Solid quarter as ramp up to 50kozpa continues on schedule.
Solid quarter of production at slightly higher costs than expected
This was a solid quarter of production for PNR as they continue the well managed ramp up process at Nicolsons. Quarterly production increased to 7,372oz and was largely in line with expectations of 7,402oz.
The monthly production rate for the month of September showed a marked increase over the quarter indicating potential to do significantly better this coming quarter.
Processing recoveries were very high and in excess of expectations at an average of 98.0% (S&Pe. 96%). Grades were as expected at a very healthy 8.06g/t Au with mill throughput slightly below expectations but on the rise during the quarter.
Cash costs and therefore AISC were higher than expected and likely reflect the impact of a plant shutdown for expansion work on the crushing circuit, preliminary work on the open pits and increased waste development underground.
We expect lower costs in the December quarter. Cash and bullion at end of quarter of A$12.1m was A$0.6m short of expectations (S&Pe A$12.7m after equity issues) and reflects the higher AISC.
Ramp up to 50kozpa on schedule as open pit mining commences
During the quarter the plant was expanded to 185ktpa throughput capacity. The underground stockpiles increased to 88kt at a very healthy 11.4g/t.
Open pit mining has commenced on schedule post reporting period, with ore to be blended with Nicolsons underground ore over a 9-month period, in accordance with the mine plan to lift production to 50kozpa by 3QFY17.
We expected high grades from the open pit grade control but the widths and grades reported are better than expected and suggest higher head grades than the reserve grade of 5.55 g/t Au could be expected, as seen at Nicolsons.
These widths and grades provide an indication that if deeper exploration drilling below these pits continue to deliver similar results, then the project shows real potential for a second underground operation and extended mine life.
Maintain BUY rating and slightly lower price target of A$0.21/share
Our SOTP valuation based price target has fallen back 1c/share due to dilution through the issue of shares on the exercise of options and conversion of the remaining convertible note.
The slightly lower cash balance has minimal impact.
Our assumptions for continued successful ramp-up remain unchanged.