Tim Treadgold: Born-again Panoramic almost ready to ride the nickel price (with a palladium option)
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It’s an overstatement to say that small nickel miner Panoramic Resources (ASX:PAN) is being reborn — but when a business restarts a mothballed mine, sells assets, raises fresh capital, and replaces both the chief executive and chairman, it is fair to say that the company you see today might not be the same company tomorrow.
Whether it will be a better company is a question for investors to consider but the chances are that it will be, if only because the past decade — which has seen its share price fall from more than $5 to 31c — has not been a happy one for Panoramic.
That share-price high, reached in 2008, coincided with a nickel price of $US22 a pound, more than double the current price of around $US8/lb.
The latest share price, which is better than the low point of 8c reached in early 2016, reflects a view that the outlook for nickel is positive.
The problem for Panoramic is that the road to recovery after the steep fall in nickel from its boom-time peak has been difficult with low prices forcing the closure of two WA mines, Lanfranchi near Kambalda in 2015 and Savannah in the Kimberley in 2016.
The restart of Savannah has also proven to be more difficult than expected with equipment problems, manpower shortages and tricky underground conditions slowing production and delaying cash flow.
Those issues led to the need for a refinancing package in the form of a $28 million capital raising to partly repay a loan from Macquarie Bank, and the sale of a platinum project in Canada for $9 million which followed last year’s sale of Lanfranchi for $15.1 million.
As if those changes are not significant enough, Panoramic has launched what it calls a senior management refreshing process which will see its co-founder and managing director, Peter Harold, retire next year after more than 18 years in the job.
This will be preceded by the retirement at next month’s annual meeting of the chairman for the past eight years, Brian Phillips.
When the dust has settled at Savannah (and in the boardroom) Panoramic is likely to be a business being more closely directed by its major shareholder, Zeta Resources, a small resource investment specialist controlled by ICM, a Bermuda-based fund manager.
With Harold and Phillips leaving Panoramic, the job for Zeta and ICM is to finish the redevelopment of Savannah and look for other growth opportunities — with one of the more interesting being a fresh look at the Panton platinum and palladium project, 60 kilometres south of Savannah.
In theory, Panton could become Australia’s first pure-play platinum and palladium mine, though past attempts to monetise the resource have failed through a combination of remote location and erratic moves in the prices of the metals and the Australian dollar.
The last serious attempt to develop Panton was made by the almost forgotten Platinum Australia which took the project to the starting gate only to suffer a double-whammy in 2002 when the palladium price crashed from $US600 an ounce to $US150/oz and the dollar rose from US50c to US75c.
But times change; perhaps enough for Panoramic to try again with Panton, an asset it picked up in 2012 largely because of proximity to Savannah and also because of the potential for diversification.
The major difference between Panton today and yesterday is the dramatically higher price for palladium, which last week hit an all-time high of $US1700/oz thanks to strong demand from vehicle manufacturers who prefer palladium over platinum in the catalytic converters attached to the exhaust systems of petrol-powered cars.
With a resource of 1.1 million ounces of palladium and 1 million ounces of platinum Panton should really be described as a palladium project, which is fortunate as the platinum price has gone nowhere for the past three years. That’s because it is the metal preferred in diesel exhaust systems and diesel sales have suffered after the Volkswagen emissions fraud.
The next few days could see movement on Panton which is nearing the end of a review process being undertaken by a consulting engineer who has a brief to look at all aspects of the project ranging from geology, mining and processing.
The aim of the review is to produce a financial model based on the latest flow-sheet designs and the costs involved with a report expected to soon be handed to Panoramic management.
From an investment perspective, Panton does not yet figure in valuations with Macquarie, in a research note earlier this month, assigning zero value to Panoramic’s platinum interests.
The only asset Macquarie likes is Savannah which is said to be worth $366 million, forming the lion’s share of a 45c value on Panoramic, which is 45 per cent higher than its latest sales at 31c.
The impending management shuffle, past problems and the recent capital raising has clouded the view of Panoramic but as a stock with exposure to nickel, plus an interesting palladium option, it could start to claw itself out of a hole.
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