Modelling was undertaken using monthly physicals and cash flows. For the Base Case financial analysis, flat commodity price lines and US$:A$ exchange rates were used. A nickel price of US$6.00/lb has been adopted as the Base Case to reflect an appropriately conservative view of the long-term nickel price. Copper and cobalt prices, and US$:A$ exchange rates are December 2016 average spot prices. Modelling has been undertaken on a pre-tax, ungeared, real-dollars basis using a discount rate of 8% (Table 1). All amounts are expressed in A$ unless noted otherwise.
The model includes working capital movements. Cash receipts on sales are recognised in the month following shipment. Concentrate inventories are assumed to average 10 days inventory at month end. An initial allowance of $2M for restocking of warehouse inventories is included in pre-production capital expenditure, however movements in warehouse inventories are not modelled. Trade payables are assumed to average 30 days terms and include all external operating and capital expenditure (i.e. excluding salaries).
Australian corporate tax of 30% is excluded. Any tax benefits available to Panoramic through prior tax losses or intercompany transfers have not been modelled. As at 31 December 2016, the Company had accumulated Group tax losses of approximately $65M. As the Base Case financial analysis has been prepared on a pre-tax basis, capital tax depreciation has not been taken into account.
Modelling is undertaken on an ungeared basis, therefore funding sources and associated costs are not included in the model.
Standardised Reportable Costs
Three unit cost measures estimated by Panoramic in the Savannah FS are C1 cash costs (nickel in concentrate basis), operating cash cost (including royalties and by-product credits, payable nickel basis), and sustaining cash costs (payable nickel cash cost plus stay-in-business capital expenditure). These measures of cash costs for the Savannah FS Base Case, averaged over LOM, are:
- C1 cash cost A$2.70/lb (US$2.00/lb) Ni in concentrate
- Operating cash cost A$4.50/lb (US$3.30/lb) payable Ni
- Sustaining cash cost A$6.00/lb (US$4.40/lb) payable Ni
C1 cash cost – Operating cash costs including mining, processing, geology, OHS&E, general and administrative, and concentrate transport costs, less by-product credits, divided by nickel in concentrate produced.
Operating cash cost – Operating cash costs including mining, processing, geology, OHS&E, general and administrative, and concentrate transport costs, plus royalties, less by-product credits, divided by payable nickel produced.
Sustaining cash cost – Operating cash costs including mining, processing, geology, OHS&E, general and administrative, and concentrate transport costs, plus royalties, plus stay-in-business capital expenditure, less by-product credits, divided by payable nickel produced.
Annual unit operating and sustaining cash costs per pound of payable nickel are shown in Figure 1.
At the Base Case pricelines, revenue is estimated at $1,490M over life of mine, or ~$145M on an annual basis over the 10.25 year period of production. EBITDA is $530M over life of mine, or ~$50M per annum. Undiscounted pre-tax free cash flow over life of mine is $300M.
At the Base Case pricelines, maximum cash draw down is approximately $30M (US$22M), which occurs 12 months after commencement of production. The project becomes cash flow positive 13 months after recommencement of production and project payback is achieved less than two years after the commencement of production.
Pre-tax NPV at 8% discount rate is $190M, and due to the low up-front capital requirements and rapid restart timeframe, the IRR is 115%.
At the assumed US$:A$ exchange rate of 0.736, the nickel price required to achieve cash break-even is US$4.40/lb, and for NPV break-even is US$4.50/lb. An AISC margin of 20% is achieved at US$5.50/lb.
Key financial metrics are shown in Table 2. Annual and cumulative cash flow is shown in Figure 2.
The Project is strongly leveraged to the US$ nickel price and US$:A$ exchange rate. Project NPV sensitivities at a range of US$ nickel price and US$:A$ foreign exchange rates are shown in Table 3. Sensitivities to a range of internal and external factors for a +/- 20% movement from the Base Case parameters are shown in Figure 3.
Table 3 – NPV sensitivity table for a range of US$ nickel prices and US$:A$ foreign exchange rates
A funding requirement (i.e. maximum negative cash draw down) of approximately $30M inclusive of working capital is estimated for the price lines modelled, peaking during the first 12 months after commencement of production. Due to the robust economics demonstrated by the Savannah FS, Panoramic expects that a range of financing options at competitive pricing will be available to meet up-front pre-production capital requirements. The Company has received indicative financing proposals from potential offtake partners.