After a big jump yesterday, the Western Areas Ltd (ASX: WSA) share price has now given back almost all of its gains today.
In morning trade the nickel producer's shares are down 6.5% to $1.94.
What happened?
This morning Western Areas released its end of financial year update.
Despite reporting that nickel production would be towards the high end of its previous guidance and unit cost of production would be at the lower end, the market appears to have been expecting even better.
The solid end to the year is the result of a strong operational performance in the second-half. Management has pointed to innovation around dilution controls, efficiency improvements, and cost reduction activities, as playing a key role in the improved performance.
One slight disappointment is that due to crane maintenance, the export shipment to Tsingshan, which was scheduled for late June 2017, may be delayed slightly.
This means the revenue from this particular shipment worth approximately $9 million is likely to fall into the following financial year. Hardly anything to worry about in my opinion.
Should you buy the dip?
I think Western Areas would be trading at a very attractive level if nickel prices improved.
Nickel prices have been trading at extremely low levels for some time now, weighing heavily on the company's performance.
But should they improve then the work that management has done to reduce costs will result in highly profitable operations.
Whilst Western Areas could follow in the footsteps of Fortescue Metals Group Limited (ASX: FMG) and be the next resources sector turnaround story, until prices do improve I would hold off an investment.
Especially given the reasonably subdued outlook on prices moving forward.
