Company Overview: Pantoro Limited (ASX: PNR) is an Australian gold producer with 100% owned Halls Creek Gold Project in the Kimberley Region of Western Australia. The company also owns 50% interest in Norseman Gold Project. The principal activities of the company are exploration, mine development, mine operations and the sale of gold, and copper concentrate. The company was listed on ASX on 21 May 1987.

PNR Details

Key Takeaways from H1FY21 Results:

• Production Guidance Met: During the half-year ended 31 December 2020, the company produced a total of 18,155 ounces of gold at an AISC of $1,513/oz, meeting the company’s production guidance.
• Rise in Gold Sales: Due to the rise in gold and copper sales, the company’s total consolidated revenue stood at $44.66 million, up from the revenue of $38.9 million in pcp.
• Completed Share Placement at SPP: Over the half-year period, the company raised ~$50 million before cost via a share placement and ~$5.5 million via Share Purchase Plan.
• Improved NPAT: NPAT for H1FY21 stood at $8.3 million, up from the loss of $26.07 million in H1FY20. The turnaround in profit is mainly due to the inclusion of impairment loss on non-financial assets in H1FY20 results.

NPAT Trend (Source: Analysis by Kalkine Group)

Decent Production Performance in June 2021 Quarter: During the June 2021 quarter, the company produced 8,880 ounces of gold, which is higher than the 8,429 ounces produced in the previous quarter. Further, the company reported AISC of $1,570/oz which is lower than $1,644/oz in Q3FY21. The company ended the quarter with debt-free balance sheet and cash balance of $47.4 million.

Key Metrics: EBITDA Margin for H1FY21 stood at 47.0%, up from 16.3% in H1FY20. Net Margin for H1FY21 stood at 18.5%, up from -66.4% in H1FY20. Current ratio for H1FY21 stood at 2.33x, up from 1.34x in H1FY20, reflecting that the company has improved its ability to pay short-term obligations.

Key Metrics (Source: Analysis by Kalkine Group)

Top 10 Shareholders: The top 10 shareholders together form around 39.33% of the total shareholding, while the top four constitute the maximum holding. Robmar Investments Pty Ltd and Tulla Resources Group Pty. Ltd. are holding a maximum stake in the company at 14.90%  and 7.10%, respectively, as also highlighted in the chart below:           

Source: Analysis by Kalkine Group

Latest Developments:

• Announced Maiden Mineral Resource for Green Lantern Deposit: For the Green Lantern Deposit, which is a part of the Scotia Mining Centre at the Norseman Gold Project, PNR has recently a maiden Mineral Resource Estimate (MRE) of 6.8 Mt @ 1.4 g/t Au for 310,000 ounces. Notably, the Green Lantern deposit has added 18% to the Global Ore Reserve and substantially increased mine life.
• Intersected Major PGE System at Halls Creek: The company has reprocessed samples at Halls Creek which were earlier only assayed for gold. As per the update on 6 September 2021, PNR has identified a large platinum group element (PGE) system within its 100% owned 1,000 km² Halls Creek tenement package. The new results provide a perfect platform to advance exploration within these deposits.
• Strategic Investment in Maximus Resources: On 17 August 2021, PNR announced that it has agreed to a strategic investment in Maximus Resources Limited (ASX: MXR). PNR intends participate in the two-tranche capital raising by MXR to emerge with a 19.9% holding.

Key Risks:

• COVID-19 Uncertainties: If the local, State or Federal governments increases current restrictions in relation to the COVID-19 pandemic, it could impact the company’s operations and affect its guidance.
• Gold Price Fluctuations: The company’s financial results are also exposed to the risks related to the fluctuations in the price of gold.

Outlook: The company’s Halls Creek Project continues to deliver positive cashflow, supporting growth at Norseman. At its Norseman Project, PNR is continuing its drilling program with focus on Scotia Mining Centre and the Mainfield Mining Centre. The company has planned an additional 100,000 metres of drilling at the Norseman Gold Project during 2021 with the aim of doubling the current mining inventory. For Q1FY22, the company expects its gold production from Halls Creek operations to be around 9,000 ounces. Further, it expects to earn a revenue of around $19 - $23 million over the quarter. The company has set same production and revenue guidance for Q2FY22 as well.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

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: Over the last six months, the stock has provided positive returns of ~7.69%. The stock is currently trading lower than the average 52-week price level band of $0.180- $0.260, offering a decent opportunity for accumulation. The stock has been using EV/Sales multiple based illustrative relative valuation method and arrived at a target price with an upside of low double-digit (in % terms). The company can trade at a slight discount to its peers, considering the uncertainty surrounding the impact of COVID-19 pandemic and gold price fluctuations. For the purpose of valuation, peers such as Red 5 Ltd (ASX: RED), Kirkland Lake Gold Ltd (ASX: KLA), and Gold Road Resources Ltd (ASX: GOR), and other have been considered. Considering the company’s improved financial performance in H1FY21, decent production performance in June 2021 quarter, modest outlook, debt-free balance sheet, current trading level and valuation, we give a “Speculative Buy” rating on the stock at the current market price of $0.200, down by ~6.98% as on 21 September 2021.

PNR 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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