Why the pain in ASX nickel miners is beyond price falls

WA-based nickel stocks are struggling amid a perfect storm of commodity-related and company-specific headwinds – IGO (ASX: IGO) reported a billion-dollar impairment on Monday, Panoramic Resources (ASX: PAN) lowered guidance after equipment failure last month and Poseidon Nickel (ASX: POS) made the call to defer the restart of its Black Swan project.

Mincor (ASX: MCR) was also down around 33% year-to-date before a takeover bid from Wyloo Metals helped the stock return to almost breakeven.

It seems like WA-based nickel companies are all struggling for separate reasons, against a backdrop of struggling nickel prices. Nickel is down around 29% year-to-date as a flurry of Indonesian supply is expected to drag the market into a surplus through to 2025, according to Fastmarkets. Indonesia’s nickel mine output grew by 48% to 1.58 million tonnes in 2022, which accounted for almost half of global output.

ASX-listed nickel stocks

The lithium component of IGO has likely buoyed its twelve month performance while most other pure play nickel stocks have struggled.

Recapping the bad news

IGO’s nickel assets lose almost $1 billion in value

IGO announced a non-cash impairment of $880 million to $980 million for the Western Areas assets it acquired in December 2021 for $1.26 billion. 

“While the project development team has made solid progress to advance Cosmos towards first production, capital and operating cost escalation and unforeseen operational challenges have impacted the value of the Project,” said IGO’s Acting CEO, Matt Dusci.

Citi analysts said a non-cash impairment was expected but the “magnitude is surprising against the $1.3 billion acquisition price. They now value the assets at just $380 million or 50 cents per share.

At the same time, IGO has been progressing a study with Dr Andrew Forrest’s Wyloo Metals to transform WA into a nickel processing hub. The investment bank said “we ascribe no value to IGO’s downstream nickel strategy; it’s hard to be more positive on this given the build-out of Indonesian supply, issues ramping up Kwinana hydroxide plant and risk-reward vs. negotiating better offtake terms.”

Citi retained a NEUTRAL rating but cut its target price to $16.30 from $16.80.

IGO 12-month price chart (Source: Market Index)

Small cap pains: Panoramic Resources and Poseidon Nickel

Last month, Panoramic Resources suspended nickel ore and concentrate production after discovering a crack in the filter press pressure plate.

Prior to the issues, the company was on track to achieve the lower end of its FY23 guidance of 6,600 to 7,100 tonnes of nickel. It’s now downgraded its production outlook to 5,400 to 5,800 tonnes.

Panoramic Resources 12-month price chart (Source: Market Index)

 Separately, Poseidon Nickel made the decision to defer the restart of Black Swan due to “project related factors and external market conditions.” The Project was expected to produce 17,700 tonnes of nickel concentrate in its first year of production.

“These project related factors together with the continuing tightness in the WA labour market, the lack of the availability of Kalgoorlie FIFO accommodation and the increased volatility in global commodity and equity markets have resulted in us deferring the Black Swan restart decision,” said CEO Peter Harold.

“We expect the volatility in global markets to start to abate into 2024 providing a more favourable environment for project development,” he added.

Poseidon Nickel 12-month price chart (Source: Market Index)