Global Ferronickel plans to buyback 2% of shares over three years

Global Ferronickel [FNI 1.25 unch; 11% avgVol] [link] announced that its board of directors approved a buyback program to purchase up to 2% of its outstanding shares on the open market over the next three years. FNI said that it will use “internally generated funds” to make the purchases and that this “initiative is part of the company’s ongoing commitment to enhance shareholder value and reflects the Board’s confidence in the company’s long-term growth prospects.” FNI has 5,125,175,687 outstanding shares trading at P1.25/share at yesterday’s close, so it would take FNI P128 million to complete the full buyback of 102.5 million shares at the current market price.

MB bottom-line:  FNI’s stock price has been in steep decline over the past year. It’s down 8% this month, down 39% so far this year, and down 55% over the past 12 months. FNI had a slight resurgence in May when nickel’s spot price shot up 10% in a short period of time, but since then the price of nickel has fallen 23% and FNI’s stock price has fallen 36%. So what does a mining company do in the face of declining market prices for its one commodity? It could do nothing and just hope that the global winds blow its way, but most supply/demand-based nickel spot price projections that I’ve seen don’t have nickel getting back to May levels until 2028. Four years is a long time to wait. It could increase production, and it’s been trying to do that by exploring areas in Surigao and Palawan. It could increase the value of the product that it produces, and it’s been exploring “value-adding opportunities” to upgrade its nickel to “battery grade”  here before shipment abroad. Or it could spend money on a stock buyback plan. FNI has a massive public float, so there’s a lot of theoretical space for it to “add value” in this way, but reducing the outstanding shares by 2% (and the float by nearly 4%) isn’t going to do much if it can’t figure out how to grow. I’m not saying that there isn’t room to do a little insider magic to the share price, but for me, I’d rather see FNI focused on doing what it can to both expand its nickel resources and sprint up the value chain. My preference is for the latter. I’m not an expert on the nickel market, but I’d rather tie my future to the nickel type that is expected to be in high (and growing) demand over the long term, and not simply peddle in the low- to mid-quality base ores that are more volatile in terms of demand (and therefore price).    

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