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Western Areas announce interim financial results

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Global Mining Review,

Western Areas Ltd has announced its interim financial results for the half year ended 31 December 2020 (1HFY21) and revised full year guidance metrics.

Key activities and metrics – 1HFY21

  • Sales revenue of AUS$122.7 million (compared to AUS$156.2 million in 1HFY20).
  • Average realised price of nickel (before payability) of AUS$9.83/lb (compared to AUS$10.57/lb in 1HFY20).
  • Balance sheet strength maintained – cash at bank of AUS$98 million and no debt.
  • Nickel produced in concentrate 7300 t (compared to 10 700 t in 1HFY20), nickel in concentrate sales 7400 t (compared to 9000 t 1HFY20). Lower nickel production as a result of lower average grades mined, caused by operational issues encountered at Forrestania in 1HFY21.
  • AUS$75 million Revolving Credit Facility term sheet agreed with CBA – long form documentation commenced.
  • EBITDA AUS$24 million (compared to AUS$69.7 million in 1HFY20) and EBITDA margin of 19.6% (in comparison to 44.6% in 1HFY20).
  • Net loss after tax of AUS$12 million (compared with NPAT AUS$24.7 million in 1HFY20).
  • Odysseus Project advancing to plan with 1.5 km of underground development completed.
  • Shaft haulage equipment delivered to Australia – significant civil concrete works completed.
  • AM6 Ore Reserve of 47 000 t nickel announced – adding a third mining area to the Odysseus project. Integrated mine plan now being developed.

Western Areas Managing Director, Dan Lougher, said he is excited by the progress achieved at the Cosmos Nickel Operation during the period and acknowledged the tough first half at Forrestania was now behind the company.

“The Odysseus underground mine development is progressing well with excellent advance rates being achieved. The surface construction team have completed significant civil and concrete foundation works in preparation for the shaft winder house assembly. It is exciting to own the long-life Odysseus project, providing Western Areas a clear nickel mining plan into the 2030’s and beyond,” he said.

“The Forrestania Nickel Operation has encountered operational challenges during the half that negatively impacted the average grade of ore mined for the period and resulted in lower production and sales volumes. With mature mines, there is limited redundancy in other working areas to provide better grade ore tonnes. Forrestania’s performance is already demonstrating improvement early in 2H FY21, and fortunately the higher-grade material we were originally scheduled to access this year will still be accessed in later periods,” Lougher concluded.

Construction activities at the Cosmos nickel operation accelerated during 1HFY21. All rehabilitation and dewatering activities were completed early in the half allowing new underground mine development to commence. On 29 August 2020, the first firing of the Odysseus decline was initiated and is now the priority heading in the mine. Excellent advance rates have been achieved at the project with over 1.5 km of underground development completed to date, including 636 m of advance in the decline towards the Odysseus ore bodies.

Significant surface civil works have been completed for construction of the ore haulage shaft headframe and winder installation. Importantly the shaft headframe was safely transported to Australia in November, with most of the shaft equipment transported to site by the end of the half (all assets were delivered to site by the end of January). The arrival of the equipment at site is viewed as further de-risking the delivery of the project.

The main shaft raisebore pilot hole was completed during the period. Importantly the pilot hole was completed well inside the required tolerance for the haulage shaft installation. Following confirmation of the pilot being within tolerance, reaming of the 5.7 m raisebore was commenced early in the second half and to date no issues have been encountered.

During the period the maiden AM6 probable ore reserve of 2.1 million t at 2.2% nickel for 47 100 t of nickel was released. The preparation of the AM6 Reserve offers significant opportunity to optimise and integrate the additional nickel production from AM6 into the current Odysseus production profile. Integration studies are well advanced to determine the best combination of production from the three ore bodies (Odysseus North, Odysseus South and AM6) including the potential for increased annual production tonnages compared to the original mine plan.

Importantly the overall project remains on schedule to mine the first ore drives in the September quarter of 2021. The processing plant remains currently scheduled to produce first concentrate late in calendar year 2022.

The Forrestania Operations produced 7300 t of nickel and sold 7400 t of nickel in concentrate to offtake customers. The Forrestania Nickel Operation production and sales results were impacted by the mining of lower grade areas at the Flying Fox mine and dilution encountered at the Spotted Quoll mine. Production at Flying Fox was impacted by mine schedule resequencing, due to seismicity, requiring deferral of the higher-grade areas of the mine, and increased ore being mined from lower grade zones. During December, higher grade areas of the Flying Fox mine were re-entered, and grade is expected to improve going forward. At Spotted Quoll, nickel production was impacted by lower grades due to a pegmatite intrusive unit increasing unplanned dilution in the scheduled mining areas.

As previously discussed, the resequencing at Forrestania will see the higher-grade areas of the mine accessed in later periods. Mining in January 2021 has seen the head grade trend higher across both underground mines.

The financial result of the company was impacted by the lower mined grade for the half, with most comparative metrics lower due to the reduced sales tonnes delivered to customers, increased unit costs naturally occur when processing lower grade material and spreading fixed costs over a smaller production tonnage. Revenue totalled AUS$122.7 million to produce an EBITDA of AUS$24 million. Net earnings was a loss of AUS$12 million. Western Areas continues to maintain a robust balance sheet with closing cash at bank of AUS$98 million and zero debt. Operating cashflow of AUS$27.5 million was produced and capital invested into the new long-life Odysseus project increased in line with the accelerated construction activities, totalling AUS$34.2 million, mostly invested into mine development and shaft haulage equipment deliveries and installations. Sustaining capital expenditure at Forrestania totalled AUS$23.7 million and group exploration expenditure was AUS$8.2 million.

During the half a credit approved term sheet was agreed to establish a secured AUS$75 million revolving credit facility (RCF) with Commonwealth Bank of Australia (CBA). Western Areas has been working with its lenders to refresh its banking facilities in order to provide financial flexibility and working capital options to the company as it continues to develop the Odysseus mine at Cosmos. The credit approved term sheet will now move forward to full documentation and completion of all condition’s precedent to financial close. The RCF remains subject to completion of due diligence, documentation and customary conditions precedent.

Western Areas remains positive on the outlook for nickel, and its strong fundamental demand drivers over the medium and long-term remain supportive. The strong growth in electric vehicle (EV) manufacturing and sales provide real evidence that the new EV battery market will drive significant additional nickel demand as the increased use of high nickel content batteries continues to gain momentum.

FY21 guidance

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. Spotted Quoll mined grade is expected to progressively improve as material mined via ore drives is mostly completed by the end of the June quarter 2021 and an increased proportion of ore is sourced from stoping operations.

Commentary on FY21 guidance is provided as follows:

  • Nickel in concentrate: The Forrestania Nickel Operation has encountered operational challenges that have reduced the nickel produced in the first half of the financial year. While access to higher grade areas at Flying Fox has been re-established for production in the second half of the financial year, the deferral of significant tonnage in the first half has resulted in a reduction in current guidance. Ultimately the balance of the deferred nickel will now be mined in FY22.
  • Unit cash costs: The increased revised unit rates are as a result of the lower grade forecast for the mines. Also, the lower total tonnage of ore mined during the first half of the financial year increases the overall mining cost per tonne, as the fixed costs of maintaining the mine (power, dewatering, ventilation, etc) are incurred over a smaller production base. Increased production in the second half will unwind some of this impact.

All other guidance remains unchanged.

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