This is from WHTM 12/3/09 - A little old, but amazing how things can change. Price at time of recommendation was .18, wish I bought more...
Cheers
PNA is an attractive mid-cap exposure to the copper price. Copper production is unhedged except for quotational period exposure (currently 13.772kt @ US$1.48/lb), cash cost is low (February was US$0.62/lb, down US$0.06/lb on the January performance (C1 basis)), and there is further potential through an expansion of Phu Kham production to potentially ~100kt copper over the next few years, and the development of the Ban Houayxai (gold) and Puthep (copper-gold) projects. The stock is undervalued (DCF $0.34/share, unchanged), 12mth target price is(A$0.33/share, increase of $0.04/share). Recommendation remains BUY.
Key Points We have reviewed our forecasts after reviewing the 2008 accounts. The main changes to our forecasts are: - 2009 copper production has been reduced from previously 71kt to now 66kt. Guidance is for “in excess of 65kt”, however with production of 9.435kt to the end of February, or 56.6kt annualised, at this stage our previous forecast looks to be a stretch. Targeted gold production for 2009 is 65-75koz, and silver 400-600koz. Based on production of 11.7koz gold and ~58koz silver to the end of February, we may need to lower forecast production of these metals over coming months, particularly silver.
Depreciation and amortisation has been reduced from $43m to now $33m for 2009, with modest changes to 2010 and 2011 after reviewing 2008 accounts and the actual charge for 2008. Net finance cost has been reduced from $31m to now $23m for 2009 after reviewing 2008 accounts. Moderate adjustments have similarly been made to 2010 and 2011. Increased tax expense has also been factored in based on the prima facie Laos tax rate of 25%. This particularly impacts the 2010 and 2011 forecast income statements, although with tax payable in the year following profit declaration, we are not forecasting significant tax payments until 2011, although our minimal tax payable forecast for 2010 is significantly related to our 2009 copper price forecast of US$1.28/lb, which significantly lags the year to date average spot copper price of US$1.51/llb
The main net result of these changes has been to increase forecast 2009 NPAT by US$9.3m to US$17.9m. Forecast 2010 NPAT is reduced by US$2.7m to US$81.6m and 2011 is reduced by US$5.2m to US$93.7m.
Our forecasts do not provide for what is classified as “derivative income/expense” in the 2008 accounts. This is a non cash accounting entry, representing the change in the value of gold put options over the reporting period by reference to the forward price curve. In 2008, the amount was a gain of US$4.4m, and in 2007 a loss of US$2.7m. At 31st Dec PanAust had put options over 95koz gold for the period 2009-2013 at a strike price of US$700/oz. If the forward price curve remains at current levels through 2009, we see it as likely that PanAust will book modest derivative income given the spot gold price closed at US$880/oz on balance date. However, the actual likely magnitude is difficult to assess.
Should the year to date average copper price of US$1.51/lb prevail through 2009, our NPAT forecast increases from US$17.9m to US$33.4m, other things equal
PNA Price at posting:
31.7¢ Sentiment: LT Buy Disclosure: Held
