The Western Areas Ltd (ASX: WSA) share price has continued its strong run and is up a further 2% to $2.42 in afternoon trade.
This latest gain means the nickel producer’s shares have now risen an impressive 17% since the start of the year.
Why is the Western Areas share price on fire this week?
A good portion of Western Areas’ strong share price gain came on Thursday following the release of its fourth quarter update.
Western Areas reported mine production of 5,423 nickel tonnes for the fourth quarter and 23,208 nickel tonnes for FY 2019. It also achieved its highest quarter of nickel sales, bringing full year sales to 21,483 nickel tonnes.
Whilst this was largely in line with what the market was expecting, I suspect that some investors had been betting on the company failing to live up to these expectations.
After all, the company had around 7.5% of its shares held short at the last count.
What about today’s gain?
Today’s gain appears to have been driven by an announcement out of the nickel miner just after lunch.
According to the release, an offtake sale and purchase agreement has been executed with Sumitomo Metal Mining for the delivery of premium high-grade nickel sulphide precipitate (NSP) being produced at its Mill Recovery Enhancement Project (MREP) located at the Forrestania Nickel Operation.
Sumitomo Metal Mining, a major Japanese mining and refining conglomerate, has agreed a 12-month term and has no set volume to be supplied. However, it is expected that all product produced will be sold into the agreement.
The release explains that the NSP product is a new high-grade product stream (grading of 45% – 50% nickel), which is separate from the its conventional nickel sulphide product (grading of ~14% nickel) supplied under existing offtake contracts with Tsingshan and BHP Group Ltd (ASX: BHP) subsidiary BHP Billiton Nickel West.
Western Areas managing director, Dan Lougher, was pleased with the agreement.
He said: “Formalising a relationship with a high quality international resource company with downstream processing capabilities and direct links into the electric vehicle battery market is a significant step forward in our strategy to supply diversified nickel products into the rapidly evolving nickel market.”
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.