The catalysts for the recent surge in nickel prices include the Indonesian ban on unprocessed exports and possible further sanctions against Russia. However these factors are only part of the reason why nickel stockpiles are declining rapidly and major customers such as China are getting edgy. Simply put demand is exceeding supply and the pressures seem certain to continue, barring a major world recession.
All this is grist to the mill for some metal bulls, however there are highly credible analysts and industry experts who maintain we are in the early stages of an upward cycle for this essential commodity.
1. Russian based Norilsk Nickel, the world's largest producer, has stated demand will continue to outstrip supply.
2. Macquarie Group has forecast supply shortages are likely to continue this side of 2019.
3. Goldman Sachs believes smelter capacity in Indonesia needs higher prices in order to expand capacity
Western Areas Ltd (ASX: WSA) is one of the lowest cost nickel miners in the world and produces from the rich Spotted Quoll and Flying Fox nickel mines in the Forrestania region of Western Australia. This company also owns and operates the Cosmic Boy Concentrator, which treats and produces nickel concentrate for itself and other parties.
I first mentioned Western Areas in January as a miner with potential when it was priced at $2.38. It's now gained 86% to $4.43 (although there was a share issue in the period). However there's nothing speculative about this dividend paying stock – in fact cash costs have continued to decline, debt has been paid down (via the share issue) and underlying profits are highly leveraged to better market conditions.
With the nickel price rising from a 52-week low of US$5.97lb to a recent US$8.80lb some pullback or consolidation phase can be expected. In my view a solid opportunity to buy this undervalued miner.
Panoramic Resources Limited (ASX: PAN) owns and operates the Savannah and Lanfranchi nickel mines in WA. It also has a number of promising exploration prospects in Canada and Norway. However the company's main exposure is to nickel, and the share price has shot up following the recent discovery of a potentially large new deposit at Savannah North.
With two producing mines Panoramic Resources (65c) is in a sweet position should nickel prices settle at or improve from current levels, and this company is a good speculative buy.
