Ground Breakers: Panoramic kicks off ‘strategic review’ at Savannah mine as nickel prices fail to fire

Panoramic Resources has said it’s open to the sale or partial sale of its Savannah nickel mine amid falling nickel prices
Comes despite a turnaround on production levels and costs in the September quarter
Materials sector down after two strong days

Panoramic Resources (ASX:PAN) looks to have waved a white flag of sorts, calling in Treadstone Resources Partners for a strategic review that could result in a complete or partial sale of its flagship Savannah nickel mine in WA’s far north.

“The Strategic Review is designed to assess the ongoing capital requirements in the context of the current and forecast nickel price environment, evaluate funding options, and seek interest from third parties to submit proposals to Panoramic that will deliver value to Panoramic shareholders,” PAN said in an announcement this morning.

“Panoramic has engaged Treadstone Resource Partners to conduct the Strategic Review and explore various options for both the Company and its Savannah Nickel Project, which may include a partial or complete divestment of the asset, joint ventures or other funding options or partnerships.”

It follows a rough, rough year for the nickel, copper and cobalt sulphide producer, which mines and sells the battery metals from its operations north of the gold rush community of Halls Creek and south of Rio Tinto’s (ASX:RIO) closed Argyle diamond mine through the Port of Wyndham.

The $93 million capped miner has seen its shares crater more than 80% this year.

It comes around two years after the mine reopened with a 12-year mine life. Formerly known as Sally Malay Mining, the project was the only major asset on Panoramic’s books after it sold the mothballed Lanfranchi mine near Kambalda to Black Mountain Metals (now Cherish Metals) in a $15 million deal in 2018.

Panoramic claimed the September quarter as its best since the restart, with concentrate production up 56% to 23,411dmt, including an identical lift in nickel tonnes to 1684t, 42% uplift in copper production to 932t and 76% rise in cobalt output to 135t.

All in costs came in at $17.64/lb for FY23 and $22.33/lb in the June quarter after a filter press failure prompted a shutdown, but had improved to $12.52/lb in the September quarter (down 44%) with cash costs down 42% to $10.15/lb.

Panoramic Resources (ASX:PAN) share price today

Dreams of a bygone era yet to come

At the same time the booming nickel, copper and cobalt prices that accompanied the mine’s revival in 2021 have turned rancid in 2023.

Nickel, trading at more than US$30,000/t at the end of 2022, is now fetching US$17,421/t, impacted by wavering demand from battery makers and rising supply out of Indonesia.

Copper, similarly, has been knocked down on the back of macro economic concerns while cobalt is facing an oversupply situation that has seen trading interest virtually evaporate over the past five months.

It is a reminder that the run of the mining sector to a world of endless deficits and imposing demand from the electric vehicle industry is not a linear Crash Bandicoot-like dash with few detours and reversals.

It’s more like Super Mario 64. We’ll probably get there in the end but there’ll be some setbacks and moments of reflection to take in on the way.

Nickel at US$17,500 isn’t awful by any stretch (around $12.21/lb Aussie) — but it will take lower costs to make a decent profit at those rates.

By way of comparison, IGO (ASX:IGO) produced its nickel at $11.64/lb in the September quarter, not too dissimilar to Panoramic, but coming at higher production rates and with the support of strong profits from its share in the Greenbushes lithium mine.

Indonesian nickel pig iron and matte producer Nickel Industries (ASX:NIC) ran at cash costs of between US$9500-11,400/t for its four rotary kiln electric furnace sites in the September quarter.

That’s around $6.60-7.95/lb compared to PAN’s last reported cash cost of $10.15/lb.

Panoramic rejected a takeover offer from IGO back in 2019 which valued the nickel producer at $312m, more than three times its current market cap. IGO became the largest shareholder in Panoramic after buying Western Areas last year.

But its deal to acquire Western Areas for around $1.3b cash has already been placed under the microscope with a near $1b writedown on lower nickel prices along with cost overruns and scope changes to its flagship Odysseus nickel development in the northern Goldfields.

Panoramic recorded a $33.2m loss in FY23, but had $42.6m in the bank on September 30 after an equity raising — which IGO did not participate in — back in June. That raising was accompanied by a 12-month deferral on debt repayments on a US$15m facility held by offtaker Trafigura to December 31, 2024.

Materials sector cops hangover

After yesterday’s euphoria it seemed unlikely the market would continue on its merry march today.

And so the materials sector has started off Thursday down some 0.38%.

The blue chips are largely unchanged with gold miners heavily down and battery metals stocks treading water.

MinRes (ASX:MIN), which holds its AGM in Perth this morning, is down around half a per cent.

Azure Minerals (ASX:AZS) shares continue to hold above $4 amid rumours of another participant in the feeding frenzy around the stock, with The Australian’s Dataroom section reporting Chinese battery maker CATL could be eyeing a tilt at the lithium explorer, whose Andover project in the Pilbara has drawn a gridlock of large shareholdings from giants and billionaires SQM, MinRes, Hancock Prospecting (Gina, of course), Mark Creasy, Wilhelm Zours and Pilbara Minerals (ASX:PLS).