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09 April 2021 | Buy

BUY | Western Areas Ltd


An attractive entry point for long-term investors

Western Areas Ltd (ASX:WSA)

Western Areas Ltd mines, processes and sells nickel sulphide concentrates and other base metals in Australia.

The stock has suffered a 33% decline from its January highs of ~$3, primarily due to short-term production issues at its two operating mines. While initially deemed a  short-term issue likely to only affect a quarter’s output (and therefore costs), it has unfortunately persisted into the second quarter, forcing WSA to downgrade its Full Year production forecast by around 10%. Part of this downgrade is out of the company’s control as seismic activity delayed access to high-grade ore while unexpected low-grade intrusion to the ore body has lasted longer than expected. This is a little disappointing as the company had a history of stable production allowing it to build a reputation for beating guidance.

This news has partially negated the favourable backdrop for nickel prices given the growing demand from the electric vehicle markets. In the face of slightly weaker production and sales results, the company has elected to raise $100m from shareholders at $2.15 per share as the company conservatively funds its next major growth phase – the Odysseus project, which remains on track and budget for the first production in FY23, as well as other advanced targeted exploration projects.

While disheartening, the news doesn’t detract from the long-term favourable outlook for the company (and nickel price), and we happily accumulate shares on market (at a discount to what institutions paid) as WSA now trades at their largest discount to the US$ Nickel price in 5 years, therefore providing an attractive entry point for long term investors.


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