Upgrades & Expands One of the Largest Undeveloped Copper-Gold Deposits

Report Highlights

Waste: Ore decreased from 2:1 to 0.65:1, implying potential for lower OPEX.

The new resource estimate includes a high-grade starter pit. Earlymining of higher-grade materials could boost production and reduce OPEX in the initial years of operations. This approach also involves lower initial CAPEX, as PML can develop the deposit in stages.

We believe there is potential for resource expansion as the deposit remains open in multiple directions, and at depth.

Management intends to complete an updated Preliminary Economic Assessment (PEA) by Q3-2024. The previous PEA (completed in 2015) had returned an AT-NPV7.5% of $1B, using $1,400/oz gold and $3.25/lb copper.

Upcoming catalysts include an updated PEA, and a potential rally in metal prices when the Fed starts slashing rates, possibly in June 2024.

Panoro’s flagship Cotabambas project hosts a large tonnage/low-grade porphyry copper-gold-silver deposit. Located near majors

CuEq resources increased by 31% to 9.9 Blbs, driven by lower cut-off grades, and higher metal prices

The average CuEq grade decreased 4% to 0.45%, driven by the inclusion of lower-grade materials

We believe the positive impact of higher tonnage far outweighs the negative impact of lower grades

55% of resources are in the indicated category vs 21% for the previous estimate, implying increased confidence

Resources are spread across two deposits: the North pit (0.70 km x 0.25 km x 0.80 km), and the South pit (0.40 km x 0.15 km x 0.60 km)

We believe there is potential for resource expansion as the deposit remains open in multiple directions, and at depth

Several targets remain untested

The South pit hosts a higher-grade component (129 Mt at 0.91% CuEq) in the indicated category, mostly located outside the open-pit model used in a PEA completed in 2015. By mining these materials early, PML can potentially increase production, and lower OPEX in the initial years of operations. This approach also involves lower initial CAPEX, as PML can develop the deposit in stages.

The new resource estimate includes a high-grade starter pit

Waste:ore decreased from 2:1 to 0.65:1, implying potential for lower OPEX

The 2015 PEA had returned an AT- NPV7.5% of US$1B, using US$1,400/oz gold, and US$3.25/lb copper

Management intends to complete an updated PEA by Q3-2024 

We are anticipating material increases in OPEX/CAPEX due to inflation, a longer mine life, and higher production/cash flow forecasts in the initial years of operation

Management is also planning various mine optimization, and metallurgical studies, to potentially improve economics

PML needs $40M to advance the project to a feasibility study

Financials

Under a $140M project financing with PML, Wheaton Precious Metals (TSX: WPM) has contributed $14M so far, with the remaining US$126M to be paid in stages during construction

At the end of Q3- 2023, PML had $2.5M in working capital; the company is anticipating staged payments totaling $9.7M in 2024/2025 from the sale of a non-core asset

PML is the most undervalued junior among our list of copper juniors

PML is trading at just C$0.002/lb (previously C$0.006) vs the sector average of C$0.011 (C$0.026)

Our fair value estimate declined from C$0.74 to C$0.67/share due to lower sector EV/lb multiples, partially offset by the recenet increase in resources

We are reiterating our BUY rating, and adjusting our fair value estimate from C$0.74 to C$0.67 per share. We believe PML is an attractive M&A target, given that it hosts one of the largest copper-gold deposits held by a junior in the Americas. Upcoming catalysts include an updated PEA, and a potential rally in metal prices when the Fed starts slashing rates, possibly in June 2024.

Risks

• We believe the company is exposed to the following key risks (not exhaustive):
• Large projects involve high CAPEX
• As porphyry projects are of relatively low-grade, they are highly sensitive to
• commodity prices
• WPM has an option to terminate the financing agreement
• Development, EIA, and permitting