{"id":61167,"date":"2013-01-23T10:01:41","date_gmt":"2013-01-22T23:01:41","guid":{"rendered":"http:\/\/www.fnarena.com\/index.php\/2013\/01\/23\/western-areas-frustrated-by-nickel-price\/"},"modified":"2013-01-23T10:01:41","modified_gmt":"2013-01-22T23:01:41","slug":"western-areas-frustrated-by-nickel-price","status":"publish","type":"post","link":"https:\/\/staging.fnarena.com\/index.php\/2013\/01\/23\/western-areas-frustrated-by-nickel-price\/","title":{"rendered":"Western Areas Frustrated By Nickel Price"},"content":{"rendered":"

\n\t-Solid quarterly production
\n\t-Well managed
\n\t-High quality mines
\n\t-Nickel price the stumbling block<\/strong><\/p>\n

\n\t
\n\tBy Eva Brocklehurst<\/span><\/p>\n

\n\tNickel miner Western Areas ((WSA<\/span>)) hit all the right notes with the broking<\/span> community after its solid December quarter production results and evidence of being well managed. However, the nickel price is out of the company's control and on that hangs the tale.<\/p>\n

\tBA-Merrill Lynch notes the company is on track to beat its guidance in terms of production for FY13<\/span> but cash costs are rising and will be a concern going forward. Underground mining at Spotted Quoll<\/span> will ramp up but weak prices translate to weak cash flow. This is despite WSA<\/span> being in the lowest quartile on the global cost curve, BA-ML notes. The broker says WSA<\/span> is fairly valued at current prices and, unless there are fundamental improvements in the nickel price, the key driver of long term value will be further exploration success. The broker keeps a Hold rating but notes, if WSA<\/span> is successful in achieving its production targets, it can generate strong returns given its mines are higher grade, hence lower cost, compared with its peers.<\/p>\n

\tNickel-in-concentrate production was up 9% in the December quarter at 6,722t<\/span> versus BA-ML's forecast of 6,142t<\/span> and JP Morgan's forecast of  6,100t<\/span>. JP Morgan still maintains WSA<\/span> as its preferred nickel play and has a Buy recommendation, noting the company is still generating cash in a subdued pricing environment. As the broker expected, WSA<\/span> declared a maiden reserve for Lounge Lizard, helping boost Flying Fox mine reserves by 49%. Whilst the reserve increase was expected, JP Morgan believes deposit size remains open and should grow further over time.<\/p>\n

\tUBS calls WSA<\/span> Australia's default nickel stock and maintains a Buy recommendation. The broker has lowered its FY13<\/span> earnings estimates by 34% from a combination of pushing through mark-to-market commodity prices and the higher costs implied from the December quarter. From a production perspective,  first half output of 1.45m tonnes<\/span> of nickel-in-ore implies that WSA<\/span> is on track to beat its full year guidance. UBS believes the company's assets could ultimately provide strategic value to a global nickel producer. On the positive side too, the broker contends that  the lack of significant sulphide<\/span> discoveries and reliance on high-cost, underperforming laterite<\/span> deposits will eventually lead to a shortfall of quality nickel concentrates around the globe.<\/p>\n

\tOther brokers covering the stock on FNArena's<\/span> database have echoed these sentiments with Macquarie keeping WSA<\/span> as its key pick in the sector. Macquarie believes the Forrestania<\/span> asset base is outstanding and WSA<\/span> a reliable producer. Nevertheless,  the nickel price dominates the outlook. Deutsche Bank likes the stock but cites the nickel price, hence its Hold call remains in place. Citi<\/span> also finds the nickel price a problem but sticks with a Buy recommendation. All-in-all the recommendations on the FNArena<\/span> database stand at four Buys and three Holds. The price target ranges from $4.29 (Deutsche) to $5.60 (Citi<\/span>).<\/p>\n

\tSo where to for the nickel price? Citi<\/span> has lowered its nickel price forecasts for 2013 to US$8.30\/lb (current spot US$7.90) and this has driven downgrades to earnings estimates for WSA<\/span> of 17.3% for the year. Deutsche is also bearish on the short-medium term nickel price, which impacts its valuation of the stock. This broker's discounted cash flow valuation is based on a long-term nickel price of US$8.17\/lb. 
\n\t <\/p>\n

\n\tFind out why FNArena<\/span> subscribers like the service so much: "Your Feedback (Thank You)<\/a>" – Warning this story contains unashamedly positive feedback on the service provided.<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"

Western Areas is a high quality producer and a top pick in the sector for many brokers but its future cash flow is plagued by a depressed nickel price.<\/p>\n","protected":false},"author":17,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[6],"tags":[23],"acf":[],"_links":{"self":[{"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/posts\/61167"}],"collection":[{"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/users\/17"}],"replies":[{"embeddable":true,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/comments?post=61167"}],"version-history":[{"count":0,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/posts\/61167\/revisions"}],"wp:attachment":[{"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/media?parent=61167"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/categories?post=61167"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/tags?post=61167"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}