Recent jitters present buying opp in Nickel Mines: Bell Potter

Thu 10 Mar 22, 12:34pm (AEST)

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Key Points

  • Tsingshan held a 200kt nickel short position, struck at US$21,000/t
  • Bell Potter sees recent weakness in the Nickel Mines’ share price as a buying opp
  • Both Credit Suisse and Ord Minnett downgraded the stock today

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.


What other brokers think

Based on the four brokers that cover Nickel Mines (as reported in by FN Arena) the stock is currently trading with 26.9% upside to the target price of $1.63.

Both Credit Suisse and Ord Minnett downgraded the stock today to Neutral from Outperform and to Hold from Accumulate, respectively.

Given its relationship with Tsingshan, Credit Suisse suspects Nickel Mines' market perception impact will likely linger.

But Tsingshan aside, the broker also notes that large cost base exposure to price rises in nickel ore and coal were already placing pressure on the company’s margins. The broker’s target price is lowered to $1.35 from $1.74.

Much of Ord Minnett’s downgrade is also due to perceived lingering near-term uncertainty around joint venture partner Tsingshan.

The broker is also concerned about the potential impact on several Indonesian nickel projects that Nickel Mines, as a junior partner is co-investing in with Tsingshan. The broker's $1.60 target price is unchanged.

Consensus on Nickel Mines is Strong Buy.

Based on Morningstar’s fair value of $1.40, the stock appears to be Overvalued.

Written By

Mark Story


Mark is an investigative financial journalist and editor who started his career working for Marathon Oil in London. He has a degree in politics/economics and a diploma in journalism. Mark has worked on 70-plus newspapers and financial publications across Australia, NZ, the US, and Asia including: The Australian Financial Review, Money Magazine, Australian Property Investor and Finance Asia. Mark is passionate about improving the financial literacy of all Australians through the highest quality content. Email Mark at [email protected].

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