Australia's lowest-cost nickel miner Western Areas Ltd (ASX: WSA) delivered an outstanding set of full-year results yesterday despite the nickel price collapsing to levels not seen since the Global Financial Crisis.
Western Areas reported a 37% increase in net profit after tax to $35 million for FY 2015 even though sales volumes for the year were flat at 26,000 tonnes and the average realised nickel price was 4% lower at A$7.87/lb compared to the prior year.
A fully franked dividend of 4 cents per share was declared which brings total dividends for the year to 7 cents per share.
An optimised mining schedule resulted in lower total tonnes mined and lower operating costs compared to the previous year. The mill recovery enhancement project currently underway is expected to increase nickel recovery by 3%-5% and should start delivering results after construction is completed in six months' time.
Western Areas is now debt free after the full repayment of its convertible bonds on 2 July 2015. The reduction in interest payments saved the company around $10 million in FY 2015 and a similar cost saving is expected in FY 2016.
Managing Director Dan Lougher noted: "This year has been extremely successful on a number of fronts for Western Areas with profit improving year on year, an LTI rate of zero, guidance fully delivered, significantly reduced cost base, repayment of debt, increased cash flow and ultimately a lift in shareholder dividends."
Mine development at their operations is almost two years ahead of mining reserves after years of aggressive exploration and development. This gives the company the flexibility to reduce capital expenditure and provide stronger returns as the nickel price continues to slide.
Western Areas provided guidance for FY 2016 with production volumes and cash costs expected to remain steady. Sustaining capital expenditure will reduce by 25% to $45 million. An additional $22 million will be spent on the mill enhancement project, whilst $7 million will be used to kick off exploration and study work at their recent Cosmos acquisition and both projects are expected to provide long-term benefits to the company.
The collapse in commodity prices has many mining companies struggling to stay afloat. Western Areas is an exception and is one of the best mining companies listed on the ASX.
Being debt free and having the capability to reduce capital expenditure if required gives me confidence that Western Areas will survive the current downturn and emerge in a stronger position in the future.
