Bindura Nickel Corporation soars 136%, best ZSE performer

BINDURA Nickel Corporation’s share price has risen more than 136 percent from the same period a year ago buoyed by spiralling international nickel prices and increased throughput at Trojan Mine.

The nickel producer, which has become the best performer on the Zimbabwe Stock Exchange, has climbed more than 100 percent since the beginning of the year after opening at 2 US cents.

At slightly over US5c as of Thursday, the stock price has jumped the most in two years.

BNC has been under care and maintenance since November 2008 as global nickel prices declined.

Nickel prices have recovered to above US$18 000 per tonne mainly owing to a ban on exports from major producer Indonesia and a reduction in global nickel stocks.

EFE Securities researcher Mr Respect Gwenzi said the adoption of new mining methods had seen BNC produce high grade ore and, as a result,Trojan churned out 7 027 tonnes in July and December 2013.

“The rally in BNC of 136 percent to US4,6c was and is justified given the profitability achieved by the company after a successful turnaround. Given the attained profit level, BNC became heavily discounted and is currently trading at undemanding price earnings ratio of 2,4x against a discounted peer average of not less than 10x,” said Mr Gwenzi.

Stockbrokers MMC Capital recently indicated that Bindura’s earnings were likely to rise further once the smelter starts operating.

BNC intends to bring the smelter back online by the first half of 2015 at an estimated cost of more than US$26,5 million, half of which is expected to be funded through debt financing and the rest from existing cash flow and balances.

The smelter would treat 1,1 million tonnes of nickel a year.

EFE Securities believes that BNC has the potential to generate more than US$140,5 million in 2015 at an average nickel price of US$19 000 per tonne and a stable production rate of 700 tonnes per month.

Applying constant margins to the topline will result in a profit before tax of US$35,8 million after factoring finance costs inclusive of refinery loan repayment, EFE projects.

“Profit after tax will therefore come in at US$26,9 million to give earnings per share of US2,17c, which is 13,4 percent ahead of last year.

“We therefore place a valuation of (US)15c on Bindura after discounting for related risks. We believe our forecasts are conservative given that the refinery, which is expected to become operational in the first half of next year of the year, will equally contribute to the topline in the current financial year, however, bearing in mind that the project has an 18-month payback period,” said Mr Gwenzi.

He said inherent risks in the counter can be linked to global nickel prices that the company has no control over.

Prices are, however, not expected to weaken in the near to mid term.

Mr Gwenzi said the capital required to finance pipeline projects — Hunters Road, Damba Silwane and Shangani Mine — which is currently on care and maintenance, might also pose a threat despite though the ventures would likely be lucrative upon commission.

BNC was placed under care and maintenance at an average cost to the group of between US$800 000 and US$900 000 a month but a rights issue in 2012 and an approved creditors plan facilitated the restart of February 2013, and the group posted a record US$65 million in revenue to March 31 after selling 82 000 tonnes of concentrates containing 7 129 tonnes of nickel. Operating profit rose to US$17,3 million against the preceding year’s loss of about US$13,1 million, while net profit grew to US$23,6 million.