Where to next for the Western Areas Ltd share price?

Source: Getty Images

Nickel miner Western Areas Ltd (ASX: WSA) has seen its share price rise more than 28% so far this year, but are there more gains ahead?

Some investors certainly don’t think so. Western Areas is the fourth most shorted company on the ASX, perhaps as investors bet on further falls in nickel prices.

What does Western Areas do?

The company has 3 nickel operations in Western Australia, Cosmos nickel Complex, Flying Fox and Spotted Quoll – although production of nickel comes from just the latter two. Between them, the two mines produced almost 28,000 tonnes of nickel in the 2016 financial year. However, the company still reported a net loss after tax of $30 million.

Nickel price outlook

The problem for Western Areas is that nickel prices are still around decade lows at $10,310 per tonne, or US$4.68 a pound (lb). However, there are signs that the market could be turning around and commodities trader and miner Glencore expects nickel prices to climb through 2018 as demand outstrips supply.

“We believe we’ve seen the bottom, both in terms of the actual spot prices experienced earlier this year and also in terms of the annual average we will see in 2016,” Kenny Ives, the company’s head of nickel has told Bloomberg.


Source: Infomine


The world’s largest shipper of mined nickel used in stainless steel, the Philippines, is currently carrying out an environmental audit on its mines and closing those that don’t meet international standards. 10 have already been halted and another 12 mines, mostly nickel have been suspended.

Steel output has also increased this year. Mr Ives says the global shortage will be around 100,000 metric tonnes in 2016 and shortages will continue going forward.

Independence Group NL (ASX: IGO), a fellow Australian nickel producer, also said recently that growing demand from electric vehicles and the Philippines crackdown were two catalysts that could see nickel prices rise.

And at the recent Diggers & Drillers conference, there are reports that some think nickel could be this year’s surprise winner.

Foolish takeaway

That should be good news for Western Areas and other nickel miners and potentially bad news for those investors shorting the company. A ‘short squeeze’ could see Western Areas’ share price explode upwards.


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Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. You can follow Mike on Twitter @TMFKinga

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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