Western Areas gets a nickel boost

Western Areas (WSA) was one of the best performers in FY14 with a whopping 99% gain and has once again got off to a great start this year. 

ASX 200

Already the stock has nudged through $5 and is trading at its highest since May 2012. The stock bottomed out in December last year and has had a monster run since then. One of the primary drivers of the big gains in WSA shares has been a stellar run for nickel prices. Not only has the nickel price been resilient, WSA’s key projects, Flying Fox and Spotted Quoll have had a strong performance which has resulted in WSA being a preferred nickel stock by most analysts.

Production at both mines has been beating estimates, while production cash costs have also been dropping noticeably. As a result, the company has managed to generate significant free cash flow which will help it weather tougher periods. In fact this has also helped WSA become debt free and this is a big achievement in a tough environment for materials plays.

Still room for further gains

The two key drivers of nickel prices have been Indonesian supply constraints and tension in Russia. During that time, nickel prices have climbed around 43% and even nudged through the 20,000 a tonne barrier. Analysts continue to forecast further gains for nickel particularly with the Indonesia and Russia situations unchanged.

Having nudged through $5, WSA is at its highest point since May 2012 and is in a good position to extend these gains. The stock has been in a firm uptrend since December last year and the price action has been well supported on any pullbacks into this support. While I’m not a fan of chasing the price from here, I would look to buy the pullbacks into the uptrend support. At the moment this line comes in at around $4.50 and that could be a good level to consider fresh longs.     

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