Western Areas Limited

Robust quarterly activity report: Western Areas Limited (ASX: WSA) is in the metals and mining sector. The company has development projects based out of Canada, Finland, and Australia. Recently, the group has reported solid progress across its various activities during the December quarter including consistent quarterly production results, with all operational metrics for the half-year which are on track to meet the full year guidance. The operating cash flow stood at A$18.2 million with closing cash at bank of A$134.3 million in the December quarter.

During the December quarter, total nickel mined was 5,851 tonnes was the lowest production volume in last four quarters and this led to total nickel component in stockpiles to 4,413 tonnes which were the lowest level since June Quarter 2018. Based on quarterly results, it is anticipated that the group is in-line to meet the guidance of producing Nickel concentrate in the range of 20,500 to 22,000 tonnes.

 
Production Overview (Source: Company Reports)

On the financial performance front, the company reported revenue of $248.26 million approximately in FY18 compared to $213.92 million approximately in FY17. The increase in revenue, however, was primarily due to the higher average nickel price for the year at A$7.53/lb, compared to A$6.11/lb in FY17, which was partially offset by a reduction in sales volumes.  The net profit after tax stood at $11.83 million approximately in FY18, A$7.5m lower than the prior year due to the increased earnings from ordinary mining activities that resulted in an increased tax expense of A$7.3 million as underlying business earnings are subject to normal corporate income tax. The EBITDA margin is 32.8% in FY 18 increased by 1,030 bps over the year with asset turnover at 0.46x in FY18 vs. 0.42x in FY17, up by 7.3% Y-O-Y.

What WSA has been focusing on: The Board is focused on the core business of low cost, long life nickel production, new nickel discoveries and generating returns to shareholders. It has put in place the cost structure and capabilities to prosper through commodity price cycles that include a prudent capital management strategy and an opportunistic approach to joint venture opportunities and value-based asset acquisition assessment.

The stock is currently trading at $2.190, up by 3.302% during the day’s trade, with a market capitalization of $579.79 million.The stock generated a YTD return of 11.58% and 6.0% return over the past one month as on January 29, 2019.

On the back of robust quarterly activity updates coupled with strong financials, we maintain our “Hold” rating on the stock at the current market price of A$2.190 per share.

Independence Group NL

Strong Y-O-Y performance driven by NOVA operations: Independence Group NL (ASX: IGO) is into mining and exploration. The company strategically focuses on high-quality assets of scale and longevity coupled with a strategy to align the business to the structural shift to energy storage.

On 20 December 2018, the company confirmed that a pre-feasibility study at Boston Shaker pits at Tropicana has confirmed that underground mining is technically and financially viable.Besides this, the company became a substantial shareholder in Orion Minerals NL via a $5.0 million share placement so that preferential rights can be secured to joint venture/purchase Orion’s nickel projects in highly prospective Areachap Belt.
 

Three Years Financial Summary (Sources: Company Reports)

The revenue stood at $777.94 million in FY18, increased by 84.4% Y-0-Y approximately on the back of commencement of NOVA operations.NPAT for FY18 was $52.7 million, compared to $17.0 million FY17, mainly driven by the inclusion of the Nova Operation in results, following declaration of commercial production on 1 July 2017 and improved by gain in respect of an agreement with Dacian Gold Limited for the sale of the Jupiter mine royalty for consideration of $11.5 million.

The key ratios improved significantly Y-O-Y mainly on the back of the improving financials from the performance of NOVA operations.The asset turnover ratio and ROE stood at 0.35x and 3.0% an increase by 77.3% and 1.9% respectively Y-O-Y. The current ratio however improved significantly by 71.1% approximately and stood at 2.90x in FY18.

Key Focus Area for FY 2019: IGO is well placed for a strong FY19, with both Nova and Tropicana poised to deliver improved productivity and value. Besides this, IGO continues to make good progress with the major value enhancement projects including downstream processing of Nova nickel concentrate.

The stock is currently trading at $4.220, with a market capitalization of $2.46 billion. The stock is trading at a PE multiple of 46.44x. It has a YTD return of 14.88% and a return of 9.16% over the last one month. Based on foregoing, we reiterate our “Hold” rating on the stock at current price of A$4.220 per share (up 1.119% on January 30, 2019).
 
 

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