Nickel Mines Limited

NIC Details
 
Decent Top-line and Bottom-line Performance for FY19:Nickel Mines Limited (ASX: NIC) is involved in the acquisition, exploration and development of nickel mining projects. It aims to become a globally significant, low cost producer of nickel pig iron, which is a key ingredient in the production of stainless steel. The company presently holds 60% interest in a 2-line Rotary kiln Electric Furnace plant (Hengjaya Nickel)and a 60% interest in another 2-line RKEF plant (Ranger Nickel).The company has agreed with Shanghai Decent that Nickel Mines would limit its contractual option to further equity interest in the Hengjaya Nickel project to not more than 80% and the period for the option for further equity acquisition in the project was extended until 30 November 2020.

 FY19 Key Highlights for the year ended June 30, 2019:NIC successfully completed its oversubscribed Initial Public Offering, with A$200 Mn raised through the issue of 571,428,571 shares at A$0.35 each. It was admitted to the ASX official list on August 20, 2018. Sales Revenue for the period increased from US$13.55 Mn in FY18 to US$64.94 Mn in FY19. Gross Profit for the period increased from US$3.11 Mn in FY18 to US$21.59 Mn in FY19. The company posted profit for FY19 at US$71.83 Mn as compared to loss of US$2.93 Mn in FY18.


FY19 Income Statement (Source: Company Reports)

What to expect:As per the release, the company distinguishes itself from its peer group with its unique growth optionality such as no mine life limitations and no project development risks. Moreover, the company possesses contractual options to increase its ownership interests in both the HNI and RNI RKEF lines to 80% by November 30, 2020. These contractual options allow company to acquire immediate additional attribute nickel units and operating cash flows on a substantially risk-free basis. Other than this, Limonite ore supply agreement has potential to add material profitability to the company’s mining operations by monetising saprolite pre-strip.

Stock Recommendation:NIC’s share generated positive YTD return of 141.51%. Its gross margin, EBITDA margin and net margin for FY19 stood at 33.2%, 27.5% and 110.6%, better than the FY18 results of 21.1%, -11.2% and -21.6%, respectively, implying drastic improvement in the fundamentals of the company. Its return on equity for FY19 stood at 34.1%, better than the industry median of 12.3%, which implies that the company generated a better return for its shareholders than its peer group. Its current ratio for FY19 stood at 2.29x, better than the industry median of 1.75x, which implies that the better liquidity position of the company than its peer group. Presently, the stock is trading 12.67% below its 52-week high level of $0.750. Hence, considering the aforesaid facts and current trading levels, we recommend a “Speculative Buy” rating on the stock at the current market price of $0.670, up 4.688% on October 3, 2019.

 
NIC Daily Price Chart (Source: Thomson Reuters)
 
 

Western Areas Limited

WSA Details
 
Positive Results at the Investigators Prospect of Mt Alexander Project:Western Areas Limited (ASX: WSA) is involved in mining, processing and sale of nickel sulphide concentrate along with the continued assessment of development feasibility of the high-grade nickel mines and the exploration for nickel sulphides, and other base metals. Recently, the company announced significant intersections of nickel-copper sulphides at the Investigators Prospect (MAD156 and MAD157), which is a part of its flagship Mt Alexander Project, located in the North-Eastern Goldfields.WSA is expected to continue its aggressive drilling to scope out the scale of the deposits on the Belt with further drilling at Investigators to be followed by drilling at new targets, including Radar, Bullets and Fish hook.

FY19 Key Highlights for the period ended June 30, 2019: Sales revenue for the period was reported at A$268.7 Mn, as compared to A$248.3 Mn in the previous year. Net Profit After Tax for the period was reported at A$14.2 Mn, as compared to A$11.8 Mn in the previous year.The period witnessed a robust operating cash flow of $98.3 Mn with no debt alongside significant capital, feasibility and exploration expenditure of $99.3 Mn, representing a substantial investment in the future of Western Areas. Cash on Hand at the end of the period was reported at $144.3 Mn, giving a better position to the company to invest in growth and to fund the Odysseus mine development. The Board of Directors declared a full franked dividend of 2.0 cents per share, representing a pay-out ratio of around 38% of FY19 NPAT. The record date and payment date for the final dividend are on September 13, 2019 and October 4, 2019, respectively.
 

FY19 Key Financial Metrics (Source: Company Reports)

What to expect:As per the release, the company is encouraged by the recent increase in the nickel price and is potential impact on earnings and cashflow, however, nickel market remains unpredictable over political and macro-economic factors. The company is confident over stainless steel demand, which is expected to grow, and the new electric vehicle battery market is moving toward utilisation of higher nickel content batteries, which is expected to help the company in delivering a sustainable return to its shareholders.

Stock Recommendation:WSA’s share generated a positive YTD return of 58.95%. Its net margin for FY19 stood at 5.3%, better than the FY18 result at 4.8%. Its return on equity for FY19 stood at 2.9%, better than the FY18 result of 2.5%. Its current ratio for FY19 stood at 3.55x, better than the industry median of 1.82x, which implies that the company is in a better liquidity position than its peer group. Currently, the stock is trading close to its 52-week high levels of $3.380 with PE multiple of 58.19x. Hence, considering the aforesaid facts and current trading levels, we recommend a “Hold” rating on the stock at the current market price of $3.010, down 0.331% on October 3, 2019.

 
WSA Daily Price Chart (Source: Thomson Reuters)

Disclaimer
 
The advice given by Kalkine Pty Ltd and provided on this website is general information only and it does not take into account your investment objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. Kalkine.com.au and associated pages are published by Kalkine Pty Ltd ABN 34 154 808 312 (Australian Financial Services License Number 425376). The information on this website has been prepared from a wide variety of sources, which Kalkine Pty Ltd, to the best of its knowledge and belief, considers accurate. You should make your own enquiries about any investments and we strongly suggest you seek advice before acting upon any recommendation. Kalkine Pty Ltd has made every effort to ensure the reliability of information contained in its newsletters and websites. All information represents our views at the date of publication and may change without notice. To the extent permitted by law, Kalkine Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss or data corruption). If the law prohibits this exclusion, Kalkine Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services. There may be a product disclosure statement or other offer document for the securities and financial products we write about in Kalkine Reports. You should obtain a copy of the product disclosure statement or offer document before making any decision about whether to acquire the security or product. The link to our Terms & Conditions has been provided please go through them and also have a read of the Financial Services Guide. On the date of publishing this report (mentioned on the website), employees and/or associates of Kalkine Pty Ltd do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations.