Western Areas Maintains Stake in Panoramic Resources | KOSEC

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Western Areas Maintains Stake in Panoramic Resources

Caroline Wong

Caroline Wong is a Research Analyst at KOSEC - Kodari Securities. She writes on markets and focuses on ASX Top 300 companies. Email Caroline at c.wong@kosec.com.au.

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Back in May 2020, Western Areas Limited (ASX: WSA) announced that it will be acquiring an ownership of Panoramic Resource Limited (PAN). More recently, following the completion of Panoramic Resources capital raising, an additional 108,611,863 shares were awarded to Western Areas. Yet, despite the issuance of shares, WSA's 19.9 per cent ownership remains. The shares were available at AUD0.07 per share, totalling to AUD28.6 million that WSA paid to PAN. WSA is now a substantial stakeholder in PAN; congruent with plans to increase exposure to New Energy Vehicles markets.

Investing in PAN through their recent capital raising was a strategic move for WSA, with the company expecting an upward trajectory for nickel, copper, and cobalt. Due to manufacturing trends shifting to battery-powered vehicle solutions. PAN has produced over 180,000 tonnes of nickel, 60,500 tonnes of copper and 4,900 tonnes of cobalt sulphide from its mines between 2004 and 2016. This makes it an opportune business for WSA’s growth strategy, synergising with its existing nickel portfolio in Flying Fox, Spotted Quoll and other development and exploration sites.

Financial strength has allowed WSA to move quickly and take advantage of the opportunity while continuing development and maintaining its mines. With AUD181.4 million cash availability, very little debt, commodity reserves, new production capabilities through Cosmos and Forrestania region mines, WSA has capitalised on this growth opportunity. WSA now has the right to have a representative seat on the PAN board, as well as two representatives from both companies being appointed to provide technical assistance in the Savannah mine, which shows strength in collaboration, boding well for future cooperative plans.

WSA found itself in an infrastructurally sound position to become a substantial stakeholder through mining operational performance. As of March 2020, guidance for nickel tonnage sits between 21,000 and 22,000, with 15,812 tonnes already mined. Production costs are projected to be AUD2.90/lb and AUD3.30/lb, with mine development costs estimated to be between AUD33 million and AUD38 million, and the Cosmos region development estimating to cost between AUD75 and AUD85 million.

Property, plant, and equipment costs are estimated to be between AUD7 and AUD10 million. However, March levels have already pushed to 7.1 million. Exploration is expected to cost between AUD14 and AUD17 million, which has been spread between Mt Alexander, Cosmos Nickel Project, Forrestania Nickel Project and Western Gawler Project. All of this data has been given in the context of the COVID-19 pandemic, where delays in consumption are expected.

Looking at the financial history of WSA, revenue has been steadily increasing since 2016, as has net operating cash flow. However, other fundamental data points such as operating margin, net profits after abnormals, return on equity (ROE) and earnings have all been sporadic. From the current mining operations and the recent acquisition of PAN, WSA looks healthy as a company; supported by projections that there will be an increase in nickel consumption in electric vehicles and green energies becoming more viable in the future.

By Caroline Wong 

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