Tails wagging

Pan African Resources 4 April 2017 Update
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Pan African Resources

Tails wagging

H117 results in perspective & H217 preview and outlook

Metals & mining

4 April 2017

Price

16.25p

Market cap

£315m

ZAR16.0630/£, ZAR12.8487/US$, US$1.2509/£

Net debt (£m) at end December 2016

33.2

Shares in issue

(effective 1,506.8m post Shanduka)

1,943.2m

Free float

77%

Code

PAF

Primary exchange

AIM/JSE

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(8.8)

3.3

14.8

Rel (local)

(8.0)

1.3

(2.3)

52-week high/low

24.2p

12.8p

Business description

Pan African has seven major 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), Phoenix Platinum (12koz) and Uitkomst (400kt saleable coal pa).

Next events

FY17 results

September 2017

Analysts

Charles Gibson

+44 (0)20 3077 5724

Pan African is a research client of Edison Investment Research Limited

Pan African’s (PAF’s) interim figures were consistent with both its trading statement of 27 January and our prior full-year expectations, despite a sharp increase in Department of Mineral Resources’ (DMR) Section 54 stoppage notices and an unusually strong South African rand. While overall gold production fell 10.0% cf H116, there were sharp increases at both the BTRP (+14.0%) and the ETRP (+77.3%) such that, for the first time, the company recorded greater profits, in the form of adjusted EBITDA, from its tailings retreatment projects than from underground.

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

28.7

1.35

0.73

12.0

4.5

06/18e

204.8

55.1

2.41

0.85

6.7

5.2

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

Costs well contained in H117 relative to H216

Compared to H116, PAF’s gold cost of production (excluding realisation costs) increased 14.4%, to ZAR1,165.6m in local currency terms; including realisation costs, it increased by 16.4%, to ZAR1,193.3m. Compared to H216 however, PAF’s gold cost of production (including realisation costs) increased by only 5.5%; relative to the aggregate number of tonnes processed, it increased by only 1.4%, to ZAR643/t (vs ZAR634/t).

Evander operational gearing key

Overall, the head grade at Evander fell back from 5.6g/t in H216 to 5.4g/t in H117. However, operations are now well developed on the 25 level, with the result that the head grade is expected to remain in the range 6-7g/t for the next three to five years. In fact, immediately prior to the February announcement of a fatality at seven shaft, Evander was reported to be mining material at a diluted grade of 8g/t from underground and at a mine call factor in excess of 80%. Note that, had an underground head grade of 7.2g/t prevailed in H117 (and applying the group’s H117 marginal tax rate to the incremental profits), we estimate that it would have added c 0.41p to both Pan African’s EPS and headline EPS in H117.

Valuation: 21.38p including Elikhulu project

In the longer term (and in FY17 had it not been for the current production challenges), we estimate that Pan African is capable of generating average earnings of 2.65p/share and paying average (maximum potential) dividends of 2.31p. Including Elikhulu, the net present value of such a dividend stream is 21.38p (discounted at 10% pa). This valuation assumes that the grade profile at Evander averages 6.43g/t from FY17-30 and that the gold price will average US$1,283/oz (real). In the meantime, it is cheaper than its immediate peers on at least 70% of a range of valuation measures. It also has the third highest (consensus) forecast dividend yield of any dividend-paying gold company, globally.

Investment summary

Company description: South African gold, PGE and coal

Pan African is a South Africa based gold mining group which has dual primary JSE and AIM listings and operates seven major 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), Phoenix Platinum (12koz) and Uitkomst (400kt saleable coal pa).

Valuation: 21.38p at prevailing forex rates

We have updated our forecasts for FY17, which now include Uitkomst and reflect the effect of H117 section 54 regulatory stoppage notices (21 days lost production) as well as the current Evander production halt. Our group wide forecasts are for production of 183.8koz of gold in FY17 compared to management guidance of 181koz of gold. This, along with our current price assumptions, results in EPS of 1.36p (1.35p normalised), rising to 2.41p in FY18. In the longer term (and in FY17 had it not been for the current production challenges), we estimate that Pan African is capable of generating average earnings of 2.65p/share and paying average (maximum potential) dividends of 2.31p (including Elikhulu). At currently prevailing forex rates, the net present value of such a dividend stream is 21.38p (discounted as 10% pa). This valuation assumes that the grade profile at Evander averages 6.43g/t from FY17-30 and that the gold price will average US$1,283/oz (real). In the meantime, it is cheaper than its immediate peers on at least 70% of a range of valuation measures. It also has the third highest (consensus) forecast dividend yield of any dividend-paying gold company, globally

Financials: Net debt free in five years after Elikhulu capex

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 net debt of £22.8m as at 30 June 2016, £16.2m as at 31 December 2015 and £18.0m as at 30 June 2015). Net debt currently equates to a gearing (net debt/equity) ratio of 16.7% and a leverage (net debt/[net debt + equity]) ratio of 14.3%. We have now incorporated our estimated capex requirement for Elikhulu of £154m over six years from FY17 to FY22. Consequently, whereas we had previously been expecting Pan African to be net debt free within the current year, we now expect this to occur in FY21.

Sensitivities: As expected

The valuations above were conducted at a long-term gold price of US$1,283/oz, changes in which will (inevitably) affect our valuation. Other risks include the timing of the refurbishment programme and the consequent production hiatus at Evander and timely progress of the Elikhulu project. Exogenous factors include exchange rate movements (in particular the rand/dollar and rand/sterling rates and, by extension, the sterling/dollar rate), the regulatory framework for energy costs and labour agreements.


Interim results and forecasts

Pan African’s interim figures were consistent with both its trading statement of 27 January as well as our prior full-year expectations. Compared to the prior year period (ie H116) gold produced and sold decreased 10.0% to 91,613oz owing to a combination of operational constraints coupled with a sharp increase in Department of Mineral Resources’ (DMR) Section 54 stoppage notices, while cash costs of production increased by 25.8%, to US$932/oz (ostensibly the same level as in H215). On a headline basis, earnings per share, in particular, were higher than at any time since H114 (ie the second half of calendar 2013), when the gold price averaged US$1,311/oz. Moreover, this coincided with a period in which the South African rand has been unusually strong for the first time in a reporting period since H111, averaging ZAR17.8771/£ (vs ZAR22.0942/£ in H216) and ZAR13.9875/US$ (vs ZAR15.4132/US$ in H216).

Exhibit 1: Pan African underlying P&L statement by half-year (H114-H117) actual vs expected

£000s (unless otherwise indicated)

H114

H214

H115

H215

H116

H216

H117

H117 vs H216

Mineral sales

84,637

69,914

68,126

72,951

75,632

93,728

105,046

12.1

Realisation costs

(191)

(159)

(295)

(396)

(269)

(687)

(1,548)

125.3

Realisation costs (%)

0.23

0.23

0.43

0.54

0.36

0.73

1.47

101.0

On-mine revenue

84,447

69,755

67,831

72,555

75,363

93,041

103,498

11.2

Gold cost of production

(52,519)

(52,727)

(48,935)

(51,102)

(65,188)

27.6

Platinum cost of production

(1,590)

(1,797)

(1,651)

(1,448)

(2,300)

28.1

Coal cost of production

(10,568)

N/A

Cost of production

(54,109)

(52,285)

(54,524)

(55,889)

(50,586)

(57,637)

(78,056)

35.4

Depreciation

(5,088)

(4,935)

(4,676)

(5,661)

(5,277)

(5,180)

(6,450)

24.5

Mining profit

25,249

12,535

8,631

11,005

19,500

30,225

18,992

(37.2)

Other income/(expenses)

(223)

(1,227)

523

(273)

(3,486)

(8,697)

2,175

(125.0)

Loss in associate

(89)

(84)

(128)

0

0

0

256

N/A

Loss on associate disposal

(140)

0

0

0

0

N/A

Impairment costs

0

(12)

(56)

(2)

0

0

0

N/A

Royalty costs

(1,747)

(272)

(795)

(852)

(1,194)

(1,606)

(968)

(39.7)

Net income before finance items

23,191

10,940

8,034

9,878

14,819

19,923

20,455

2.7

Finances income

381

306

321

28

144

299

70

(76.6)

Finance costs

(725)

(153)

(498)

(1,960)

(558)

(891)

(1,079)

21.2

Net finance income

(344)

153

(177)

(1,932)

(414)

(592)

(1,009)

70.6

Profit before taxation

22,847

11,093

7,857

7,946

14,405

19,331

19,446

0.6

Taxation

(5,537)

(1,618)

(2,310)

(1,823)

(3,480)

(4,754)

(5,475)

15.2

Marginal tax rate (%)

24.2

14.6

29.4

22.9

24.2

26.1

28.2

14.5

Deferred tax

 

 

Profit after taxation

17,310

9,475

5,548

6,122

10,925

14,577

13,970

(4.2)

EPS (p)

0.95

0.52

0.30

0.33

0.60

0.82

0.93

13.0

HEPS* (p)

0.95

0.52

0.31

0.33

0.60

0.82

0.91

11.3

Diluted EPS (p)

0.95

0.52

0.30

0.33

0.60

0.82

0.93

15.8

Diluted HEPS* (p)

0.95

0.52

0.31

0.33

0.60

0.80

0.91

14.0

Source: Pan African Resources, Edison Investment Research. Note: *HEPS = headline earnings per share.

In rand terms, PAF’s gold cost of production (excluding realisation costs) increased 14.4%, to ZAR1,165.6m compared with H116; including realisation costs, it increased by 16.4%, to ZAR1,193.3m. This could be predominantly attributed to:

Salaries and wages (44% of production costs) increasing by 8.3% - in line with the labour agreements signed in FY16.

Electricity costs (16% of the total) increasing by 8.9%. Note that this was less than the 9.5% approved by the National Energy Regulator of South African (Nersa) from 1 April 2016 (ie covering the period under review) owing to reduced aggregate power consumed.

Compared with H216 however, PAF’s gold cost of production (including realisation costs) increased by only 5.5% in local currency terms; relative to the aggregate number of tonnes processed, it increased by only 1.4%, to ZAR643/t (vs ZAR634/t).

Operations

While overall gold production fell 10.0% cf H116, there were sharp increases at both the BTRP (+14.0%) and the ETRP (+77.3%), while production at both of Pan African’s traditional, underground operations fell, with output at Barberton down 21.0% and at Evander down 27.2%. As a result, the BTRP and ETRP were Pan African’s second and third most profitable business units overall, behind Barberton (underground), but ahead of Evander (underground). As a result, for the first time the company recorded greater profits, in the form of adjusted EBITDA, from its tailings retreatment projects than from its underground operations.

Evander Gold Mines (EGM)

We had anyway expected a decline in tonnes milled from underground at Evander to 349kt for FY17 (174.5kt pro rata for H117) versus c 400ktpa in prior years. In the event, this decline was slightly greater than expected, being augmented by Section 54 DMR stoppage notices, in particular.

Exhibit 2: EGM operational results, H114-H217e, actual and forecasts

H114

H214

H115

H215

H116

H216

H117

H117 vs H216 (%)

H217e

Tonnes milled underground (t)

200,272

194,855

197,879

184,107

200,942

207,339

161,872

(21.9)

116,333

Head grade underground (g/t)

6.20

4.17

4.30

4.92

5.80

5.60

5.40

(3.6)

6.01

Underground gold contained (oz)

39,921

26,138

27,357

29,137

37,471

37,351

28,103

(24.8)

22,467

Tonnes milled surface (t)

111,225

149,676

198,578

67,645

0

0

0

N/A

0

Head grade surface (g/t)

1.30

1.47

1.40

0.22

0.00

0.00

0.00

N/A

0.00

Surface gold contained (oz)

4,649

7,095

8,938

477

0

0

0

N/A

0

Tonnes milled (t)

311,497

344,531

396,457

251,752

200,942

207,339

161,872

(21.9)

116,333

Head grade (g/t)

4.45

3.00

2.85

3.66

5.80

5.60

5.40

(3.6)

6.01

Contained gold (oz)

44,570

33,233

36,295

29,614

37,471

37,351

28,103

(24.8)

22,467

Recovery (%)

97

102

93

100

97

99

94

(5.4)

100

Production underground (oz)

38,710

27,246

26,024

27,722

36,370

37,126

26,477

(28.7)

22,467

Production surface (oz)

3,955

6,645

7,831

1,982

0

0

0

N/A

Total production (oz)

42,665

33,891

33,855

29,704

36,370

37,126

26,477

(28.7)

22,467

Recovered grade (g/t)

4.26

3.06

2.66

3.67

5.63

5.57

5.09

(8.7)

6.01

Gold sold (oz)

43,164

33,392

33,733

29,825

36,370

37,126

26,477

(28.7)

22,467

Average spot price (US$/oz)

1,302

1,290

1,233

1,206

1,105

1,221

1,256

2.8

1235

Average spot price (ZAR/kg)

421,273

443,171

435,376

461,891

483,309

605,265

565,009

(6.7)

517,627

Total cash cost (US$/oz)

985

1,358

1,317

1,277

995

918

1,457

58.8

1,739

Total cash cost (ZAR/kg)

318,616

466,650

464,955

489,118

435,190

454,756

655,304

44.1

728,835

Total cash cost (US$/t)

134.93

134.43

112.03

149.51

180.15

163.58

238.34

45.7

335.83

Total cash cost (ZAR/t)

1,373.00

1,427.75

1,230.00

1,794.96

2,450.00

2,532.68

3,334.00

31.6

4,378.00

Implied revenue (US$000s)

56,200

42,940

41,593

35,694

40,189

44,773

33,255

(25.7)

27,747

Revenue (ZAR000s)

565,576

460,221

456,799

427,794

546,731

685,865

465,296

(32.2)

361,716

Implied revenue (£000s)

35,471

25,504

25,566

23,502

26,219

31,052

26,025

(16.2)

22,237

Implied cash costs (US$000s)

42,029

46,317

44,415

37,639

36,199

33,916

38,581

13.8

39,068

Cash costs (ZAR000s)

422,810

491,905

487,800

451,884

492,308

525,124

539,681

2.8

509,307

Implied cash costs (£000s)

26,527

27,662

27,297

24,917

23,635

23,754

30,188

27.1

31,325

Forex (ZAR/£)

15.9388

17.8279

17.8700

18.1318

20.8300

22.0942

17.8771

(19.1)

16.2588

Forex (ZAR/US$)

10.0600

10.6853

10.9827

11.9173

13.6000

15.4132

13.9875

(9.2)

13.0363

Forex (US$/£)

1.5844

1.6685

1.6269

1.5186

1.5328

1.4335

1.2778

(10.9)

1.2478

Source: Edison Investment Research, Pan African Resources

During the six month period under review, Evander was issued with four Section 54 regulatory notices by the DMR, which resulted in 13 lost production days, compared with three notices and two days in the prior year period.

While cash costs of production increased by 58.8% in US dollar terms, to US$1,457/oz, most of the increase could be attributed to the lower number of ounces produced and the adverse moves in the rand:dollar exchange rate. In rand terms, aggregate costs increased by a much more respectable 2.8%, indicating a continued focus on cost control, notwithstanding the production challenges experienced during the half year.

Operations at Evander have now advanced from 25 to 26 level, which has simultaneously improved access to more high-grade panels as well as allowing management to manage and blend the ore mined towards achieving its target of 110,000oz of gold per annum. All other things being equal therefore, the head grade is expected to remain in the range 6-7g/t for the next three to five years. Note that, had an underground head grade of 7.2g/t prevailed in H117 (and applying the group’s H117 marginal tax rate to the incremental profits), we estimate that it would have added c 0.41p to both Pan African’s EPS and headline EPS in H117. Operations will remain focused at 25 level for eight years, before progressing to 26 level. Excluding Elikhulu, management’s target is to achieve a consistent all-in sustaining cost of production of US$1,100/oz at Evander (vs US$1,310/oz in the period under review).

In fact, immediately prior to the February announcement of a fatality at seven shaft, Evander was reported to be mining material at a diluted grade of 8g/t from underground and at a mine call factor in excess of 80% (vs 65% in H116, 59% in H115 and a target of 73%) as a result of a focus on blasting and cleaning practices, in particular, including the use of blasting barricades. In the wake of the fatality, there will now be a 55-day underground mining hiatus at Evander, while steelwork at the 7A, 7 and 8 shafts is refurbished. During this period, the pump column at 8 shaft will be the only one at the mine that is operational, which represents a technical engineering risk in the event of a similar failure as at 7 shaft. During this period, management is also planning to drill a second exploration drill hole into the Kinross 2010 pay channel as a precursor to potential future exploitation.

On 10 March, PAF announced that repairs at 7 shaft were “progressing on schedule” and that they were “still expected to be completed within the 55 day period previously communicated” (ie around the middle of April). At the same time, in order to ameliorate Evander’s underground fixed cost base once mining recommences, management also announced a retrenchment programme (with the agreement of the National Union of Mineworkers and the appropriate South African government agency) whereby approximately 30% of Evander Mines’ employees will be retrenched at an estimated cost of ZAR54m (US$4.2m or £3.4m). In order to minimise the number of job losses overall, Evander has agreed to re-engage a number of retrenched employees once site activities commence at Elikhulu. In the meantime, Edison estimates that this initiative will save Evander approximately 15% of its cost base in the longer term. Pro-rata, this implies a net additional cost in the order of ZAR25m in H217. However, this should be substantially offset by management’s initiative to utilise available plant capacity to continue processing tailings and additional surface sources.

Barberton Gold Mining Operations (BGMO)

As at Evander, Barberton was served with six Section 54 regulatory notices in H117, which resulted in eight days of lost production (cf one notice costing three days of production in H116). In aggregate therefore, Barberton and Evander were served with a combined ten Section 54 regulatory stoppage notices during the 184 day period, which resulted in 21 days of lost production (cf four notices and five days lost in the prior year period). In addition however, Barberton also experienced a degree of community unrest, which was designed to target government service delivery, but which also had the collateral effect of costing Barberton six days of lost production, as a result of protests preventing employees from reporting to work. Finally, Barberton experienced flexibility constraints at its Fairview mine and specifically at its high grade 11-block, which resulted in lower grades being mined. As with Evander however, while cash costs of production were reported to have increased by 42.0% compared with the prior year period, to US$967/oz (vs US$681/oz), in fact aggregate cash costs increased by only a much more modest 3.9% in local currency terms compared to H216:

Exhibit 3: Barberton operational results, H114-H217e

H114

H214

H115

H215

H116

H216

H117

H117 vs H216 (%)

H217e

Tonnes milled (t)

149,589

142,532

126,713

134,036

139,430

128,953

123,168

(4.5)

139,137

Head grade (g/t)

10.45

10.56

11.40

10.00

10.60

10.77

9.40

(12.7)

10.26

Contained gold (oz)

50,272

48,374

46,443

43,080

47,117

44,656

37,224

(16.6)

45,895

Recovery (%)

91

96

89

90

92

92

93

1.1

92.5

Production underground (oz)

41,849

46,130

42,666

38,649

43,487

40,941

34,471

(15.8)

42,449

Production calcine dumps/surface ops (oz)

390

369

76

102

130

132

0

(100.0)

Total production (oz)

42,239

46,499

42,742

38,751

43,617

41,073

34,471

(16.1)

42,449

Gold sold (oz)

45,405

43,333

41,232

40,261

43,617

41,073

34,471

(16.1)

42,449

Average spot price (US$/oz)

1,317

1,290

1,229

1,206

1,113

1,221

1,268

3.8

1,235

Average spot price (ZAR/kg)

426,101

443,171

433,966

461,891

486,567

605,265

570,251

(5.8)

517,627

Total cash cost (US$/oz)

787

770

885

825

681

708

967

36.7

795

Total cash cost (ZAR/kg)

254,506

263,029

312,502

318,061

297,877

351,358

434,999

23.8

333,296

Total cash cost (US$/t)

222.22

251.14

287.82

238.62

213.09

225.38

270.74

20.1

242.61

Total cash cost (ZAR/t)

2,403.00

2,668.95

3,161.00

2,860.08

2,898.00

3,525.32

3,787.00

7.4

3,162.69

Implied revenue (US$000s)

59,798

56,360

50,674

48,095

48,546

50,288

43,709

(13.1)

52,424

Revenue (ZAR000s)

601,758

600,142

556,300

574,798

660,091

774,505

611,400

(21.1)

683,417

Implied revenue (£000s)

37,743

33,700

31,148

31,559

31,671

34,950

34,207

(2.1)

42,013

Implied cash costs (US$000s)

33,242

35,796

36,471

31,983

29,711

29,064

33,347

14.7

33,755

Cash costs (ZAR000s)

334,362

380,411

400,600

383,353

404,068

448,861

466,437

3.9

440,047

Implied cash costs (£000s)

20,978

21,484

22,417

21,043

19,398

20,221

26,091

29.0

27,065

Forex (ZAR/£)

15.9388

17.8279

17.8700

18.1318

20.8300

22.0942

17.8771

(19.1)

16.2588

Forex (ZAR/US$)

10.0600

10.6853

10.9827

11.9173

13.6000

15.4132

13.9875

(9.2)

13.0363

Forex (US$/£)

1.5844

1.6687

1.6269

1.5186

1.5328

1.4335

1.2778

(10.9)

1.2478

Source: Edison Investment Research, Pan African Resources

Barberton is commencing multi-year wage negotiations with its labour-force later this year (note that Barberton traditionally negotiates its agreements outside the auspices of the South African Chamber of Mines’ collective wage bargaining process). In the meantime however, exploration drilling has confirmed at least a 200m down-dip extension of the high-grade 11-block of the MRC orebody. Consequently, work is underway to develop additional production platforms to expose additional high grades panels in order to increase mining grades and flexibility, with the result that a much improved performance is expected from BGMO operations’ in the second half of PAF’s financial year.

Barberton Tailings Retreatment Project (BTRP)

In contrast to BGMO and Evander, PAF’s retreatment operations typically outperformed our expectations. In the case of the BTRP, although throughput declined, the head grade was maintained at a very high level, which resulted in materially higher metallurgical recoveries, while aggregate costs actually fell in local currency terms. Consequently, the BTRP produced 14,741oz of gold during the period, compared to a long-term, sustainable expectation of 10,000oz per semi-annual period (ie representing production outperformance of 47.4%):

Exhibit 4: BTRP operational results, H114-H217e

H114

H214

H115

H215

H116

H216

H117

H117 vs H216 (%)

H217e

Tonnes processed tailings (t)

343,137

472,599

484,315

487,312

464,179

495,036

388,905

(21.4)

600,000

Head grade tailings (g/t)

1.70

1.58

1.50

1.30

1.30

2.08

2.20

6.0

1.66

Tailings gold contained (oz)

18,755

23,208

23,357

20,377

19,401

33,027

27,508

(16.7)

32,022

Recovery (%)

60

49

51

65

64

47

55

17.3

56

Production tailings (oz)

11,603

11,282

11,710

13,219

12,830

15,481

14,741

(4.8)

17,868

Production other (oz)

0

0

0

0

0

0

0

N/A

0

Total production (oz)

11,603

11,282

11,710

12,573

12,830

15,761

14,741

(6.5)

17,868

Recovered grade (g/t)

1.05

0.74

0.75

0.80

0.86

0.99

1.18

19.1

0.93

Gold sold (oz)

11,603

11,282

11,710

12,573

12,830

15,761

14,741

(6.5)

17,868

Average spot price (US$/oz)

1,317

1,290

1,229

1,206

1,113

1,221

1,268

3.8

1,235

Average spot price (ZAR/kg)

426,101

443,171

433,799

461,891

486,566

605,265

570,349

(5.8)

517,627

Total cash cost (US$/oz)

454

528

459

497

367

275

319

16.0

288

Total cash cost (ZAR/kg)

146,928

181,511

162,203

190,268

160,665

136,287

143,451

5.3

120,914

Total cash cost (US$/t)

15.36

12.72

11.11

12.88

10.15

8.68

12.09

39.3

8.59

Total cash cost (ZAR/t)

154.53

131.28

121.98

152.69

138.00

134.96

169.00

25.2

112.00

Implied revenue (US$000s)

15,281

14,584

14,392

15,112

14,280

19,286

18,692

(3.1)

22,068

Revenue (ZAR000s)

153,776

155,425

157,998

179,905

194,166

293,032

261,501

(10.8)

287,680

Implied revenue (£000s)

9,645

8,723

8,846

9,885

9,316

13,310

14,628

9.9

17,685

Implied cash costs (US$000s)

5,271

6,011

5,379

6,277

4,710

4,296

4,702

9.5

5,155

Cash costs (ZAR000s)

53,025

63,693

59,077

74,406

64,057

66,810

65,771

(1.6)

67,200

Implied cash costs (£000s)

3,327

3,590

3,306

4,111

3,075

3,020

3,679

21.8

4,133

Forex (ZAR/£)

15.9388

17.8279

17.8700

18.1318

20.8300

22.0942

17.8771

(19.1)

16.2588

Forex (ZAR/US$)

10.0600

10.6853

10.9827

11.9173

13.6000

15.4132

13.9875

(9.2)

13.0363

Forex (US$/£)

1.5844

1.6685

1.6269

1.5186

1.5328

1.4335

1.2778

(10.9)

1.2478

Capex (US$000s)

3,569

364

100

188

566

(8)

1,494

(18,916.7)

0

Capex (ZAR000s)

35,900

4,800

1,100

2,200

7,700

400

20,900

5,125.0

0

Capex (£000s)

2,252

159

62

122

370

8

1,169

15,263.2

0

Source: Edison Investment Research, Pan African Resources

Nameplate capacity at the BTRP is 100ktpm and management is working towards achieving this level in H217. For the moment, we continue to anticipate a moderation in grade and metallurgical recoveries. However, management has also recently been investigating the potential to reduce retention times, while maintaining metallurgical recoveries at relatively high levels. To the extent that it is successful, our forecasts may therefore prove to be relatively conservative.

In the longer term, approximately two-thirds of the tailings being treated at the BTRP originated from the Fairview concentrator at a grade of c 1.6g/t. The remaining third are from the same origin, but are supplemented with material from the Biox plant at a grade of 3-10g/t. As a result, a substantial portion of the resources being treated by BTRP exists at a grade in excess of 1.6g/t and there is therefore ample opportunity for management to pursue higher-grade strategies in order to increase financial returns.

ETRP

Albeit achieved at the expense of higher costs in local currency terms, throughput, grade and metallurgical recovery at the ETRP all increased materially during the period compared to H216. Prima facie, this could be attributed to the processing of higher-grade surface material. In addition however, the plant also operated at 98.4% capacity utilisation.

Exhibit 5: ETRP operational results, H115-H217e

H215

H116

H216

H117

H117 vs H216 (%)

H217e

Tonnes processed from surface feedstocks (t)

139,723

161,090

235,852

240,495

2.0

100,000

Head grade surface feedstocks (g/t)

1.10

1.30

1.25

1.80

44.0

1.36

Surface feedstocks gold contained (oz)

4,941

6,733

9,858

13,918

41.2

4,373

Tonnes processed tailings (t)

507,444

729,085

715,959

940,489

31.4

1,080,000

Head grade tailings (g/t)

0.30

0.30

0.30

0.30

0.0

0.32

Tailings gold contained (oz)

4,894

7,032

6,906

9,071

31.4

11,111

Total tonnes processed (t)

647,167

890,175

951,811

1,180,984

24.1

1,180,000

Head grade (g/t)

0.47

0.48

0.55

0.61

10.5

0.41

Contained gold (oz)

9,836

13,765

16,763

22,989

37.1

15,484

Recovery (%)

54

63

54.7

65.0

18.8

61.0

Production tailings (oz)

4,029

3,708

3,016

4,444

47.3

9,445

Production surface (oz)

2,494

5,272

6,155

11,480

86.5

Total production (oz)

6,523

8,980

9,171

15,924

73.6

9,445

Recovered grade (g/t)

0.31

0.31

0.30

0.42

39.9

0.25

Gold sold (oz)

6,523

8,980

9,171

15,924

73.6

9,445

Average spot price (US$/oz)

1,206

1,108

1,221

1,224

0.2

1,235

Average spot price (ZAR/kg)

466,647

484,298

605,265

550,380

(9.1)

517,627

Total cash cost (US$/oz)

688

528

638

545

(14.5)

846

Total cash cost (ZAR/kg)

266,453

230,857

316,105

245,178

(22.4)

354,752

Total cash cost (US$/t)

6.93

5.33

6.22

7.35

18.2

6.77

Total cash cost (ZAR/t)

83.53

72.00

94.73

103.00

8.7

88.32

Implied revenue (US$000s)

7,260

9,950

11,123

19,491

75.2

11,665

Revenue (ZAR000s)

87,403

135,268

170,429

272,597

59.9

152,066

Implied revenue (£000s)

4,609

6,491

7,714

15,254

97.7

9,348

Implied cash costs (US$000s)

4,488

4,741

5,918

8,682

46.7

7,994

Cash costs (ZAR000s)

54,060

64,500

90,168

121,434

34.7

104,218

Implied cash costs (£000s)

3,004

3,096

4,107

6,793

65.4

6,410

Forex (ZAR/£)

18.1318

20.8300

22.0942

17.8771

(19.1)

16.2588

Forex (ZAR/US$)

12.0400

13.6000

15.4132

13.9875

(9.2)

13.0363

Forex (US$/£)

1.5186

1.5328

1.4335

1.2778

(10.9)

1.2478

Capex (US$000s)

7,899

0

0

0

N/A

0

Capex (ZAR000s)

95,100

0

0

0

N/A

0

Capex (£000s)

5,284

0

0

0

N/A

0

Source: Edison Investment Research, Pan African Resources

The grade of the dam being re-mined at the ETRP is 0.3g/t. However, the operation is commercially viable given its ability to fill unutilised capacity in the Kinross plant such that it therefore attracts only incremental operating costs (eg 14 additional employees). Re-mining is being conducted without breaching the dam wall and the tailings are being redeposited at Winkelhaak, thereby simplifying the environmental requirements (ie the Environmental Impact Assessment) with respect to re-filling the Kinross dam at a later date.

Nameplate capacity at the ETRP is 200ktpm and management’s target is to achieve 150-160ktpm (75-80% capacity utilisation on a sustainable, long-term basis). At ambient head grades (0.32g/t) and metallurgical recoveries (45%), this should result in the production of 10,000oz per annum at a total cash cost of US$1,012/oz (Edison calculation), based on prevailing forex rates and the ETRP’s current cost base of c ZAR130m per annum. In the meantime however, management will continue to source toll-treatment material with higher grades than the ETRP’s reserve and resource grades. Note that, in this respect, it is at a commercial advantage in that it is the only retreatment operator in the area and is therefore (effectively) the buyer of choice (or even the buyer of last resort) for tailings assets destined for retreatment in the region.

Effectively, the ETRP represents a substantial pilot plant, designed to prove recovery and cost parameters, before the development of the much larger Elikhulu project, which is currently poised to break ground imminently, subject to the conclusion of the final financing package. Compared with the ETRP’s 2.4Mtpa processing plant capacity, Elikhulu will process 12Mtpa to produce c 50koz per annum, at a cost of c ZAR1.7bn in initial capex and ongoing costs of c US$398-504/oz in opex.

Phoenix Platinum

Phoenix returned to profitability at the EBTIDA level during H117, despite a material decrease in head grade owing to re-mining from the lower grade Elandskraal/Kroondal tailings facility, as opposed to Samancor’s Buffelsfontein facility, and the fact that re-mining was limited by the recent drought in South Africa’s North West province. Compared with H216 however, metallurgical recoveries were materially higher following the installation of high energy agitation cells in the plant, as were sales of platinum group metals, while aggregate costs increased by only 3.6% in local currency terms.

Exhibit 6: Phoenix Platinum operating and financial performance, H114-H117

H114

H214

H115

H215

H116

H216

H117

H117 vs H216 (%)

Plant feed - total (t)

118,259

132,923

135,963

126,156

117,461

131,520

122,024

(7.2)

Head grade (g/t)

3.80

3.61

3.16

3.47

3.25

3.02

2.24

(23.5)

Contained PGE (oz)

14,448

15,432

13,813

14,081

12,274

12,382

8,788

(29.0)

Plant recovery (%)

24.0

27.3

34.0

53.8

39.0

36.3

57.0

15.5

Recovered PGE (oz)

3,468

4,217

4,697

7,577

4,493

6,109

5,009

(18.0)

Production and sales of PGE 6E (oz)

2,987

4,217

4,711

5,534

4,493

3,846

4,574

18.9

Basket price received (ZAR/oz)

9,380

10,016

9,815

9,423

8,716

9,228

9,284

0.6

Basket price received (US$/oz)

932

937

894

791

641

599

664

10.9

Implied revenue (ZAR000s)

28,018

43,934

46,238

52,144

39,161

35,490

42,465

19.7

Implied revenue (£000s)

1,758

2,464

2,587

2,876

1,880

1,606

2,375

47.9

Total cash costs (ZAR/oz)

8,484

9,868

6,817

6,453

7,653

10,318

8,991

(12.9)

Total cash costs (US$/oz)

843

924

621

542

563

669

643

(3.9)

Total cash costs (ZAR/t)

214

313

236

283

293

302

337

11.7

Implied total cash costs (ZAR000s)

25,307

41,615

32,087

35,713

34,416

39,684

41,122

3.6

Implied total cash costs (£000s)

1,588

2,334

1,796

1,970

1,652

1,796

2,300

28.1

Capex (ZAR000s)

200

200

100

500

800

6,000

2,900

(51.7)

Source: Edison Investment Research, Pan African Resources

Effective from 1 July 2016, the life of operations at Phoenix has decreased to nine years as a result of the cessation of mining operations at Lesedi, following IFM’s business rescue plan. Note that the right to the PGEs contained within the Lesedi resource continues to reside with Phoenix. Hence, the life of operations is likely to return to c 28 years in the event that the mine is re-opened once again. Nevertheless, it creates the risk of an impairment to PAF’s carrying value for Phoenix at the financial year end (albeit, this is clearly a non-cash cost). It also imposes on Phoenix a requirement for a new, permanent tailings storage facility (at an estimated cost of c ZAR30-40m). Nevertheless, Phoenix remains a ‘strategic’ investment for Pan African, providing it with an entry into the PGE market. It will also benefit in future periods as a result of a new offtake contract, signed with Northam Platinum, which lowers chrome penalties associated with the refining of Phoenix material.

Uitkomst

Having been purchased effective from 1 April 2016, there are no meaningful comparative measures for the performance of the Uitkomst colliery under Pan African management. During H117 however, it was reported to have sold 327kt of coal from own and third-party sources at an average price of US$49/t after incurring production costs of US$41/t. The colliery’s contribution to Pan African’s EBITDA was reported to be ZAR38.0m, on which basis we estimate that it made a contribution to PAF’s EPS in the order of 0.1p/share during the period.

Hedge position

Pan African’s strategy is not to hedge its gold production forward, except in specific circumstances and to provide protection against specific risks. In July 2015 however, in order to protect its operational revenue, Barberton Mines entered into a short-medium zero cost collar via the following instruments:

A put option over 50,000oz of gold at a strike price of ZAR450,000/kg

A call option over 25,000oz of gold at a strike price of ZAR505,000/kg

As a consequence, the decline in the price of gold, from ZAR625,886/kg on 30 June 2016 to ZAR506,917/kg on 31 December 2016, resulted in a mark-to-market fair value profit of ZAR90.0m (£5.3m) in the period under review, compared with a loss of ZAR40.6m (£1.8m) in the prior year period, which is included in ‘other’ expenses in PAF’s income statement. Based purely on intrinsic value, a profit of this magnitude implies a net open position in the order of 24,000oz (which is as expected, given that some of the contracts will have been delivered into).

At the time of writing the rand price of gold is ZAR521,547/kg and we expect this to increase modestly to US$1,275/oz, or 535,457/kg, by 30 June 2017, resulting in a small equivalent loss in H217. Note that, for the purposes of our financial forecasting, we calculate mark-to-market fair value adjustments based on our gold price forecasts for the year in question and the intrinsic value of the remaining open option contracts (ie no time value is included). These are included in our forecasts of ‘other’ expenses in Pan African’s income statements.

In addition to its hedge position, PAF has a gold loan, valued at ZAR53.9m (cf ZAR110.4m previously) – equivalent to c 3,419oz of gold (cf 6,706oz of gold previously).

Short- and long-term forecasts and valuation

We have updated our forecasts for FY17 based on the estimates made for each of the operations highlighted above (NB FY17 forecasts now include Uitkomst). Note that, as per the forecasts detailed above for the individual operations, our group-wide forecasts for PAF are for production of 183.8koz of gold in FY17 compared to management’s guidance of 181koz. Within this context, our detailed financial forecasts for PAF for H217 and FY17 are as follows.

Exhibit 7: Pan African underlying P&L statement by half-year (H114-H217e) actual and expected

£000s (unless otherwise indicated)

H114

H214

FY14

H115

H215

H116

H216

H117

H217e

FY17e

Mineral sales

84,637

69,914

154,551

68,126

72,951

75,632

93,728

105,046

101,256

206,303

Realisation costs

(191)

(159)

(349)

(295)

(396)

(269)

(687)

(1,548)

(1,346)

(2,894)

Realisation costs (%)

0.23

0.23

0.23

0.43

0.54

0.36

0.73

1.47

1.47

1.40

On-mine revenue

84,447

69,755

154,202

67,831

72,555

75,363

93,041

103,498

99,911

203,409

Gold cost of production

(52,519)

(52,727)

(48,935)

(51,102)

(65,188)

(68,933)

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)

(106,394)

(54,524)

(55,889)

(50,586)

(57,637)

(78,056)

(77,435)

(155,491)

Depreciation

(5,088)

(4,935)

(10,023)

(4,676)

(5,661)

(5,277)

(5,180)

(6,450)

(8,032)

(14,482)

Mining profit

25,249

12,535

37,784

8,631

11,005

19,500

30,225

18,992

14,444

33,435

Other income/(expenses)

(223)

(1,227)

(1,450)

523

(273)

(3,486)

(8,697)

2,175

(2,302)

(127)

Loss in associate etc

(89)

(84)

(173)

(128)

0

0

0

256

256

Loss on associate disposal

(140)

0

0

0

0

Impairment costs

0

(12)

(12)

(56)

(2)

0

0

0

Royalty costs

(1,747)

(272)

(2,019)

(795)

(852)

(1,194)

(1,606)

(968)

(1,764)

(2,732)

Net income before finance items

23,191

10,940

34,130

8,034

9,878

14,819

19,923

20,455

10,377

30,832

Finances income

381

306

687

321

28

144

299

70

 

Finance costs

(725)

(153)

(878)

(498)

(1,960)

(558)

(891)

(1,079)

 

Net finance income

(344)

153

(191)

(177)

(1,932)

(414)

(592)

(1,009)

(1,025)

(2,034)

Profit before taxation

22,847

11,093

33,939

7,857

7,946

14,405

19,331

19,446

9,352

28,798

Taxation

(5,537)

(1,618)

(7,155)

(2,310)

(1,823)

(3,480)

(4,754)

(5,475)

(2,871)

(8,346)

Marginal tax rate (%)

24

15

21

29

23

24

26

28

31

29

Deferred tax

 

 

Profit after taxation

17,310

9,475

26,785

5,548

6,122

10,925

14,577

13,970

6,482

20,452

EPS (p)

0.95

0.52

1.47

0.30

0.33

0.60

0.82

0.93

0.43

1.36

HEPS* (p)

0.95

0.52

1.47

0.31

0.33

0.60

0.82

0.91

0.43

1.36

Diluted EPS (p)

0.95

0.52

1.46

0.30

0.33

0.60

0.80

0.93

0.43

1.32

Diluted HEPS* (p)

0.95

0.52

1.46

0.31

0.33

0.60

0.80

0.91

0.43

1.32

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

Note that our FY17 EPS forecast of 1.36p per share (above) compares with a mean consensus estimate of 1.94p, within the range 1.40-2.66p (source: Bloomberg, 31 March 2017). Our forecast of 2.34p for FY18 assumes a gold price for the year of US$1,248/oz and compares with a mean consensus of 2.44p within the range 2.00-3.05p.

Updating our long-term forecasts to reflect these changes, our absolute value of PAF decreases from 23.25p/share in December to 21.38p/share currently (not least as a result of the recent, preternatural strength in the value of the rand against both sterling and the US dollar). This is based on the present value of our estimated maximum potential stream of dividends payable to shareholders over the life of its mining operations (applying a 10% discount rate).

Exhibit 8: PAF estimated life of operations diluted EPS and (maximum potential) DPS

Source: Edison Investment Research, Pan African Resources

Relative valuation

Pan African is the third-best performer of the London-listed gold miners, with its share price having risen by 111.1% in US dollar terms, since March 2010 (NB: more than one standard deviation above the mean, which has been a decline of 22.8% over the same period) and outperforming the gold price by 86.5%:

Exhibit 9: PAF share price performance vs peers, March 2010-present, factor (underlying data US$)

Source: Thomson Datastream, Edison Investment Research

Of as much significance, PAF remains cheaper than its South African peers on at least 70% of valuation measures (ie 21 out of 30 measures in the table below on an individual company basis) regardless of whether consensus or Edison forecasts are used:

Exhibit 10: Comparative valuation of PAF with respect to South African peers

EV/EBITDA (x)

P/E (x)

Yield (%)

 

Year 1

Year 2

Year 1

Year 2

Year 1

Year 2

AngloGold Ashanti

4.5

3.8

13.6

7.8

1.8

2.2

Gold Fields

3.6

3.3

16.3

12.8

1.9

2.3

Sibanye

4.1

2.9

21.0

9.8

3.1

4.6

Harmony

3.4

3.1

9.5

9.0

2.1

2.6

Randgold Resources

12.4

11.2

26.5

21.7

2.0

2.3

Average (excluding PAF)

5.6

4.9

17.4

12.2

2.2

2.8

Pan African (Edison)

5.9

3.9

12.0

6.7

4.5

5.2

Pan African (consensus)

5.8

4.2

8.3

6.6

5.7

7.0

Source: Edison Investment Research, Bloomberg. Note: Priced at 31 March 2017.

Within the global context, meanwhile, it has the third-highest dividend yield of the 39 ostensibly gold counters paying dividends to shareholders (including royalty companies):

Exhibit 11: Global gold mining companies ranked by forecast dividend yield (%)

Source: Bloomberg (consensus data, priced 31 March 2017), Edison Investment Research

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). Net debt currently equates to a gearing (net debt/equity) ratio of 16.7% and a leverage (net debt/[net debt + equity]) ratio of 14.3%.

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

Exhibit 12: 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.

In the wake of shareholder approval to waive statutory pre-emption rights (confirmed on 9 February), PAF duly built a book of demand in excess of the 291.5m that it had been given the authority to issue. However, the company has elected not to use this funding option at this time, but instead to fund the Elikhulu development from cash and banking facilities until the final funding package is secured.

Whereas we had previously been expecting PAF to be net debt free ‘by the end of FY17’, all other things being equal, the imposition of capital requirements related to Elikhulu will now delay this until FY21.

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 as follows in the period from FY16 to FY21:

Exhibit 13: Pan African estimated funding requirement, FY16 to FY21e

Source: Edison Investment Research, Pan African Resources

Note that PAF’s maximum funding requirement of £71.6m in FY19, as estimated by Edison, equates to ZAR1,150m at prevailing forex rates, or gearing (debt/equity) of 36.3% and leverage (debt/[debt+equity]) of 26.6%.

Debt is financed via a ZAR800m revolving credit facility (£49.8m at current exchange rates), of which ZAR511.5m (£31.8m) is currently drawn down, but which can be expanded to ZAR1,100m (£68.4m), plus a gold loan of ZAR53.9m (£3.4m) and a banking facility. In addition, Rand Merchant Bank (a division of First Rand) has provided Pan African with all the necessary approvals for a ZAR1bn underwritten five-year debt facility to fund the Elikhulu project.

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

Exhibit 14: Pan African group debt covenants

Measurement

Constraint

31 December 2016

(actual)

30 June 2016

(actual)

31 December 2015

(actual)

Net debt:equity

Must be less than 1:1

0.17:1

0.35:1

0.50:1

Net debt:EBITDA

Must be less than 2.5:1

0.48:1

0.12:1

0.13:1

Interest cover ratio

Must be greater than four times

21.99

23.98

18.08

Source: Pan African Resources

Exhibit 15: 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)

(155,491)

(133,356)

Gross profit

33,705

54,783

62,127

47,808

29,973

60,181

47,917

71,430

EBITDA

 

 

28,540

45,018

53,276

44,165

28,448

57,381

45,185

68,292

Operating profit (before GW and except.)

25,655

41,759

47,278

34,142

18,110

46,925

30,703

57,522

Intangible amortisation

0

0

0

0

0

0

0

0

Exceptionals

0

(48)

7,232

(12)

(198)

(12,183)

(127)

(1,082)

Other

0

0

0

0

0

0

256

0

Operating profit

25,655

41,711

54,510

34,130

17,912

34,742

30,832

56,440

Net interest

762

516

197

(191)

(2,109)

(1,006)

(2,034)

(2,415)

Profit before tax (norm)

 

 

26,417

42,274

47,475

33,951

16,001

45,919

28,669

55,107

Profit before tax (FRS 3)

 

 

26,417

42,226

54,707

33,939

15,803

33,736

28,798

54,025

Tax

(9,248)

(12,985)

(12,133)

(7,155)

(4,133)

(8,234)

(8,346)

(18,758)

Profit after tax (norm)

17,169

29,290

35,342

26,796

11,868

37,685

20,323

36,349

Profit after tax (FRS 3)

17,169

29,242

42,574

26,785

11,670

25,502

20,452

35,267

Average number of shares outstanding (m)

1,432.7

1,445.2

1,619.8

1,827.2

1,830.4

1,811.4

1,506.8

1,506.8

EPS - normalised (p)

 

 

1.20

2.03

2.18

1.46

0.64

2.08

1.35

2.41

EPS - FRS 3 (p)

 

 

1.20

2.02

2.63

1.47

0.64

1.41

1.36

2.34

Dividend per share (p)

0.51

0.00

0.83

0.82

0.54

0.88

0.73

0.85

Gross margin (%)

42.6

54.3

46.6

31.0

21.4

35.7

23.6

34.9

EBITDA margin (%)

36.1

44.6

40.0

28.6

20.3

34.1

22.2

33.3

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

32.5

41.4

35.5

22.1

12.9

27.9

15.1

28.1

BALANCE SHEET

Fixed assets

 

 

97,281

86,075

249,316

223,425

220,150

230,676

249,580

304,708

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

261,284

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

21,074

20,943

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

0

0

Current liabilities

 

 

(8,960)

(11,062)

(24,066)

(24,012)

(22,350)

(32,211)

(39,305)

(70,501)

Creditors

(8,960)

(11,062)

(23,202)

(19,257)

(17,301)

(25,230)

(30,923)

(27,114)

Short-term borrowings

0

0

(864)

(4,755)

(5,049)

(6,981)

(8,382)

(43,387)

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

160,473

182,918

CASH FLOW

Operating cash flow

 

 

31,968

49,092

61,618

45,996

26,423

47,130

49,290

63,532

Net Interest

762

516

314

(606)

(2,109)

(1,006)

(2,034)

(2,415)

Tax

(10,743)

(11,616)

(13,666)

(8,536)

(3,943)

(7,777)

(6,975)

(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

0

Financing

1,545

259

47,112

349

(235)

15,207

0

0

Dividends

(5,376)

(7,416)

0

(14,684)

(15,006)

(9,882)

(10,954)

(12,821)

Net cash flow

(3,557)

11,471

(27,826)

1,164

(15,184)

(1,425)

(4,060)

(35,005)

Opening net debt/(cash)

 

 

(12,756)

(9,943)

(18,913)

7,228

7,278

18,033

22,778

26,838

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

26,838

61,843

Source: Company sources, Edison Investment Research

Contact details

Revenue by geography

The Firs Office Building,
1
st Floor, Office 101,

Cnr Cradock & Biermann Avenues,

Rosebank, Johannesburg. South Africa.
+27(0)11 243 2900
www.panafricanresources.com

Contact details

The Firs Office Building,
1
st Floor, Office 101,

Cnr Cradock & Biermann Avenues,

Rosebank, Johannesburg. South Africa.
+27(0)11 243 2900
www.panafricanresources.com

Revenue by geography

Management team

Chairman: Keith Spencer

CEO: Cobus Loots

Keith is a qualified mining engineer with 47 years’ experience. He has managed some of the largest gold mines in the world including Kloof and Greenside colliery as general manager. In 1989 he was appointed consulting engineer for Gold Fields of South Africa encompassing Driefontein, Doornfontein, the Greenside colliery and Tsumeb base metals mine. He served as a board member of all GFSA gold mines. In 1999 he joined Metorex, becoming operations director in 2001.

Cobus’ experience includes mining-specific acquisitions and finance as well as the management of both exploration and production mineral assets – most recently before 2009 as managing director of Shanduka Resources. Cobus has been a director of Pan African Resources since 2009 (Financial Director during 2009–2011 and a non- executive director during 2011–2013). He served as joint Chief Executive Officer alongside Ron Holding until assuming the office of Financial Director on 1 October 2013. He was appointed Chief Executive Officer on 1 March 2015

FD Deon Louw

Independent Non-executive Director: Thabo Mosololi

Deon has extensive finance and business experience, including investment banking, advisory and business administration in the finance and mining sectors. He has fulfilled the roles of Financial Director of Sentula Mining Limited, chief financial officer of Shanduka Coal, Director of Resource Finance Advisers and Head of Resource Structured Finance at Investec Bank. Deon was appointed as Financial Director on 1 March 2015.

Thabo brings a wealth of experience in financial management, corporate governance and audit, having qualified as a chartered accountant with KPMG in 1994. Since then, he has served on various boards as a member and chairman of audit committees in the resources and other industries in South Africa. He is currently a director of MFT Investment Holdings, a family-owned investment company strategically placed to capitalise on B-BBEE investment opportunities.

Management team

Chairman: Keith Spencer

Keith is a qualified mining engineer with 47 years’ experience. He has managed some of the largest gold mines in the world including Kloof and Greenside colliery as general manager. In 1989 he was appointed consulting engineer for Gold Fields of South Africa encompassing Driefontein, Doornfontein, the Greenside colliery and Tsumeb base metals mine. He served as a board member of all GFSA gold mines. In 1999 he joined Metorex, becoming operations director in 2001.

CEO: Cobus Loots

Cobus’ experience includes mining-specific acquisitions and finance as well as the management of both exploration and production mineral assets – most recently before 2009 as managing director of Shanduka Resources. Cobus has been a director of Pan African Resources since 2009 (Financial Director during 2009–2011 and a non- executive director during 2011–2013). He served as joint Chief Executive Officer alongside Ron Holding until assuming the office of Financial Director on 1 October 2013. He was appointed Chief Executive Officer on 1 March 2015

FD Deon Louw

Deon has extensive finance and business experience, including investment banking, advisory and business administration in the finance and mining sectors. He has fulfilled the roles of Financial Director of Sentula Mining Limited, chief financial officer of Shanduka Coal, Director of Resource Finance Advisers and Head of Resource Structured Finance at Investec Bank. Deon was appointed as Financial Director on 1 March 2015.

Independent Non-executive Director: Thabo Mosololi

Thabo brings a wealth of experience in financial management, corporate governance and audit, having qualified as a chartered accountant with KPMG in 1994. Since then, he has served on various boards as a member and chairman of audit committees in the resources and other industries in South Africa. He is currently a director of MFT Investment Holdings, a family-owned investment company strategically placed to capitalise on B-BBEE investment opportunities.

Principal shareholders

(%)

Shanduka Gold

22.5

Allan Gray Investment Management

19.6

Truffle Asset Management

6.1

Prudential Portfolio Managers (South Africa)

4.7

Old Mutual Investment Group (South Africa)

4.4

Coronation Fund Management

2.8

Miton Asset Management

1.6

Companies named in this report

Anglogold Ashanti (ANG SJ), Gold Fields (GFI SJ), Sibanye (SGL SJ), Harmony (HAR SJ), Randgold Resources (RRS LN)

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

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

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