Visit afrsmartinvestor.com.au Saturday MailSaturday, 3 May 2014...

Visit afrsmartinvestor.com.au

Saturday Mail
Saturday, 3 May 2014


Sykes on Saturday
Panoramic Resources (PAN) has been one of the best-performing miners on the ASX this year. The group's shares hovered around 25¢ for most of the past year, but in the past two months have risen vertically to 62¢.
The big buyer has been the Bermuda-based Zeta Resources (ZER). In the seven weeks between February 13 and April 4, ZER plunged on PAN, lifting its stake in the group from 34.5 million shares to 52.5 million. ZER now holds 16.3 per cent of the group.
That pushed PAN shares up to 59¢. Since then, further buying has pushed them as high as 67¢ before they retreated a little last week.
It could be a bold but shrewd investment, because PAN ticks all the boxes as a good mid-sized mining company.
It has an experienced board and mining team who know what they're doing; it has enjoyed exploration success; it has a reasonably tight issued capital; it pays dividends whenever it can; and it operates in the relatively low-risk environments of Australia and Canada.
PAN's main assets are the Savannah, Copernicus and Lanfranchi nickel-copper mines; the Panton platinum deposit; and the Gidgee and Mt Henry gold mines, all in WA. It also has the Thunder Bay North platinum-copper-nickel deposit in Ontario.
The company's cash flow comes mainly from Lanfranchi, which produced 3390 tonnes of nickel in ore in the December half, and Savannah (2009 tonnes).
Since 2007, PAN has paid $104 million in fully franked dividends, but the divs have been tapering in recent years as nickel prices softened, squeezing the company's profit margins.
In cash terms the company was selling nickel for an average $6.84 a pound, while its costs were $5.47. But that operating margin was more than offset by depreciation and impairment charges, which produced a net loss in the latest December half of $23 million.
PAN shares bolted in February after the company announced a new discovery at Savannah in the Kimberleys. Its first hole in a new drilling program struck 89 metres averaging 1.6 per cent nickel and 0.76 per cent copper at a depth of 704 metres. Savannah's mine life had already been extended to 2017 and that discovery will extend it further.
Recently the nickel price has been firming again because Indonesia has ceased exporting nickel pig iron to China. By last week, nickel was up to $8.11. Meanwhile PAN has concentrated on reducing its costs. Macquarie last week estimated PAN's earnings per share at 6.5¢ in 2015 rising to 11.5¢ the following year. Macquarie also estimated dividends resuming at 2¢ and 5¢ in those years.
But the main interest is the emergence of ZER, which only listed on the ASX last June and has already become a serious investor on the Australian mining board without attracting any publicity.
ZER is listed on the ASX but domiciled in Bermuda. It is 75 per cent owned by another Bermuda company called Utilico Inc which in turn is 57 per cent owned by General Provincial Life Pension Fund.
ZER has a couple of mining prospects at Murrin Murrin and Ilgarari in WA, but these are relatively insignificant compared to its investment portfolio, which is run by another Bermudan company called ICM Ltd.
The portfolio includes a 33 per cent holding in gold miner Resolute Mining whose chief executive, Peter Sullivan, is also chairman of ZER. ZER has built a 13 per cent holding in New Zealand Oil & Gas (NZO).
And in April 22 ZER bobbed up with 5 per cent of Cue Energy (CUE), which is active in the Carnarvon Basin, Indonesia, New Zealand and PNG. Meanwhile, ZER may well been buying a few more shares in PAN.
In December, ZER's accounts showed its mining interests valued at $10 million but its investment portfolio was $57 million.
It has obviously spent more since, mostly funded by an entitlement issue this year that raised $21 million. (Incidentally, there was a $4 million shortfall that doesn't appear to have been placed yet.)
The boys from Bermuda are a lively bunch all right. They're worth watching.
[Warning: Trevor Sykes is NOT a licensed investment adviser. Invest at your own risk.]