Following may be of interest, though I don't foresee a rush to sell by the LTers.
Goldman Sachs: sell nickel miners -------------------------------------------------------------------------------- Wednesday, 4 June 2008 Stephen Bell
BLUE chip broker Goldman Sachs JBWere has taken the knife to three of Western Australia’s key nickel miners, slapping sell recommendations on Minara Resources, Western Areas and Independence Group.
The downgrades recognise that a three-month slump in global nickel prices – recently described as a collapse by Macquarie – will inevitably put pressure on Australian share prices.
In fact GSJBW’s note has already made some investors nervous, with Independence down as much as 8% this morning and Western Areas off 3% at one stage.
Both stocks clawed back some of their losses in later trade, but the worry is that Australia’s multi-year nickel share boom may be running out of steam as China’s stainless steel output falters.
As part of its stock downgrades last night, GSJBW also shaved its nickel price forecasts.
The broker predicts nickel will average $US1175 per pound this year, down from its previous forecast of $1253/lb.
Calling its move a “reality check”, the broker says the key issues in the nickel market are the “relatively anaemic recovery in stainless steel production following last year's output cuts, and the impact of nickeliferous pig iron as a source of supply”.
“We see the risk to consensus nickel prices as negative as the market fully takes account of the deteriorating nickel demand outlook and the ability of supply to meet this demand due to the nickeliferous pig iron.”
GSJBW’s more bearish view on prices forced it to downgrade previous hold calls on Minara, Western Areas and Independence.
“Despite the recent sharp share price pullback for Minara, we have moved our recommendation to sell and have lowered our 12-month Price Target to $A4.85 (from $6.30),” the broker said.
But it sees fiscal 2009 as being the low for Minara’s earnings in the current cycle and would look to revisit its recommendation at less than $4 per share.
Shares in Minara, Australia’s second biggest nickel producer after BHP Billiton, proved relatively resilient and were trading this morning up 3c at $4.36/share.
Commenting on recent market high-flier Western Areas, GSJBW said: “While in our view WSA deserves a premium to other nickel stocks, we feel it is fully priced in at the current share price and any production slip up could lead to de-rating.”
It believes that, increasingly, Western Areas will be priced as a producer and thus “earnings and multiples will become more important than ongoing exploration success”.
For Independence, the broker sees “significant risk to consensus earnings”, which for Fiscal 2008 are estimated to be $7A2.6 million (range $57.1-105 million) and FY09 $57.6 million (range $38.5-66.7 million).
Thus, earnings momentum is likely to “turn negative” for Independence.
Offsetting Independence’s weaker nickel profits, to some extent, is the “potential positives of the Tropicana gold exploration”, the broker said.
WSA Price at posting:
0.0¢ Sentiment: None Disclosure: Held
