Canning coal

Pan African Resources 17 May 2017 Update
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Pan African Resources

Canning coal

Disposal and financing

Metals & mining

17 May 2017

Price

16.25p

Market cap

£363m

ZAR16.8680/£, ZAR13.1710/US$, US$1.2809/£

Net debt (£m) at end December 2016

33.2

Shares in issue
(effective 1,798.3m post consolidation)

2,234.7m

Free float

77%

Code

PAF

Primary exchange

AIM/JSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

8.3

(8.5)

6.6

Rel (local)

5.7

(11.9)

(12.5)

52-week high/low

24.2p

12.8p

Business description

Pan African has six major precious metals’ assets in South Africa: Barberton (target output 95koz Au pa), the Barberton Tailings Retreatment Project (20koz), Evander (95koz), the Evander Tailings Retreatment Project (10koz), Elikhulu (53koz) and Phoenix Platinum (12koz).

Next event

FY17 results

September 2017

Analyst

Charles Gibson

+44 (0)20 3077 5724

Pan African Resources is a research client of Edison Investment Research Limited

Since our last update note, Pan African Resources (PAF) has announced the disposal of its 91% interest in its coal asset, Uitkomst, for ZAR275m (£16.3m, or US$20.9m), a placing to raise ZAR705m (£41m, or US$51m) and an update on progress at its Evander underground refurbishment. As well as returning an exceptional profit to the company, the disposal self-evidently returns Pan African to its core competency of gold mining. It also materially reduces risk in the form of its net funding requirement while developing Elikulu.

Year end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

06/15

140.4

16.0

0.64

0.54

25.4

3.3

06/16

168.4

45.9

2.08

0.88

7.8

5.4

06/17e

203.4

26.0

1.19

0.58

13.7

3.6

06/18e

204.8

57.7

2.16

1.12

7.5

6.9

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles and exceptional items.

Uitkomst sale

PAF announced the disposal of Uitkomst on 5 April for ZAR275m, representing capital appreciation of ZAR127m over its purchase price of ZAR148m (excluding working capital) in March/April 2016. Moreover, this appreciation was amplified by forex movements, from c ZAR21.0535/£ in March/April 2016, to ZAR16.8680/£ currently, which translates to an acquisition price of £7.0m and a disposal price of £16.3m in sterling terms. In addition, PAF received a ZAR30m dividend from Uitkomst during the period of its ownership. The sale is subject to the usual conditions precedent. The transaction value represents a multiple of 1.4x Uitkomst’s net asset value and 7.1x annualised current year profits after taxation (on a 100% basis). Consideration for PAF’s 91% interest is to be settled in cash (ZAR125m plus ZAR25m deferred) and unrestricted Coal of Africa shares (261.3m valued at ZAR125m, including an 8% discount to CoAL’s 30 day VWAP).

Elikhulu fully funded

As a consequence of the Uitkomst sale and its April share sale, we estimate that PAF’s maximum group net funding requirement over the period of Elikhulu’s development will now be a mere £20.4m in FY19 (cf £71.6m previously), which is self-evidently well covered by both PAF’s existing ZAR800m revolving credit facility and a new ZAR1.0bn facility with Rand Merchant Bank.

Valuation: 20.22p/share, rising to 25.23p in FY22

Updating our long-term forecasts to reflect Uitkomst’s disposal and the April share placing, our absolute value of PAF decreases by a mere 5.4%, from 21.38p/share to 20.22p/share. The decrease is almost exclusively attributable to the 19.3% increase in the effective number of shares in issue, but also, in part, as a result of the relative strength in the value of the rand against both sterling and the US dollar after a period of hubris in March and April. In the meantime, PAF’s shares are noticeably cheap, within the historical context, when considered relative to our forecasts of normalised HEPS in FY18 compared to prior years (see page 4).

Disposal & Elikhulu financing

The timing of the Uitkomst sale is with respect to an ‘effective date’, which has yet to be determined. For simplicity however, we have assumed that the ‘effective date’ falls on, or soon after 1 July 2018 (being the first day of PAF’s next financial year, FY18). As a result, our forecasts for FY17 (which include a full contribution from Uitkomst) remain largely unchanged relative to our last note (excepting an adjustment to costs at Evander – see below). Our forecasts for FY18 now include an assumed £3.9m profit on the disposal of Uitkomst (included in ‘Loss in associate etc’ in Exhibit 1, below):

Exhibit 1: Pan African underlying P&L statement by half-year (H114-H218e) actual and expected

£000s (unless otherwise indicated)

H114

H214

H115

H215

H116

H216

H117

H217e

FY17e

FY18e

Mineral sales

84,637

69,914

68,126

72,951

75,632

93,728

105,046

101,256

206,303

205,021

Realisation costs

(191)

(159)

(295)

(396)

(269)

(687)

(1,548)

(1,346)

(2,894)

(235)

Realisation costs (%)

0.23

0.23

0.43

0.54

0.36

0.73

1.47

1.47

1.40

0.12

On-mine revenue

84,447

69,755

67,831

72,555

75,363

93,041

103,498

99,911

203,409

204,785

Gold cost of production

(52,519)

(52,727)

(48,935)

(51,102)

(65,188)

(71,856)

Pt cost of production

(1,590)

(1,797)

(1,651)

(1,796)

(2,300)

(2,529)

Coal cost of production

(10,568)

(5,972)

Cost of production

(54,109)

(52,285)

(54,524)

(55,889)

(50,586)

(57,637)

(78,056)

(80,357)

(158,414)

(133,356)

Depreciation

(5,088)

(4,935)

(4,676)

(5,661)

(5,277)

(5,180)

(6,450)

(8,032)

(14,482)

(10,770)

Mining profit

25,249

12,535

8,631

11,005

19,500

30,225

18,992

11,521

30,513

60,660

Other income/(expenses)

(223)

(1,227)

523

(273)

(3,486)

(8,697)

2,175

(2,302)

(127)

(1,082)

Loss in associate etc

(89)

(84)

(128)

0

0

0

256

0

256

3,913

(Loss)/profit on group disposal

(140)

0

0

0

0

0

0

Impairment costs

0

(12)

(56)

(2)

0

0

0

0

0

0

Royalty costs

(1,747)

(272)

(795)

(852)

(1,194)

(1,606)

(968)

(1,508)

(2,477)

(3,138)

Net income before finance items

23,191

10,940

8,034

9,878

14,819

19,923

20,455

7,711

28,166

60,353

Finances income

381

306

321

28

144

299

70

 

Finance costs

(725)

(153)

(498)

(1,960)

(558)

(891)

(1,079)

 

Net finance income

(344)

153

(177)

(1,932)

(414)

(592)

(1,009)

(1,025)

(2,034)

176

Profit before taxation

22,847

11,093

7,857

7,946

14,405

19,331

19,446

6,686

26,131

60,529

Taxation

(5,537)

(1,618)

(2,310)

(1,823)

(3,480)

(4,754)

(5,475)

(1,868)

(7,343)

(18,758)

Marginal tax rate (%)

24

15

29

23

24

26

28

28

28

31

Deferred tax

 

 

Profit after taxation

17,310

9,475

5,548

6,122

10,925

14,577

13,970

4,818

18,788

41,771

EPS (p)

0.95

0.52

0.30

0.33

0.60

0.82

0.93

0.30

1.20

2.32

HEPS** (p)

0.95

0.52

0.31

0.33

0.60

0.82

0.91

0.30

1.20

2.32

Diluted EPS (p)

0.95

0.52

0.30

0.33

0.60

0.80

0.93

0.30

1.17

2.27

Diluted HEPS* (p)

0.95

0.52

0.31

0.33

0.60

0.80

0.91

0.30

1.17

2.27

Source: Pan African Resources, Edison Investment Research. Note: As reported basis; *Profit re Uitkomst sale; **HEPS = headline earnings per share (company adjusted basis).

Note that our group-wide forecasts for PAF are for production of 183.8koz of gold in FY17 compared to management’s guidance of 181koz.

Share placing

On 12 April, Pan African announced its proposed funding package for its Elikhulu tailings project, comprising:

A placing to existing and new institutional investors of 291.5m new ordinary shares at an issue price of 14p per placing share to raise £41m, or ZAR705m or US$51m.

A ZAR1.0bn (US$76m or £59m at prevailing forex rates) underwritten seven-year debt facility, which has been agreed in principle with Rand Merchant Bank (a division of FirstRand Bank Limited). The debt facility has credit approval, but remains subject to finalisation of definitive legal agreements and the fulfilment of conditions precedent, including licensing approvals and other conditions typical and/or customary for such a facility. Capital is to be repaid through equal quarterly repayments after a grace period of two years. Note that, as part of the credit approval process, RMB appointed Mineral Corporation as its independent technical advisor with a remit to review the Elikhulu DFS for fatal flaws, which it did, but did not identify any such flaws.

Following the placing, Pan African has 2,234.7m shares in issue. However, this includes 436.4m shares that are held by PAR Gold Proprietary Limited (formerly known as Shanduka Gold) and which are treated as treasury shares on consolidation. For accounting and reporting purposes therefore, following the placing, Pan African now has 1,798.3m effective shares in issue (cf 1,506.8m previously).

The decline in Edison’s FY17 EPS forecast from 1.36p per share previously to 1.20p/share currently (on an “as reported” basis – see Exhibit 1) arises, in part, as a result of this increase in the average number of shares in issue during the period and, in part, in anticipation of higher costs than previously expected at Evander to reflect the time period over which the retrenchment process (communicated to shareholders on 10 March) has been implemented. Note that our FY17 EPS forecast of 1.20p per share compares with a mean consensus estimate of 1.94p, within the range 1.40-2.66p, excluding Edison (source: Bloomberg, 15 May 2017).

Similarly, the mining aspects of our FY18 forecasts remain unchanged, with our current forecast varying from our previous forecast only as a result of changes in the average number of shares in issue, the net interest charge and the inclusion of the profit as a result of the Uitkomst colliery disposal. Within this context, note that our forecast EPS of 2.32p/share assumes a gold price for the year of US$1,248/oz and compares with a mean consensus of 2.42p within the range 2.00-2.92p.

Valuation

Updating our long-term forecasts to reflect these changes, our absolute value of PAF decreases by just 5.4%, from 21.38p/share to 20.22p/share. This is almost exclusively attributable to the 19.3% increase in the effective number of shares in issue, but also, in part, as a result of the continuing strength in the value of the rand against both sterling and the US dollar, having largely recovered from the hubris created by the removal from office of the Finance Minister, Pravin Gordhan, by the President, Jacob Zuma, in March.

Our valuation is based on the present value of our estimate of the maximum potential stream of dividends payable to shareholders over the life of PAF’s mining operations (applying a 10% discount rate).

Exhibit 2: PAF estimated life of operations diluted EPS and (maximum potential) DPS

Source: Edison Investment Research, Pan African Resources

In addition however, at their current price, Pan African’s shares are noticeably cheap, within the historical context, when considered relative to our forecasts of normalised HEPS in FY18 compared to prior years:

Exhibit 3: Pan African historical current year price:normalised HEPS ratio

Source: Edison Investment Research, Bloomberg. Note: *Calculated with respect to average share price within the year shown and normalised HEPS; zero normalisation assumed prior to 2016.

Financials

Pan African had £33.2m in net debt on its balance sheet as at 31 December 2016 after the payment of a £17.1m final dividend in late December (cf £22.8m as at 30 June 2016, £16.2m as at 31 December 2015 and £18.0m as at 30 June 2015). As at that date therefore, net debt equated to a gearing (net debt/equity) ratio of 16.7% and a leverage (net debt/[net debt + equity]) ratio of 14.3%. However, that net debt position should now have reversed into a net cash position after the April share placing plus six additional months of cash-inflows from operations.

Our forecasts for Pan African’s immediate capital expenditure commitments related to Elikhulu by financial year are as follows:

Exhibit 4: Estimated Elikhulu capex requirements by financial year

£000s

FY17

FY18

FY19

FY20

FY21

FY22

Total capex*

20,492

54,236

33,935

8,626

18,391

18,391

Source: Pan African Resources, Edison Investment Research. Note: *Includes sustaining capex, but excludes phase 3 capex, which commences in FY26.

Elikhulu’s permitting process is reported to be progressing well. In the meantime, maintaining a dividend policy of 40% of free cash flows less sustaining capital, debt repayments and exceptional items, Pan African’s funding requirement, on our estimates, will evolve during the period in which Elikhulu is being developed from FY16 to FY21, as follows:

Exhibit 5: Pan African estimated funding requirement, FY16 to FY21e

Source: Edison Investment Research, Pan African Resources

Whereas we had previously been expecting PAF to be net debt free by the end of FY21, following the £41m share placing in April, we now expect this to be brought forward to FY20.

Note that PAF’s maximum group net funding requirement of £20.4m in FY19 (cf £71.6m in FY19 previously), based on our estimates, equates to ZAR344m at prevailing forex rates, or gearing (debt/equity) of 8.6% and leverage (debt/[debt+equity]) of 7.9% - and is self-evidently well covered by either PAF’s existing ZAR800m revolving credit facility (which can anyway be expanded to ZAR1,100m) or its new ZAR1.0bn underwritten seven-year debt facility with Rand Merchant Bank.

Note that the group’s revolving credit facility (RCF) debt covenants and their actual recorded levels within recent history are as follows:

Exhibit 6: Pan African group debt covenants

Measurement

Covenant

31 December 2016

(actual)

30 June 2016

(actual)

31 December 2015

(actual)

Net debt:equity

Must be less than 100%

17%

35%

50%

Net debt:EBITDA

Must be less than 2.5x

0.48x

0.12x

0.13x

Interest cover ratio

Must be greater than four times

21.99x

23.98x

18.08x

Source: Pan African Resources


Exhibit 7: Financial summary

£'000s

2011

2012

2013

2014

2015

2016

2017e

2018e

Year end 30 June

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

79,051

100,905

133,308

154,202

140,386

168,404

203,409

204,785

Cost of sales

(45,345)

(46,123)

(71,181)

(106,394)

(110,413)

(108,223)

(158,414)

(133,356)

Gross profit

33,705

54,783

62,127

47,808

29,973

60,181

44,995

71,430

EBITDA

 

 

28,540

45,018

53,276

44,165

28,448

57,381

42,519

68,292

Operating profit (before GW and except.)

25,655

41,759

47,278

34,142

18,110

46,925

28,037

57,522

Intangible amortisation

0

0

0

0

0

0

0

0

Exceptionals

0

(48)

7,232

(12)

(198)

(12,183)

129

2,831

Other

0

0

0

0

0

0

0

0

Operating profit

25,655

41,711

54,510

34,130

17,912

34,742

28,166

60,353

Net interest

762

516

197

(191)

(2,109)

(1,006)

(2,034)

160

Profit before tax (norm)

 

 

26,417

42,274

47,475

33,951

16,001

45,919

26,002

57,683

Profit before tax (FRS 3)

 

 

26,417

42,226

54,707

33,939

15,803

33,736

26,131

60,513

Tax

(9,248)

(12,985)

(12,133)

(7,155)

(4,133)

(8,234)

(7,343)

(18,758)

Profit after tax (norm)

17,169

29,290

35,342

26,796

11,868

37,685

18,659

38,924

Profit after tax (FRS 3)

17,169

29,242

42,574

26,785

11,670

25,502

18,788

41,755

Average number of shares outstanding (m)

1,432.7

1,445.2

1,619.8

1,827.2

1,830.4

1,811.4

1,567.6

1,798.3

EPS - normalised (p)

 

 

1.20

2.03

2.18

1.46

0.64

2.08

1.19

2.16

EPS - FRS 3 (p)

 

 

1.20

2.02

2.63

1.47

0.64

1.41

1.20

2.32

Dividend per share (p)

0.51

0.00

0.83

0.82

0.54

0.88

0.58

1.12

Gross margin (%)

42.6

54.3

46.6

31.0

21.4

35.7

22.1

34.9

EBITDA margin (%)

36.1

44.6

40.0

28.6

20.3

34.1

20.9

33.3

Operating margin (before GW and except.) (%)

32.5

41.4

35.5

22.1

12.9

27.9

13.8

28.1

BALANCE SHEET

Fixed assets

 

 

97,281

86,075

249,316

223,425

220,150

230,676

249,580

292,317

Intangible assets

38,229

23,664

38,628

37,040

37,713

38,682

40,418

42,154

Tangible assets

59,052

62,412

209,490

185,376

181,533

190,725

207,893

248,894

Investments

0

0

1,199

1,010

905

1,269

1,269

1,269

Current assets

 

 

15,835

41,614

26,962

23,510

17,218

22,016

57,199

33,103

Stocks

1,457

1,869

6,596

5,341

3,503

4,399

6,877

6,834

Debtors

4,254

6,828

15,384

12,551

10,386

14,891

14,130

14,043

Cash

10,124

19,782

4,769

5,618

3,329

2,659

36,125

12,160

Current liabilities

 

 

(8,960)

(11,062)

(24,066)

(24,012)

(22,350)

(32,211)

(38,384)

(34,095)

Creditors

(8,960)

(11,062)

(23,202)

(19,257)

(17,301)

(25,230)

(31,403)

(27,114)

Short-term borrowings

0

0

(864)

(4,755)

(5,049)

(6,981)

(6,981)

(6,981)

Long-term liabilities

 

 

(13,410)

(14,001)

(80,004)

(63,528)

(67,850)

(69,506)

(70,876)

(72,232)

Long-term borrowings

(181)

(869)

(11,133)

(8,141)

(16,313)

(18,456)

(18,456)

(18,456)

Other long-term liabilities

(13,228)

(13,132)

(68,871)

(55,387)

(51,537)

(51,049)

(52,420)

(53,775)

Net assets

 

 

90,746

102,626

172,208

159,396

147,167

150,975

197,519

219,094

CASH FLOW

Operating cash flow

 

 

31,968

49,092

61,618

45,996

26,423

47,130

47,104

63,052

Net Interest

762

516

314

(606)

(2,109)

(1,006)

(2,034)

160

Tax

(10,743)

(11,616)

(13,666)

(8,536)

(3,943)

(7,777)

(5,972)

(17,403)

Capex

(21,712)

(17,814)

(27,197)

(21,355)

(19,554)

(14,097)

(33,386)

(65,898)

Acquisitions/disposals

0

(1,549)

(96,006)

0

(760)

(30,999)

0

16,303

Financing

1,545

259

47,112

349

(235)

15,207

38,236

(0)

Dividends

(5,376)

(7,416)

0

(14,684)

(15,006)

(9,882)

(10,481)

(20,181)

Net cash flow

(3,557)

11,471

(27,826)

1,164

(15,184)

(1,425)

33,466

(23,965)

Opening net debt/(cash)

 

 

(12,756)

(9,943)

(18,913)

7,228

7,278

18,033

22,778

(10,688)

Exchange rate movements

925

(1,813)

594

(839)

(276)

812

0

0

Other

(181)

(688)

1,090

(375)

4,705

(4,131)

0

0

Closing net debt/(cash)

 

 

(9,943)

(18,913)

7,228

7,278

18,033

22,778

(10,688)

13,277

Source: Company sources, Edison Investment Research

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DISCLAIMER
Copyright 2017 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Pan African Resources and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.
Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2017. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2017 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Pan African Resources and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.
Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2017. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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