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#Capital Raising @ 7c
Last edited 2 months ago

27-May-2020:  Placement & Institutional Entitlement Offer Bookbuild Result

Panoramic Resources (PAN) are raising up to $52m at 7 cps.  It looks like Western Areas (WSA) will end up with 19.9% of PAN.  Seven cents per share (cps) is a big discount to their last traded price of 12 cps (9-Apr-2020).  Two months ago, on March 26th, PAN closed at 14c, and they've now raised money at half that price.  They got above 40c in November and again in December (2019), so the lower nickel price has really clobbered them.  

However, with WSA prepared to take a 19.9% stake in them (including being a sub-underwriter of the retail component of PAN's entitlement offer), it looks like PAN may be able to limp through this situation for a bit longer yet.  My earlier pronouncements of them "going down the PAN" were pehaps a tad premature.  

While the big price decline has been a poor outcome for long-suffering PAN shareholder, the fact that they've managed to succesfully raise capital in the current environment to keep the wolves from the door for a while longer is a positive outcome - in that PAN are trading again today (after being suspended for around 7 weeks - since April 9th) and they are unlikely to go broke for a few more months. 

If the nickel price stays low for too long however, I still believe that PAN will be in trouble.  They need a higher price to justify the resumption of mining and processing at Savannah.  Without it, they are going to continue to burn cash and have no income to offset that cash burn. 

It's a tricky one.  You have to have a positive view on nickel to be holding a company like this, and that's a difficult position to arrive at given the global recession that we are in and the reduced demand for base metals. 

If I was bullish on nickel, I'd be buying WSA or IGO, not PAN, but that's just me.  I've already got some nickel exposure through S32 anyway, however S32 do produce a lot of other metals, not just nickel.

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#Going down the PAN?
Last edited 2 months ago

07-May-2020:  Investor Update - May 2020   and   Savannah Project - Mineral Resource Update

Savannah operations are still suspended.  PAN shares are also still suspended (last traded on April 9).  All the Panoramic management team can do is keep talking themselves and the company up and waiting for the nickel price to rise.  Savannah might be a "quality asset" as they say, however it's uneconomic at current nickel prices, and despite a $32.7m equity raising in Dec/Jan, they still have debt, including a new $10m loan with MQG and a new unsecured $8m facility with their largest shareholder Zeta Resources (who own 35.2% of PAN).  As the underwriters of the Dec/Jan equity raising, Morgans ended up with 32.5 million PAN shares, being the shares that were not taken up under the Retail or Institutional Entitlement Offers.  The money was raised at 30 cps, which was a generous discount to the prevailing SP on the day it was announced last year, but (as often happens with "rescue raisings") the SP gravitated down to the offer price by the time the offer closed (in Jan), and then kept on dropping.  When they last traded (April 9, 2020), they closed at 12 cps.  They aren't worth that much now though.  IGO did well to pull their takeover offer when they did. 

IGO's original offer, on November 4, was 1 IGO Share for every 13 Panoramic Shares held, so the implied Offer Price was 47.6 cents per Panoramic share (based on IGO’s one month VWAP up to and including 1 November 2019) which implied an equity value of approximately A$312 for Panoramic.  PAN then announced a capital raising, which breached one of the conditions of the IGO offer, and also opened up a data room for anybody else who was interested.  Nobody was.  IGO subsequently withdrew their offer.  At PAN's last traded price of 12c, even with all of the new shares that they've issued, their market cap is now down to $91.6m.  D'ohh!

Interestingly, IGO recently bought 19.9% of New Century Resources (NCZ).  It is unlikely that the hydraulic mining methods that NCZ are using to reprocess the old tailings from the massive Century zinc mine in Queensland would interest a nickel miner like IGO (even though they used to be a zinc miner before they aquired Nova) because of the high costs and slim margins there at Century, however it is likely that IGO would like to be in pole position to get their hands on NCZ's exploration tenements around the mine, particularly if NCZ fail (go into administration or liquidation) which is a strong possibility in the current environment.  One of their biggest issues is that they have taken on the full rehabilitation obligations and liability from the old owners of Century, MMG, and it has been estimated that the cost of rehabilitating the massive site could be well over $200m and as high as $500m. While MMG did provide around $200m in guarantees to the Queenland government to help entice NCZ to take the project and its associated liabilities off their hands, NCZ still need to make a bunch of money - by selling a lot of zinc - to come out in front on this one.  The board and management at NCZ are deal-makers who dabble in distressed assets and assets that others are keen to get rid of (as discovered by the old - previous - Carbine Resources - CRB - management, to their detriment), and they do tread a fine line at times.

In summary, NCZ looks very risky to me right now, and I wouldn't buy shares in them.  Nobody can buy shares in PAN as they've been suspended for a month, but if I could, I would NOT touch them with a ten foot barge pole either.  I don't mind a gamble with a small portion of my investable capital, but you want the odds to be in your favour, and they certainly aren't with either PAN or NCZ.  The form guide suggests that they both have very poor form.  I had similar concerns last year with Heron (HRR).  HRR are now trading at 4c, but I don't know for how much longer.  They've also spent a fair bit of time suspended from trading - and have also massively dilluted their shareholders with large capital raisings.

IGO look OK, but I don't hold them either currently.  Have done before though.

Further Reading on NCZ:

https://www.northweststar.com.au/story/4499774/mmg-sells-century-for-mine-rehab/

https://www.abc.net.au/news/rural/2018-09-17/century-mine-from-waste-dam-to-zinc-mine/10253334

https://www.i-q.net.au/main/century-bull-reveals-strategy-to-revive-zinc-operation

https://www.livewiremarkets.com/wires/igo-s-dive-into-new-century-emits-telling-signals-about-why-it-s-time-to-be-bullish-on-zinc

 

 

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#Going down the PAN?
Last edited 5 months ago

30-Jan-2020:  Updated FY20 Production Guidance

There are a lot of companies applying for membership to the Sin Bin Collective (aka the Downgrade Club) lately.  TWE were down -25.96% yesterday on the back of their guidance downgrade (and bounced +5.26% today, so they're still down around 20%), and I thought NEA's -29.84% drop today (on the back of their guidance downgrade) would take some beating, but PAN was up to the challenge, falling -33.93% today on the back of a production guidance "update" that contained not very much good news at all (i.e. it was pretty much ALL bad news IMO).  The most worrying part was definitely the last two paragraphs:

"Panoramic is assessing the implications of the revision to FY20 production expectations, combined with the finalisation of the alternative Savannah North raise bore completion solution and the current level of LME nickel prices, for its forecast cash flow. In anticipation of a need for further additional short term funding, Panoramic is considering a range of funding options, including options that do not involve raising equity capital. These include proposals from parties that have previously expressed interest in providing funding to Panoramic, including supportive major shareholder Zeta Resources Limited. Additionally change of control transaction discussions continue.  Panoramic cautions that there is no guarantee that any of these proposals or discussions will result in a concluded transaction(s).

"Panoramic is in discussions with Macquarie Bank Limited around the effect of the revised production forecast and associated forecast cash flows on the covenants in relation to the $20 million debt facility. It is anticipated that it will be necessary to seek waivers in relation to certain covenants to be calculated on 31 January 2020."

In summary, (1) they need more money to continue as a going concern (need to raise capital as they are fast running out of cash and they already have substantial debt), and there is no guarantee that they will be able to raise that money, and (2) they expect that they will soon breach the debt/lending covenants that they have with Macquarie Bank (MQG) (if they haven't already) and if they don't receive waivers from MQG, they are toast.

With that in mind, a drop of ONLY -33.93% was perhaps being kind.  They could easily be entering that final trading halt shortly - the one that companies never emerge from, where the companies are eventually delisted and shareholders lose 100% of whatever they'd shelled out for those shares.  It's not even like you can get a quick capital loss out of it either.  It can take years to play out.  I've been on the wrong side of a few of them.  My current one is CDU - CuDeco - once a promising copper miner, now a total pain-in-the-ass.  They may never trade again.  Probably won't.  Before that it was QIN (formerly TFS).  That one is still listed in my CBUS Industry Super account at their last traded price, even though they were delisted from the ASX a couple of years ago.  Pops up every time I check my current holdings, even though it shouldn't.  Bug in their system I suppose.  Just a nice subtle (and constant) reminder of past mistakes.

But back to PAN - who I do NOT own shares in - thankfully.  Independence Group (IGO) had a takeover offer in for PAN, but they announced in December that there were a number of defeating conditions that they were not prepared to waive and they intended to allow the offer to lapse, which they did, on schedule, on January 20 (10 days ago).  Back on December 27, Peter Bradford, Managing Director and CEO of IGO stated: “Any M&A must deliver a return to our shareholders. At announcement, IGO’s off market takeover bid for Panoramic, which was based on the public disclosure of the 2017 Savannah Project feasibility study, represented a potential “win win” for both IGO and Panoramic shareholders. The subsequent disclosures by Panoramic, including the operational update and need for additional funding have significantly eroded the value proposition for IGO and its shareholders. Consequently, we have decided to allow the Offer for Panoramic to lapse. This decision reflects our disciplined approach to M&A.” 

IGO's own SP rose 30 cents (+4.82%) that day.  It was clearly the right decision.  And there was more bad news to come - from PAN - as it turns out.  Unfortunately there almost always is. 

The nickel price has fallen almost 30% in the past five months, but the SP of IGO (who mostly mine nickel themselves - from Nova in WA) is actually up over that period.  

Are there lessons to be learned?  Probably.  One might be that established producers with good management (who have great track records of excellent capital allocation decisions) (like IGO) are far less risky than explorers, developers, or ex-miners who are looking to re-start production at a mine that had been previously mothballed (placed on "care and maintenance") due to its costs being too high and/or ore grades too low (like PAN).

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#Going down the PAN?
Last edited 3 months ago

15-Apr-2020:  Panoramic Resources (PAN) called for a trading halt yesterday morning, which turned into a trading suspension this morning.

Operations Update

In that update, they've announced the following:

  1. Temporary suspension of operations at Savannah Nickel Mine
  2. Production and cost guidance withdrawn
  3. Progression of potential funding options continues

This highlights the issue when a small miner with significant debt runs into lower prices for the metals that they mine (nickel in this case).  IGO almost aquired PAN last year, but wisely pulled out when they did their due dilligence and realised what a real mess PAN were actually in.  I would suggest that the "Temporary" nature of the suspension of operations at Savannah (#1 above) will depend on whether they are successful with #3 - the funding - because they now have NO income to service their debt and their lenders would not be overjoyed by today's announcement.  It's one small step away from calling in the Administrators.  

PAN last traded at 12 cps, 74% lower than the 46 cps year-high that they reached in November.  If they ever trade again, it will likely be significantly lower than 12 cents I'm tipping, because if they are able to raise fresh capital, it will be at a much lower price than 12c.  PAN was trading at over $5/share in 2007.  Higher cost mines are always vulnerable when commodity prices fall, but it's the debt that kills these companies.  Companies like this can multi-bag IF they manage to survive, but the most likely outcome is a 100% loss.  Too risky for me.  I don't mind nickel, but I'm happy to play nickel via S32, IGO or WSA.  Currently I only hold S32 out of those three.

Further Reading:  https://www.australianmining.com.au/news/panoramic-suspends-savannah-nickel-operations-due-to-coronavirus/

By the way, while PAN do mention COVID-19 in their announcement, they are not seriously blaming the coronavirus for having to shut down the Savannah mine.  They have just mentioned that it is a mitigating factor that they have taken into consideration.  If anything, COVID-19 gives them a convenient excuse to shut down a mine that was operating unprofitably in the current nickel-price environment, in my opinion.  On the other hand, the global COVID-19 pandemic is the main reason that the nickel price is currently so low - because the global growth outlook has deteriorated along with perceived current and future demand for base metals such as nickel - so in that respect, you could say that they ARE closing down Savannah because of the coronavirus.  The distinction however is that when travel restrictions and social distancing measures are lifted or eased, it won't make much of a material difference to Panoramic (PAN).  They need a higher nickel price, and that could take more time than their lenders are prepared to give them.

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