Solid push towards year end

Pan African Resources 19 June 2019 Update
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Pan African Resources

Solid push towards year end

Nine-month
operational update

Metals & mining

19 June 2019

Price

10.1p

Market cap

£226m

ZAR18.4001/£, ZAR14.5656/US$, US$1.2612/£

Net debt (£m) at end-December 2018 excluding ZAR130.5m (£7.1m) of MC Mining shares (formerly Coal of Africa)

102.7

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

6.3

14.2

30.3

Rel (local)

5.4

12.5

35.1

52-week high/low

10.8p

6.5p

Business description

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

Next events

Operational update

July 2019

Trading statement

September 2019

FY19 results

September 2019

AGM

November 2019

Analyst

Charles Gibson

+44 (0)20 3077 5724

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

In its nine-month operational update, Pan African Resources (PAF) disclosed production that is consistent with its FY19 guidance of 170,000oz. This caused us to reduce our FY19 forecasts fractionally in anticipation of lower production than we previously expected from Barberton offset by higher (but lower-margin) production from Evander underground and the BTRP. More importantly, however, Pan African’s directors approved the development of the Evander 8 Shaft pillar project, with production from as early as August, causing us to increase our forecasts for FY20 and beyond and our ultimate valuation of the company.

Year end

Revenue (£m)

PBT*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

Yield
(%)

06/17

167.8

19.4

1.22

0.45

8.3

4.5

06/18

154.2

2.4

1.60

0.00

6.3

N/A

06/19e

163.1

26.0

0.99

0.30

10.2

3.0

06/20e

202.6

59.1

1.88

0.56

5.4

5.5

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

Evander 8 Shaft pillar project production imminent

The Evander 8 Shaft pillar project will contribute, on average, 30,000oz of production per annum to the group over the next three financial years, including c 20,000oz in its first year of production, with the result that management has increased its group-wide production guidance for FY20 from 170,000oz to 185,000oz currently (an increase of 8.8%). According to the project’s updated feasibility study, capital expenditure will amount to ZAR70m, of which ZAR40m will pre-date production, while all-in sustaining costs have been estimated at US$900/oz (at an exchange rate of ZAR14.30/US$). The pre-tax NPV of the project on this basis is US$25.8m (1.3 US cents per share) at a 10% discount rate and a gold price of US$1,305/oz.

Valuation: Up 1.31p/share to 19.00p plus 19.2Moz

Including the Evander 8 Shaft pillar project, our headline absolute valuation of PAF has increased from 12.90p/share to 14.05p/share – a rise of 8.9%. This increases to 19.00p/share (cf 17.69p previously) once growth projects and other assets have been taken into account, plus the value of c 19.2m underground Witwatersrand ounces, which could lie anywhere in the range of 0.17–4.15p per share, depending on market conditions. 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 respective forecasts, its share price could be expected to be 9.3p in FY19, rising to 17.6p in FY20 (cf 16.1p previously). Pan African also remains cheaper than its South African- and London-listed gold mining peers on at least two-thirds of valuation measures regardless of whether Edison or consensus forecasts are used. Finally, based on our assumptions, its dividend yield will be within the top third (if not the top 10) of the 45 precious metals companies expected to pay a dividend over the course of the next 12 months, if not in FY19 then certainly in FY20 (see Exhibit 10 on page 8).

Q1–Q319 production

In its nine-month operational update, Pan African disclosed production that is consistent with its full year guidance of 170,000oz, which it reiterated for the 12-month period to end June 2019.

Exhibit 1: PAF group-wide production, actual and forecast, H118–FY19e (oz)

Operation

FY14

FY15

FY16

FY17

H118

H218

FY18

Q119

Q219
(implied)

H119

Q319

(implied)

Q1–Q319

9 mths annualised

Barberton UG

88,738

81,493

84,690

71,763

32,159

40,966

73,125

21,278

17,272

38,550

16,307

54,857

73,142

BTRP

22,885

24,283

28,591

26,745

8,452

9,052

17,504

5,923

6,083

12,006

6,081

18,087

24,116

Barberton

111,623

105,776

113,281

98,508

40,611

50,018

90,629

27,201

23,355

50,556

22,388

72,944

97,258

Evander UG

76,556

63,558

73,496

43,304

32,734

15,831

48,565

3,815

5,006

8,821

5,780

14,601

19,468

ETRP

0

6,523

18,151

29,473

11,937

9,313

21,250

3,819

2,526

6,345

**0

6,345

***6,345

Evander

76,556

70,081

91,647

72,777

44,671

25,144

69,815

7,634

7,532

15,166

5,780

20,946

27,928

Elikhulu

0

0

0

0

0

0

0

*2,894

13,134

15,292

**14,589

**29,881

39,841

Total

188,179

175,857

204,928

173,285

85,282

75,139

160,444

37,729

44,021

81,014

42,757

123,771

165,028

Source: Edison Investment Research, Pan African Resources. Note: Numbers may not add up owing to rounding. UG = underground. *Includes 736oz of capitalised pre-production output in August. **ETRP (Evander Tailings Retreatment Project) throughput processed via Elikhulu plant from H219 onwards. ***Nine-month ETRP production figure not annualised.

Highlights of the period were:

Throughput of 1.3Mt in March at Elikhulu (100,000t above nameplate capacity), while all-in sustaining costs continued to be lower than previously anticipated, at less than US$600/oz.

Production at the Barberton Tailings Retreatment Project (BTRP) increased by 47.5% compared to the equivalent period in 2018, to 18,087oz, following the successful commissioning of the 1.7MW BTRP regrind mill in May 2018 that has allowed it to efficiently treat coarser fraction tailings, such as the older (albeit lower-grade) Harper dumps for processing.

Zero fatalities during Q3, while the group’s lost-time injury frequency rate improved substantially, to 1.75 (cf 3.79) and its reportable injury frequency rate improved to 0.58 (cf 1.17).

FY19 production guidance

Management stated that it is confident that it ‘remains on track to meet its gold production guidance of 170,000oz for the full financial year to end 30 June 2019’. Within this context, we have adjusted our production forecasts for each asset for FY19, as follows:

Exhibit 2: PAF group-wide production, actual and forecast, H118–FY19e (oz)

Operation

H118

H218

FY18

Q119

Q219
(implied)

H119

Q319
(implied)

Q1-Q319

Q419e

H219e
(current)

H219e
(previous)

FY19e (current)

FY19e
(previous)

Barberton UG

32,159

40,966

73,125

21,278

17,272

38,550

16,307

54,857

17,940

34,247

42,321

72,797

80,871

BTRP

8,452

9,052

17,504

5,923

6,083

12,006

6,081

18,087

6,029

12,110

10,000

24,116

22,006

Barberton

40,611

50,018

90,629

27,201

23,355

50,556

22,388

72,944

23,969

46,357

52,321

96,913

102,877

Evander UG

32,734

15,831

48,565

3,815

5,006

8,821

5,780

14,601

4,972

10,752

4,932

19,573

13,753

ETRP

11,937

9,313

21,250

3,819

2,526

6,345

**0

**6,345

**0

**0

**0

**6,345

**6,345

Evander

44,671

25,144

69,815

7,634

7,532

15,166

5,780

20,946

4,972

10,752

4,932

25,918

20,098

Elikhulu

0

0

0

*2,894

13,134

15,292

**14,589

**29,881

**17,289

**31,878

**31,733

**47,170

**47,025

Total

85,282

75,139

160,444

37,729

44,021

81,014

42,757

123,771

46,230

88,987

88,986

170,000

170,000

Source: Edison Investment Research, Pan African Resources. Note: Numbers may not add up owing to rounding. UG = underground. *Includes 736oz of capitalised pre-production output in August. **ETRP throughput processed via Elikhulu plant from H219 onwards.

Notable changes in our forecasts include a 10.0% increase in production from Barberton underground (Q4 vs Q319) under the influence of three cycling production platforms (including the 256 level platform), which will increase underground mining flexibility still further in conjunction with a concurrent increase in underground development rates. Nevertheless, production at this level is consistent with flat mill throughput (H2 vs H119) at a reduced (and historically relatively low) grade of 9.01g/t – auguring well for an output increase in FY20 when grades may be expected to return to close to their long-term average in the range 10.25–10.75g/t.

Updated FY19 financial forecasts

Other changes to our assumptions for H219 are that the gold price has been approximately 2% weaker than our prior expectations (estimated US$1,296/oz vs US$1,323/oz previously), only partially mitigated by a South African rand that has been approximately 1% weaker against both sterling and the dollar.

A summary of our updated financial expectations performance is as follows:

Exhibit 3: PAF underlying P&L statement by half-year (H118–H219e) actual and expected

£000s
(unless otherwise indicated)

H118
(as reported)

H218
(implied)

FY18

FY18
(underlying)

FY18
(as reported)

H119

H219e

FY19e
(current)

FY19e
(previous)

Mineral sales

82,900

74,000

156,900

108,500

108,500

75,300

89,234

164,534

166,367

Realisation costs

(1,500)

(1,200)

(2,700)

(2,000)

(2,000)

(600)

(813)

(1,413)

(1,430)

Realisation costs (%)

1.81

1.62

1.72

1.84

1.84

0.80

0.91

0.86

0.86

On-mine revenue

81,400

72,800

154,200

106,500

106,500

74,700

88,422

163,122

164,937

Cost of production

(69,600)

(69,200)

(138,800)

(77,700)

(77,700)

(54,200)

(59,647)

(113,847)

(110,133)

Depreciation

(5,900)

(5,100)

(11,000)

(4,900)

(4,900)

(5,300)

(5,778)

(11,078)

(11,001)

Mining profit

5,900

(1,500)

4,400

23,900

23,900

15,200

22,997

38,197

43,803

Other income/(expenses)

(800)

(14,900)

(15,700)

(4,200)

(4,200)

(1,400)

0

(1,400)

(1,400)

Loss in associate etc

(400)

400

0

**0

**0

0

0

0

0

Loss on disposals

0

(300)

(300)

0

0

0

0

0

0

Impairment costs

0

(106,300)

(106,300)

Excl.

(8,200)

0

0

0

0

Royalty costs

(300)

(300)

(600)

(400)

(400)

(400)

(2,265)

(2,665)

(3,119)

Net income before finance

4,400

(122,900)

(118,500)

19,300

11,100

13,400

20,732

34,132

39,285

Finances income

700

1,300

2,000

1,500

1,500

300

 

Finance costs

(800)

(2,600)

(3,400)

(3,200)

(3,200)

(4,400)

 

Net finance income

(100)

(1,300)

(1,400)

(1,700)

(1,700)

(4,100)

(5,455)

(9,555)

(9,555)

Profit before taxation

4,300

(124,200)

(119,900)

17,600

9,400

9,300

15,277

24,577

29,730

Taxation

(1,000)

27,600

26,600

2,100

2,100

(1,800)

(5,044)

(6,844)

(9,063)

Marginal tax rate (%)

23.3

22.2 

22.2

(11.9)

(22.3)

19.4

33.0

26.2

29.1

PAT (continuing ops)

3,300

(96,600)

(93,300)

19,600

11,500

7,500

10,233

17,733

20,667

Loss from discontinued ops

N/A

N/A 

N/A

(6,700)

(104,800)

N/A

Profit after tax

3,300

(96,600)

(93,300)

12,900

(93,300)

7,500

10,233

17,733

20,667

Headline earnings

3,300

10,000

13,300

13,300

13,300

7,500

10,233

17,733

20,667

EPS (p)

0.18

(5.31)

(5.15)

0.71

(5.15)

0.39

0.53

0.92

1.07

HEPS* (p)

0.20

0.55

0.73

0.73

0.73

0.39

0.53

0.92

1.07

Normalised HEPS (p)

0.23

1.37

1.60

0.97

0.97

0.46

0.53

0.99

1.14

EPS from continuing ops (p)

1.08

0.39

0.53

0.92

1.07

Source: Pan African Resources, Edison Investment Research. Note: As reported basis. *HEPS = headline earnings per share (company adjusted basis). **Loss on assets held for sale reclassified into loss from discontinued operations.

The major reasons behind the reduction in our forecasts for FY19 are the lower gold price and the decline in forecast production from Barberton in H219, only partially offset by foreign exchange rates and the increase in forecast production from the BTRP, as shown in the chart below (created with reference to normalised headline earnings per share (HEPS) in Exhibit 3, above):

Exhibit 4: Edison changes to PAF FY19 normalised HEPS forecast (pence/share)

Source: Edison Investment Research

FY20 and beyond

The other major development since Edison’s last note (see Pan African: Elikhulu underpins recovery, published on 12 March 2019) is Pan African’s board of directors’ approval of the Evander 8 Shaft pillar project. Moreover, whereas Edison had previously valued this asset in the expectation of commercial production not being achieved until after the end of FY20, development and equipping of this area of the mine is reported to have already started, with first gold anticipated during August 2019. As such, the project will effectively replace current remnant underground mining and vamping production and PAF expects it to contribute, on average, 30,000oz of production per annum to the group over the next three financial years, including c 20,000oz in FY20, with the result that management has increased its group-wide production guidance for that year from 170,000oz previously to 185,000oz currently (an increase of 8.8%), as shown in the graph below:

Exhibit 5: PAF production and guidance, FY17–20e (oz)

Source: Edison Investment Research. Note: *Elikhulu plant incorporating ETRP throughput from H219 onwards.

A summary of the (updated) results of the Evander 8 Shaft pillar project feasibility study are as follows:

initial capex of ZAR40.0m (cf ZAR15.4m previously);

total capex of ZAR70.0m (cf ZAR56m previously);

throughput rate of 11.5ktpm producing 30koz per annum, on average, with peak production of 39koz in the second year of operations;

An average all-in sustaining cost of approximately ZAR415,000/kg, or US$900/oz over the life of the project (assuming a forex rate of ZAR14.30/US$);

A three-year life-of-mine; and

a project pre-tax NPV of US$25.8m (cf US$19.4m previously), which equates to a value of 1.3 US cents per share, at a 10% real discount rate and an assumed gold price of ZAR600,000/kg, or US$1,305/oz.

Edison has now incorporated these assumptions into our financial forecasts for FY20 and beyond (including a small reduction in anticipated output from Barberton, from 84koz to 79koz), with the result that our normalised HEPS forecast for Pan African’s next financial year has increased by 9.3%, to 1.88p/share, as shown below:

Exhibit 6: Edison changes to PAF FY20 normalised HEPS forecast (pence/share)

Source: Edison Investment Research

Note that FY20 forecasts are predicated on an unchanged gold price forecast of US$1,372/oz.

At the same time that it approved the Evander 8 Shaft pillar project, the group concluded that it would not pursue mining the near-surface Royal Sheba resource on a standalone basis, but that it would instead upgrade the existing Barberton Mines processing plant infrastructure to take Royal Sheba ore. Among other things, this will also help to expedite the environmental licensing process, shorten the timeline to production, enhance returns and negate the need for external capital funding.

Updated group valuation

Including its other potential growth projects (ie the Fairview sub-vertical shaft project and Egoli) and assets (ie the residual Evander underground resource and its shareholding in MC Mining), a summary of our updated valuation of Pan African is as follows:

Exhibit 7: PAF absolute valuation summary

Project

Current valuation
(pence/share)

Previous valuation
(pence/share)

Existing producing assets (now including Evander 8 Shaft pillar project)

14.05

12.32

Egoli

3.80

3.59

Fairview Sub-Vertical Shaft Project

0.49

0.47

Royal Sheba (resource-based valuation)

0.34

0.36

MC Mining shares

0.31

0.37

Evander 8 Shaft pillar project

N/A 

0.58

Sub-total

19.00

17.69

EGM underground resource

0.17–4.15

0.17–4.05

Total

19.17-23.15

17.86–21.74

Source: Edison Investment Research.

Note that the valuation changes for Egoli and the Fairview sub-vertical shaft project reflect the effect of foreign exchange rate changes only, whereas the change in the implied valuation of the Evander 8 Shaft pillar project reflects both foreign exchange rate changes and the fact that the timing of the project has been accelerated relative to our previous expectations. The decline in the value of PAF’s shareholding of 13.1m MC Mining shares reflects merely the fall in the latter’s share price from c ZAR9.99/share in November 2018 to ZAR8.49/share at the time of writing (adjusted into sterling at the appropriate FX rate).

Historical relative and current peer group valuation

Historical relative valuation

Exhibit 8, below, depicts PAF’s average share price in each of its financial years from FY10 to FY18, and compares this with normalised HEPS in the same year. For FY19 to FY20, the current share price (of 10.1p) is compared with Edison’s forecast normalised HEPS for FY19 to FY20. As is apparent from the graph, PAF’s price to normalised HEPS ratio of 10.2x for FY19 (based on our forecasts – see Exhibit 14, below) is close to the average of its recent historical range of 9.4x from FY10–18. However, assuming it meets Edison’s (and consensus) earnings expectations for FY20, this measure of value is set to fall to a record low for the period of just 5.4x (see below):

Exhibit 8: PAF historical price to normalised HEPS ratio, FY10–FY20e

Source: Edison Investment Research. Note: *Completed historical years calculated with respect to average share price within the year shown and normalised HEPS; zero normalisation assumed before 2016.

Stated alternatively, if PAF’s average contemporary price to normalised EPS ratio of 9.4x in the period FY10–18 is deemed ‘correct’, then its share price should be 9.3p in FY19 and 17.6p in FY20 (cf 16.1p previously).

Relative peer group valuation

Over the next two years PAF remains cheaper than its South Africa- and London-listed gold mining peers on at least two-thirds of valuation measures (20 out of 30 individual measures in the table below), regardless of whether Edison or consensus forecasts are used.

Exhibit 9: Comparative valuation of PAF with South African and London peers

EV/EBITDA (x)

P/E (x)

Yield (%)

 

Year 1

Year 2

Year 1

Year 2

Year 1

Year 2

AngloGold Ashanti

5.0

4.7

16.3

12.3

0.8

0.9

Gold Fields

4.7

3.7

12.6

5.6

0.0

5.5

Sibanye

3.1

2.3

7.5

4.3

0.0

0.0

Harmony

3.3

2.7

15.6

8.0

0.0

0.0

Centamin

4.8

4.2

21.4

18.1

3.6

5.1

Average (excluding PAF)

4.2

3.5

14.7

9.7

0.9

2.3

PAF (Edison)

6.4

3.6

10.2

5.4

3.0

5.5

PAF (consensus)

5.0

4.0

6.6

4.8

4.2

5.9

Source: Edison Investment Research, Refinitiv. Note: Consensus and peers priced at 19 June 2019.

Dividend

PAF has a target dividend pay-out ratio of 40% of net cash generated by operating activities, after allowing for the effect of sustaining capital on cash flow, contractual debt repayments and one-off items. After sustaining the costs related to the Evander underground closure in FY18, the Pan African board elected not to recommend a final dividend for that year. However, it stated that recommencing distributions to shareholders is a priority for the future.

Cash flows before financing activities were negative £14.3m in H119 and we forecast that they will be positive £8.0m in H219 under the influence of an improved operating performance, a better gold price and a steady rand. As a result, we expect group net indebtedness at the end of FY19 to be broadly similar to that at the end of FY18 (ie £97.3m vs £91.0m). Nevertheless, that represents a decline relative to our previous estimate of £94.0m – primarily as a result of the acceleration of capex relating to the Evander 8 Shaft pillar project into FY19. Given that PAF’s dividend policy is for a pay-out of 40% of net cash generated by operating activities after allowing for the effect of sustaining capital (but not expansionary capital other than value-accretive new growth projects), we believe there is scope for the board to recommend a dividend of up to 0.30p/share this year, albeit that represents a decline compared to our previous estimate of 0.38p/share. Self-evidently, the extent to which a dividend may (or may not) be declared will depend on developments between now and September 2019 as well as due regard for PAF’s banking covenants (see Exhibit 13). However, given that any dividend declared for FY19 would be paid in FY20, such a distribution would not affect the ratios pertinent to PAF’s banking covenants for end-FY19, but rather H120 (ie at 31 December 2019), when we forecast that PAF will be in the process of paying down net debt at a rate in excess of £20m per annum (excluding dividend distributions).

If our dividend forecast is correct, however, then Pan African will still have a dividend yield in the top third of the 45 ostensibly precious metals companies paying dividends to shareholders over the course of the next 12 months. Note that there is no certainty nor guidance that an FY19 dividend will be paid; however, we observe that, in extremis, Pan African could fund our forecast FY19 dividend via the realisation of its shareholding in MC Mining. Should it pass its dividend for FY19 however, then we would regard it as an almost racing certainty (all other things being equal) that it would make a full distribution to shareholders in FY20 (see Exhibit 14, below). If it were to pass its dividend in FY19, it would also create the possibility that the company could initiate an interim dividend payment to shareholders in H120 instead.

Exhibit 10: Global precious metal mining companies ranked by forecast dividend yield, PAF highlighted (%)

Source: Refinitiv for peers and PAF (consensus), Edison Investment Research for PAF FY19 and FY20. Note: Consensus data for peers priced 4 June 2019.

Financials

PAF had net debt of £102.7.0m on its balance sheet as at 31 December 2018 (cf £91.0m as at June 2018, £42.2m as at December 2017 and £7.0m as at June 2017). As such, net debt equated to a gearing (net debt/equity) ratio of 82.2% (cf 78.6% as at end-FY18) and a leverage (net debt/[net debt + equity]) ratio of 45.1% (cf 44.0% as at end-FY18).

As of the current time, the most intense phase of capex relating to Elikhulu has now been completed and we expect group capex to decline sharply to ZAR193.0m in H219 compared to ZAR585.9m in H119 – albeit the decline has been slightly moderated by the acceleration of Evander 8 Shaft pillar project capex into H219 ahead of first gold in H120. Hereafter however, we expect Pan African to be strongly cash-generative (including contributions from the Evander 8 Shaft pillar project), such that it will pay down net debt at a rate in excess of £20m per annum (before dividend distributions), as shown in Exhibit 12, below:

Exhibit 11: PAF estimated funding requirement, FY16 to FY24e (previous)

Exhibit 12: PAF estimated funding requirement, FY16 to FY24e (current)

Source: Edison Investment Research, Pan African Resources

Source: Edison Investment Research, Pan African Resources

Exhibit 11: PAF estimated funding requirement, FY16 to FY24e (previous)

Source: Edison Investment Research, Pan African Resources

Exhibit 12: PAF estimated funding requirement, FY16 to FY24e (current)

Source: Edison Investment Research, Pan African Resources

As a consequence of the increased cash flows during the period FY20–24, we therefore now predict that Pan African will be net debt free by the end of FY23, cf FY24 previously.

Debt is principally financed via a ZAR1bn revolving credit facility (£54.3m at current exchange rates) plus a ZAR1bn term loan facility relating to the Elikhulu project and a banking facility. Principal on the Elikhulu facility is payable in equal instalments until maturity in June 2024, while the revolving credit facility (RCF) itself has been restructured to extend its maturity from mid-2020 previously to at least beyond mid-2024 currently. The group’s RCF debt covenants and their actual recorded levels within recent history are as follows:

Exhibit 13: PAF group debt covenants

Measurement

Constraint

H119

(actual)

FY18
(actual)

H118
(actual)

FY17
(restated)

FY17
(actual)

H117
(actual)

FY16*
(actual)

H116
(actual)

Net debt:equity

Must be less than 1:1

0.85

0.78

0.19:1

0.02:1

0.01:1

0.17:1

0.35:1

0.50:1

Net debt:EBITDA

Must be less than 2.5:1

3.24

3.73

2.25:1

0.08:1

0.05:1

0.48:1

0.12:1

0.13:1

Interest cover ratio

Must be greater than four times

3.64

4.61:1

4.62:1

19.32:1

10.00

21.99

23.98

18.08

Debt service cover ratio

Must be greater than 1.3:1

2.85

3.84:1

1.85:1

9.11:1

N/A

N/A

N/A

N/A

Source: Pan African Resources. Note: *Subsequently restated for disposals.

Note that, with the agreement of its bankers, PAF’s net debt:EBITDA covenant is measurable only on 31 December 2019 to accommodate the construction of the Elikhulu project, while the interest cover ratio was reduced to 2.5:1 as at December 2018 (with the requirement that it be 4:1 thereafter).

Miscellaneous

Accounting

Management has announced that the group’s presentation currency is expected to change to US dollars, from sterling, for Pan African’s results for the full year to end-June 2019. Note that our forecasts in this note nevertheless continue to be presented in sterling to be consistent with historical practice.

Exhibit 14: Financial summary

£000s

2011

2012

2013

2014

2015

2016

2017

2018

2019e

2020e

Year end 30 June

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

79,051

100,905

133,308

154,202

140,386

168,404

167,759

154,200

163,122

202,571

Cost of sales

(45,345)

(46,123)

(71,181)

(106,394)

(110,413)

(108,223)

(134,007)

(138,800)

(113,847)

(118,655)

Gross profit

33,705

54,783

62,127

47,808

29,973

60,181

33,752

15,400

49,275

83,916

EBITDA

 

 

28,540

45,018

53,276

44,165

28,448

57,381

32,417

14,800

46,610

81,843

Operating profit (before GW and except.)

25,655

41,759

47,278

34,142

18,110

46,925

21,924

3,800

35,532

67,882

Intangible amortisation

0

0

0

0

0

0

0

0

0

0

Exceptionals

0

(48)

7,232

(12)

(198)

(12,183)

(1,248)

(122,300)

(1,400)

(1,252)

Other

0

0

0

0

0

0

0

0

0

0

Operating profit

25,655

41,711

54,510

34,130

17,912

34,742

20,676

(118,500)

34,132

66,631

Net interest

762

516

197

(191)

(2,109)

(1,006)

(2,523)

(1,400)

(9,555)

(8,760)

Profit before tax (norm)

 

 

26,417

42,274

47,475

33,951

16,001

45,919

19,401

2,400

25,977

59,122

Profit before tax (FRS 3)

 

 

26,417

42,226

54,707

33,939

15,803

33,736

18,153

(119,900)

24,577

57,871

Tax

(9,248)

(12,985)

(12,133)

(7,155)

(4,133)

(8,234)

(243)

26,600

(6,844)

(22,886)

Profit after tax (norm)

17,169

29,290

35,342

26,796

11,868

37,685

19,158

29,000

19,133

36,237

Profit after tax (FRS 3)

17,169

29,242

42,574

26,785

11,670

25,502

17,910

(93,300)

17,733

34,985

Average number of shares outstanding (m)

1,432.7

1,445.2

1,619.8

1,827.2

1,830.4

1,811.4

1,564.3

1,809.2

1,928.3

1,928.3

EPS - normalised (p)

 

 

1.20

2.03

2.18

1.46

0.64

2.08

1.22

1.60

0.99

1.88

EPS - FRS 3 (p)

 

 

1.20

2.02

2.63

1.47

0.64

1.41

1.14

(5.15)

0.92

1.81

Dividend per share (p)

0.51

0.00

0.83

0.82

0.54

0.88

0.45

0.00

0.30

0.56

Gross margin (%)

42.6

54.3

46.6

31.0

21.4

35.7

20.1

10.0

30.2

41.4

EBITDA margin (%)

36.1

44.6

40.0

28.6

20.3

34.1

19.3

9.6

28.6

40.4

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

32.5

41.4

35.5

22.1

12.9

27.9

13.1

2.5

21.8

33.5

BALANCE SHEET

Fixed assets

 

 

97,281

86,075

249,316

223,425

220,150

230,676

273,635

245,100

275,278

271,623

Intangible assets

38,229

23,664

38,628

37,040

37,713

38,682

41,425

49,200

50,936

52,673

Tangible assets

59,052

62,412

209,490

185,376

181,533

190,725

224,687

192,800

221,241

215,850

Investments

0

0

1,199

1,010

905

1,269

7,523

3,100

3,100

3,100

Current assets

 

 

15,835

41,614

26,962

23,510

17,218

22,016

37,090

20,000

17,634

38,427

Stocks

1,457

1,869

6,596

5,341

3,503

4,399

7,583

2,700

4,113

6,759

Debtors

4,254

6,828

15,384

12,551

10,386

14,891

14,813

14,800

11,720

14,445

Cash

10,124

19,782

4,769

5,618

3,329

2,659

9,447

700

0

15,422

Current liabilities

 

 

(8,960)

(11,062)

(24,066)

(24,012)

(22,350)

(32,211)

(31,251)

(33,400)

(48,872)

(41,017)

Creditors

(8,960)

(11,062)

(23,202)

(19,257)

(17,301)

(25,230)

(27,105)

(28,200)

(38,040)

(35,817)

Short-term borrowings

0

0

(864)

(4,755)

(5,049)

(6,981)

(4,146)

(5,200)

(10,832)

(5,200)

Long-term liabilities

 

 

(13,410)

(14,001)

(80,004)

(63,528)

(67,850)

(69,506)

(62,893)

(115,900)

(116,356)

(117,125)

Long-term borrowings

(181)

(869)

(11,133)

(8,141)

(16,313)

(18,456)

(12,290)

(86,500)

(86,500)

(86,500)

Other long-term liabilities

(13,228)

(13,132)

(68,871)

(55,387)

(51,537)

(51,049)

(50,603)

(29,400)

(29,856)

(30,625)

Net assets

 

 

90,746

102,626

172,208

159,396

147,167

150,975

216,581

115,800

127,684

151,907

CASH FLOW

Operating cash flow

 

 

31,968

49,092

61,618

45,996

26,423

47,130

29,945

(1,900)

52,792

68,085

Net Interest

762

516

314

(606)

(2,109)

(1,006)

(2,141)

(1,400)

(9,555)

(8,760)

Tax

(10,743)

(11,616)

(13,666)

(8,536)

(3,943)

(7,777)

(8,003)

0

(5,988)

(22,116)

Capex

(21,712)

(17,814)

(27,197)

(21,355)

(19,554)

(14,097)

(36,748)

(94,200)

(43,581)

(10,306)

Acquisitions/disposals

0

(1,549)

(96,006)

0

(760)

(30,999)

8,364

4,400

0

0

Financing

1,545

259

47,112

349

(235)

15,207

34,638

9,800

0

0

Dividends

(5,376)

(7,416)

0

(14,684)

(15,006)

(9,882)

(13,290)

(8,200)

0

(5,849)

Net cash flow

(3,557)

11,471

(27,826)

1,164

(15,184)

(1,425)

12,764

(91,500)

(6,332)

21,054

Opening net debt/(cash)

 

 

(12,756)

(9,943)

(18,913)

7,228

7,278

18,033

22,778

6,989

91,000

97,332

Exchange rate movements

925

(1,813)

594

(839)

(276)

812

238

(1,447)

0

0

Other

(181)

(688)

1,090

(375)

4,705

(4,131)

2,787

8,936

0

0

Closing net debt/(cash)

 

 

(9,943)

(18,913)

7,228

7,278

18,033

22,778

6,989

91,000

97,332

76,278

Source: Company sources, Edison Investment Research


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This report has been commissioned by Pan African Resources and prepared and issued by Edison, in consideration of a fee payable by Pan African Resources. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

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Frankfurt +49 (0)69 78 8076 960

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London +44 (0)20 3077 5700

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London, WC1V 7EE

United Kingdom

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1,185 Avenue of the Americas

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United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

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This report has been commissioned by Pan African Resources and prepared and issued by Edison, in consideration of a fee payable by Pan African Resources. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

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This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

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Germany

London +44 (0)20 3077 5700

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London, WC1V 7EE

United Kingdom

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1,185 Avenue of the Americas

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United States of America

Sydney +61 (0)2 8249 8342

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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

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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