It has been a rough couple of months for the Western Areas Ltd [ASX:WSA] share price.
Since hitting a 52-week high of $3.10 in late January, the WSA share price has fallen by 34%.
But that doesn’t seem to have deterred investors, with shares rebounding at the beginning of trade today on the announcement of WSA’s latest share placement.
Source: TradingView
At the time of writing, however, the WSA share price has sunk slightly, down 0.49% to trade at $2.02 per share.
Despite the backing, it seems the decline on nickel prices has weighed heavily on WSA.
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What’s happened?
The WSA share price rallied strongly from its trough in November, set off by an unfettered run-up in the price of nickel.
WSA’s December quarterly activities report sent the share price into a nosedive as the company announced output and nickel grades will continue to be impacted.
About half of those losses were quickly retraced.
One, because output was only being disrupted due to re-sequencing of the mine schedule.
And two, because of the re-sequencing WSA was forced to mine the lower-grade areas.
The latest share price crash has come from a more permanent macro-economic factor.
Nickel prices took a dive earlier this month when Chinese steelmaker Tsingshan essentially announced it could turn lower-grade nickel into the high-grade stuff needed for batteries.
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Nickel is split into class 1 and class 2.
Class 1 is higher purity and is the kind needed by lithium-ion battery manufacturers. It’s also the only class allowed to be traded on the London Metal Exchange.
Class 2 is mostly used to make stainless steel.
In developing this new process, Tsingshan has effectively increased the supply of battery-quality nickel to the market.
What does this mean for Western Areas Share Price?
The nickel price is expected to rebound quickly, with BMO Capital Markets saying the price drop was a buying opportunity given the underlying strength in nickel demand.
But for WSA, it could leave some scarring.
Its Flying Fox mine is one of the highest-grade nickel mines in the world.
And with class 2 nickel now able to essentially be converted into class 1, the price gap between the two could be removed.
However, there is a big cost factor involved in the process.
Converting class 2 to battery-grade nickel could increase the cost and carbon footprint compared to the class 1 supply.
So, while this ‘breakthrough’ may alleviate supply concerns, the price of nickel could easily recover.
There’s also an ethical factor to consider. With companies like Tesla seeking environmentally friendly (or at least less damaging) ways to source materials for their batteries, Tsingshan’s product may not be attractive to potential buyers.
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Regards,
Lachlann Tierney,
For Money Morning
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