The Indonesian government has signalled the possibility of an export tax on less than 70% contained nickel products. Approximately 50% of the company’s current production is sold domestically to the adjacent stainless steel mill.
Nickel Mines is also assessing potential to convert 50% of its capacity in nickel pig iron to nickel matte, which would avoid the export tax. Macquarie believes this is a key risk and could have material impact on earnings forecasts and valuation.
Yet, nickel pig iron prices are currently trading at 90% of LME nickel prices so there is also near-term upside risk, the broker adds. Neutral maintained. Target is reduced to $1.10 from $1.15.
Target price is $1.10.Current Price is $0.95. Difference: $0.15 – (brackets indicate current price is over target). If NIC meets the Macquarie target it will return approximately 14% (excluding dividends, fees and charges – negative figures indicate an expected loss).