PERTH (miningweekly.com) – Takeover target Western Areas has warned of lower full-year production expectations and higher costs as a result of Covid-related productivity issues, however, higher nickel prices are expected to soften the blow.

The miner on Tuesday reported sales revenue of A$182-million for the six months ending December, compared with the A$122.7-million reported in the previous corresponding period, as sales volumes increased from 7 400 t to 8 473 t in the same period, and nickel prices climbed from $7.09/lb to $9.22/lb.

Nickel in concentrate production for the six months under review reached 7 800 t, up 7.4% on the 7 300 t produced in the previous corresponding period.

Meanwhile, earnings before interest, taxes, depreciation and amortsiation (Ebitda) nearly tripled from A$24-million in the first half of 2021, to A$71.6-million, with Ebitda margins increasing from 20% to 39%.

Net profit after tax for the half-year was up 250%, from a loss of A$12-million to a profit of A$18.8-million.

Western Areas MD Dan Lougher said the first half of 2022 had seen several key construction and commissioning milestones successfully achieved at the Odysseus mine, significantly derisking the project, alongside improved sales volumes at Forrestania in a strong nickel price environment.

“We are very pleased to see Odysseus continue to hit important milestones, not least of which included first ore from Odysseus South, along with the raise bore shaft continuing to meet specifications as it is extended. Works for the winder house associated with the shaft are well underway, and refurbishment of the existing mill has commenced. In all, we have significantly derisked the Odysseus development during the half, passing a number of key milestones without incident.

“Forrestania has also had a good result compared to the prior corresponding period, with production, recovery and sales all up. In the context of the tight labour market conditions in Western Australia, we have been focussed on managing costs and maximising productivity to take maximum advantage of the very strong nickel price for the half. However, cost inflation and labour shortages mostly associated with Covid-19 are likely to impact the second half of 2022 performance,” Lougher said.

The Covid-related productivity issues have seen Western Areas narrow its concentrate production guidance from the 16 000 t to 17 000 t previously estimated, to between 15 200 t and 16 200 t for the full 20202, while concentrate sales expectations have remained unchanged at between 16 000 t and 17 000 t.

Unit cost of production is expected to increase from the previous estimate of between A$4.25/lb and A$4.65/lb, to between A$4.65/lb and A$4.90/lb.

Western Areas is currently the subject of a takeover bid from fellow-listed Independence Group (IGO), under which Western Areas shareholders will receive A$3.36 per Western Areas share in cash, which represents a 35.5% premium to the company’s undisturbed share price of A$2.48 per Western Areas share on August 18, 2021.

The deal is subject to shareholder approval.