panaust to focus on mill fix

PanAust to focus on mill fix
Staff reporter, 27 July 2009
WHILE it was not a great quarter for Laos copper miner PanAust, there is confidence the processing plant issue will be rectified over the next 6-12 months, further boosting already significant cash generation.
Modelling by ABN Amro shows the project yielding a net profit this year of $US55 million this year, $US87.6 million next year and $US111 million in 2011 – the latter which will put it on a price-earnings ratio of less than nine.
Having recently visited site, the analyst team at the brokerage isn’t overly fazed by the copper recovery issue.
“PanAust has yet to find the link between grind size, residence time and copper recoveries,” an ABN client note this week said. “Recoveries are below the 70% budget level, averaging circa-60% since late 2008. Higher-than-expected variability in ore types, finer mineralogy and higher clay content in the upper transitional zone are the key drivers.
“The problem is offset in 2009 by the higher-than-anticipated achieved mined grades versus reserve modelling (0.75%), so the net effect on copper output is smaller than it could otherwise have been. Nonetheless, the bedding down of an optimally performing circuit is critical ahead of the planned expansion to 16Mt (deferred to end 2010), and ahead of a decline in the mined ore grade to sub-0.66% from 2012.
“The company expects to spend circa $US2-3 million in the coming six months to modify the plant to improve recoveries. Given unit costs are so denominator-sensitive we believe these improvements are critical in ensuring Phu Kham’s long-term profitability through the cycle.
“The bigger changes include: an improvement in residence time through the effective addition of two extra flotation cells (one via conversion of a mixing cell); reducing the grind size feeding the cleaner circuit through re-direction of float circuit streams and the downsizing of milling/re-grind size to liberate finer minerals; and introduction of new reagents, adjustments to process controls and new operating procedures.”
PanAust’s full year production guidance ahs been lowered to 57-63,000t of copper (from 62-68,000t) at higher cash costs of $US0.85/lb (from $US0.80/lb).
Meanwhile, confidence in the company’s overall prospects is extremely high following the successful raisng of $A143 million from investors, with a further $A251 million anticipated from soon-to-be 19.9% stakeholder GRAM – pending two further Chinese regulatory approvals.
“The $US80 million subordinated debt facility has been repaid and the $US195 million project facility will be reduced by $US100 miullion on receipt of the GRAM funds. On conclusion of the deal, we note PanAust will hold about $US137 million in cash and about $US95 million in debt (excluding lease facilities).”