Australia | Nov 07 2012
– Site visits confirm positive performance for PanAust's Laos projects
– Plant throughput improving as expected
– Other projects continue to advance
– But ratings continue to dominate
By Chris Shaw
Following a recent quarterly production report that broadly met expectations, brokers have followed up with site visits to PanAust's ((PNA)) operations in Laos, which includes the Phu Kham and Ban Houayxai mines and the Phonsovan project.
Both the Phu Kham and Ban Houayxai mines are performing well according to Deutsche Bank, as plant throughput is currently above capacity. As well, initiatives to boost copper output at Phu Kham are underway as the Upgrade Project has been completed.
Ban Houayxai also operated at above nameplate capacity in October and this gives Deutsche confidence the company will achieve copper production guidance for 2012 of 63,000-65,000 tonnes. Citi agrees, pointing out higher head grades in the December quarter will also help deliver a strong finish of around 18,000 tonnes, up from the 15,000 tonnes achieved in the September quarter.
Beyond this year further organic growth is expected, as PanAust is working to de-bottleneck the operation to achieve budgeted throughput of more than 16.5 million tonnes in 2013 and 17.5 million tonnes beyond next year.
Citi points out management at PanAust is also working to improve ore fragmentation in the pit at Phu Kham, which would deliver better consistency of blend ore hardness. This is a key challenge given the soft and hard nature of the orebody.
At Ban Houayxai, Citi notes production of around 100,000 ounces of gold and 700,000 ounces of silver annually over the 9-year mine life is expected. Recent drilling intercepts at the project have delivered grades that suggest potential for underground mining, something the broker suggests could deliver a source of higher grade ore for blending.
With respect to Phonsavan, pre-feasibility studies are expected to be completed in the first half of next year, with feasibility studies finalised by the end of 2013. At present, production of 25,000 tonnes of copper and 20,000 ounces of gold per year over a 10-year mine life is forecast, with first production possible in the second half of 2015.
Post its site visit Deutsche has made minor changes to earnings estimates for PanAust, revised earnings per share (EPS) forecasts standing at US36c for 2012 and US57c for 2013. This compares to consensus EPS forecasts according to the FNArena database of US28.1c and US38.9c respectively.
Deutsche's earnings forecasts underpin its $3.80 price target, with compares to a consensus target according to the database of $3.59. Targets range from Credit Suisse at $3.10 to UBS at $4.20.
Buy ratings continue to dominate for PanAust, the stock scoring six Buy recommendations, one Hold and one Sell rating. Both Deutsche and Citi have reiterated Buy ratings post their site visits, Citi's positive view underpinned by PanAust's attractive pipeline of prospects at different stages of development. Deutsche also sees value at current levels relative to the broker's price target.
In contrast BA Merrill Lynch rates PanAust as Neutral on valuation grounds, this as the broker's earnings forecasts justify a price target of $3.40. This is broadly in line with the current share price of PanAust.
Credit Suisse is even more conservative and rates PanAust as Underperform, as the stock continues to trade above the broker's price target of $3.10. This target was revised up from $3.00 post the recent quarterly production report.
Shares in PanAust today are down slightly in a stronger overall market and as at 12.45pm the stock was 5c lower at $3.32. This compares to a range over the past 12 months of $2.19 to $3.84 and implies upside of around 8% relative to the consensus price target in the FNArena database.
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