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.


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.


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.


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.


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.

Source link


  1. 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.

  2. 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.

  3. 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?

  4. 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.

  5. 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!

  6. 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.

  7. 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!

  8. 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!

  9. 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

  10. 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.

  11. 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!

  12. 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!

  13. 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.

  14. 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.


Please enter your comment!
Please enter your name here