Western Areas is an Australian-based nickel sulphide explorer and producer. The core asset is the 100% owned Forrestania Nickel Operation which comprises two operating mines; Flying Fox and Spotted Quoll. Western Areas’ (WSA) home office is located in Perth with a majority of their business occurring in Western Australia.
Key Fundamental Drivers
Cash Holding
Western Areas has a current market (22nd April 2020) of approximately $570 million AUD. Western Areas also has an outstanding cash holding of $184.9m (As at 31st December 2019) with no debt. In the companies 1H FY20 report, it stated that it had $189.4m of cash at the bank and also a positive free cashflow of A$40.6m for the first half’s results. The company was able to produce Revenues of A$156.2m for the first half FY20 and an Earnings Before Interest and Tax (EBIT) of $34.6m and a Net Profit After Tax (NPAT) of $24.7m.
This means Western Areas was able to produce a EBIT/Revenue ratio of 22.17% and a NPAT/Revenue ratio of 15.81%. These numbers are outstanding. In simpler terms, for every dollar Western Areas was able to sell (Revenue) it was able to collect $0.1581 in profits after paying tax (NPAT). Those are some enviable numbers if they are able to continue with those percentages.
Western Areas was able to increase it’s cash holding to $184.9m from $134.3m the year before, an increase of $50.6m year on year.
Nickel Supply/Demand
Western Areas stated in their FY19 report that their cost to produce was $2.98 AUD per pound of Nickel. In the 1H FY20 they stated it was at a cost of $3.07 AUD per pound, although the AUD/USD rate fell, meaning in terms of cost production (in USD) fell. Using the conversion rates provided by Western Areas we can estimate costs to produce and show potential profits. The graph above shows approximate costs to produce Nickel per pound and the green highlighted section is the potential profit per pound. The cause for the drop in cost to produce is a lower FX, namely a lower AUD/USD.
The guidance that the company has given is quite extensive. You are able to see the estimated Nickel Tonnes to be produced, the companies estimated cost of production and other expenditures. If the company is able to continue to keep cash cost of production low, and the Nickel price remains steady then Western Areas could become an interesting company to watch.
Risks
There are always certain risks when it comes to mining companies. These risks include, not having enough cash flow to continue the business – this is counteracted with Western Areas large cash holding.
Another risk is the desire for Nickel in the market – this can only be estimated but I personally believe the demand for Nickel will continue to climb with the adoption of Electric Vehicles.
Cost of Nickel has to be much lower than the spot price of Nickel. As seen in the graph above, Western Areas has acheived a low cost of production but has capitalised on higher cost per pound when it comes to selling Nickel. The average price of Nickel has since declined since the H1 FY20 report and doesn’t look to be trending up or down.
Charts
The chart above, shows some minor resistance at the $2.20 level which has been reached and then retracted and a major resistance at $2.69. A very low significant support at $1.66. The MACD shows a minor bullish signal, which could possibly change to a major bullish signal if the MACD line stays above the signal line and the MACD is above 0.
Discussion
While there are definitely some risk involved with all mining companies, I believe the strong cash holding and continuing operation of Western Areas presents significant opportunities. If Western Areas is able to continually output their Nickel, while keeping costs low and selling at current levels, the company should see moderate Revenue and EBIT. With the potential for future use in electric vehicles, Nickel mining in Australia could become quite profitable.
Disclaimer
The information in this article is for general purposes only and should not be considered as advice to any persons. No monies should be invested based on what is contained in this article. I do not currently own Western Areas (ASX:WSA) at time of writing this article.
What’s Taking place i am new to this, I stumbled upon this I have found It positively
helpful and it has aided me out loads. I am hoping to give a contribution & aid different customers like its aided me.
Good job.
Thanks for sharing your info. I truly appreciate your efforts and I will be waiting for
your next post thank you once again.
Great post. I was checking constantly this blog and I’m impressed!
Extremely useful info particularly the last part 🙂 I care for
such information a lot. I was seeking this certain info for a very
long time. Thank you and best of luck.
It is appropriate time to make some plans for the future and it’s time to be
happy. I have read this post and if I could I desire
to suggest you some interesting things or suggestions.
Maybe you can write next articles referring to this article.
I want to read more things about it!
My family all the time say that I am killing my time here at net, however
I know I am getting knowledge all the time by reading thes good articles
or reviews.
Pretty portion of content. I just stumbled upon your
website and in accession capital to say that
I get actually enjoyed account your blog posts. Any way I will be subscribing
for your augment or even I achievement you get entry to persistently quickly.
I’m not sure where you’re getting your information, but good topic.
I needs to spend some time learning more or understanding more.
Thanks for magnificent information I was looking for this info
for my mission.
Appreciate this post. Will try it out.
When I initially commented I seem to have clicked on the -Notify me when new comments
are added- checkbox and now whenever a comment is added I recieve 4 emails with the same comment.
There has to be a means you are able to remove
me from that service? Cheers!
I was curious if you ever thought of changing the structure of your
site? Its very well written; I love what youve got to say.
But maybe you could a little more in the way of content so people could connect with it better.
Youve got an awful lot of text for only having one or 2 images.
Maybe you could space it out better?
It’s an remarkable paragraph designed for all the web
people; they will obtain benefit from it I am sure.
whoah this blog is great i like reading your articles.
Stay up the good work! You already know, lots of persons are hunting
around for this info, you could help them greatly.
I’m impressed, I have to admit. Seldom do I come across a
blog that’s both educative and interesting, and without a doubt, you’ve hit the nail on the head.
The issue is something that not enough people are speaking intelligently about.
Now i’m very happy that I stumbled across this during my hunt for something regarding this.
Hi there! This is my first comment here so I just wanted to give a
quick shout out and tell you I truly enjoy reading your articles.
Can you recommend any other blogs/websites/forums that deal with
the same subjects? Many thanks!
Hey I know this is off topic but I was wondering if you knew of any
widgets I could add to my blog that automatically tweet my newest twitter updates.
I’ve been looking for a plug-in like this for quite some time
and was hoping maybe you would have some experience
with something like this. Please let me know if you run into anything.
I truly enjoy reading your blog and I look forward to your new updates.
For newest information you have to pay a visit internet and on the web I found this site as
a best web page for most recent updates.
Excellent blog! Do you have any helpful hints for aspiring writers?
I’m hoping to start my own blog soon but I’m a little lost on everything.
Would you recommend starting with a free platform like WordPress or go for a paid option? There are so many choices out there that I’m completely confused ..
Any tips? Kudos!
This design is spectacular! You definitely know how to keep a reader amused.
Between your wit and your videos, I was almost moved to start
my own blog (well, almost…HaHa!) Excellent job.
I really enjoyed what you had to say, and more than that, how you
presented it. Too cool!
Hi! I could have sworn I’ve been to this site before but after browsing through some of the
post I realized it’s new to me. Anyhow, I’m definitely glad I
found it and I’ll be book-marking and checking back often!
What’s up colleagues, how is all, and what you would like to say regarding this post, in my view
its actually awesome in favor of me.
Having read this I believed it was rather informative.
I appreciate you finding the time and effort to put this information together.
I once again find myself personally spending a significant amount of time both reading and leaving comments.
But so what, it was still worthwhile!
My developer is trying to convince me to move to .net from PHP.
I have always disliked the idea because of the costs.
But he’s tryiong none the less. I’ve been using Movable-type on several websites for about a year and am worried about switching to another platform.
I have heard great things about blogengine.net. Is there a way I can transfer all my wordpress
content into it? Any kind of help would be greatly appreciated!
Everyone loves it when individuals get together and share
ideas. Great blog, keep it up!
This post will help the internet users for
building up new website or even a blog from start to end.
I couldn’t refrain from commenting. Very well written!
Hi, this weekend is fastidious designed for me, for the reason that this
point in time i am reading this fantastic informative piece of writing here at
my residence.
I for all time emailed this weblog post page to all my associates, as if like to read it next my friends will too.
You’re so cool! I don’t think I’ve read anything like this before.
So good to discover somebody with genuine thoughts on this issue.
Seriously.. thank you for starting this up. This web site is one
thing that is required on the web, someone with a
little originality!
I always emailed this web site post page to all my contacts, as if like to read it
next my friends will too.
These are genuinely fantastic ideas in about blogging.
You have touched some fastidious points here. Any way keep up wrinting.
Having read this I believed it was rather informative.
I appreciate you taking the time and effort to put this short article together.
I once again find myself personally spending a lot of
time both reading and commenting. But so what, it was still worthwhile!
Wow! In the end I got a weblog from where I be capable of actually obtain valuable data concerning my study and knowledge.
Hello! I know this is kind of off topic but I was wondering which blog platform are you using for this website?
I’m getting tired of WordPress because I’ve had problems with hackers and I’m looking at alternatives for another platform.
I would be fantastic if you could point me in the direction of a
good platform.
Unquestionably believe that which you said. Your favorite reason seemed
to be on the internet the easiest thing to be aware
of. I say to you, I certainly get annoyed while people consider worries that they plainly do
not know about. You managed to hit the nail upon the top and also defined out the whole thing without having side effect , people can take a signal.
Will likely be back to get more. Thanks
I have been exploring for a little for any high-quality articles or weblog posts on this sort of area .
Exploring in Yahoo I finally stumbled upon this
site. Studying this info So i am satisfied to show that I have an incredibly good uncanny feeling I discovered
just what I needed. I such a lot indisputably will make sure
to don?t overlook this site and provides it a look on a constant basis.
You’re so cool! I do not think I have read through a single thing like that
before. So wonderful to discover somebody with genuine thoughts on this issue.
Seriously.. thanks for starting this up. This web site
is something that is required on the web, someone
with a bit of originality!
First off I would like to say superb blog!
I had a quick question that I’d like to ask if you don’t mind.
I was interested to find out how you center yourself
and clear your head prior to writing. I have had a hard time
clearing my mind in getting my thoughts out. I truly do enjoy writing however it just seems like the
first 10 to 15 minutes are wasted just trying to figure out how to begin. Any suggestions or
tips? Thank you!
What i do not realize is actually how you are not actually a lot more well-appreciated
than you might be right now. You’re very intelligent.
You recognize thus considerably with regards to this matter, produced me in my opinion imagine it from a
lot of numerous angles. Its like women and men aren’t involved except it is one thing to accomplish with Woman gaga!
Your personal stuffs excellent. At all times handle
it up!
This is a great tip especially to those new to the blogosphere.
Simple but very precise info… Thanks for sharing this
one. A must read post!
Hi! I know this is kind of off topic but I was wondering which blog platform are you using for this website?
I’m getting sick and tired of WordPress because I’ve had problems with hackers and I’m
looking at options for another platform. I would be great if you could point me in the direction of a
good platform.
Hi everyone, it’s my first go to see at this website, and post is really fruitful in favor of me, keep up posting these content.
you’re really a just right webmaster. The website
loading velocity is amazing. It kind of feels that you are doing any distinctive trick.
In addition, The contents are masterpiece. you’ve performed a excellent activity on this subject!
I was able to find good advice from your content.
Because the admin of this website is working, no uncertainty very shortly it will be well-known, due to its feature contents.
I don’t know if it’s just me or if everyone else experiencing problems
with your website. It appears like some of the text in your content are running off the screen. Can someone else please provide
feedback and let me know if this is happening
to them too? This could be a problem with my web browser because I’ve had this happen previously.
Cheers
This is my first time visit at here and i am actually happy to
read all at one place.