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Kalkine Daily 13/02/2015 + Western Areas

Feb 12, 2015

| Read Time :10 Mins

In today’s daily we have covered stock research on Western Areas (BUY).

The S&P 500 was up by 16.95 points or 0.82% to 2085.48 on Thursday. U.S. stocks advanced broadly on Thursday, with a rally in technology stocks leading the Nasdaq to a 15-year high, helping to offset the impact of some tepid economic data. Sentiment was also boosted by a ceasefire agreement between Russia and Ukraine, which soothed concerns that tensions in the region would prove a further drag on Europe's economy.

The Nasdaq touched a peak of 4,847.79, its highest level since March 2000, while the S&P 500 was about 0.4 percent from its intraday record set on Dec. 29. Tesla Motors dropped 5.6 percent to $200.82 after it missed fourth-quarter sales targets and analysts' profit expectations. American Express shares dropped 5.9 percent to $80.94 as the biggest drag on the Dow after it said Costco Wholesale would stop accepting its cards in the United States from next April, after a renewal agreement could not be reached. Costco shares edged down 0.2 percent to $147.12.

American Express Daily Chart (Source – Thomson Reuters)

S&P ASX 200 was down by 25.5 points or 0.44% on Thursday and closed at 5743.6 points. ASX Limited posted a 4.7 per cent first-half rise in profit to $198.6 million, which also matched market expectations. All the exchange's divisions reported revenue growth, resulting in an overall rise in revenue of 5.9 per cent to $348.7 million. ASX Limited shares closed down 1.2 per cent to $39.60.

Domino's, whose shares rocketed higher on Wednesday after reporting a 44.2 per cent rise in first-half net profit. On Thursday investors took some profit, with shares falling 0.9 per cent to $32.70. Telstra, led the market in early trade after it announced a better-than-expected net profit of $2.1 billion in the six months to December 31. Employment fell by 12,200 jobs in January, well above market consensus of a drop of 5,000, while the jobless rate jumped to 6.4 per cent, from 6.1 per cent in December, fuelling speculation the Reserve Bank of Australia would cut rates by another 25 basis points to 2 per cent.

Telstra Daily Chart (Source – Thomson Reuters)

Top Performers on the ASX 200 were :-

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Western Areas Video

Stock of the Day - Western Areas (BUY)

We cover Western Areas (WSA) in today’s report. The Company released its December 2014 quarter production results which were more or less in line with market expectations indicating a solid mining performance at Flying Fox and Spotted Quoll mines. The production of 6.4kt nickel in concentrate was reported to be little higher than expectations with shipping of 6.2kt. The nickel production was partially due to a drawdown of stockpiles. However, concentrate shipments were 1% lower than expected. A relatively weaker result was witnessed for Flying Fox owing to lower ore mined. Slightly better grades were noted for both the mines though. Thus, the quarterly results were steered by first-rate mine and concentrator performance. There was a mixed outcome for exploration results with massive sulphides discovered around the T1 and T6 zones at Flying Fox. Regional drilling at Forrestania did not yield any highly positive news other than the fact that the concentrate continued to perform above nameplate and maintained high rates of nickel recovery. The study-related work for developing an open pit and underground mine at New Morning is underway. The results of the BioHeap project are expected to be out in few months which can improve recoveries.

Mine and Mill Production (Source – Company Reports)

Till now, the Company has been able to deliver unswerving production results which is expected to continue further. Discovery at Forrestania or the New Morning development will be an important aspect.

Flying Fox_Nickel Massive Ore (Source – Company Reports)

The unit cash costs of nickel in concentrate came in at $2.23/lb, a little lower than the market’s expectations. Cash of $179m was at hand at the end of December 2014. Free cash flow from operations for the quarter was $25.6m. The net cash position increased to $53.7m as at 31 December 2014 from $45m at 30 September 2014. There is a convertible note debt which is due in July 2015 ($125m) and WSA should be able to repay this in view of the healthy cash balance. The Company has paid a fully franked 4 cent per share dividend ($9.3m) to shareholders on 10 October 2014.

The Company is tracking well ahead of FY15 cash cost guidance of $2.70-2.80/lb nickel in concentrate and a further improvement in cash cost guidance for the full year is expected. The release of 1HFY15 financial results due in February 2015 will reveal further insights. The FY15 production guidance of 25-27kt nickel in ore mined (13.3kt FY15 YTD) and 24.525.5kt nickel in concentrate (12.9kt FY15 YTD) looks achievable based on the on-track performance.

Spotted Quoll Resource Model (Source – Company Reports)

The high-grade and low-cost nickel sulphide concentrate production appears to be of importance to off-takers such as BHP Billiton and Jinchuan Group. The re-signed Jinchuan Group’s nickel concentrate sales contract which has been effective from December 2014 indicates around half of WSA’s nickel in concentrate output.

Cosmic Boy Nickel Concentrator (Source – Company Reports)

Strandline Resources Limited recently advised that WSA has completed a detailed magnetic survey over Strandline’s 100% owned Fowlers Bay Project. The survey indicated the first stage of WSA’s earn into Fowlers Bay. Then, Monax Mining Ltd. announced that a detailed aeromagnetic survey has been completed on its Western Gawler Craton Project which is wholly funded by WSA under the recently announced farm-in Agreement.

The key risks to keep an eye on relate to commodity price fluctuations, exchange rate fluctuations, debt commitments, and investment-related risks for resource growth.

Chinese Ore Stockpiles (Source – Company Reports)

It is being sensed that nickel prices are expected to rise over 2015 in view of cramping of supply as Indonesian laterite ore stocks in China run out. Thus, WSA provides a good bet given the low operational risk.

WSA Daily Chart (Source - Thomson Reuters)

Based on the above, we reiterate a BUY recommendation for this stock at the current price of $4.32.

Team Kalkine

Level 13 167 Macquarie Street
Sydney NSW 2000 Australia
E-Mail - [email protected]
Phone - 02 8667 3147

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