It's encouraging to see some very solid buy orders at the current depressed share price as it suggests investors are beginning to scent opportunity rather than panic. Maybe fundamentals are beginning to outweigh the more general bearish sentiment at long last. A review of PAN's recent 'Group Payable Cash Costs Analysis' reveals that even at the depressed nickel spot prices prevailing currently, the company earns a respectable margin.
Today's nickel spot price is US$4.43 per lb against a reported group operating cash cost of US$3.76 / lb. It is likely that labour and fuel costs have fallen markedly since these figures were compiled, reducing these operating costs further.
Admittedly it's not the healthy margin we would all like, but in a survival type environment it's a strong result in my view, especially when backed by a hedge-book that was in the money to the tune of A$109m at last count and cash and receivables of approximately $96m. That's against a market cap of just A$157m today.
Nickel mines are shutting down all over the world at these prices, which means a supply crunch in the longer term. Therefore, when the price pendulum finally swings, companies like PAN which have ridden out the slump should enjoy the upswing to come. LME stockpiles of course suggest that this upswing is not imminent, but just as oil cannot remain at these prices much longer, so will the nickel over-supply prove temporary in my view.
The following figures were taken from PAN's announcement at the end of October:
'Panoramic’s group operating cash cost on a payable nickel basis for the September 2008 Quarter was A$6.05 per lb (approximately US$3.76 per lb at current exchange rates). This payable nickel cash cost profile is significantly below current spot prices and current forward prices. Ø Importantly, Panoramic has in place a strong hedge book with a mark-to-market value of approximately A$109 million (as at 27 October 2008). Based on current forward curves the hedge book will deliver the incremental cash flows to Panoramic of A$45 million (2009) and A$65 million (2010). Ø Panoramic has invested heavily at each of its Savannah and Lanfranchi operations over the last year adding significantly to resources which should lead to increased reserves, extended mine life and establishes a strong foundation for delivering organic production growth and delivering operating efficiencies. Ø Panoramic is on target to achieve its stated objective of producing 20,000 tonnes of contained Ni annually for at least a further 10 years (group basis).'
With markets being so volatile and there being no certainties, prospective investors are cautioned to conduct their own research. I have a strong vested interest based on the fundamentals of the company as I see them.
Good luck all holders.
Gupper
PAN Price at posting:
82.5¢ Sentiment: LT Buy Disclosure: Held
