This morning nickel miner Western Areas Ltd (ASX: WSA) released an excellent set of half-yearly financial results.
In the six months to 31 December 2014, Western Areas' net profit after tax, or NPAT, rose to $23.6 million, or 774% higher from the $2.7 million it made in the prior corresponding period. Quarter over quarter, NPAT was 3.5% higher.
The company put the excellent results down to its operating cost initiatives and the increase in nickel prices following Indonesia's export ban in January 2014.
Having lower costs and higher prices enabled the company's operational cash flow, after capital expenditures, to increase 175% to $52.9 million.
Western Areas was able to transform its balance sheet from a $135.3 million net debt position, to a net cash balance of $53.7 million, with the company stating it has realised $12 million in savings from debt costs.
The strong balance sheet position enabled management to declare a fully franked interim dividend of three cents per share, up from one cent per share in the prior period.
"In respect of dividends, the Company is pleased to announce a fully franked interim dividend of 3 cents per share, representing a threefold increase on the previous corresponding period. The interim dividend resulted in a payout ratio of around 30%, with potential for an increase in the final dividend, assuming a similar nickel price environment and business conditions," said Managing Director Dan Lougher.
Promisingly, Mr Lougher added, "The effects of the Indonesian Government export ban, which commenced in January 2014, and subsequent market supply responses are still flowing through the nickel market."
The company updated its FY15 forecasts, improving its unit cash cost guidance from between $2.70 and $2.80 per pound to between $2.40 and $2.50 per pound. Nickel production (Nickel in ore) will be in the middle of the company's previously stated range of 25,000 to 27,000 tonnes, whilst Nickel in Concentrate Production will come in at the upper end of guidance, between 24,500 and 25,500 tonnes.
Given the company realised an average nickel price of $8.12 per pound during the half, it's likely it'll continue to produce strong free cash flows for some time yet.
Should you buy Western Areas shares?
At today's levels, it appears investors have priced in strong growth for Western Areas over coming years. Whilst the business is in an undoubtedly strong financial position, waiting for a lower entry point might be worthwhile.
