What happened to the Western Areas Share Price?
Shares of Western Areas [ASX:WSA] rose by 4.01% on Tuesday, closing at $4.41. This is close to its highest level since the beginning of 2013. The share price has increased over 85% since the start of this year.
Why did the Western Areas Share Price Rise?
Western Areas is Australia’s second largest sulphide nickel miner, producing roughly 25,000 tonnes per year of nickel in ore from its Flying Fox and Spotted Quoll mines.
The WSA share price has nearly doubled in price since the start of this year; a time when Indonesia, the world’s top supplier of the metal, began talking about enforcing a ban on nickel exports (now enforced).
On top of this, recently Vale SA [SA:VALE5] was ordered to shut down one of its largest nickel processing plants by the New Caledonia government. The plant encountered a spill of ‘acid-containing solution,’ a small amount of which entered a nearby creek. Vale is the world’s second largest nickel producer.
In this case, the nickel spot price continues its volatile climb. Spot nickel reached $21,625 per tonne on May 13, the highest level since February 2012. The price has increased roughly 43% this year.
What now for Western Areas?
The company is living up to its slogan, ‘Think Nickel, Think Western Areas’.
Fundamentally, the company’s nickel assets look good — very high grade and low cost.
Flying Fox is a very high grade mine with a current reserve estimate of 1.5 million tonnes at an average grade of 4% nickel. Nonetheless, with the company mining Flying Fox at a production rate of roughly 300,000 tonnes of nickel per year, the remaining mine life is just 4.5 years.
Saying this, there is significant exploration upside at deeper depths for the company, which could materially upgrade its mine life.
The Spotted Quoll mine is also very high grade nickel, at roughly 5.5%. The mine life and reserves are likely to extend beyond 10 years.
Nonetheless, the share price has nearly doubled since the Indonesian nickel export ban was enforced. Furthermore, with speculative interest focusing on nickel, the price is volatile.
The market is concerned about supply, mostly because of Indonesia’s export ban. If Indonesia decided to reverse its ban, Western Areas shareholders could be in for a lot of pain.
Western Areas looks like it will continue to be a roller coaster ride on the Nickel price.
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