Company Overview: Pantoro Limited (ASX: PNR) is an Australian gold producer with 100% owned     Halls Creek Gold Project in the Kimberley Region of Western Australia. The company also owns 50% interest in Norseman Gold Project. The principal activities of the company are exploration, mine development, mine operations and the sale of gold, and copper concentrate. The company was listed on ASX on 21 May 1987.

PNR Details

Q2FY22 Operational Highlights: During the quarter ending 31 December 2021 (Q2FY22), PNR made substantial progress in the development of Norseman Project (50% interest), with processing plant construction on track for first gold production in August 2021. Some of the other key highlights of the quarter are as follows:

• Achieved H1FY22 Production Guidance: For Q2FY22, the company reported total gold production of 7,412 ounces with AISC of $1,906/Oz. This took the total H1FY22 production to 16,886 ounces at an AISC of $1,642/Oz, which is well within the guidance range of 16,200 – 19,800 ounces with AISC of $1,550 - $1,750 per ounce.
• PGE and Nickel Mineralisation: At its Halls Creek Project, PNR discovered numerous wide intersections with approximately 1.5 kilometres of strike drilled, confirming significant PGE and Nickel mineralisation.
• Decent Cashflows: Over H1FY22, the Halls Creek project returned cashflow of $4.2 million for H1 FY2022, net of PGE exploration costs of $0.66 million.

FY21 Result Highlights

• Rise in Revenue: For FY21, PNR reported total revenue of $87.79 million, up from $82.13 million in FY20.
• Increased in Gross Profit: PNR recorded a gross profit of ~$17.91 million as compared to a gross loss of ~$8.27 million in FY20.

Gross Profit Trend (Source: Analysis by Kalkine Group)

Key Metrics: Gross margin for FY21 stood at 21.3%, up from -9.6% in FY20. Net margin for FY21 stood at 13.7%, up from -35.3% in FY20. Current ratio for FY21 stood at 1.72x, up from 1.01x in FY20, demonstrating that the company has improved its ability to pay short-term obligations.

Current Ratio Trend (Source: Analysis by Kalkine Group)

Top 10 Shareholders: The top 10 shareholders together form around 39.83% of the total shareholding while the top four constitutes the maximum holding. Robmar Investments Pty Ltd and Tulla Resources PLC are holding a maximum stake in the company at 14.89%  and 7.09%, respectively, as also highlighted in the chart below:

Source: Analysis by Kalkine Group

Change of Director’s Interest: On 11 February 2022, one of the company’s Director’s, Paul Cmrlec, disposed 287,632 unlisted share rights under the Director Salary Sacrifice Share Plan by the Election of Director.

Key Risks:

• COVID-19 Uncertainties: If the local, State or Federal governments increases current restrictions in relation to the COVID-19 pandemic, it could impact the company’s operations and affect its guidance.
• Gold Price Fluctuations: The company’s financial results are also exposed to the risks related to the fluctuations in the price of gold.

Outlook: From Halls Creek Operations, the company expects its production in Q3FY22 to be 8,300 ounces +-10%. The revenue from Halls Creek Operations in Q3FY22 is expected to be in the range of $19 - $23 million. At Norseman Project (Pantoro 50%), the processing plant construction is on track for first gold production in August 2021.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: The stock of PNR has delivered returns of ~+57.14% over the past six months. The stock has a 52-week low and high of $0.180 -$0.425, respectively. The stock has been using EV/Sales multiple based illustrative relative valuation method and arrived at a target price with an upside of low double-digit (in % terms). The company can trade at a slight discount to its peers, considering the uncertainty surrounding the impact of COVID-19 pandemic and gold price fluctuations. For the purpose of valuation, peers such as Alkane Resources Ltd. (ASX: ALK), Northern Star Resources Ltd. (ASX: NST), SSR Mining Inc. (ASX: SSR), and others have been considered. Considering the company’s improved financial performance in FY21, decent production performance in December 2021 quarter, modest outlook, current trading level, valuation, and key risks associated with the business, we give a “Speculative Buy” rating on the stock at the current market price of $0.320, as on 15 February 2022, 02:43 PM (GMT+10), Sydney, Eastern Australia.

PNR Daily Technical Chart, Data Source: REFINITIV

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

Technical Indicators Defined:

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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