Australia | Jun 23 2006
By Chris Shaw
Laos may not be high on the list of must visit countries, but it remains a significant destination for Aussie junior Pan Australian Resources (PNA) given the company’s extensive landholdings are proving prospective for both copper and gold.
Intersuisse, which rates the stock as a Buy below $0.30, notes the company’s initial area of focus is the Phu Bia gold mine, of which the company currently holds a 100% interest and where production is being ramped up towards the target of 50,000 ounces annually.
While the Laotian government has the right to take a 10% stake in the project and has indicated it will do so, the fact the company’s stake will be reduced is not a major issue given the region’s prospects, as the Phu Bia mine is likely to be only the first development in the Phu-Kham copper-gold development project.
As the broker notes, the company has recently completed a rights issue to raise US$140m of the developments costs of the next stage of the project, the total cost being estimated at around US$295m. The balance of development funds will be debt funded.
When the project achieves full production the company will be producing 50,000 ounces of gold, 400,000 ounces of silver and 50,000 tonnes of copper annually from Phu-Kham, the broker expecting full production to be achieved by FY09. The current mine life is estimated to be at least 12 years, with the company having an agency agreement in place with BHP Billiton (BHP) that will see Sempra Metals purchase 50% of the copper concentrate.
The attraction from the broker’s view is the significant boost to earnings as production ramps up, with earnings forecast to increase substantially in coming years. On Intersuisse estimates net profits will increase from a forecast $1.1m this year to $4.3 in FY07, $20.2m in FY08 and $93.5m in FY09, putting the stock on a P/E of less than 5x in FY09 and so supporting the broker’s positive rating.
So why not wait for evidence the project is on track and costs are not blowing out? In the broker’s view, the current share price weakness following the rights issue offers an opportunity, as sentiment is currently against the stock. This is expected to change though, as in the broker’s view exploration success and development milestones will provide support for the share price in future periods.
Only one broker in the FN Arena database covers the stock, but like Intersuisse they like the story and rate it as a Buy.
In the past 12 months the stock has traded between $0.16-$0.49 and at its last closing price of $0.32 is capitalised at just over $330m given there is just over one billion shares on issue.