Western Areas Ltd (ASX:WSA) announced to the ASX this morning that the company has retired its final convertible bonds with a full repayment of $125million. The repayment was made using existing cash reserves, which results in the company being debt free.
Western Areas Ltd is an Australian based nickel sulphide explorer and producer. The company’s nickel production is based on two primary assets, The Flying Fox and the Spotted Quoll, both high grade underground nickel mines based in the Western Australia. The company’s core focus is high grade Nickel production, however it also has exposure to other base metals through development projects within Australia, Canada and Finland.
Western Areas MD, Dan Lougher, commented on the debt free announcement: “Western Areas continues to execute a disciplined capital management plan and the retirement of the final convertible bonds was a key objective”
“With the elimination of debt, the Company can direct the savings towards shareholder returns and our organic growth opportunities”
Western Areas currently has access to a fully undrawn debt facility with ANZ bank worth $125million. The debt facility provides the company with a flexible balance sheet if need be. The debt free announcement combined with capital flexibility provides boosted investment appeal in the company however, it’s reliance on the Nickel price needs to be considered.
Western Area’s ASX price chart from July 2010 – Present. Source: IRESS
When comparing the company’s share price relative to the Nickel price for the last 5 years, it’s not difficult to see the correlation.
Indonesia, the world’s largest producer of mined nickel ore, announced in late 2013 that they plan to ban the export of nickel ore out of Indonesia, a decision that was confirmed in late 2014. As the graph illustrates, the announcement sparked supply concerns resulting in a spike of Nickel prices. Any supply concerns have since been relaxed as demand continues to exceed supply. Nickel prices have experienced a downtrend since late 2014 and this reflects in the stock price of Western Areas.
LME Nickel Cash Price from July 2010 - Present. Source: London Metal Exchange
It’s fair to say, most likely, any changes to the Nickel price will reflect in Western Areas share price. The company has made promising capital management decisions, however forecasting the Nickel price will create a much clearer picture on where company’s share price will travel. If the Nickel price does rebound however, Western Areas has put themselves in the right place to fully capitalise on the up side.
Author: Ben Visser
Jul 03, 2015
Ben is a Wise-owl equity analyst focusing on ASX blue-chips stocks. Ben has a Bachelor of Business in Finance majoring in property valuations and management. In his role at Wise-owl Ben conducts in-depth fundamental and technical analysis which helps him to find profitable investment opportunities on the ASX and abroad.