May 14, 2014

NIKL posts 1Q14 net income of P593m

In a disclosure to the Exchange, Nickel Asia Corp (NIKL, Buy) announced 1Q14 net income of P593m, up 493% YoY due to a P416m one-time non-cash gain on the revaluation of the company’s stake in 60%-owned Rio Tuba Mining Corporation and of its 10% ownership stake in adjacent processing plant CBNC.

Excluding this gain, net income still grew 77% to P177m due to a 52% increase in nickel ore shipment and contribution from the recently commissioned Taganito HPAL despite lower realized prices (US$6.59/lb in 1Q14 vs US$7.82/lb in 1Q13). The company likewise announced an initial investment of P460m in the Montelago geothermal power project located in Oriental Mindoro in the form of a collateralized 1-year loan convertible into a 49% equity stake in the project at the option of NIKL.

Our take: The marked increase in 1Q14 ore sales were primarily driven by the ore shipments to the Taganito HPAL plant which started operations later last year. Further, average realized prices in 1Q13 were still quite low as the run-up in nickel prices was not significant until latter part of the first quarter.

We believe the huge jump in earnings will come starting 2Q14 as the shipment ramp up coincided with the benchmarking of ore sales to buying prices in China which currently trades at a premium to LME. In addition, we expect significant earnings contribution from the two HPAL processing plants given that nickel prices have been able to hold above US$8/lb thus far. This should enable NIKL to meet our full-year forecasts. – WealthSec