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Why the Western Areas share price sank lower today

The Western Areas Ltd (ASX: WSA) share price has been one of the worst performers on the ASX 200 on Wednesday.

At the time of writing the nickel producer’s shares are down 4% to $2.33 following the release of its half year report.

What happened in the first half?

During the first half of FY 2019 the company produced 10,800 tonnes of nickel concentrate, down slightly on the 10,900 tonnes produced during the prior corresponding period.

Western Areas sold 10,400 tonnes of nickel during the half, down 2% on the prior corresponding period. But thanks to an increase in its realised price, revenue rose 6.8% on the prior corresponding period to $123.7 million.

However, due to higher cash costs EBITDA fell 16% to $30.6 million and net profit after tax plunged from $3.5 million to just $0.2 million.

The company advised that its half year financial results reflect a volatile nickel price and the expected increase in unit cost of nickel production in line with guidance provided for financial year 2019.

What’s next?

Western Areas’ full year guidance remains unchanged, with the exception of capitalised expansion projects and feasibility study expenditure.

Planned Odysseus activities remain on time and budget, however, capitalised expenditure allocated to the project is now forecast to be higher. This is due to the reclassification of the Cosmos site overhead costs.

Management advised that following the decision to mine, these costs, originally budgeted as care and maintenance operating costs, are now allocated to the Odysseus mine capital budget.

Western Areas is targeting 20,500 tonnes to 22,000 tonnes of production at a unit cash cost of $2.80 to $3.20 per pound.

Should you invest?

Although nickel prices have been improving this year and the company has some promising growth projects, I didn’t see anything in this result to make me want to buy shares right now.

As a result, I would rather focus on diversified miners such as BHP Group Ltd (ASX: BHP), Rio Tinto Limited (ASX: RIO), and South32 Ltd (ASX: S32) at this point.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. 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 Scott Phillips.

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