Western Areas Ltd reports big profit rise: Should you buy?

What: Nickel explorer and miner Western Areas Ltd (ASX: WSA) posted an underlying net profit of $25.5 million today on full-year sales revenues of $320.1 million. The company now has a net cash position, strong development prospects and a product in strong demand.

Western Areas has seen its shares more than double in value since 2014 as market prices for nickel surged after Indonesia banned its export in January and major customers like China got edgy over reportedly declining nickel stockpiles.

So What: Credible analysts and industry experts from the likes of Goldman Sachs and Macquarie Group have suggested nickel will see continued price rises given the outlook. While Russia-based, Norilsk Nickel, the world’s largest supplier, has stated it expects demand to continue to outstrip supply.

Western Areas is one of the lowest cost nickel producers in the world thanks to its highly productive Flying Fox and Spotted Quoll mines in the Forrestania area of Western Australia. The company also owns and operates the Cosmic Boy Concentrator, which treats and produces nickel concentrate for itself and other parties.

The improved performance means a 4 cents per share final dividend was declared to take the full year total to 5 cents per share.

Now What: The Forrestania area remain the company’s key exploration focus given the twin benefits of existing infrastructure and a high grade nickel endowment demonstrated by existing discoveries to date.

This year’s increased cash flows mean an increase in exploration expenditure and given Indonesia’s reported commitment to its export ban the nickel price could be on the run for a while yet.

The outlook looks bright for Western Areas but that’s no secret given the shares have doubled in value recently. The key to making out-sized returns is finding the Western Areas of tomorrow not today!  If you’re interested it’s worth checking out three little known resources companies we think have got that potential.

To read all about them just enter your email for our completely FREE report  "3 Resources Companies That Could Win Big"

Motley Fool contributor Tom Richardson has no financial interest in any company mentioned. You can find him on Twitter @tommyr345

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