Pantoro Limited

PNR Details

Recent Business Updates: Pantoro Limited (ASX: PNR) is an Australian gold producer with 100% owned Halls Creek Gold Project in Kimberley, Western Australia. The company also owns 50% interest in Norseman Gold Project.

• 01 March 2022: PNR announced the results from drilling completion in late 2021 showcase large zones of PGE and nickel mineralization potential to continue the remainder of the basal contract. Over 20km of the prospective basal contract zone is present on the tenements.
• 22 February 2022: PNR provided an operational update of both Norseman (50% stake of PNR) and Halls Creek (100% stake of PNR) projects. In the Norseman project, construction works are advancing with an initial production target in August 2022. In the Halls Creek project, the mining operations are significantly affected by the immobility of its underground workforce to enter Darwin, Northern Territory.

Q2FY22 Financial and Operational Update

• Norseman Project: Construction at Norseman commenced with excellent site progress. Tenders for underground mining and open-pit contracts have been received. Ongoing drilling at the Scotia Mining Centre returned strong results at depth.
• Halls Creek Project: Gold production stood at 7,412 ounces at an AISC of $1,906/ounce. Production for H1FY22 stood at 16,886 ounces at an AISC of $1,642/ounce, standing within the guidance range of 16,200 to 19,800 ounces at AISC range of $1,550 to $1,750/ounce.
• Corporate: Funds from the $30 million corporate debt facility were received during the quarter. Lithium development partnership between PNR, Tilla Resources Plc, and Mineral Resources was completed over the Norseman tenements. Cash and gold stand at $44.1 million as of 31 December 2021.

FY21 Financial Snapshot; Analysis by Kalkine Group

Key Risks and Challenges

The mining operations in Halls Creek Project are considerably affected by the stringent labour market in Australia. Amid the geopolitical tensions between Russia and Ukraine, commodity prices are swinging at high volatilities.

Outlook

The gold production for Q3FY22 and Q4FY22 stands in a +/-10% range of 8,300 ounces and 9,000, respectively. Revenue for Q3FY22 and Q4FY22, at an anticipated price of $2,500/ounces, stands at $19 - $23 million and $20 - $24 million, respectively. Funds from Global Credit Investments have improved the cash position of PNR.

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

Source: 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 gave a positive return of ~48.837% in the past year. The stock is currently trading lower than the 52-weeks average price level band of $0.180 - $0.425. The stock has been valued using the EV/Sales multiple-based illustrative relative valuation method and arrived at a target price with an upside of low double-digit (in percentage terms). Considering Australia’s recent labour market constraints and high commodity space volatility, the company might trade at a slight discount to its peers’ EV/Sales multiple average. For valuation, few peers like Red 5 Ltd (ASX: RED), Evolution Mining Ltd (ASX: EVN), Silver Lake Resources Ltd (ASX: SLR) and others have been considered. Given the proper production guidance, developments in Norseman Project, current trading levels, upside indicated by valuation, and key risks associated with the business, we give a “Speculative Buy” recommendation on the stock at the current market price of $0.308, as of 04 March 2022, 10:30 (GMT+10), Sydney, Eastern Australia. Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

PNR Daily Technical Chart, Data Source: REFINITIV 

Danakali Limited

DNK Details

Q4FY21 Operational and Financial Update: Danakali Limited (ASX: DNK) is involved in exploring and developing potash and advancing the Colluli Potash Project. On 1 March 2022, DNK appointed Mr Greg MacPherson for the position of Chief Financial Officer (CFO) of DNK, effective from 1 March 2022.

• Growth Option for Magnesium Chloride: DNK determined that Colluli will probably produce economic Magnesium Chloride from two of its sources at Sulphate of Potash production operation during the quarter.
• Growth Option for Sodium Chloride: DNK confirmed the presence of 347 Mt of rock salt at Colluli. The project is estimated to produce 128 Mt of Rock Salt at a production rate of 1.8 million tpa. This shall create another probable revenue stream as Rock Salt prices have surged by 47% (2020 – 2021).
• Financial Position: The sulphate of Potash price updates delivered by CRU indicated a weighted average netback price to Massawa at US$668/tonne. The cash position as of 31 December 2021 stands at $22.8 million.

H1FY21 Cash Flow Movement; Analysis by Kalkine Group

Key Risks and Challenges

DNK has not diversified across projects; hence it is entirely dependent on the success of the Colluli Potash Project. The recent geopolitical stress across the globe has posed significant pressure on commodity prices.

Outlook

DNK stands optimistic about the potential benefits of rock salt in the battery industry, being a raw material for sodium-ion batteries (SIB). The company estimates the production of Rock Salt to clock 128 Mt at a production rate of 1.8 million tpa in the first 60 years of production.

Valuation Methodology: Price/Book Value Multiple Based Relative Valuation (Illustrative)

Source: 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 DNK gave a negative return of ~42.593% in the past year. The stock is currently trading lower than the 52-weeks average price level band of $0.300 - $0.565. The stock has been valued using the Price/Book Value multiple-based illustrative relative valuation method and arrived at a target price with an upside of low double-digit (in percentage terms). Considering the decent rise in rock sale prices and growth prospects for Magnesium Chloride, the company might trade at a slight premium to its peers’ Price/Book Value multiple medians. For valuation, few peers like Clover Corporation Ltd (ASX: CLV), Alpha HPA Ltd (ASX: A4N), Orica Ltd (ASX: ORI) and others have been considered. Given the decent production estimates for rock sale, growth prospects for Magnesium Chloride, decent cash position, current trading levels, upside indicated by valuation, and key risks associated with the business, we give a “Speculative Buy” recommendation on the stock at the closing market price of $0.310, down by ~3.126% as of 04 March 2022. Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

DNK Daily Technical Chart, Data Source: REFINITIV

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

Note 2: Investment decisions should depend on the investors’ appetite for upside potential, risks, holding duration, and previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and is 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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