Update: Western Areas Earnings

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 |  About: Western Areas NL (WNARF)
by: The Investment Doctor

Summary

Western Areas announces good financial results and will pay a dividend.

This is in line with my expectations, and I would expect 2015 to be better as the nickel price is relatively high.

The investment thesis remains standing, as Western Areas has reconfirmed it’s one of the lowest cost nickel producers in the world.

Western Areas (OTCPK:WNARF) has revealed its financial results for the financial year 2014 (which traditionally ends in June), and the results are very decent. The company sold just over 25,000 tonnes of nickel which resulted in a revenue of approximately $290M. As I explained in my original article, Western Areas is mining nickel from very high-grade underground mines, and this allowed the company to keep the costs per pound of nickel very low, at just $2.25/lbs. The net profit for the year was approximately $23M, and the company has proposed a final dividend of $0.045/share, as Western Areas has converted its net debt position into a net cash position.

These results are very decent, and as expected they reconfirm Western Areas to be one of the lowest cost nickel producers in the entire world. Keep in mind that the nickel price has increased substantially in the past quarter, and I expect the revenue to increase even further this year. As the company is guiding for a production of 25,000 tonnes of nickel, I would expect the revenue to increase to approximately $375-400M. At the current nickel price, I would expect Western Areas to generate $125-150M in after-tax free cash flow this year.

Western Areas' numbers were in line with my expectations, and 2015 should shape up to be an even better year now the nickel price remains at a relatively elevated level. Additionally, Western Areas should repay the final remaining bond this year, which should lead to a $20-22M lower financing cost from FY 2016 on.

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