Lougher steers steady course at nickel miner

Western Areas’ new MD is taking a steady-as-she-goes approach, for now.

DAN Lougher, the Welsh-born rugby-loving son of a coalminer who started as managing director of nickel miner Western Areas earlier this month, has pledged not to rock the boat too much in his new role. The question is whether the market will get on board with the ‘easy-does-it’ approach.

Mr Lougher has been inside Western Areas for the best part of six years, including the past four on the board as the company’s operations director, meaning he has been heavily involved in working with outgoing managing director Julian Hanna on that strategy.

Given Western Areas has been the pre-eminent performer among the pure-play nickel stocks of late he has good reason not to rock the boat.

But with markets being the unpredictable beasts they are, there will be plenty of pockets of the Western Areas registry actively pushing Mr Lougher to mix things up. The Forrestania nickel complex is spinning-off plenty of cash, and shareholders will want to know just what Mr Lougher plans to do with it.

“We’re in a good position at the moment as a company,” Mr Lougher told WA Business News. 

“We’re in a good position and we haven’t got any major changes with myself moving to MD because I’ve already been part of the strategy anyway. 

‘‘We’re not going to change course because I’ve stepped into Julian’s chair.”

That conservative approach does not mean Mr Lougher isn’t interested in growth, however.

Indeed, he believes Western Areas should be challenging the recently Glencore-acquired Minara as the second-largest nickel miner in Australia.

“We’ve always said that we would like to be second, behind BHP Nickel West,” he said.

“We are profitable and we have a good bank balance and there’s a lot we want to do, but we will be treading rather carefully.”

Western Areas has a steadily growing bank balance that will increasingly be capable of acquisitions, although the falling share price of fellow nickel miner Independence Group since its Jabiru Metals purchase last year will no doubt be something of a deterrent.

One of Mr Lougher’s immediate priorities is making sure the exploration team at Forrestania is given every chance to replicate the successes they’ve had at the Flying Fox and Spotted Quoll discoveries in recent years.

“Forrestania is our key asset, so we will certainly be having a re-focus on trying to find another discovery at Forrestania. It’s a great belt and we’re convinced there’s another one there,” he said. 

“Spotted Quoll, Flying Fox and another one in the bag there would certainly ease our minds a little bit on the Forrestania assets.”

Near-mine exploration alone, however, isn’t really the sort of thing to capture the market’s imagination.

The challenge facing Mr Lougher was best encapsulated in the title of a UBS research report released in the wake of Western Areas’ December quarterly report: “A good quarter but downgrading to sell”.

While UBS’s Jo Battershill says the company’s mines are operating at or above expectations, the current production profile is now fully priced in by the market.

Merrill Lynch’s Stephen Gorenstein echoed the sentiment with his post-quarterly analysis titled ‘Strong quarter, but nickel price and growth catalysts needed’, while Citi’s David Haddad summarised Western Areas with his report titled ‘Good December quarter but appropriately priced’.

For all Western Areas’ strong operating performance, Mr Lougher will have to focus on finding a way to bring some obvious growth and upside into the company.

Complicating those efforts are the strong economics of the Forrestania mines. 

Any other nickel assets Western Areas could buy will almost invariably come with higher operating costs, meaning the company would be diluting its margins by pursuing them.

That conflict, Mr Lougher said, was reflected in the opinions shareholders shared with him.

“If you took a cross-section of our shareholders, you’d find some of the guys would say ‘what are you doing [on the acquisition front], where are you going?’ And other guys would say ‘just stick to your knitting, continue to get the low cash cost, get the high grade, get the margin, pay dividends and grow through organic growth’,” he said.

Diversification beyond nickel into the likes of platinum and/or copper is a possibility, according to Mr Lougher, although the current prices for copper assets in particular could prove preventive.

Western Areas’ strong performance during what have been a rough few years for nickel miners means Mr Lougher will be afforded plenty of time to work out the best growth options for the company from here. 

But, sooner or later, the market will want some assurance that there is more to Western Areas than Forrestania.