Latest Research Report - Hartleys

Panoramic Resources Limited is please to provide you with the latest research report by Hartleys entitled "All Go at Savannah as Recommissioning Underway".

To read the report, please click here
 

SUMMARY

Panoramic Resources Ltd (PAN) is well advanced on the recommissioning of the Savannah underground and processing plant, following the formal decision to resume operations back in July 2018. The first concentrate shipment for +5kt of concentrate remains on scheduled for early Q1 CY19.

We recently visited Savannah and were impressed by the progress made to date (operational readiness) and how the new and growing workforce is being integrated to build organisational capacity (~240 workforce before CY18 end).

The restart of Savannah is fully-funded through current cash and a loan facility for A$40M (first draw-down early Nov), with additional proceeds due from the recent sale of Lanfranchi (providing total cash of ~A$15M). The loan has an mandatory hedge (forwards) of 7kt Ni at A$8.51/lb Ni and 3kt Cu at A$3.71/lb Cu for delivery Feb’19 to Jun’21; currently in the money by over A$22M.

We maintain our Buy recommendation on PAN. We like the Savannah Project (simple, low cost restart), commodity exposure (we remain bullish nickel and copper) and see significant exploration upside (growing mine life and options to lift production levels). Our PAN NAV of 78cps is unchanged, spot NAV is 44cps and our latest price target is 73cps (unchanged). PAN remains undervalued, currently trading P/NAV 0.5x and on an EV/EBITDA of 2.3x for FY20 and 1.1x for FY21. The fundamentals for nickel price improvement remains strong, with declining inventories and anticipated growing demand (both from stainless steel and battery manufacturers).

Mining commenced with first ores imminent

The underground mine is poised for the delivery of first ores before the end of Nov’18, well-timed for the commissioning of the refurbished processing plant. On the current schedule the main Savannah North orebody comes on-line within 9 months, with full-scale production estimated within 15 months. For the first year of production a mining rate of 65kt per month is being targeted, increasing to 78kt per month going forward once at full production.

Access to Savannah North will be via decline from the existing Savannah decline at the 1440 Level to the Savannah North 1380-1360 level, we envisage a cost in the order of A$30M. Savannah North has ~90kt of contained nickel in the current mine plan, but with the system still open, a mine life in excess of 10 years can be assumed (but subject to drilling).

Savannah plant enhanced by refurbishment

Prior to refurbishment the Savannah plant had nameplate capacity of 1Mtpa, providing average throughput of 0.94Mtpa over the current life of mine (LOM) of +8 years. However, through some minor improvements to the processing circuit, higher than nameplate capacity could be anticipated, providing opportunities to lift production levels over time.

Savannah is expected to have average annual metal in concentrate production of 10.8kt nickel, 6.1kt copper and 0.8kt cobalt, making it a significant base metal project. PAN forecasts LOM cash costs (payable) of US$2.40/lb Ni (~A$3.20/lb Ni) and sustaining cash costs (payable) of US$3.50/lb Ni (~A$4.65/lb Ni). The mine restart has pre-production capex of <A$40M, and forecast sustaining capex of ~A$200M over the LOM. Sino Nickel has an initial 4-year sales agreement for the bulk Ni-Cu-Co concentrate, which will shipped from the Port of Wyndham.