The Restart of Savannah Project and Offtake Agreements to Unleash Growth Potential - Panoramic Resources Limited

Company Overview: Panoramic Resources Limited (ASX: PAN) is focused on undertaking exploration and production at the Savannah Nickel (Ni) – Copper (Cu) - Cobalt (Co) project. Though the company had temporarily suspended the project operations in 2020, it restarted with the first production of the concentrate in October 2021 and shipments in December 2021.

PAN Details

Project Restart & Secured Financing 1HFY22 (Ended 31 December 2021):

• With the restart of the ore production at the Savannah project, PAN shipped the first nickel-copper-cobalt concentrate in December 2021 (~10,865 wet metric tonnes (wmt)) to Jinchuan Group Co. Ltd. as per the contract for ~$20.7 million.
• PAN availed and drawdown ~US$30.0 million in funding from Trafigura Group Pte LTD (Trafigura) in 1HFY22. Another ~US$15.0 million remains undrawn under a revolving credit loan facility (RCF).

Second Shipment Delivered: On 15 February 2022, PAN delivered the second shipment of ~9,409 wmt concentrates for a provisional estimate of ~$20.7 million. The third shipment is slated for April 2022.

Nickel Zone Discovery at Savannah North Resource:

On 10 March 2021, PAN reported a new zone of semi-massive sulphide mineralisation from the drilling assay results at Savannah North. The company plans further drilling at the upcoming Savannah North campaign to define the Upper Splay mineralisation lens better. The assays exhibit the potential to expand known mineralisation and discover new zones.

Robust Returns based on the Feasibility Study:

PAN reports an updated 12-year mine plan with a pre-tax NPV of ~$353 million, pre-tax cash flow of ~$610 million, and ~15,000 tonnes per year of nickel equivalents (NiEq) in production.

The Earnings Trend from FY17-FY21, Highlights; (Analysis by Kalkine Group)

Key Metrics: With the restart of operations at its flagship project, PAN posted gross margin of 17.9% and net margin of 5.6% in 1HFY22 The ROE moved slightly from ~0.2% in 2HFY21 to ~0.7% in 1HFY22

Top 10 Shareholders:

The top 10 shareholders together form ~48.01% of the total shareholding. Western Areas Ltd and ICM Limited hold a maximum stake in the company at ~19.90% and ~16.60%, respectively.

Source: Analysis by Kalkine Group

Key Risks:

• Volatile Prices: PAN faces the risk of volatility in the price of nickel, copper, etc., which could be further impacted by demand, supply, production factors, and macro events such as Russia- the Ukraine war.
• COVID-19 Disruptions: The supply chain disruptions, rise in wage costs, shortage of skilled workforce due to COVID-19 continue to pose risks to business growth.

Plans for FY22:

PAN is committed in undertaking ~$4 million of exploration programs (on the surface and underground for ~15,000 metres) in FY22 to aid the Mineral Resource Estimate (MRE) slated for September 2022. It has identified priority areas to increase the Savannah North Resource & Reserve base.

Growth Drivers Snapshot:

Valuation Methodology: P/E Value Multiple Based Relative Valuation (Illustrative)

Source: Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: The stock of PAN gave a positive return of ~11.54% in the past three months and a positive return of ~41.46% in the past six months. The stock made a 52-weeks’ low level of ~$0.130 and a high level of ~$0.340. The stock has been valued using the P/E multiple-based-illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). The company might trade at a slight premium than its peers’ median P/E multiple, considering the discovery of a new nickel zone, robust commodity price outlook, and offtake agreements for five years. For this purpose of valuation, a few peers like AIC Mines Ltd (ASX: A1M), Rio Tinto Ltd (ASX: RIO), Copper Mountain Mining Corp (ASX: C6C) have been considered. Considering the robust financial project metrics, focus on exploration in 2022, an indicative upside in valuation, secured offtake agreements, associated key business risks, we give a ‘Speculative Buy’ rating on the stock at the closing market price of $0.290, up by ~3.571%, as of 30 March 2022. Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

PAN Daily Technical Chart, Data Source: REFINITIV 

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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