PCF - Panoramic Resources

 Panoramic Resources Limited
Mixed production, guidance downgraded BUY ASX Code: PAN Market Cap: $167M Last Price: $0.52
Andrew Muir | 1 May 2015
SNAPSHOT It was a mixed production quarter for Panoramic, with Savannah performing well, offset by a drop in Lanfranchi for a net 2% drop in group production and 1% increase in costs. FY15 guidance has also been downgraded slightly due to unscheduled rehabilitation. Whilst the downgrade is disappointing, the key value driver for the Company going forward will be the results of the current extensional drilling programs at Lanfranchi and Savannah. Both programs have the potential to add sizeable mine life to each operation. We continue to recommend Panoramic Resources Limited as a BUY. EVENT With the Company pre‐reporting production numbers and cash levels, there were few surprises at a group level, with group costs being marginally higher QoQ. However, on a site basis, Savannah improved and Lanfranchi underperformed. Mar‐15 qoq diff qoq% Group Level Units Sep‐14 Dec‐14 Nickel in Concentrate/Ore tonnes 5,178 4,825 4,717 ‐108 ‐2% Payable Cash Costs A$ per lb 5.87 5.92 6.00 0.08 1% Cash A$M 70 61 61 0 0% 11 ‐7 ‐35% Receivables A$M 20 18 Savannah 13,018 6% Ore Mined dmt 207,056 206,523 219,541 Average Mined Nickel Grade % 1.16 1.19 1.23 0.04 3% 2,259 256 12% Nickel in Concentrate tonnes 2116 2003 Payable Cash Costs A$ per lb 5.53 6.22 5.68 ‐0.54 ‐10% Lanfranchi Ore mined dmt 131,309 125,450 109,546 ‐15,904 ‐12% 2.24 ‐0.01 0% Ni grade % 2.33 2.25 Ni metal contained dmt 3062 2822 2,458 ‐364 ‐12% Payable Cash Costs A$ per lb 6.14 5.66 6.34 0.68 11% FY 15 Guidance 20‐21kt 20‐21kt 19.5kt Savannah strong: Savannah mined ore increased by 6% QoQ, with a 3% increase in grade, resulting in a 12% increase in nickel in con. The quarter included treatment of 21.3kt of Copernicus ore. The higher production led to a 9% drop in cash costs. Whilst production was impacted by a 6 day mill shutdown to undertake a mill reline, the operation remains on track to meet FY15 budget (c.8.5‐9kt Ni). Lanfranchi drill drive development vs ore production trade‐off: Ore production was down 12% QoQ at Lanfranchi largely due to a jumbo prioritisation scheduling conflicts between ore production and the 9000 drill drive development. This led to a similar drop in contained nickel and consequent 11% increase in cash costs. In addition, development rates for the Jury‐Metcalfe decline/exploration drive were increased which should result in better production scheduling flexibility in FY16. However, this resulted in an increase in waste tonnes, and therefore costs. FY15 Guidance downgraded: Post the end of the quarter, two seismic events in early April have meant that PAN has needed to undertake unscheduled rehabilitation at Lanfranchi. This has pushed some production into FY16, resulting in a downgrade in Lanfranchi FY15 production to 10.7kt of contained nickel (from 11.65kt), with group FY15 production of 19.5kt, down from the lower end of 20 – 21kt. Exploration ongoing: Drilling continues at Savannah targeting Savannah North & The Sub‐900 Fault mineralisation. At Lanfranchi, drilling is ongoing testing the Lower Schmitz mineralisation, with the Lower Schmitz decline progressing and on track for completion in September to allow a better drill platform. PCF Securities Research Panoramic Resources Limited Page | 1 Cash steady: Cash was steady QoQ at $61M, though receivables fell $7M. We note PAN remained operating cash flow positive to the tune of $12M, with the cash used to fund PP&E of $2M, $7M of underground development and exploration of $3M. In addition, Savannah had stockpiles of 572t of contained nickel (Valued at $6M) which has since been shipped and will be recognised in the current quarter. INVESTMENT THESIS Whilst the quarterly contained mixed news, the overriding thesis remains unchanged in that we see PAN as the nickel pure play best leveraged to both exploration and the nickel price. Its value remains underpinned by cash (19cps) and Savannah (48cps), implying all other assets are free. We continue to recommend Panoramic Resources Limited as a BUY. PCF Securities Research Panoramic Resources Limited Page | 2 Level 3, 8 Colin Street West Perth WA 6005 Australia PCF SECURITIES (+61 8) 9327 3888 Paul Carter Andrew Muir Melaney Brans Director, Institutional Sales Senior Resources Analyst Institutional Dealer (+61 8) 9327 3810 (+61 8) 9327 3817 (+61 8) 9327 3818 [email protected] [email protected] [email protected] PCF CAPITAL (+61 8) 9486 7111 George Jones Liam Twigger Darren Martin Stuart Moran Mike Sperinck Trevor Benson Graeme Testar Chairman Managing Director Executive Director Executive Director Executive Director Director Director [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] GENERAL DISCLOSURE & DISCLAIMER Copyright 2015. All rights reserved. This document may not be reproduced, copied, or transmitted, in whole or part without the written consent of PCF Securities Pty Ltd (ABN 85 130 497 675) (“PCF Securities”). 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