Ann: Preliminary September 2019 Quarterly Statistics, page-10

That's some interesting math you've got going on there. You're mixing up shipment numbers with production numbers. You really don't need to extrapolate the Sept production numbers because they were actually reported in their own right.

"Metal Production – 1,342t Ni, 855t Cu and 64t Co in concentrate, Ni down 12%, Cu up 5% on previous quarter".

That might be the hint of why the shipment was delayed (i.e. available stock falling below a minimum economical shipment tonnage during the Sept shipping window - aka they needed more time to make up the tonnage?).

Also, the hedging was only altered after the first two shipments, so that potential benefit will only start to flow through during this (Dec) quarter.

Slow… right… down… You're making basic mistakes.


Looking at the provisional September quarterly results, the net cash burn was ~$13.4m (i.e. $26.6m opening cash balance, plus ~$7m net CR proceeds (after 50% loan repayment), less $20.2m closing cash balance). This was exacerbated by the lack of any tonnage sales in September, which, by my estimation (based on 5,200 wmt) was worth ~$8.2m*. If you apply/offset this provisional amount against the Sept quarter the inherent net cash burn reduces to ~$5.2m. The problem with this thinking is that it fundamentally assumes there will be a catch-up during this quarter with a further ~21,500t+ to be shipped, in addition to tomorrow’s backlogged shipment.

Management has not provided any explanation as to why the shipment was delayed. A material question remains as to whether tomorrow’s shipment is a catch-up over and above what will happen this (Dec) quarter, or whether it will form the basis of this quarter’s tonnage sales targets (i.e. the lack of Sept shipment represents simple slippage). The final quarterly report, due out later this month, might provide some better insights.

In the meantime, I certainly wouldn’t assume that they will be doing a quick-step shipment catch-up. That would be pretty fanciful at this juncture and certainly at odds with the recent history of a news flow that surprises to the downside (yes, today’s revelation about the delayed shipment was surprising news). After all, we’re almost mid-way into the first month of the new quarter, which would imply that this month’s normal outbound shipment will occur in another week or two? I think not.

Instead, I think it’s far more prudent to simply assume that tomorrow’s shipment will form part of this month’s export tonnage targets. It might track a bit higher than June’s quarterly of 21,500 wmt to compensate for the lack of Sept outbound tonnage (i.e. Nov and Dec shipments containing higher tonnages), but let’s play it safe and just run with that for the time being. Remember, there’s little point running against the news flow trend without any good reason to (hope doesn’t count).

My modeling* suggests that if PAN can at least replicate its June quarter performance and ship a total of 21,500 wmt (Ni - 7.25%; Cu - 3.85%; Co - 0.37%) at the current relevant spot prices and current Fx rate, then the total cash receivable (payable) would amount to ~AU$34m. Yep, that’s an additional ~AU$10.5m receivable for similar tonnage shipped during the June quarter. This is largely attributable to the increased Ni price and also due to a slight improvement in contained Ni metal rate, using Sept quarter contained metal grades (this might be a little ambitious, but it’s not outrageous).

This would hopefully be enough to arrest the underlying quarterly net cash burn. Naturally, all this assumes that prices at least hold at current levels and that the modest June quarter targets can be attained, with no other nasties waiting just around the corner. If all those ducks line up, then the prospect of another CR may have lessened a bit – assuming, of course, that MBL doesn’t lose it’s nerve and demand full final repayment.

There’s still a long way to go.

Z

(*Supporting calcs available upon request.)

PS. My modeling suggests actual shipment sales for the Sept quarter will coming in a whisker under AU$20m ($19.5m). Let's see how close it is.