Panoramic eyes Savannah restart amid electric car revolution

It can pay to close a mine when metal prices are clapped out with a view to returning to production in better days.

The alternative is to chew through a mine’s finite resource, fingers crossed that it will all work out in the end.

While the alternative avoids the gut wrench of having to lay the workforce off, it comes with the risk of producing at a loss, raising the prospect of a company going bust.

Those were the options worked through by nickel-copper-cobalt producer Panoramic Resources (ASX:PAN) back in 2016 at its Savannah project in the East Kimberley region of Western Australia.

It chose to shut down.

The price of nickel, the operation’s mainstay metal, had plunged from an average of $US7.66/lb in 2016 to $US4.35/lb – a price at which most of the world’s nickel producers were losing money.

The intention was always to return Savannah to production once there was the sustained recovery in nickel prices needed to confirm that the life-extending development of the Savannah North deposit would be viable.

The strategy is starting to pay off thanks to the rebound in nickel prices to $US5.35/lb, with the most volatile of the metals benefitting from the growing understanding that it is a key metal in the dominant lithium-ion battery chemistries.

Demand for lithium-ion batteries is forecast to grow hand-over-fist in coming years as the world’s auto fleet goes all electric.

Copper and cobalt have also benefitted from the same thematic, particularly cobalt which has more than doubled in price in the last year to $US27.22/lb.

Cobalt’s leveraged response to the electric vehicle revolution is due to the situation where 65 per cent of the world’s current supply of the metal — it too is a key ingredient in lithium-ion batteries — comes from the Democratic Republic of the Congo where concerns around ethical supply channels abound.

The electric vehicle revolution thematic was pretty much in its infancy when Savannah was mothballed in early 2016. But now that it is in fully flight, Panoramic’s restart ambition is building up a head of steam.

That has been reflected in the stock moving up from its 52-week low of 19c to 43c this week, giving it a market cap of $184 million.

Panoramic has not pushed the restart on Savannah just yet. But it has released an optimised feasibility study which it says delivers “enhanced fundamentals’’ for Savannah Mark II.

At a cost of $36m, Savannah would come back as the annual producer of 10,800t of nickel, 6,100t of copper, and 800t of high-value cobalt (in concentrates).

Forecast average life-of-mine operating cash costs were estimated at $US2.40/lb nickel which is substantially better than the $US3.30/lb forecast in an earlier feasibility study.

As might be expected given cobalt’s dramatic price performance, the metal’s by-product contribution to the operation is a major factor in the reduction in forecast cash costs.

Financial modelling suggests a quick payback of less than two years on the investment to get Savannah back in to production.

That is drawn from a base case assumption of $US5.50/lb nickel prices, $US3.10/lb copper, and $US28/lb cobalt – pretty much where there are all at now. Leverage to further price improvements is extreme, which also works in reverse on price falls.

While Panoramic has not yet given its thoughts on when Savannah will return, its use of a base case nickel price of $US5.50/lb is the best indication of where its thinking is at. But it would be looking for a sustained period of $US5.50/lb-plus prices before hitting the go button.

One of the beauties about Savannah is that it could return to production relatively quickly. And that makes it very different to a bunch of nickel-cobalt projects which are to be built but which are also eyeing the potential to capture the benefits of the higher prices on offer from the electric vehicle revolution.