Recent jitters present buying opp in Nickel Mines: Bell Potter

Nickel Mines (ASX:NIC) opened -8.90% lower at the open after entering a trading halt on Wednesday following panic selling which led to a -23% drop in morning trade.

Investors got spooked over concerns that the company’s largest customer Xiang Guangda of steel maker Tsingshan got caught up in a huge short squeeze after the nickel price hurtled its way to US$100,000 a tonne.

What was all the fuss about?

Why should this directly effect Nickel Mines? To cut a long story short, Tsingshan, the world’s largest stainless-steel producer is the parent company of Shanghai Decent Investment (SDI) which is the company’s largest shareholder (17.9%).

SDI is also partner in the Indonesian Morowali Industrial Park (IMIP) and Indonesia Weda Bay Industrial Park (IWIP), where Nickel Mine’s Nickel Pig Iron (NPI) operations are hosted.

Thankfully, the market’s fear over the solvency of Tsingshan and potential impact on agreements and shareholdings have [for now] come to nothing, with Nickel Mines reassuring the market that Tsingshan wasn’t about to offload its shares.

Buying opportunity

Given that Tsingshan held a 200kt nickel short position, struck at US$21,000/t, the market had every right to be jittery over the solvency of Tsingshan.

But Bell Potter sees recent weakness in the Nickel Mines’ share price - which is back to $1.28 - as a buying opportunity.

In the wake of recent events, the broker has reiterated a Buy recommendation on the company, with the broker's $1.76 target price representing a 37% discount to the current price.

Bell Potter noted: We view NIC’s steep price drop as an acquisition opportunity… and continue to forecast aggressive EPS growth of 82% and 85% for FY22 and FY23.”

The market remains wary of Nickel Mines today.