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Why the Western Areas share price raced 6.5% higher today

One of the best performers on the ASX 200 on Wednesday has been the Western Areas Ltd (ASX: WSA) share price.

The nickel producer’s shares surged as much as 6.5% higher to $3.32 at one stage. They have since dropped back a touch, but are still up over 4% to $3.25 at the time of writing.

Why is the Western Areas share price charging higher today?

Investors have been buying the nickel producer’s shares following the release of a solid first quarter update this morning.

According to the release, in the first quarter Western Areas’ production came in at 5,259 nickel tonnes. This puts it on target to achieve its FY 2020 guidance range of 21,000 to 22,000 tonnes.

Another positive was that its unit cash cost of nickel in concentrate was A$3.06 per pound during the quarter. This compares to its FY 2020 guidance range of A$2.90 to A$3.30 per pound.

But the biggest positive of them all was the price it received for its nickel. Western Areas received an average of A$11.50 per pound, up from A$8.09 per pound in the June quarter. This was driven by a spike in prices following Indonesia’s decision to bring forward its nickel export ban.

This left Western Areas with cash at bank, including nickel sales receivables, of A$207.3 million. Which was 32% higher than the end of the June quarter.

Western Areas’ managing director, Dan Lougher, was pleased with the quarter.

He said: “The September quarter produced another consistent performance in line with production and cost guidance across the operations, which combined with increased nickel prices provided strong operational cashflow.”

Mr Lougher also spoke positively about activities at the Odysseus mine. Adding: “It is also very exciting to see the construction of the Odysseus mine advancing as planned, underpinning the development of our next long-life nickel sulphide operation.”

What’s next?

Pleasingly, the company is optimistic that its strong form will continue thanks to favourable industry developments.

It advised that it has “commenced offtake discussions with various market participants regarding the Company’s offtake agreements that expire in early 2020. The continued strengthening in the nickel market and initial indications provide considerable encouragement that more favourable terms will be achieved at the completion of these offtake negotiations.”

All in all, things are looking very positive for Western Areas at present. This could make it a good option along with BHP Group Ltd (ASX: BHP) and Rio Tinto Limited (ASX: RIO).

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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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