PAN (ASX) thoughts/questions

Originally posted by reecevan: ↑

Hi all just started researching PAN after hearing the CEO of POS talking about how cheap PAN is and how if he had any money he would be buying as many as he could as they are ridiculously cheap. (on the couch podcast)

These are the positives ive found.
Great minerals (Nickel, Copper and Cobalt)
They are currently producing and have minimum 12 year mine life
IGO own over 20% and have land all around Savannah mine (they have tried to takeover before but it fell through)
They are cashflow positive
Balance sheet is fine (at the moment) - the $40m USD they owe is to a commodities trader who is also the offtake partner
Price assumptions in Annual report are quite close except for cobalt which was forecast at 64.5k usd compared to current price of 34.5k usd per tonne (they are realistic)
The drilling around Savannah is going ok with the deposit still open
Quite a good board - chairman on board of Pilbara and northern star

Negatives
Board and KMP are well paid
Still not producing at expected levels (will they hit the targets?)
Costs are nearly double forecasts
2nd largest and long term shareholder selling down
Only restarted a year ago after being mothballed because of low commodity prices
Large recapitalisation raising done @ 7c in 2020

And the biggest negative is that the board and KMP only own 2.1m shares. They show no interest except collecting the nice pay.

Is there anything that I have missed? Or understood incorrectly?

Also does anyone know
Why did the IGO takeover fall through? I have read conflicting articles.
Why does the board have such low ownership?
Why is the 2nd largest shareholder selling?

I find the company very interesting with the great material exposure. With all the takeovers in Nickel that are currently happening it must be on someone's radar. But it would be very difficult that anyone else apart from IGO would be able to take them over with the large shareholding. I also dont normally invest in miners so any help would be much appreciated.

Thanks

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Unfortunately I can't answer any of your questions directly, but I can provide a little more context.

My understanding is that there are two major reasons for the negative sentiment driving the share price down (and they are related).

(1) As you correctly stated, production is below forecasts and costs are blowing out way above forecasts. So while we were cash flow positive last quarter, I think almost everyone expects that we won't be going forward.

(2) This makes the ~US$40m debt an issue, because the date for repayment of that debt has already been extended from 24 March 2023 to 31 December 2023. Given we are likely to be cashflow negative, the market is likely pricing in that a cap raise is the only way that 31 December 2023 deadline can be met.

However, it is not the entire ~US$40m that is due on 31 December. It is only the US$15m revolving facility component (~A$22.m today).

The company had A$32.5m cash on hand at 31 March 2023, and being cashflow negative in the next few quarters would likely mean that a cap raise will be necessary.

Regarding future prospects of a takeover offer, I am of the opinion that the new IGO/Wyloo JV that recently bought land in Kwinana to build a nickel processing facility will create a lot of interest in PAN and POS going forward.

AF was previously involved in POS, and IGO has it's existing stake in PAN, so it would make logical sense that they would stay out of each others way and each grab the company they have an existing interest in. Wyloo signalled recently (as their MCR takeover is wrapping up) that they are very happy with the nickel price remaining low, so that they can continue to takeover these nickel resources.

BHP are also planning on doing some upgrades to their smelter facility, which is currently being used by IGO and MCR. BHP may look to replace some of the feed it will lose if IGO and MCR move the the new IGO/Wyloo facility.

However, both BHP and the IGO/Wyloo JV's plans are due for completion around 2026, so they may not be in any rush.