The Western Areas Ltd (ASX: WSA) share price is trading lower on Tuesday despite the release of a positive announcement.
In afternoon trade the nickel producer's shares are down 0.5% to $2.84.
What did Western Areas announce?
This morning Western Areas announced the award of new offtake contracts with BHP Group Ltd (ASX: BHP) subsidiary BHP Nickel West and China's Jinchuan Co. for its high grade Forrestania Nickel Operation concentrate product.
These new contracts follow the successful completion of a highly competitive tender process that has resulted in improved commercial terms compared to current offtake agreements.
The company's managing director, Dan Lougher, was very pleased with the agreements.
He said: "The Company is very pleased with the execution of the new agreements that extend our long and mutually beneficial relationship with Nickel West and reintroduces Jinchuan as an offtake customer following completion of the Tsingshan contract as at 31 January 2020."
"It is notable that both of our offtake customers are involved in the downstream operation of nickel smelters. Western Areas firmly believes that the smelting of concentrates is a key process to continue to feed both the emerging Electric Vehicle (EV) battery market, via nickel sulphate, and the traditional stainless steel market," he added.
BHP Nickel West agreement.
The Nickel West contract is for a period of three years or until the completion of the aggregate quantity.
That quantity is 10,000 tonnes of nickel contained in concentrate per annum, with a 30,000 tonne aggregate limit.
Mr Lougher believes the agreement is "an excellent outcome, particularly given the Company's long and mutually beneficial relationship that has existed for over ten years."
Jinchuan Co. agreement.
The agreement with Jinchuan is for two years and is for 10,000 tonnes of nickel contained in concentrate per annum, with a 20,000 tonne aggregate limit. It can be extended for a further 12 months, by mutual agreement.
Mr Lougher was also pleased with this agreement and notes that "it reconnects the groups at a time when the nickel market is repositioning to feed the emerging nickel market from EV batteries."
Jinchuan is the largest nickel matte and cathode producer in China. Management believes that aligning itself with a China-based producer of Jinchuan's calibre is strategically important as the market for higher value products continues to evolve.
