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Why the Western Areas (ASX:WSA) share price is crashing 10% lower

The Western Areas Ltd (ASX: WSA) share price is crashing lower today following the release of its half year results this morning…
The post Why the Western Areas (ASX:WSA) share price is crashing 10% lower appeared first on The Motley Fool Australia. –

man looking down falling line chart, falling share price

The Western Areas Ltd (ASX: WSA) share price has been a very disappointing performer on Tuesday.

In afternoon trade, the nickel producer’s shares are down a sizeable 10% to $2.49.

This means the Western Areas share price is now down 20% from the 52-week high of $3.10 it reached in January.

Why is the Western Areas share price crashing lower?

Investors have been selling Western Areas shares today following the release of its half year results.

According to the release, the company reported a 21.5% decline in revenue to $122.7 million and a 65.5% decline in earnings before interest, tax, depreciation and amortisation (EBITDA) to $24 million.

On the bottom line, Western Areas recorded a loss after tax of $12 million. This is down from a profit of $24.7 million a year earlier.

Management advised that its poor performance was driven by lower production and recoveries, higher cash costs, and a slightly softer nickel price.

Outlook

Also weighing on the Western Areas share price today was its guidance for FY 2021.

Management commented: “In light of the first half performance, the Company has adjusted guidance to account for the nickel production that has been deferred into FY22, primarily from Flying Fox.”

Western Areas now expects production of 16,000 to 17,000 tonnes of nickel concentrate at a unit cash cost of $3.75 to $4.25 per pound. This compares to its previous guidance of 17,000 to 19,000 tonnes with a unit cash cost of $3.50 to $4.00 per pound.

In respect to its higher costs, management explained that this is the result of the lower grade forecast for its mines and fixed costs relating to mine maintenance.

How does this compare to expectations?

According to a note out of Goldman Sachs, its analysts were expecting EBITDA of $26 million and a loss of $11 million. So Western Areas has fallen a touch short with its result.

However, the broker was not surprised by the guidance downgrade. It commented: “We already forecast 16.0kt at A$4.21/lb, at the bottom end of the revised guidance range for production and the top end for costs.”

At present, Goldman has a neutral rating and $2.40 price target on Western Areas shares.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

The post Why the Western Areas (ASX:WSA) share price is crashing 10% lower appeared first on The Motley Fool Australia.

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