand globally for stainless steel.
TP is $2.50 Current Price is $2.10 Difference: $0.40
CONSENSUS Forecast for FY20:
CONSENSUS Forecast for FY21:
Disclosure: I hold WSA shares.
29-April-2019: Western Areas have this morning released their March 2019 Quarter Activity Report.
March Quarter 2019 Highlights:
Western Areas Managing Director, Mr Dan Lougher, said the March quarter was another consistent performance in line with plan across the operations.
“Pleasingly the March quarter result was the lowest cash cost of production of nickel into concentrate for the year.”
“It is also very exciting to see the decline rehabilitation start at the Odysseus mine, our next long life project that will underpin the future of Western Areas.”
April 29 2019: From MNN: MiningNews.Net. Reporter: Michael Quinn.
Western Areas delivers as planned
CONSISTENTLY well-performed nickel miner Western Areas looks to have delivered another bog standard quarter in the March period, with all key operational metrics broadly in line with previous quarters.
Arguably the highlight was the cash cost of the 5548 tonnes of nickel in concentrate of US$2.01 per pound, the lowest achieved in the current financial year, while cash at bank at quarter's end of A$116.7 million was down on December's $134.3 million after customer payments totalling $10.3 million were received on April 1.
Cash at bank plus nickel sales receivables gained $2.5 million quarter on quarter to $149.9 million.
Growth expenditure for the next addition to the Western Areas' stable, the Odysseus project at Cosmos, totalled $6.6 million, with the majority of the expenditure relating to the ongoing underground decline rehabilitation works, underground dewatering and the shaft haulage system detailed design and relocation.
Meanwhile the company spent $2.7 million on exploration and flagged the emergence of the Mystic prospect in South Australia's Western Gawler "following the identification of elevated nickel in oxide mineralisation" - first reported in the September 2018 quarter.
"The corridor is broadly defined as 300m wide and 400m along strike, open to both the north and south," Western Areas said.
"Further aircore drilling is planned to extend drilling coverage and evaluate the economic potential of this zone in the second half of 2019."
Western Areas said it was "particularly encouraged by these result as they represent the highest?grade nickel mineralisation identified to date across the Fowler Domain of the Western Gawler project".
Western Areas' ground lies east and south of the Jacinth mineral sands operation. [JC's note: Jacinth is operated by Iluka: ASX:ILU]
Shares in Western Areas were unchanged at $2.34 in afternoon trade, capitalising the company at $640 million.
The stock was at levels around 30% higher 12 months ago.
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21-May-2019: WSA is now $2.22, 12c (or 5%) lower than they were when Michael Quinn penned that piece three weeks ago. Base metals were lower overnight and it would seem the demand for nickel - and copper in particular - is not as strong as some had been predicting. There is certainly scope for base metal prices to move lower in the short term, but medium to longer term I think they're going higher, especially if a trade deal is inked between the US and China. The main risk with WSA is that they are a single commodity miner (nickel) and so their fortunes are always going to be very strongly tied to the nickel price. Their main advantage is their cost advantage. They have a couple of high grade and low cost nickel mines. If you want to play nickel, my picks in the sector are WSA & IGO, but you would need to be bullish on nickel first.
May 2019: This is the bull case for WSA from WSA (i.e. in their own words, taken from a recent quarterly report):
Western Areas has Australia’s highest grade nickel mines and is a low unit cash cost producer. Its main asset, the 100% owned Forrestania Nickel Project, is located 400km east of Perth in Western Australia. Western Areas is also Australia’s second largest independent sulphide nickel miner producing approximately 22,000 to 25,000 nickel tonnes in ore per annum from its Flying Fox and Spotted Quoll mines - two of the lowest cost and highest grade nickel operations in the world.
An active nickel project developer at Cosmos and explorer at Western Gawler in Australia, the Company also holds exploration interests in Canada through shareholdings in Grid Metals (formerly Mustang Minerals). Additionally, the Company has exposure to the emerging lithium market via its shareholding in Kidman Resources Limited.
The Board remains focused on the core business of low cost, long life nickel production, new nickel discoveries and generating returns to shareholders. It has put in place the cost structure and capabilities to prosper throughout the cycle by adopting prudent capital management and an opportunistic approach. Its latest presentation can be found at http://www.westernareas.com.au/investor-centre/corporate-presentations.html
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That was taken from their March Quarter Activities Report.
Disclosure: I hold WSA shares. I bought some more yesterday (27th May 2019) after the nickel price rose again. Because they are a single commodity producer, you would need to be bullish on nickel, because if nickel goes down, so do they, but if you like the exposure to nickel, they're a good company within that space.
Additional: Matt Haupt, the lead PM for WLE (WAM Leaders Fund) holds WSA in WLE. He also holds IGO (as I do). He also holds Oz Minerals (OZL) among the smaller miners, as well as the usual suspects - the big names like BHP, RIO & S32. OZL are a copper miner mostly - which I don't hold. My preferred copper exposure is via Sandfire (SFR, copper & gold) and Independence Group (IGO, nickel, copper, gold, cobalt). I do hold S32, but not BHP or RIO currently. I think the time to buy / hold iron ore miners is when the iron ore price is low, not when it's high - like it is now. And the best exposure to iron ore on our market - when the price is high - is via FMG, which, again, is best bought when the iron ore price is low. BHP is up a lot this year, RIO and FMG are up even more, within a couple of percentage points of their 12 month highs. WSA on the other hand is well down on where they were a year ago, and that makes them a lot more interesting to me. They're smaller, riskier, and leveraged to a single commodity but it's a commodity I'm comfortable with exposure to, and that's why I've recently (yesterday) topped up my WSA shareholding.
WSA finished the day up +4.64%.
Disclosure: I hold about $10K worth of WSA. They produce high grade ("battery class") nickel, and their costs are reasonable. They are well run but you still have to be bullish on nickel to own WSA (and I am).
18 July 2019: Western Areas June 2019 Quarterly Activities Report
19 July 2019: Offtake Agreement for High Grade Nickel Sulphide Product
20-Aug-2019: Western Areas have reported their FY19 full year results this morning:
Disclosure: I hold WSA shares.