entered at $2.22 today but now lack full conviction as further reading alerted concerns i wasn't aware of. Here's some pros and cons:
ARC : Company Profile - WSA
Bulls Say
• Grades at Flying Fox and Spotted Quoll are spectacular, and will underpin low costs and industry-leading margins.
• Western Areas is leveraged to exploration upside via large acreage in the prospective Forrestania nickel belt. Exploration is likely to make sizeable resource additions and new discoveries.
• The banning of ore exports from Indonesia means that ore stockpiled for nickel pig iron production in China will rapidly deplete, and a key source of supply, which has been a force for lower prices, will start to decline.
• Nickel is strongly leveraged to growth in the developing world. China and India will continue to move towards first-world economic standards.
Bears Say
• Nickel prices will remain at unfavourable levels because of the poor global economic outlook. We think that the best of the China commodity boom has passed.
• The Chinese supply of nickel pig iron has been a fundamental change for the market, resulting in a virtually unlimited supply of marginal-cost nickel. Nickel pig iron represents a significant, low-capital new source of supply. It caps upside in the nickel price. Western Areas is a single-commodity miner.
• Cash costs will rise as mined grades decline towards the approximately 4% reserve grade. Increasing mining depth with time is also a force for higher unit costs.
• Reserve life is relatively short, at about seven years. This means the company's cost position is unsustainable, and with the clock ticking on reserves, management may be pressured into a mistake in capital allocation.
• Conversion of resources to reserves carries some risk, as does the requirement to make new discoveries as the high-grade Flying Fox and Spotted Quoll mines deplete.
WSA Price at posting:
$2.22 Sentiment: None Disclosure: Held
