Why the Nickel Mines (ASX:NIC) share price is the worst performer on the ASX 200 today

This nickel producer’s shares aren’t having a good day…

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The Nickel Mines Ltd (ASX: NIC) share price is the worst performer on the S&P/ASX 200 Index (ASX: XJO) on Wednesday.

In early afternoon trade, the nickel producer’s shares are down 7% to $1.09.

Why is the Nickel Mines share price sinking?

The catalyst for the weakness in the Nickel Mines share price today has been the release of its second quarter update.

According to the release, rotary kiln-electric furnace (RKEF) quarterly production came in at 10,143 tonnes of nickel metal for the period. This was up a modest 0.7% on its first quarter production.

Things were better for its sales volumes, with the company recording 10,735.7 nickel tonnes sold for the three months. This was up 4.7% from 10,257.1 nickel tonnes sold in the March quarter.

Combined with improved pricing, this underpinned an 8.7% quarter on quarter increase in sales to US$150.2 million.

However, due to an increase in its production costs, quarterly EBITDA only improved 0.2% quarter on quarter to US$50.8 million. This could be weighing on the Nickel Mines share today.

What happened?

Management notes that its increased operating cash costs were due to higher power and reductant costs as a result of rising thermal and coking coal prices. It notes that prices were up ~35% and ~70%, respectively, from the March quarter.

Nevertheless, it was pleased with the quarter and highlights that its EBITDA margin was lower than in March but ahead of historical averages. It believes this demonstrates the company’s ability to maintain strong levels of profitability in all commodity price environments.

Nickel Mines’ Managing Director, Justin Werner, said: “The June quarter was another busy quarter which again delivered consistent nickel production and strong free cash flow generation, despite some commodity cost pressures particularly regarding thermal and coking coal prices.”

Mr Werner also revealed that the third quarter has started strongly.

He concluded: “We have kicked off the September quarter with strong demand for NPI which is being reflected in a recent surge in prices and are pleased to report that our July contract NPI prices are as high as US$2,200/t above our weighted average contract pricing for the June quarter, with upside pricing momentum having continued since executing these most recent contracts.”

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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