On track for 170koz in FY19

Pan African Resources 12 November 2018 Update
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Pan African Resources

On track for 170koz in FY19

Q119 quarterly update

Metals & mining

12 November 2018

Price

8.53p

Market cap

£191m

ZAR18.3443/£, ZAR13.9358/US$, US$1.3159/£

Net debt (£m) at end-June 2018 excluding ZAR45.9m (£2.5m) of MC Mining shares (formerly Coal of Africa)

91.0

Shares in issue*

2,234.7m

*Effective 1,928.3m post-consolidation

Free float

86%

Code

PAF

Primary exchange

AIM/JSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

0.3

11.0

(41.1)

Rel (local)

2.2

20.8

(38.0)

52-week high/low

15.8p

6.5p

Business description

Pan African Resources has four major producing or near-producing precious metals assets in South Africa: Barberton (target output 95koz Au pa), the Barberton Tailings Retreatment Project (20koz), the Evander Tailings Retreatment Project (10koz) and Elikhulu (55koz).

Next events

Last trading date re AGM

13 November 2018

AGM proxy deadline

16 November 2018

AGM

20 November 2018

H119 results

February 2019

Analyst

Charles Gibson

+44 (0)20 3077 5724

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

On 6 November, Pan African (PAF) announced that it had produced 37,729oz gold in Q119 (an annualised production rate of 150,916oz) and that it was confident of achieving its production guidance of c 170,000oz for FY19 (implying a steady state production rate of 44,090oz per quarter for the remaining three quarters of the year). This should be eminently achievable now that Elikhulu has reached its target throughput rate of 1Mt in October to produce c 145kg (4,600oz) gold per month.

Year end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

06/17

167.8

19.4

1.22

0.45

7.0

5.3

06/18

154.2

2.4

1.60

0.00

5.3

N/A

06/19e

160.1

31.8

1.09

0.47

7.8

5.5

06/20e

187.1

58.2

1.83

0.86

4.6

10.1

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

Barberton leads the charge

Barberton Mines produced 27,201oz in Q119 (annualised 108,804oz), of which 21,278oz (annualised 85,112oz) was from underground operations and 5,923oz (annualised 23,692oz) was from the Barberton Tailings Retreatment Project (BTRP). This compares with our full-year estimates of 84,641oz from underground sources and 20,000oz from the BTRP, ie Barberton is currently performing above our expectations. In contrast, the Evander Tailings Retreatment Project (ETRP) produced 3,819oz (15,276oz annualised) cf our expectation of 20,000oz for the full year – probably owing to a reduction in higher-grade material for processing from surface feedstocks (as in H218) – although this is more than made up for by 3,815oz (annualised 15,260oz) of mining and vamping from Evander underground’s remnant high-grade stopes ahead of preparations for 8 Shaft pillar mining from Q319 (cf our prior expectation of zero production from Evander underground sources in FY19).

Valuation: c 100% price upside potential

Our previous headline absolute valuation of PAF was 12.50p from its five producing assets (including Elikhulu) and 17.01p once new projects and other assets are taken into account, plus the value of c 20.1m underground Witwatersrand ounces, which could lie anywhere in the range of 0.17–4.15p per share, depending on market conditions. While there is an upside risk to our forecasts in the light of PAF’s operational update, for the moment, we have opted to leave them and our valuation unchanged (in part, in recognition of the recent strength of the rand), but will reassess both at the time of PAF’s H119 results in February. In the meantime, if PAF’s historical average price to normalised EPS ratio of 9.4x in the period FY10–18 is applied to our forecasts, its share price could be expected to climb to 10.2p in FY19 and 17.2p in FY20. It also remains cheaper than its South African- and London-listed gold mining peers on at least 91% of valuation measures on the basis of our forecasts, or 94% on the basis of consensus forecasts. Finally, based on our assumptions, its dividend yield is the ninth highest of the 64 precious metals companies expected to pay a dividend over the course of the next 12 months.

Exhibit 1: Financial summary

£'000s

2013

2014

2015

2016

2017

2018

2019e

2020e

Year end 30 June

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

133,308

154,202

140,386

168,404

167,759

154,200

160,111

187,067

Cost of sales

(71,181)

(106,394)

(110,413)

(108,223)

(134,007)

(138,800)

(104,226)

(105,200)

Gross profit

62,127

47,808

29,973

60,181

33,752

15,400

55,885

81,867

EBITDA

 

 

53,276

44,165

28,448

57,381

32,417

14,800

54,491

79,237

Operating profit (before GW and except.)

47,278

34,142

18,110

46,925

21,924

3,800

41,334

66,156

Intangible amortisation

0

0

0

0

0

0

0

0

Exceptionals

7,232

(12)

(198)

(12,183)

(1,248)

(122,300)

(1,252)

(1,252)

Other

0

0

0

0

0

0

0

0

Operating profit

54,510

34,130

17,912

34,742

20,676

(118,500)

40,082

64,904

Net interest

197

(191)

(2,109)

(1,006)

(2,523)

(1,400)

(9,555)

(7,988)

Profit before tax (norm)

 

 

47,475

33,951

16,001

45,919

19,401

2,400

31,779

58,167

Profit before tax (FRS 3)

 

 

54,707

33,939

15,803

33,736

18,153

(119,900)

30,527

56,915

Tax

(12,133)

(7,155)

(4,133)

(8,234)

(243)

26,600

(10,774)

(22,793)

Profit after tax (norm)

35,342

26,796

11,868

37,685

19,158

29,000

21,004

35,374

Profit after tax (FRS 3)

42,574

26,785

11,670

25,502

17,910

(93,300)

19,753

34,122

Average number of shares outstanding (m)

1,619.8

1,827.2

1,830.4

1,811.4

1,564.3

1,809.2

1,928.3

1,928.3

EPS - normalised (p)

 

 

2.18

1.46

0.64

2.08

1.22

1.60

1.09

1.83

EPS - FRS 3 (p)

 

 

2.63

1.47

0.64

1.41

1.14

(5.16)

1.02

1.77

Dividend per share (p)

0.83

0.82

0.54

0.88

0.45

0.00

0.47

0.86

Gross margin (%)

46.6

31.0

21.4

35.7

20.1

10.0

34.9

43.8

EBITDA margin (%)

40.0

28.6

20.3

34.1

19.3

9.6

34.0

42.4

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

35.5

22.1

12.9

27.9

13.1

2.5

25.8

35.4

BALANCE SHEET

Fixed assets

 

 

249,316

223,425

220,150

230,676

273,635

245,100

256,840

253,124

Intangible assets

38,628

37,040

37,713

38,682

41,425

49,200

50,936

52,673

Tangible assets

209,490

185,376

181,533

190,725

224,687

192,800

202,803

197,352

Investments

1,199

1,010

905

1,269

7,523

3,100

3,100

3,100

Current assets

 

 

26,962

23,510

17,218

22,016

37,090

20,000

21,942

52,037

Stocks

6,596

5,341

3,503

4,399

7,583

2,700

5,344

6,244

Debtors

15,384

12,551

10,386

14,891

14,813

14,800

11,859

13,856

Cash

4,769

5,618

3,329

2,659

9,447

700

2,940

30,138

Current liabilities

 

 

(24,066)

(24,012)

(22,350)

(32,211)

(31,251)

(33,400)

(35,902)

(43,660)

Creditors

(23,202)

(19,257)

(17,301)

(25,230)

(27,105)

(28,200)

(30,702)

(38,460)

Short-term borrowings

(864)

(4,755)

(5,049)

(6,981)

(4,146)

(5,200)

(5,200)

(5,200)

Long-term liabilities

 

 

(80,004)

(63,528)

(67,850)

(69,506)

(62,893)

(115,900)

(116,298)

(117,329)

Long-term borrowings

(11,133)

(8,141)

(16,313)

(18,456)

(12,290)

(86,500)

(86,500)

(86,500)

Other long-term liabilities

(68,871)

(55,387)

(51,537)

(51,049)

(50,603)

(29,400)

(29,798)

(30,829)

Net assets

 

 

172,208

159,396

147,167

150,975

216,581

115,800

126,582

144,173

CASH FLOW

Operating cash flow

 

 

61,618

45,996

26,423

47,130

29,945

(1,900)

47,068

75,285

Net Interest

314

(606)

(2,109)

(1,006)

(2,141)

(1,400)

(9,555)

(7,988)

Tax

(13,666)

(8,536)

(3,943)

(7,777)

(8,003)

0

(10,377)

(21,762)

Capex

(27,197)

(21,355)

(19,554)

(14,097)

(36,748)

(94,200)

(24,897)

(9,366)

Acquisitions/disposals

(96,006)

0

(760)

(30,999)

8,364

4,400

0

0

Financing

47,112

349

(235)

15,207

34,638

9,800

0

0

Dividends

0

(14,684)

(15,006)

(9,882)

(13,290)

(8,200)

0

(8,971)

Net cash flow

(27,826)

1,164

(15,184)

(1,425)

12,764

(91,500)

2,240

27,198

Opening net debt/(cash)

 

 

(18,913)

7,228

7,278

18,033

22,778

6,989

91,000

88,760

Exchange rate movements

594

(839)

(276)

812

238

(1,447)

0

0

Other

1,090

(375)

4,705

(4,131)

2,787

8,936

0

0

Closing net debt/(cash)

 

 

7,228

7,278

18,033

22,778

6,989

91,000

88,760

61,562

Source: Company sources, Edison Investment Research

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 Pty Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2018 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 Investment Research Pty Ltd (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. 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 2018. “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

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, 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

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, 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 Pty Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2018 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 Investment Research Pty Ltd (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. 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 2018. “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

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, 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

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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