Is Anaconda the next WMC?
It hasn't been a problem-free year, however. The shares are now slightly below where they were when we introduced subscribers to Anaconda in issue 31 (Accumulate - $2.40). Anaconda produced its first nickel from its Murrin Murrin mine in WA (in which it owns 60%) in May 1999, but various production problems have delayed the mine reaching full capacity. Now, it's not expected that this will be reached until early 2000. In the quarter ended 30 June 1999, it only produced 2,000 tonnes of nickel against a design capacity of 45,000 tonnes.
Thinking big
However, Anaconda CEO Andrew Forrest, a former stockbroker who bought a significant slab of Anaconda in 1994 when it was still an explorer, and guided the company through to its present status as a producer, is thinking big. Anaconda plans to implement Stage II of Murrin Murrin, bringing about a more than doubling of production capacity to 115,000 tonnes of nickel and 9,000 tonnes of cobalt, in 2000.
This could make the company a supplier of as much as 20% of world nickel and a rival to WMC. And as we pointed out in our Oil Search review last issue, there's nothing investors love more than projects built on a grand scale.
However, a degree of caution is in order. Much of the nickel price run-up can be attributed to new Australian nickel not coming on to market thanks to production problems. Most new nickel projects have a very low production cost due to the high price of cobalt, a nickel by-product with a sky-high price, thanks to political troubles in the Congo, formerly the world's largest producer. This is our major concern - we fear that once Anaconda, Centaur and Preston reach full production supply will balloon and nickel may be in for trouble. Until the nickel picture becomes clearer later this year, HOLD.