Brokers acknowledge Western Areas (WSA) has worked hard to maintain its profitability after a long period of sluggish nickel prices and, with the recent rally in prices on the back of the Philippines policy announcements, wonder just what lies in store for the producer. The company advised back in August that mine grades for both Flying Fox and Spotted Quoll (Forrestania) would trend lower to reserve higher grade material pending price improvement and this was evident in the September quarter production numbers.
Macquarie has upgraded its FY20 and FY21 nickel price forecasts by 34% and 9% respectively to incorporate the early reinstatement of the nickel ore ban. This leads to a 266% increase in forecast FY20 earnings for Western Areas.
September quarter production was in line with Macquarie's forecasts. The company has recently released the results of the Odysseus definitive feasibility study and the broker considers the economics are robust, which underpin nickel production for the next decade.
June quarter production of coking coal was in line and cash flow was stronger. The company has achieved 21,000t in FY18, as per recent guidance. Nickel mined in the quarter was 6,381t for an FY18 total of 24,442t.
Citi analysts seem pleased with the June quarter production report. They anticipate both higher grades and recoveries in H2. Neutral rating retained as the target price withstands lower nickel price forecasts plus a stronger AUD in forward modeling.