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Western Areas Corporate Presentation June 2012


Western Areas Corporate Presentation June 2012, covering Operations, Exploration & Growth, People and the Nickel industry …

Western Areas Corporate Presentation June 2012, covering Operations, Exploration & Growth, People and the Nickel industry

Australia's Class Leading Nickel Producer

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  • 1. Western Areas NLJune Corporate Presentation20 June 2012 Australia’s Class Leading Nickel Producer 1
  • 2. Disclaimer and Forward Looking StatementsThis presentation is being furnished to you solely for your information and for your use and may not be copied, reproduced or redistributed to any other person in any manner.You agree to keep the contents of this presentation and these materials confidential. The information contained in this presentation does not constitute or form any part of anyoffer or invitation to purchase any securities and neither the issue of the information nor anything contained herein shall form the basis of, or be relied upon in connection with,any contract or commitment on the part of any person to proceed with any transaction.You must not take or transmit this presentation or a copy of this presentation into the United States or Japan or distribute it, directly or indirectly, in the United States or Japan orto any US persons. By your acceptance of this document, you acknowledge that you are a not a “U.S. person” for the purposes of the US Securities Act. Neither this document, inwhole or in part, nor any copy thereof may be taken or transmitted to any other person. The distribution of this document to other persons or in other jurisdictions may berestricted by law, and persons into whose possession this document comes should inform themselves about, and observe, any such restrictions. Any failure to comply with theserestrictions may constitute a violation of the federal securities laws of the United States and the laws of other jurisdictions. The distribution of this presentation in otherjurisdictions may be restricted by law, and persons into whose possession this presentation comes should inform themselves about, and observe, any such restrictions.The information contained in this presentation has been prepared by Western Areas NL. No representation or warranty, express or implied, is or will be made in or in relation to,and no responsibility or liability is or will be accepted by Western Areas NL, employees or representatives as to the accuracy or completeness of this information or any otherwritten or oral information made available to any interested party or its advisers and any liability therefore is hereby expressly disclaimed. No party has any obligation to notifyopinion changes or if it becomes aware of any inaccuracy in or omission from this presentation. All opinions and projections expressed in this presentation are given as of this dateand are subject to change without notice.This document contains forward-looking statements. These statements are subject to certain risks and uncertainties that could cause the performance or achievements ofWestern Areas NL to differ materially from the information set forth herein, although such information reflects forecasts and projections prepared in good faith based uponmethods and data that are believed to be reasonable and accurate as at the dates thereof and although all reasonable care has been taken to ensure that the facts stated hereinare accurate and that the forward-looking statements, opinions and expectations contained herein are based on fair and reasonable assumptions. Western Areas NL undertakesno obligation to revise these forward-looking statements to reflect subsequent events or circumstances. Individuals should not place undue reliance on forward-lookingstatements and are advised to make their own independent analysis and determination with respect to the forecasted periods, which reflect Western Areas NL’s view only as ofthe date hereof.The information within this PowerPoint presentation was compiled by Mr. Dan Lougher and Mr. David Southam and the information as it relates to mineral resources and reserveswas prepared by Mr. Dan Lougher and Mr. John Haywood. Mr. Southam, Mr. Lougher and Mr. Haywood are full time employees of Western Areas. Mr. Lougher and Mr. Haywoodare members of AusIMM and have sufficient experience which is relevant to the style of mineralisation and type of deposit under consideration and to the activity which they areundertaking to qualify as Competent Persons as defined in the 2004 Edition of the ‘Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves’.Mr. Southam, Mr. Lougher and Mr. Haywood consent to the inclusion in this presentation of the matters based on the information in the form and context in which it appears.For Purposes of Clause 3.4 (e) in Canadian instrument 43-101, the Company warrants that Mineral Resources which are not Mineral Reserves do not have demonstrated economicviability. THIS PRESENTATION IS NOT FOR DISTRIBUTION TO U.S. NEWSWIRE SERVICES OR FOR DISSEMINATION IN THE U.S. 2
  • 3. Agenda “Western Areas has an enviable track record of exploring, finding, developing and producing highly profitable mines..” Overview Operations Exploration & Growth People Nickel Industry Explore Develop Q&A Sales Produce 3
  • 4. Western Areas OverviewWestern Areas is: A proven explorer, developer and operator led by an experienced management team An S&P ASX 200 index member  Market cap ~ $800 million at current prices Profitable, even at current nickel prices A dividend payer, with a strong balance sheet Australia’s third largest producer of nickel at 30,000 tonnes of nickel mined and 25,000 tonnes of nickel in concentrate produced  #1 = BHP-B Nickel West and #2 = Glencore (Murrin Murrin) Australia’s lowest cash cost and therefore highest margin producer of nickel Employer of approx 500 staff, either directly or through contractors Into its sixth consecutive year of production, eight consecutive quarter with no downside surprises  First production 26 October 2006 Committed to stable incremental growth from the current solid platform 4
  • 5. Western Areas Overview – The Business Production Exploration Assets & Growth Flying Fox • 1st nickel mine Forrestania & • 15,000 Ni tonnes WA Regional per annum Spotted Quoll • 2nd nickel mine Canadian Assets • 10,000 Ni tonnes per annum Cosmic Boy • Nickel concentrator Finland – treats ore from both mines 5
  • 6. Overview – Corporate SummaryListings: ASX & TSX Top 15 Shareholders % 1 T Streeter 14.36 Member of S&P ASX 200 2 Colonial Group 6.28 3 M & A Greenwell 5.46Shares on Issue: 179.7M 4 Northward Capital 3.83 5 Giovanni Santalucia 3.45Options: 2.0M 6 Ausbil Dexia 2.91(varying strike prices >$7.00) 7 UBS Asset Management 2.90 8 Platypus Asset Management 2.09Share Price: ~ A$4.50 (June 2012) 9 Goldman Sachs Asset Management 1.86 10 Vanguard Group 1.83Market Cap: A$808 million 11 Independent Asset Management 12 Mt Kellet 1.80 1.70(undiluted) 13 State Street Corporation 1.69 14 Ely Griffiths Group 1.64Cash & Receivables: A$184M at 31 March 2012 15 Antares Capital Partners 1.58 TOTAL 53.38WSA 23 Month Share Price $8.00 $7.00 $6.00 $5.00 $4.00 $3.00 $2.00 $1.00 $0.00 Jul-10 Sep-10 Nov-10 Jan-11 Mar-11 May-11 Jul-11 Sep-11 Nov-11 Jan-12 Mar-12 May-12 Closing Share Price 6
  • 7. Commodity Share Price Performance BASE METALS SECTOR OUTLOOK Base Metal Recovery in the Horizon Relative Share Price Performance Last 2 Years 250 200 150 35% 14% 100 5% (11%) (41%) 50 (52%) 0 May-12 May-10 Nov-10 May-11 Nov-11 Copper Index Nickel Index Diversified Index Zinc Index Gold Index WSA Source Capital IQ, IRESS 7
  • 8. Operations 8
  • 9. Location WSA concentrate to BHP Billiton WSA operations WSA concentrate exports 9
  • 10. Flying Fox MineSummary Continuous high grade Nickel to 1300m. Open at depth Ore grades increase at depth from 3.9% to 6.2% Nickel Announced intersection T7: 34.7m @ 8.9% NickelProduction FY2011 – 347,648t @ 4.7% nickel for 16kt nickel Low cash cost operation <US$3/lb FY2012 – Production around 17kt nickel in orePurchase of Kagara Nickel Assets Combined Total High Grade Resource now stands at around 115,000t of Nickel Major drilling program to commence at Lounge Lizard for next 6 months T5/ T6 & T7 down dip extensions cross into Lounge Lizard and remain open at depth Flying Fox now approaching a 10 year mine life Purchase includes 300sqkm of tenements adjacent to Forrestania operations 10
  • 11. Spotted Quoll MineSummary Ore Reserve – 3.095mt @ 4.20% nickel containing 131,360t nickel Ore reserve was upgraded in June 2012 by 94% with an exceptional 88% conversion ratio Remains open at depth Drilling is ongoing which will result in conversion of inferred resource to indicated to reserve Already over a 10 year mine lifeProduction Stage 1 underground first ore delivered ahead of schedule 10,000tpa nickel on stage 1 Mine optimisation study well advanced for potential increased in production Mill study to be completed 11
  • 12. Concentrate Supply & Offtake ContractsConcentrate Supply 1000 Global Smelter Demand vs Global Concentrate Supply 950 Reliable nickel sulphide concentrate supply dwindling 900 850 Quality nickel sulphide is difficult to find Nickel in Conc/ Kt 800 Global nickel grades in decline 750 700 Tightness in smelter supply to be experienced from 650 2013 600 550 Laterites & Nickel Pig Iron (swing producer) do not fill 500 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 the void Nickel in Concentrate Supply Smelter DemandOfftake Contracts Long term offtake to BHP – 10ktpa lifting to 12ktpa nickel New Jinchuan contract signed: o 12 month contract extension o Improved commercial terms o Significant uncommitted offtake beyond 2013 WSA in a unique position being an independent producer Ability to complete spot/ opportunistic salesNOTE: The graph FORRESTANIA – OFFTAKE CONTRACTS is based on Western Areas’ 10 YearProduction Targets. These Targets include estimates and assumptions on production rates ofexisting ore reserves, conversion of existing mineral resources to ore resources and assumptionson potential extensions to existing mineral resources, based on current information. TheseProduction Targets may vary due to future drilling results, nickel prices, costs and market 12conditions. Refer to Disclaimer and Forward Looking Statement in Presentation
  • 13. Forrestania Nickel ConcentratorConcentrator Summary Current capacity of 550,000tpa of ore Nickel concentrate output >25,000tpa Ni Expansion configured for upgrade to 1mtpa of ore Concentrate grades of around 14.0% Ni 14,000t of concentrate storage capacity ($43M value)Export Infrastructure and Logistics Access to >1400 sealed shipping containers Using 25 trucks for concentrate transportation Shipping contract in place, FOB Esperance PortConcentrator Expansion Built to be expandable Some items of infrastructure (crusher) already capable of 1mtpa Second mill already on site Preliminary high grade expansion study completed 13
  • 14. Exploration & Growth 14
  • 15. Growth Potential Short Term Medium Term Long Term < 12 Months 2-5 years >5 years Spotted Quoll > 10 years  Spotted Quoll & Flying Fox Base Case production 35- – 30ktpa 40ktpa , plus new mines Flying Fox > 10 years – drilling in progress 3rd mine from Forrestania Regional asset producing (New Morning) New Morning drilling FinnAust producing Mill expanded 750 ktpa Mill Expansion feasibility  Base Metals exposure First quartile cash costs Cash costs <US$2.50/lb  Dividends Sandstone resource Strong cashflow  Continued exploration FinnAust in feasibility upside Dividends  Dividends Independent producer New offtake contract – 15ktpa  Mustang prod – 5ktpa List FinnAust Mining 1/2  Forrestania discovery 15
  • 16. The Portfolio Kawana JV 80% Sandstone JV 70% East Bull Lake JV 65% Cosmic Bullfinch Makwa Spotted Boy North JV Canada Quoll Resource 70% New Morning Mt Flying Koolyanobbing Diggers Alexander Fox South JV 25% Finland - VMS Spotted Mt Gibb JV Quoll Bioheap Lake King 70% Southern JV 70% Underground Cross Upgrade Goldfields - Other Cosmic Finland – Boy Mill Hatters Cosmic Black Hill Boy Mill Schist Jkjjljljlkj Expansion Finland - Copper Mt Jewel 25% = International = WA Regional = Forrestania 16
  • 17. Short Term – Near Mine Exploration Exploration Budget of A$30M for FY12, majority to be spent on drilling at Forrestania 100km strike length of prospective Forrestania Nickel Project, within 500km long nickel province Drilling Priority within 8km long zone (below). New discovery would access existing mine infrastructure 17
  • 18. Western Australia – Regional Exploration Sandstone JV (70%)  Targeting a major new nickel camp with potential for multiple mines  One of largest areas of untested nickel prospective ground in Western Australia  Major step up in drilling and geophysical program during 2011/12 Southern Cross JV (70%)  WSA has 70% of nickel rights  Initial testing around Trough Well (Bullfinch North) where there is known mineralisation  Geophysical testing (MLEM) has detected anomalies at Trough Well and in adjacent areas.  Drill testing has commenced with continued drilling and geophysical programs for 2012  Assessment of other parts of JV tenure (approx 3000km2) underway 18
  • 19. Canada – Mustang Minerals WSA owns 19.9% of Mustang Minerals - a Canadian listed nickel and PGM company  WSA has two of 5 board seats, plus provides technical assistance  Makwa Nickel/Copper mine in Manitoba – feasibility in progress targeting 5ktpa Ni in concentrate  Potentially significant Palladium & Platinum discovery near Mayville Copper/Nickel deposit in Manitoba WSA is earning a 65% interest from Mustang at East Bull Lake  80km west of Sudbury  Highly anomalous Nickel/Copper and Platinum/Palladium in Gabbro intrusion  Drill program to commence in 2012 East Bull Lake VTEM targeting Mayville drill core: 74.7m @ 0.75% Cu & 0.24% Ni 19
  • 20. Finland – FinnAust Mining PLC Projects 79% WSA, planned to list on AIM in 2012 300km long base metal province in Finland Numerous nickel/copper/zinc mines & occurrences 12 major project areas, many drilling targets Geophysics proving very effective in defining targets Significant results from historic and FinnAust drilling First mineral resource defined at Rautavaara Major ramp up of drilling has commenced Talvivaara type sulphide mineralisation – widespread through northern region 20
  • 21. People 21
  • 22. Board of Directors Proven Depth & Experience Terry Streeter and Julian Hanna founders of Western Areas Extensive experience in nickel exploration, mining and processing Global expertise in project sourcing, exploration and mine development Strong banking, financial, M&A and corporate governance backgrounds Involvement with other successful nickel companies Left to right: Joseph Belladonna (Company Secretary), Dan Lougher (Managing Director), David Southam (Exec Director – Finance), Julian Hanna (Non-Exec Director), Rick Yeates (Non-Exec (Jubilee Mines) Director), Terry Streeter (Non-Exec Chairman), Robin Dunbar (Non-Exec Director) & Ian Macliver (Non-Exec Director) Solid understanding of Chinese markets, project financing and offtakes 22
  • 23. Nickel Industry 23
  • 24. Nickel Market Overview “The current nickel market 65% of primary nickel produced used for Stainless Steel appears to be ignoring the  Stainless market dynamics a good proxy for nickel market impending impact of Indonesian legislation… As such, the Demand growth in Stainless Steel / Nickel mostly driven by China combination of a tighter market  China still down the curve on stainless steel use per capita, in quarter four through the moving to be a net exporter of stainless through finished implementation of ore export goods restrictions, plus an increase in production costs for those  General growth outlook higher in China remaining NPI producers due to Outlook impact of the 20% ore export tax is likely to support nickel prices,  Market bottom likely reached – current price uneconomic with levels expected to move for many, insufficient to bring on supply back above $US20,000/t during the quarter.  Limited supply of good quality sulphide concentrate for smelters “We therefore favour bullish  Nickel Pig Iron constrained due to margin compression positions in nickel on a 3-6 month forward basis and in a  Huge Laterite projects serially underperformers quarter-four context.”  Indonesian ore export ban and tax increase to bite Citigroup Analysts, 31 May 2012 24
  • 25. Global Stainless Consumption & Usage 35.0 45.0 Post-War Stainless Steel-Boom: Stainless Steel-Boom: Crisis Years Reconstruction Asia - Europe - USA China 40.0 Global Stainless Steel Consumption, in Mill t 2008 - 2010 30.0 World-Financial China Share of Global Demand, in % Crises 35.0 25.0 30.0 20.0 25.0 15.0 Stainless Steel Consumption 20.0 G.R.: + 6.1% p.a. 15.0 10.0 10.0 5.0 5.0 0.0 0.0 1968 1972 1976 1980 1984 1988 1992 1996 2000 2004 2008 25© Heinz H. Pariser Alloy Metals & Steel Market Research
  • 26. Stainless Steel feedstock External Stainless Scrap Total Shipments of Internal Scrap Crude Stainless Steel Meltshop Feed Finished Products Primary Metals Production Recipe for 304 Stainless – 18% Cr, 8% Ni (Basis 1,000 t) Europe China 540 kg External Stainless Scrap 150 kg 37 kg Primary Nickel 68 kg 149 kg Charge & HC Ferrochrome 264 kg 26© Heinz H. Pariser, Alloy Metals & Steel Market Research
  • 27. Chinese finished goods exports rising Stainless Steel Containing & Fabricated Goods Stainless Steel Net Exports of Fabricated & Stainless Containing Goods 2,500 30.0 25.0 Share of Apparent Consumption in % 2,000 20.0 Net Exports in `000 t 1,500 15.0 1,000 10.0 500 5.0 0 0.0 2005 2006 2007 2008 2009 2010 2011 27© Heinz H. Pariser Alloy Metals & Steel Market Research
  • 28. China’s future? 30.0 25.0 South Korea Stainless per Capita Use, in kg 20.0 Japan 15.0 EU 27 10.0 China 5.0 NAFTA India 0.0 1970 0 5 10 15 20 25 30 35 40 45 50 GDP (PPP adjusted) per Capita, in Mill US$ 28© Heinz H. Pariser, Alloy Metals & Steel Market Research
  • 29. Energy Intensity 1. Conventional Nickel Sulphide Mature nickel camps contribute ~45% global production NO MAJOR NEW DISCOVERIES 2. Low Grade disseminated sulphide Increasing reliance on low grade and low quality nickel sulphide production. HIGH CAPEX, MODERATE ENERGY3. Nickel Laterite Laterite & Ferro Nickel contribute >40% global production HIGH CAPEX, HIGH ENERGY COST4. Chinese Nickel Pig Iron Chinese nickel pig iron, 15% global production. Announced cut backs ENERGY INTENSIVE, HIGH COST Increasing energy intensity and production cost Increasing energy intensity and production cost 29
  • 30. Financial Appendices 30
  • 31. March 2012 QuarterlyHighlights Tonnes Mined 2010/2011 Jun Qtr Sep Qtr 2011/2012 Dec Qtr Mar Qtr FYTD Total Flying Fox Ore Tonnes Mined Tns 88,873 95,647 100,647 81,143 277,437 Record quarter of concentrate sales of Grade Ni % 4.8% 4.5% 4.9% 5.3% 4.9% Ni Tonnes Mined Tns 4,236 4,258 4,920 4,278 13,456 8,154t vs 1st half of 11,595t: Spotted Quoll - Tim King Pit  Improved shipping logistics Ore Tonnes Mined Grade Tns Ni % 69,133 6.3% 59,955 5.7% 71,406 4.8% 57,204 4.0% 188,565 4.8% Ni Tonnes Mined Tns 4,325 3,400 3,455 2,280 9,135  2nd Jinchuan offtake contract Spotted Quoll - Underground commenced Ore Tonnes Mined Tns - - 5,996 23,261 29,257 Grade Ni % 0.0% 0.0% 3.3% 4.5% 4.2% Cash costs remain the lowest in class at Ni Tonnes Mined Tns - - 197 1,044 1,241 A$2.48/lb Total - Ore Tonnes Mined Grade Tns Ni % 158,006 5.4% 155,602 4.9% 178,049 4.8% 161,608 4.7% 495,259 4.8% Total Ni Tonnes Mined Tns 8,561 7,658 8,572 7,602 23,832 Cash & receivables increased by A$30m, Tonnes Milled and Sold Jun Qtr Sep Qtr Dec Qtr Mar Qtr Total excluding the purchase of Lounge Lizard Ore Processed Grade Tns % 138,513 5.3% 134,412 5.1% 138,360 5.2% 131,748 5.1% 404,520 5.1% Ave. Recovery % 93% 93% 92% 93% 93% 7th quarterly delivered without one Ni Tonnes in Concentrate Tns 6,783 6,413 6,632 6,266 19,311 downside operational surprise Ni Tonnes in Concentrate Sold Ni Tonnes in Ore Sold Tns Tns 6,497 830 4,751 357 6,487 - 8,154 - 19,392 357 Total Nickel Sold Tns 7,327 5,108 6,487 8,154 19,749 New Spotted Quoll underground (SQUG) Stockpiles Sep Qtr Dec Qtr Mar Qtr operation ahead of schedule and delivering Ore Grade Tns % 97,334 5.1% 109,969 4.8% 146,109 4.5% 175,971 4.2% as planned Concentrate Tns 8,653 19,903 19,375 11,346 Grade % 14.1% 14.3% 14.1% 14.3% Expansion of mill from 550ktpa to 750ktpa Contained Ni in Stockpiles Tns 6,169 8,132 9,300 8,934 Financial Statistics Jun Qtr Sep Qtr Dec Qtr Mar Qtr Total and SQUG well advanced Group Production Cost/lb Mining Cost (*) A$/lb 1.72 1.60 1.54 1.86 1.66 Intensive six month drilling program at the Haulage Milling A$/lb A$/lb 0.08 0.39 0.09 0.35 0.09 0.35 0.09 0.37 0.09 0.36 recently acquired Lounge Lizard deposit Admin By Product Credits A$/lb A$/lb 0.14 (0.02) 0.18 (0.02) 0.19 (0.02) 0.19 (0.03) 0.18 (0.02) commenced Cash Cost Ni in Con (***) A$/lb 2.31 2.20 2.15 2.48 2.27 Cash Cost Ni in Con/lb (***) US$/lb (**) 2.45 2.29 2.18 2.62 2.36 Exchange Rate US$ / A$ 1.06 1.05 1.01 1.06 1.04 31
  • 32. 1st Half Year FY2012 Highlights -MarginsHighlights Low cash cost producer A$2.17/lb 1st Half Highlights ($000) 1H 2011/12 Mill recovery at 93% Mine Production (tonnes Ni) 16,230 Mill Production (tonnes Ni) 13,045 NPAT of $24.1m – one of the few profitable nickel companies Recovery 93% Sales Volume (tonnes Ni) 11,587 Cashflow from operations $64.4m Cash Costs (US$/lb) 2.23 o capex profile decreasing o $30m exploration budget Cash Costs (A$/lb) 2.17 Exchange Rate USD/ AUD 1.03 Reliable dividend payer Nickel Price (U$/tn) 18,761 Flexible balance sheet, strong cash EBITDA (000) 96,633 Undrawn debt facility $125m EBIT (000) 52,814 3 Convertible Bonds: NPAT (000) 24,102 o July 2012 @ 8.0% - A$105.5m (converts $7.73) Cashflow from Operations (000) 64,412 o July 2014 @ 6.4% - A$110.2m (converts $7.53) Cash at Bank 160,856 o July 2015 @ 6.4% - A$120.0m (converts $6.46) Dividend (cents) 5.0 2H Sales likely to >13,500t of nickel in concentrate 32