{"id":58514,"date":"2011-07-26T11:13:25","date_gmt":"2011-07-26T01:13:25","guid":{"rendered":"http:\/\/www.fnarena.com\/index.php\/2011\/07\/26\/panaust-battling-lower-grades-higher-costs-valuation-limits\/"},"modified":"2011-07-26T11:13:25","modified_gmt":"2011-07-26T01:13:25","slug":"panaust-battling-lower-grades-higher-costs-valuation-limits","status":"publish","type":"post","link":"https:\/\/staging.fnarena.com\/index.php\/2011\/07\/26\/panaust-battling-lower-grades-higher-costs-valuation-limits\/","title":{"rendered":"PanAust Battling Lower Grades, Higher Costs, Valuation Limits"},"content":{"rendered":"

\n\t– PanAust<\/span> 2Q<\/span> production broadly as expected
\n\t– Exploration and development offer upside potential
\n\t– Production and capex<\/span> costs rising
\n\t– Recent share price gains generate two rating downgrades<\/strong>
\n\t <\/p>\n

\n\tBy Chris Shaw<\/p>\n

\n\tCopper producer PanAust<\/span> ((PNA<\/span>)) largely met expectations with respect to production in the June quarter, output of 15,184 tonnes<\/span> a flat result relative to the March quarter. Costs were higher at US$1.04 per pound, this due to ongoing wet weather and adverse foreign exchange movements.<\/p>\n

\n\tFor coming quarters Credit Suisse notes September may turn out another flat production experience, though this will depend on when PanAust<\/span> can access higher grade ore. Stronger grades should be evident by the December quarter, so generating a strong finish to 2011 production. Full year production guidance stands at 62,000-65,000 tonnes<\/span> of copper.<\/p>\n

\n\tWhile production costs rose during the quarter so too did capex<\/span> costs at the Ban Houayxai<\/span> silver-gold project. The final cost for the project is now expected to be between $175-$200 million, well above the original estimate of $150 million.<\/p>\n

\n\tThe Ban Houayxai<\/span> project, along with an expansion at the Phu<\/span> Kham<\/span> mine, will help PanAust<\/span> achieve its long-term production goal. Deutsche Bank notes this is for output of 100,000 tonnes<\/span> of copper, 200,000 ounces of gold and one million ounces of silver annually by 2014.<\/p>\n

\n\tFurther drilling over the balance of 2011 should lift reserves and the long-term production profile for PanAust<\/span>. For RBS<\/span> Australia this will highlight ongoing development potential, as for example at Phu<\/span> Kham<\/span> discoveries continue both to the north of existing operations and along strike.<\/p>\n

\n\tFurther good drilling results at the LCT<\/span> prospect in particular offer a potential valuation boost, as RBS<\/span> notes LCT<\/span> could potentially develop into a standalone mine. Good drilling results could also come from the Phonsavan<\/span> project in coming months, while ongoing positive news flow is likely at the Inca de Oro project, predicts RBS<\/span>.<\/p>\n

\n\tRecent share price gains leads the stockbroker to suggest the market has been playing catch-up with respect to PanAust's<\/span> development upside. But even given the gains of the past few weeks, RBS<\/span> remains of the view the market is undervaluing the potential for further mine life extensions.<\/p>\n

\n\tAs a result, RBS<\/span> Australia retains a Buy rating, lifting its price target post the production report to $4.91 from $4.80. The consensus price target for PanAust<\/span> according to the FNArena<\/span> database stands at $4.53, with targets ranging from $4.00 to $5.00.<\/p>\n

\n\tOverall, PanAust<\/span> is rated as Buy three times, Hold twice and Underperform<\/span> once, the shares receiving two downgrades post the quarterly production report. One was Deutsche Bank downgrading to Hold from Buy, the move largely a valuation one given recent share price gains.<\/p>\n

\n\tSupporting the Deutsche downgrade is the potential for ongoing downside risks, these from lower production and grades but also from project delays and higher capex<\/span> at developing projects. Credit Suisse downgraded its rating on PanAust<\/span> to Underperform<\/span> from Neutral, which again was a valuation call given the recent share price gains.<\/p>\n

\n\tBut like RBS<\/span> Australia, both BA Merrill Lynch and UBS continue to see enough value in PanAust<\/span> to justify Buy ratings. As UBS points out, PanAust<\/span> offers a solid production growth profile in both Laos and Chile, enough for the stock to remain the broker's preferred copper exposure.<\/p>\n

\n\tShares in PanAust<\/span> today are slightly weaker and as at 11.00am<\/span> the stock was down 4c<\/span> at $4.19. Over the past year PanAust<\/span> has traded in a range of $0.52 to $4.31, the current share price implying upside of around 8% to the consensus price target in the FNArena<\/span> database.<\/p>\n

\n\t <\/p>\n

\n\tFind out why FNArena<\/span> subscribers like the service so much: "Your Feedback (Thank You)<\/a>" – Warning this story contains unashamedly positive feedback on the service provided.<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"

PanAust delivered June quarter production in line with expectations and continues to offer development upside, but valuation issues have prompted two downgrades in ratings.<\/p>\n","protected":false},"author":9,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[6],"tags":[23,22],"acf":[],"_links":{"self":[{"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/posts\/58514"}],"collection":[{"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/users\/9"}],"replies":[{"embeddable":true,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/comments?post=58514"}],"version-history":[{"count":0,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/posts\/58514\/revisions"}],"wp:attachment":[{"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/media?parent=58514"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/categories?post=58514"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/staging.fnarena.com\/index.php\/wp-json\/wp\/v2\/tags?post=58514"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}