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.
General Disclaimer
This article has been prepared for the general information of investors and not having regard to any particular person’s financial situation, objectives, or needs. Accordingly, in so far as any information may constitute advice (whether express or implied), it is general advice and no recipient should rely upon it without having obtained specific advice from their advisor at Baker Young Limited. Baker Young Limited makes no representation, gives no warranty, and does not accept any responsibility for the accuracy or completeness of any recommendation, information, or advice contained herein. To the extent permitted by law, Baker Young Limited will not be liable to the recipient or any other persons in contract, in tort or otherwise for any loss or damage (including indirect or consequential loss) as a result of the recipient, or any other person acting or refraining from acting in reliance on any recommendation, information or advice herein. Baker Young Limited or persons associated with it may have an interest in the securities or financial products mentioned in this document and may earn brokerage and other fees as a result of transactions in any such securities. Australian Financial Services Number 246735.