Pantoro Limited (PNR)
This is an extract of our full report. Please refer to our full report before making any investment decisions.
Pantoro Limited Growing high grade gold producer
May 2017
Recommendation: BUY
High grade gold producer hitting key operational metrics
Resource to expand as drilling progresses
Low cost pathway to double production
ASX: PNR Share Price: $0.21 Target Price: $0.31/sh M/Cap.: $153M Valuation: $0.31/share Valuation: $241M Shares/options: 788M Monthly T/over: $7M
Matthew Schembri +61 2 9239 9630 [email protected]
Brett McKay +61 2 9239 9605 [email protected]
Petra Capital Pty Ltd
May 2017
Contents Analysis............................................................................................................................................................... 4 Executive Summary ............................................................................................................................................ 5 Ramp up nearly complete.............................................................................................................................. 5 Mine life to grow ............................................................................................................................................ 5 Resource and reserve update to show higher grades .................................................................................. 5 Halls Creek Project ............................................................................................................................................. 6 Mine Life ........................................................................................................................................................ 7 Positive Reconciliation ................................................................................................................................... 8 Cost Performance ........................................................................................................................................ 10 Processing Plant ............................................................................................................................................... 11 Geology and Exploration History ...................................................................................................................... 12 Deposit Analysis ............................................................................................................................................... 13 Nicolsons ..................................................................................................................................................... 14 Rowdies/Wagtail .......................................................................................................................................... 16 Shifty’s and Paddock Well ........................................................................................................................... 19 Nicolsons Expansion ........................................................................................................................................ 20 Corporate and Financials.................................................................................................................................. 22 Gold Loan .................................................................................................................................................... 22 Modelled Assumptions ................................................................................................................................ 23 Cash Flow Analysis ..................................................................................................................................... 24 PNG Projects ............................................................................................................................................... 24 Valuation ...................................................................................................................................................... 25 Risks ............................................................................................................................................................ 26 The Board & Management................................................................................................................................ 27 Appendix 1 ........................................................................................................................................................ 29 Estimating the Nicolsons Endowment ......................................................................................................... 29 Appendix 2 ........................................................................................................................................................ 30 Peer Comparison ......................................................................................................................................... 30
2
May 2017
Pantoro Limited (PNR)
BUY
Only just begun We initiate coverage on Pantoro Limited (PNR.ASX) with a BUY rating and target price of A$0.31/sh in line with our NPV. Pantoro has refurbished and restarted the Halls Creek Project in Western Australia. In our view, a 50kozpa run rate in the JQ’17 will significantly de-risk the sustainability of the operation to the market. Continued release of exploration drilling and development data will progressively show the full extent of known deposits and drill ready targets. This will increasingly support the credibility of expansion plans to transition to a 100kozpa producer. Ramp up nearly complete – we now look for sustainability
• Milling hit 103% of nameplate capacity in the month of Mar-17 and JQ’17 is expected to demonstrate 50kozpa. Underground development has now reached critical mass allowing production across a three level sequence. We expect this to underpin the 50kozpa run rate on a sustainable basis.
Share Price:
A$0.21
Target Price:
A$0.31
Company Data Shares – ordinary (M)
745.6
Options (M)
42.5
Total (fully diluted) (M)
788.1
Market cap. (M)
153
12 month low/high ($)
0.24 / 0.08
Average monthly turnover ($M)
7
GICS Industry
Materials / Gold
Financial Summary (fully diluted/normalised) Year end June
2016A
2017F
2018F
2019F
2020F
Revenue ($M)
20
61
87
88
89
Costs ($M)
20
47
45
44
44
EBITDA ($M)
-1
14
42
44
45
NPAT ($M)
-5
11
29
24
23
EPS (¢ps)
-1
1
4
3
3
PER (x)
na
15
6
7
7
Cashflow ($M)
3
20
30
35
37
Deposits yet to be fully valued by the market
CFPS (¢ps)
0
2
4
4
5
• We believe the resource does not yet represent this gold
PCFPS (x)
0
0
0
0
0
155
144
128
107
92
-288
10
3
2
2
0
0
0
0
0
0
0
0
0
0
Enterprise Value ($M)
system; shear zone hosted, high grade deposits are challenging to define through drilling. A resource update EV / EBITDA (x) including development data, due later this month, is Dividends (¢ps) expected to show a material lift in grade and ounces per Yield (%) vertical metre.
• Drilling is sparse below 250m at Nicolsons and 70m at
Director
Rowdies/Wagtail with mineralisation open at depth and Michael Jefferies along strike. Recent drilling shows the continuation of Paul Cmrlec mineralisation and further drilling is planned.
• Underground exploration success at Nicolsons /
Position
Executive
Chairman
Non-Executive
Managing Director
Executive
Scott Huffadine
Operations Director
Executive
Kylie Edwards
Director
Non-Executive
Rowdies / Wagtail justifies our base case assumption of a 10 year mine life and 550koz mining inventory versus the current resource/reserve of 218koz/109koz. PNR – performance over one year Low cost pathway to double production to 100kozpa
• Capex of A$10m could add a second ball mill and improved leach tank capacity to expand the mill from 200ktpa to 400ktpa. At 8g/t and 97% recovery, this supports a 100kozpa operation.
• Continued drilling success to define underground extensions and support expanded production. Target Price A$0.31/sh
• Price target set at 1xP/NPV. • Halls Creek Project valued at A$179m ($0.23/sh) • A$50m (A$0.06/sh) nominal exploration value includes PNG assets & opportunities throughout the Halls Creek tenement package.
3
May 2017
Analysis Pantoro Limited
Share Price
($)
A$0.210
(PNR)
SOI
(M)
745.6
18-May-17
Issued shares
(M)
42.5
Fully Diluted
(M)
788.1
Mkt Cap.
($M)
A$157M
Year End June PROFIT & LOSS
2016A
2017F
2018F
2019F
2020F
2016A
2017F
Resource
2018F
Revenue
A$M
19.9
60.8
87.0
88.1
89.2
Operating Costs
A$M
14.3
39.8
42.3
41.8
41.9
Exploration
A$M
0.1
4.9
0.6
0.6
0.6
Tonnes
Kt
1037
Other
A$M
6.1
2.3
2.0
2.0
2.0
Gold grade
g/t
6.5
6.6
EBITDA
A$M
(0.5)
13.8
42.1
43.6
44.7
Contained gold
koz
217
109
A$M
4.4
3.2
8.8
10.8
13.3
A$M
(4.9)
10.6
33.3
32.8
31.4
Net Interest
A$M
0.4
(0.1)
(0.4)
(0.9)
(1.5) Tonnes
Kt
720
97
Pre-Tax Profit
A$M
(5.3)
10.7
33.7
33.7
32.9
Gold grade
g/t
7.4
7.2
Contained gold
koz
172
97
A$M
0.0
0.0
5.1
10.1
9.9
A$M
(5.3)
10.7
28.5
23.6
23.1
Nicolsons - Underground (May-16)
Abnormal
A$M
0.0
16.1
0.0
0.0
0.0
Reported Profit
A$M
(5.3)
26.8
28.5
23.6
23.1
Nicolsons
Dividends Paid
A$M
0.0
0.0
0.0
0.0
0.0
Production
Adjustments
A$M
0.0
0.0
0.0
0.0
0.0
CASHFLOW Net Op Cash Flow
A$M
2.6
19.4
34.6
44.2
45.3
Net Interest
A$M
0.0
0.1
0.4
0.9
1.5
Tax Paid
A$M
0.0
0.0
(5.1)
(10.1)
Operating Cash Flow
A$M
2.6
19.5
29.9
35.0
Net Capex
A$M
(13.1)
(19.8)
(11.0)
(11.0)
Exploration
A$M
(0.4)
(1.9)
(3.0)
(3.0)
(3.0)
Investing Cash Flow
A$M
(13.6)
(21.7)
(14.0)
(14.0)
(21.5)
Free cash flow
A$M
(11.0)
(2.2)
15.9
21.0
15.4
Net Borrowings
A$M
3.3
3.2
0.0
0.0
0.0
Dividends
A$M
0.0
0.0
0.0
0.0
0.0
Equity Issues
A$M
6.0
2.9
0.0
0.0
0.0
Other
A$M
(0.2)
(0.0)
0.0
0.0
0.0
Financing Cash Flow
A$M
9.1
6.1
0.0
0.0
0.0
Net IncreaseCash
A$M
(1.9)
3.9
15.9
21.0
15.4
Cash
A$M
4.9
8.8
24.7
45.7
61.1
Other Current
A$M
4.0
7.2
7.2
7.2
7.2
Current Assets
A$M
8.9
16.0
31.8
52.9
68.3
Fixed Assets
A$M
23.4
41.6
52.6
63.6
82.1
Exploration
A$M
5.8
2.9
5.3
7.7
10.1
Other
A$M
0.0
0.0
0.0
0.0
0.0
Non Current Assets
A$M
29.2
44.5
57.9
71.3
92.2 160.5
210
515
EBIT
Net Profit
2020F
Halls Creek Project (May-16)
Depreciation & Amort.
Tax
2019F
Reserve
Ore milled
Mt
71
162
210
210
Grade - gold
g/t
7.2
7.9
8.0
8.0
8.0
Recovery Gold
%
95%
97%
97%
97%
97% 52,393
Gold output C1 Costs
(9.9) AISC
oz
15,435
39,795
52,393
52,393
A$/oz
1,109
854
719
709
709
A$/oz
1,399
1,116
1,036
1,028
1,029
36.9 (18.5) Cash Flow Forecasts Incl Debt & Equity
50
A$m
25
-
BALANCE SHEET
-25 Free Cash Flow Change in Borrowings Capex & Exp
-50
New Equity Gold Repayments Change in Cash
FY16 FY17 FY18 FY19 FY20 FY21 FY22 FY23 FY24 FY25
Total Assets
A$M
38.1
60.5
89.8
124.2
Borrowings
A$M
5.2
0.0
0.0
0.0
0.0
REVENUE
Payables
A$M
7.2
10.1
10.1
10.1
10.1
Nicolsons
A$M
25
66
87
88
89
Other
A$M
0.7
7.7
0.7
0.7
0.7
Other
A$M
0
7
38
144
170
Current Liab
A$M
13.1
17.9
10.8
10.8
10.8
Total
A$M
25
72
125
232
260
Borrowings
A$M
1.8
0.0
0.0
0.0
0.0
COSTS
Provisions
A$M
1.4
1.9
1.9
1.9
1.9
Nicolsons
A$M
18
36
42
42
42
Other
A$M
0.0
0.0
0.0
0.0
0.0
Corporate
A$M
2
2
2
2
2
Non Current Liab
A$M
3.1
1.9
1.9
1.9
1.9
Total
A$M
19
38
44
44
44
A$M
3.6
8.0
11.0
11.0
11.0
A$M
7.5
11.8
0.0
0.0
7.5
A$M
11.0
19.8
11.0
11.0
18.5
Total Liabilities
A$M
16.3
19.8
12.7
12.7
12.7
Total Equity
A$M
21.8
40.7
77.0
111.4
147.8
RATIO ANALYSIS EPS
A$ ¢
(0.7)
A$ 1.4
PER
x
na
EPS Growth
%
(509.0)
15.5
CFPS
¢
0.3
2.5
PCFR
x
63.8
8.5
DPS
¢
0.0
Yield
%
Payout Ratio
%
A$ 3.6
3.0
A$ Project 2.9
Total
7.0
7.2
(17.4)
(2.2)
3.8
4.4
4.7
ASSUMPTIONS
5.5
4.7
4.5
Exchange Rate
A$/US$
0.74
0.74
0.73
0.71
0.70
0.0
0.0
0.0
0.0
Gold price
US$oz
1,247
1,215
1,220
1,200
1,200
0%
0%
0%
0%
0% Gold price
A$oz
1,677
1,632
1,671
1,690
1,714
0%
0%
0%
0%
0% A$M
A$/sh.
(301.4)
5.8
A$
CAPEX SIBC
167.2
Gearing ND/E
%
10%
-22%
-32%
-41%
Interest Cover
x
na
na
na
na
EBITDA Margin
%
(2.7)
22.6
48.4
49.5
-41% NPV (+1Yr) na Halls Creek Project 50.1
Exploration
179 $
0.23
50 $
0.06
EBIT Margin
%
(24.7)
17.4
38.2
37.2
35.2
Corporate costs
-13 $
(0.02)
Return On Assets
%
(12.9)
17.5
37.1
26.4
19.6
Net Cash (Debt)
25 $
0.03
Eff Tax rate
%
30
241 $
0.31
30
30
30
30 Total
Source: Petra Capital
4
May 2017
Executive Summary Pantoro is a West Australian gold producer, operating the 100% owned, high grade, Halls Creek Project located in the Kimberley Region of WA. Following completion of its acquisition in April 2014, the project was refurbished with production restarting in September 2015. Gold production is now at a run rate of 41kozpa, with the availability of ROM stocks and underground development amenable to steady state stoping, we expect the operation to reach 50kozpa imminently. Mineralisation at Halls Creek is prolific, yet previously poorly tested. We see underground development and exploration to significantly improve the resource and reserve base. We believe this could support a low cost expansion to 350-400ktpa for ~100kozpa, but this is not yet in our base case. We initiate with a BUY recommendation and a A$0.31/sh target price in line with our NPV.
Ramp up nearly complete Open pit mining, with a reserve base of 96.5kt @ 5.6g/t for 17koz, commenced in October-2016. This has built ROM stocks to provide sufficient feed for the processing plant to reach steady state production. At the same time, sufficient underground development is now available to increase the proportion of underground feed from stoping. Currently 15% of underground ore feed is from stoping, as this proportion grows we expect volumes and milled grades to improve. The combination of open pit ROM stocks and greater volumes of higher grade underground ore will support a run rate of 50kozpa or above in the next quarter (Petra JQ’17: 12.5koz).
Mine life to grow Pantoro’s resource/reserves of 218koz/109koz are one of the lowest in the peer group. The high grade, shear zone hosted nature of the deposit makes it uneconomic to drill out vast extensions from surface. Underground development now provides drill platforms to target extensions to the current resource at Nicolsons. We expect further surface drilling at Rowdies/Wagtail to support a decision to develop underground operations beneath the current open pits. Development would be accelerated with the deposits already on an existing mining lease. Diamond drilling has been successful down to 290m below surface, with the reserve only extending to 210m at this stage. Both the Anderson/Hall and Johnston Lodes remain open at depth and along strike. We see this prolific, yet previously poorly tested gold system providing a further 6 years of mine life beyond the current resource through underground extensions at Nicolsons and the establishment of an underground at Rowdies/Wagtail.
Resource and reserve update to show higher grades In the short term, we expect an updated resource and reserve statement in May-2017. We expect this to demonstrate a significant upgrade in the ore grade at Nicolsons. A high proportion of the current resource is underpinned by RC drilling which fails to represent the ore body. Increased diamond drill density and underground development is able to better define the resource, resulting in significantly better grade, as demonstrated in the May-2016 update. Valuation of A$0.31/sh Our valuation of A$0.31/sh is set in-line with our NPV on our base case production plan, at a 10% discount rate. Risks A comprehensive assessment of the risks facing Pantoro is included in the main section of the report. Key areas of risk to achieving our target price include; a) commodity price risk b) operational performance c) weather related d) mine life and e) funding.
5
May 2017
ABN 95 110 952 782 ACN 110 952 782 AFSL 317 944
Petra Capital Level 17, 14 Martin Place, Sydney NSW 2000 Director: Research (Resources): Research (Resources): Research (Industrials): Research (Industrials): Research (Industrials): Research (Industrials): Research (Industrials): Research (Property): Sales: Sales: Sales: Sales: Sales: Sales: Sales: Sales: Sales: Sales: Corporate (ECM): Corporate (ECM): Administration: Administration: Administration: Administration: Administration: Legal & Compliance: Financials:
George Marias Brett McKay Matthew Schembri Michael Henshaw George Kopsiaftis Nick Berry Killian Murphy Daniel Porter Jonathan Kriska Frank Barila Shane Gavegan Mark Innes Richard Macphillamy Vincent Pisani Michael Vincent Colin Redmond Daniel Gardiner Peter Veldhuizen Vince Barila Conrad Anderson David Wallis Krystle Garven Amelia Holland Samantha Tingley Silvia Fratta Pasini Larissa Falvo Stephen Newton Tony Christelis
+61 (0)2 9239 9601 +61 (0)2 9239 9605 +61 (0)2 9239 9630 +61 (0)2 9239 9606 +61 (0)2 9239 9618 +61 (0)2 9239 9634 +61 (0)2 9239 9607 +61 (0)2 9239 9625 +61 (0)2 9239 9633 +61 (0)2 9239 9603 +61 (0)2 9239 9616 +61 (0)2 9239 9602 +61 (0)2 9239 9604 +61 (0)2 9239 9617 +61 (0)2 9239 9620 +61 (0)2 9239 9613 +61 (0)2 9239 9608 +61 (0)2 9239 9609 +61 (0)2 9239 9627 +61 (0)2 9239 9610 +61 (0)2 9239 9622 +61 (0)2 9239 9635 +61 (0)2 9239 9614 +61 (0)2 9239 9636 +61 (0)2 9239 9621 +61 (0)2 9239 9611 +61 (0)2 9239 9612 +61 (0)2 9239 9615
[email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected] [email protected]
Disclosure This document has been prepared in Australia by Petra Capital Pty Ltd which holds an Australian Financial Services License AFSL 317 944. Petra Capital Pty Ltd is an ASX Market Participant. Petra Capital Pty Ltd and its associates, officers, directors, employees and agents, from time to time, may receive brokerage, commissions, fees or other benefits or advantages, hold securities in companies researched by Petra Capital Pty Ltd and may trade in these securities either as principal or agent. Disclaimer The information or advice contained in this report has been obtained from sources that were accurate at the time of issue, however the information has not been independently verified and as such, Petra Capital Pty Ltd cannot warrant its accuracy or reliability. Persons relying on this information do so at their own risk. To the extent permitted by law, Petra Capital Pty Ltd disclaims all liability or responsibility for any direct or indirect loss or damage (including consequential loss or damage) caused by any error or omission within this report, or by persons relying on the contents of this report. This report is published by Petra Capital Pty Ltd by way of general information or advice only. This report does not take into account specific investment needs or other considerations that may be pertinent to individual investors. Before making any investment decisions based on this report, parties should consider, with or without an investor adviser, whether any relevant part of this report is appropriate to their financial circumstances and investment objectives. Petra Capital Pty Ltd is a licensed institutional/wholesale stockbroking firm. The report is only intended for institutional and sophisticated clients to whom Petra Capital Pty Ltd has issued the report. Petra Capital Pty Ltd is not licensed to advise retail investors – retail investors should contact their own stockbroker or financial adviser/planner for advice. Key Risks – Resources Companies under Coverage Key risks in relation to the resources sector and the resources companies that are the subject of research by Petra Capital’s analysts include commodity price volatility, currency risk, technical/licencing/operational risks, litigation/political risk, development risk and sovereign risk for overseas assets, as well as feasibility, permitting and financing risks related to the development of growth projects. Ratings Information regarding the scope and expertise of our research services, processes for selection for coverage, and the management of conflicts of interest can be found on Petra Capital’s website at www.petracapital.com.au/research-disclosures. Petra Capital uses the following ratings system and definitions: Buy - Forecast to outperform the Market by more than 5%; Hold - Forecast to perform up to 5% above or below the Market; Sell - Forecast to underperform the Market by more than 5%; Speculative Buy - Speculative Investment; Take Profits - Recommend taking short term profits in a stock we remain fundamentally positive on a medium term view; Accept Offer - For a company under takeover where we see the offer as a fair price with low risk of a competing offer; No Rating - No rating at this time. Market performance is relative to the S&P/ASX Small Ordinaries Index which we assume generates a neutral return on a 12 month basis. US Investors This material is intended for use by major U.S. institutional investors (as such term is defined in the U.S. Securities Exchange Act of 1934) and “$100 million investors” only and not the general investing public or retail customers. “$100 million investors” means any entity, including any investment adviser (whether or not registered under the U.S. Investment Company Act of 1940) that owns or controls (or in the case on an investment adviser has under management) in excess of US$100 million in aggregate financial assets (i.e. cash, money-market instruments, securities of unaffiliated issues, futures and options on futures and other derivative instruments). Transactions by or on behalf of any US person in any security mentioned in this document may only be effected through Global Alliance Securities, LLC (“Global Alliance”), a U.S. broker dealer. The information upon which this material is based was obtained from sources believed to be reliable, but has not been independently verified. Therefore, its accuracy is not guaranteed. Additional and supporting information is available upon request. This is not an offer or solicitation of an offer to buy or sell any security or to make any investment. Any opinion or estimate constitutes the preparer’s best judgement as of the date of preparation and is subject to change without notice. Petra Capital Pty Ltd or Global Alliance and their associates or affiliates, and their respective officers, directors and employees may buy or sell securities mentioned herein as agent or principal for their own account. Other International International investors are encouraged to contact their local regulatory authorities to determine whether restrictions apply in buying/selling this investment.
Pantoro Limited Growing high grade gold producer
May 2017
Recommendation: BUY
High grade gold producer hitting key operational metrics
Resource to expand as drilling progresses
Low cost pathway to double production
ASX: PNR Share Price: $0.21 Target Price: $0.31/sh M/Cap.: $153M Valuation: $0.31/share Valuation: $241M Shares/options: 788M Monthly T/over: $7M
Matthew Schembri +61 2 9239 9630 [email protected]
Brett McKay +61 2 9239 9605 [email protected]
Petra Capital Pty Ltd
May 2017
Contents Analysis............................................................................................................................................................... 4 Executive Summary ............................................................................................................................................ 5 Ramp up nearly complete.............................................................................................................................. 5 Mine life to grow ............................................................................................................................................ 5 Resource and reserve update to show higher grades .................................................................................. 5 Halls Creek Project ............................................................................................................................................. 6 Mine Life ........................................................................................................................................................ 7 Positive Reconciliation ................................................................................................................................... 8 Cost Performance ........................................................................................................................................ 10 Processing Plant ............................................................................................................................................... 11 Geology and Exploration History ...................................................................................................................... 12 Deposit Analysis ............................................................................................................................................... 13 Nicolsons ..................................................................................................................................................... 14 Rowdies/Wagtail .......................................................................................................................................... 16 Shifty’s and Paddock Well ........................................................................................................................... 19 Nicolsons Expansion ........................................................................................................................................ 20 Corporate and Financials.................................................................................................................................. 22 Gold Loan .................................................................................................................................................... 22 Modelled Assumptions ................................................................................................................................ 23 Cash Flow Analysis ..................................................................................................................................... 24 PNG Projects ............................................................................................................................................... 24 Valuation ...................................................................................................................................................... 25 Risks ............................................................................................................................................................ 26 The Board & Management................................................................................................................................ 27 Appendix 1 ........................................................................................................................................................ 29 Estimating the Nicolsons Endowment ......................................................................................................... 29 Appendix 2 ........................................................................................................................................................ 30 Peer Comparison ......................................................................................................................................... 30
2
May 2017
Pantoro Limited (PNR)
BUY
Only just begun We initiate coverage on Pantoro Limited (PNR.ASX) with a BUY rating and target price of A$0.31/sh in line with our NPV. Pantoro has refurbished and restarted the Halls Creek Project in Western Australia. In our view, a 50kozpa run rate in the JQ’17 will significantly de-risk the sustainability of the operation to the market. Continued release of exploration drilling and development data will progressively show the full extent of known deposits and drill ready targets. This will increasingly support the credibility of expansion plans to transition to a 100kozpa producer. Ramp up nearly complete – we now look for sustainability
• Milling hit 103% of nameplate capacity in the month of Mar-17 and JQ’17 is expected to demonstrate 50kozpa. Underground development has now reached critical mass allowing production across a three level sequence. We expect this to underpin the 50kozpa run rate on a sustainable basis.
Share Price:
A$0.21
Target Price:
A$0.31
Company Data Shares – ordinary (M)
745.6
Options (M)
42.5
Total (fully diluted) (M)
788.1
Market cap. (M)
153
12 month low/high ($)
0.24 / 0.08
Average monthly turnover ($M)
7
GICS Industry
Materials / Gold
Financial Summary (fully diluted/normalised) Year end June
2016A
2017F
2018F
2019F
2020F
Revenue ($M)
20
61
87
88
89
Costs ($M)
20
47
45
44
44
EBITDA ($M)
-1
14
42
44
45
NPAT ($M)
-5
11
29
24
23
EPS (¢ps)
-1
1
4
3
3
PER (x)
na
15
6
7
7
Cashflow ($M)
3
20
30
35
37
Deposits yet to be fully valued by the market
CFPS (¢ps)
0
2
4
4
5
• We believe the resource does not yet represent this gold
PCFPS (x)
0
0
0
0
0
155
144
128
107
92
-288
10
3
2
2
0
0
0
0
0
0
0
0
0
0
Enterprise Value ($M)
system; shear zone hosted, high grade deposits are challenging to define through drilling. A resource update EV / EBITDA (x) including development data, due later this month, is Dividends (¢ps) expected to show a material lift in grade and ounces per Yield (%) vertical metre.
• Drilling is sparse below 250m at Nicolsons and 70m at
Director
Rowdies/Wagtail with mineralisation open at depth and Michael Jefferies along strike. Recent drilling shows the continuation of Paul Cmrlec mineralisation and further drilling is planned.
• Underground exploration success at Nicolsons /
Position
Executive
Chairman
Non-Executive
Managing Director
Executive
Scott Huffadine
Operations Director
Executive
Kylie Edwards
Director
Non-Executive
Rowdies / Wagtail justifies our base case assumption of a 10 year mine life and 550koz mining inventory versus the current resource/reserve of 218koz/109koz. PNR – performance over one year Low cost pathway to double production to 100kozpa
• Capex of A$10m could add a second ball mill and improved leach tank capacity to expand the mill from 200ktpa to 400ktpa. At 8g/t and 97% recovery, this supports a 100kozpa operation.
• Continued drilling success to define underground extensions and support expanded production. Target Price A$0.31/sh
• Price target set at 1xP/NPV. • Halls Creek Project valued at A$179m ($0.23/sh) • A$50m (A$0.06/sh) nominal exploration value includes PNG assets & opportunities throughout the Halls Creek tenement package.
3
May 2017
Analysis Pantoro Limited
Share Price
($)
A$0.210
(PNR)
SOI
(M)
745.6
18-May-17
Issued shares
(M)
42.5
Fully Diluted
(M)
788.1
Mkt Cap.
($M)
A$157M
Year End June PROFIT & LOSS
2016A
2017F
2018F
2019F
2020F
2016A
2017F
Resource
2018F
Revenue
A$M
19.9
60.8
87.0
88.1
89.2
Operating Costs
A$M
14.3
39.8
42.3
41.8
41.9
Exploration
A$M
0.1
4.9
0.6
0.6
0.6
Tonnes
Kt
1037
Other
A$M
6.1
2.3
2.0
2.0
2.0
Gold grade
g/t
6.5
6.6
EBITDA
A$M
(0.5)
13.8
42.1
43.6
44.7
Contained gold
koz
217
109
A$M
4.4
3.2
8.8
10.8
13.3
A$M
(4.9)
10.6
33.3
32.8
31.4
Net Interest
A$M
0.4
(0.1)
(0.4)
(0.9)
(1.5) Tonnes
Kt
720
97
Pre-Tax Profit
A$M
(5.3)
10.7
33.7
33.7
32.9
Gold grade
g/t
7.4
7.2
Contained gold
koz
172
97
A$M
0.0
0.0
5.1
10.1
9.9
A$M
(5.3)
10.7
28.5
23.6
23.1
Nicolsons - Underground (May-16)
Abnormal
A$M
0.0
16.1
0.0
0.0
0.0
Reported Profit
A$M
(5.3)
26.8
28.5
23.6
23.1
Nicolsons
Dividends Paid
A$M
0.0
0.0
0.0
0.0
0.0
Production
Adjustments
A$M
0.0
0.0
0.0
0.0
0.0
CASHFLOW Net Op Cash Flow
A$M
2.6
19.4
34.6
44.2
45.3
Net Interest
A$M
0.0
0.1
0.4
0.9
1.5
Tax Paid
A$M
0.0
0.0
(5.1)
(10.1)
Operating Cash Flow
A$M
2.6
19.5
29.9
35.0
Net Capex
A$M
(13.1)
(19.8)
(11.0)
(11.0)
Exploration
A$M
(0.4)
(1.9)
(3.0)
(3.0)
(3.0)
Investing Cash Flow
A$M
(13.6)
(21.7)
(14.0)
(14.0)
(21.5)
Free cash flow
A$M
(11.0)
(2.2)
15.9
21.0
15.4
Net Borrowings
A$M
3.3
3.2
0.0
0.0
0.0
Dividends
A$M
0.0
0.0
0.0
0.0
0.0
Equity Issues
A$M
6.0
2.9
0.0
0.0
0.0
Other
A$M
(0.2)
(0.0)
0.0
0.0
0.0
Financing Cash Flow
A$M
9.1
6.1
0.0
0.0
0.0
Net IncreaseCash
A$M
(1.9)
3.9
15.9
21.0
15.4
Cash
A$M
4.9
8.8
24.7
45.7
61.1
Other Current
A$M
4.0
7.2
7.2
7.2
7.2
Current Assets
A$M
8.9
16.0
31.8
52.9
68.3
Fixed Assets
A$M
23.4
41.6
52.6
63.6
82.1
Exploration
A$M
5.8
2.9
5.3
7.7
10.1
Other
A$M
0.0
0.0
0.0
0.0
0.0
Non Current Assets
A$M
29.2
44.5
57.9
71.3
92.2 160.5
210
515
EBIT
Net Profit
2020F
Halls Creek Project (May-16)
Depreciation & Amort.
Tax
2019F
Reserve
Ore milled
Mt
71
162
210
210
Grade - gold
g/t
7.2
7.9
8.0
8.0
8.0
Recovery Gold
%
95%
97%
97%
97%
97% 52,393
Gold output C1 Costs
(9.9) AISC
oz
15,435
39,795
52,393
52,393
A$/oz
1,109
854
719
709
709
A$/oz
1,399
1,116
1,036
1,028
1,029
36.9 (18.5) Cash Flow Forecasts Incl Debt & Equity
50
A$m
25
-
BALANCE SHEET
-25 Free Cash Flow Change in Borrowings Capex & Exp
-50
New Equity Gold Repayments Change in Cash
FY16 FY17 FY18 FY19 FY20 FY21 FY22 FY23 FY24 FY25
Total Assets
A$M
38.1
60.5
89.8
124.2
Borrowings
A$M
5.2
0.0
0.0
0.0
0.0
REVENUE
Payables
A$M
7.2
10.1
10.1
10.1
10.1
Nicolsons
A$M
25
66
87
88
89
Other
A$M
0.7
7.7
0.7
0.7
0.7
Other
A$M
0
7
38
144
170
Current Liab
A$M
13.1
17.9
10.8
10.8
10.8
Total
A$M
25
72
125
232
260
Borrowings
A$M
1.8
0.0
0.0
0.0
0.0
COSTS
Provisions
A$M
1.4
1.9
1.9
1.9
1.9
Nicolsons
A$M
18
36
42
42
42
Other
A$M
0.0
0.0
0.0
0.0
0.0
Corporate
A$M
2
2
2
2
2
Non Current Liab
A$M
3.1
1.9
1.9
1.9
1.9
Total
A$M
19
38
44
44
44
A$M
3.6
8.0
11.0
11.0
11.0
A$M
7.5
11.8
0.0
0.0
7.5
A$M
11.0
19.8
11.0
11.0
18.5
Total Liabilities
A$M
16.3
19.8
12.7
12.7
12.7
Total Equity
A$M
21.8
40.7
77.0
111.4
147.8
RATIO ANALYSIS EPS
A$ ¢
(0.7)
A$ 1.4
PER
x
na
EPS Growth
%
(509.0)
15.5
CFPS
¢
0.3
2.5
PCFR
x
63.8
8.5
DPS
¢
0.0
Yield
%
Payout Ratio
%
A$ 3.6
3.0
A$ Project 2.9
Total
7.0
7.2
(17.4)
(2.2)
3.8
4.4
4.7
ASSUMPTIONS
5.5
4.7
4.5
Exchange Rate
A$/US$
0.74
0.74
0.73
0.71
0.70
0.0
0.0
0.0
0.0
Gold price
US$oz
1,247
1,215
1,220
1,200
1,200
0%
0%
0%
0%
0% Gold price
A$oz
1,677
1,632
1,671
1,690
1,714
0%
0%
0%
0%
0% A$M
A$/sh.
(301.4)
5.8
A$
CAPEX SIBC
167.2
Gearing ND/E
%
10%
-22%
-32%
-41%
Interest Cover
x
na
na
na
na
EBITDA Margin
%
(2.7)
22.6
48.4
49.5
-41% NPV (+1Yr) na Halls Creek Project 50.1
Exploration
179 $
0.23
50 $
0.06
EBIT Margin
%
(24.7)
17.4
38.2
37.2
35.2
Corporate costs
-13 $
(0.02)
Return On Assets
%
(12.9)
17.5
37.1
26.4
19.6
Net Cash (Debt)
25 $
0.03
Eff Tax rate
%
30
241 $
0.31
30
30
30
30 Total
Source: Petra Capital
4
May 2017
Executive Summary Pantoro is a West Australian gold producer, operating the 100% owned, high grade, Halls Creek Project located in the Kimberley Region of WA. Following completion of its acquisition in April 2014, the project was refurbished with production restarting in September 2015. Gold production is now at a run rate of 41kozpa, with the availability of ROM stocks and underground development amenable to steady state stoping, we expect the operation to reach 50kozpa imminently. Mineralisation at Halls Creek is prolific, yet previously poorly tested. We see underground development and exploration to significantly improve the resource and reserve base. We believe this could support a low cost expansion to 350-400ktpa for ~100kozpa, but this is not yet in our base case. We initiate with a BUY recommendation and a A$0.31/sh target price in line with our NPV.
Ramp up nearly complete Open pit mining, with a reserve base of 96.5kt @ 5.6g/t for 17koz, commenced in October-2016. This has built ROM stocks to provide sufficient feed for the processing plant to reach steady state production. At the same time, sufficient underground development is now available to increase the proportion of underground feed from stoping. Currently 15% of underground ore feed is from stoping, as this proportion grows we expect volumes and milled grades to improve. The combination of open pit ROM stocks and greater volumes of higher grade underground ore will support a run rate of 50kozpa or above in the next quarter (Petra JQ’17: 12.5koz).
Mine life to grow Pantoro’s resource/reserves of 218koz/109koz are one of the lowest in the peer group. The high grade, shear zone hosted nature of the deposit makes it uneconomic to drill out vast extensions from surface. Underground development now provides drill platforms to target extensions to the current resource at Nicolsons. We expect further surface drilling at Rowdies/Wagtail to support a decision to develop underground operations beneath the current open pits. Development would be accelerated with the deposits already on an existing mining lease. Diamond drilling has been successful down to 290m below surface, with the reserve only extending to 210m at this stage. Both the Anderson/Hall and Johnston Lodes remain open at depth and along strike. We see this prolific, yet previously poorly tested gold system providing a further 6 years of mine life beyond the current resource through underground extensions at Nicolsons and the establishment of an underground at Rowdies/Wagtail.
Resource and reserve update to show higher grades In the short term, we expect an updated resource and reserve statement in May-2017. We expect this to demonstrate a significant upgrade in the ore grade at Nicolsons. A high proportion of the current resource is underpinned by RC drilling which fails to represent the ore body. Increased diamond drill density and underground development is able to better define the resource, resulting in significantly better grade, as demonstrated in the May-2016 update. Valuation of A$0.31/sh Our valuation of A$0.31/sh is set in-line with our NPV on our base case production plan, at a 10% discount rate. Risks A comprehensive assessment of the risks facing Pantoro is included in the main section of the report. Key areas of risk to achieving our target price include; a) commodity price risk b) operational performance c) weather related d) mine life and e) funding.
5
May 2017
ABN 95 110 952 782 ACN 110 952 782 AFSL 317 944
Petra Capital Level 17, 14 Martin Place, Sydney NSW 2000 Director: Research (Resources): Research (Resources): Research (Industrials): Research (Industrials): Research (Industrials): Research (Industrials): Research (Industrials): Research (Property): Sales: Sales: Sales: Sales: Sales: Sales: Sales: Sales: Sales: Sales: Corporate (ECM): Corporate (ECM): Administration: Administration: Administration: Administration: Administration: Legal & Compliance: Financials:
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+61 (0)2 9239 9601 +61 (0)2 9239 9605 +61 (0)2 9239 9630 +61 (0)2 9239 9606 +61 (0)2 9239 9618 +61 (0)2 9239 9634 +61 (0)2 9239 9607 +61 (0)2 9239 9625 +61 (0)2 9239 9633 +61 (0)2 9239 9603 +61 (0)2 9239 9616 +61 (0)2 9239 9602 +61 (0)2 9239 9604 +61 (0)2 9239 9617 +61 (0)2 9239 9620 +61 (0)2 9239 9613 +61 (0)2 9239 9608 +61 (0)2 9239 9609 +61 (0)2 9239 9627 +61 (0)2 9239 9610 +61 (0)2 9239 9622 +61 (0)2 9239 9635 +61 (0)2 9239 9614 +61 (0)2 9239 9636 +61 (0)2 9239 9621 +61 (0)2 9239 9611 +61 (0)2 9239 9612 +61 (0)2 9239 9615
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Disclosure This document has been prepared in Australia by Petra Capital Pty Ltd which holds an Australian Financial Services License AFSL 317 944. Petra Capital Pty Ltd is an ASX Market Participant. Petra Capital Pty Ltd and its associates, officers, directors, employees and agents, from time to time, may receive brokerage, commissions, fees or other benefits or advantages, hold securities in companies researched by Petra Capital Pty Ltd and may trade in these securities either as principal or agent. Disclaimer The information or advice contained in this report has been obtained from sources that were accurate at the time of issue, however the information has not been independently verified and as such, Petra Capital Pty Ltd cannot warrant its accuracy or reliability. Persons relying on this information do so at their own risk. To the extent permitted by law, Petra Capital Pty Ltd disclaims all liability or responsibility for any direct or indirect loss or damage (including consequential loss or damage) caused by any error or omission within this report, or by persons relying on the contents of this report. This report is published by Petra Capital Pty Ltd by way of general information or advice only. This report does not take into account specific investment needs or other considerations that may be pertinent to individual investors. Before making any investment decisions based on this report, parties should consider, with or without an investor adviser, whether any relevant part of this report is appropriate to their financial circumstances and investment objectives. Petra Capital Pty Ltd is a licensed institutional/wholesale stockbroking firm. The report is only intended for institutional and sophisticated clients to whom Petra Capital Pty Ltd has issued the report. Petra Capital Pty Ltd is not licensed to advise retail investors – retail investors should contact their own stockbroker or financial adviser/planner for advice. Key Risks – Resources Companies under Coverage Key risks in relation to the resources sector and the resources companies that are the subject of research by Petra Capital’s analysts include commodity price volatility, currency risk, technical/licencing/operational risks, litigation/political risk, development risk and sovereign risk for overseas assets, as well as feasibility, permitting and financing risks related to the development of growth projects. Ratings Information regarding the scope and expertise of our research services, processes for selection for coverage, and the management of conflicts of interest can be found on Petra Capital’s website at www.petracapital.com.au/research-disclosures. Petra Capital uses the following ratings system and definitions: Buy - Forecast to outperform the Market by more than 5%; Hold - Forecast to perform up to 5% above or below the Market; Sell - Forecast to underperform the Market by more than 5%; Speculative Buy - Speculative Investment; Take Profits - Recommend taking short term profits in a stock we remain fundamentally positive on a medium term view; Accept Offer - For a company under takeover where we see the offer as a fair price with low risk of a competing offer; No Rating - No rating at this time. Market performance is relative to the S&P/ASX Small Ordinaries Index which we assume generates a neutral return on a 12 month basis. 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The information upon which this material is based was obtained from sources believed to be reliable, but has not been independently verified. Therefore, its accuracy is not guaranteed. Additional and supporting information is available upon request. This is not an offer or solicitation of an offer to buy or sell any security or to make any investment. Any opinion or estimate constitutes the preparer’s best judgement as of the date of preparation and is subject to change without notice. Petra Capital Pty Ltd or Global Alliance and their associates or affiliates, and their respective officers, directors and employees may buy or sell securities mentioned herein as agent or principal for their own account. Other International International investors are encouraged to contact their local regulatory authorities to determine whether restrictions apply in buying/selling this investment.
