Shares in the company last traded at $0.105. The following is an extract from the report.
Upgrades Nicolsons diluted head grade to ~10g/t Au
Pantoro Limited has announced an updated resource and reserve following remodelling of the initial four levels of mine development at the Nicolsons project.
The remodelling has delivered a pre-mining mineral resource for the Hall Lode (previously Main Zone) of ~57kt @ 17.1g/t Au for ~31koz compared to the previous resource of ~105kt @ 6.7g/t Au for ~23koz.
More importantly, the ore reserve grade within the remodelled zone has increased from 6.17g/t Au to 9.81g/t Au.
This significant upgrade in the diluted head grade from the underground mine is in line with our expectations and drives our modelling assumptions.
We assume the Company can now grow production from the current ~24kozpa to ~40kozpa in FY17 and ~55kozpa from FY18 onwards.
Mother Lode (Splay Vein) delivers ~12koz @ 19.24g/t Au
The Mother O'Neil Lode (aka Mother Lode) is a high grade splay vein which has been mined over the initial four levels of development and was previously unidentified from surface drilling.
The maiden Mother Lode resource delivered an estimate of 19kt @ 19.24g/t Au for ~12koz.
The lode has consistently delivered level on level improvements in volume and grade and looks to be increasing in strike length with depth.
We expect the head grade from Nicolsons to continue to deliver ~10g/t Au as development continues and the full extent of the lode is explored.
The Company will look to develop the capital infrastructure required to infill the Mother Lode while embarking on the next phase of its development.
The current resource has the Mother Lode modelled to the 2160 RL only and we see potential for significant upside to the maiden resource with extensions at depth.
Open Pit mining to allow a faster ramp up to ~200ktpa
PNR recently announced an open pit mining evaluation study which highlighted a maiden open pit ore reserve estimate of ~96kt @ ~5.5g/t Au for ~16koz (recoverable).
The Rowdies and Wagtail pits are located ~1.5km from the Nicolsons processing plant and will allow an increase in ore feed to the plant while the Nicolsons underground mine continues to ramp up.
The open pit mines are estimated to be mined over ~9 months at AISC of ~A$965/oz from DecQ '16 onwards.
PNR expects to be in a position to enable expansions of the processing plant to ~200ktpa by the end of CY16 (we estimate a small capex requirement of ~A$1m).
The open pit mines allow the Company to ramp up to ~200ktpa faster than we had previously estimated.
Our modelling suggests the underground mine has potential to deliver ~200ktpa from FY18 and the open pit mines allow this run rate to be achieved ~6 months earlier (from early CY17 onwards).
Higher grades = lower costs, upgrade to Buy (from Spec Buy)
With an updated reserve estimate we now have increased confidence the Company will produce up to ~50kozpa over the coming quarters.
With the increase in head grade (towards ~10g/t Au) we see operating costs (AISC) dropping towards ~A$800-900/oz over the coming quarters.
In our opinion the Nicolsons project is now clearly one of the highest grade underground gold mines operating in Australia and is increasingly likely to be operating with one of the lowest operating cost (A$/oz) profiles of the ASX-listed gold producers.
We upgrade to a Buy recommendation (from Speculative Buy) with a price target of 19c, NAV of 19c, spot NAV of 20c.
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