Pan African Resources — A happy valentine

Pan African Resources (AIM: PAF)

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Research: Metals & Mining

Pan African Resources — A happy valentine

Pan African Resources’ (PAF’s) H124 results were released on 14 February, with earnings (and headline earnings) within 1.5% of our forecast and normalised headline earnings within 1.2% of our forecast (see Exhibit 4). While only one asset (BTRP) achieved record adjusted EBITDA, PAF’s three other main assets all recorded adjusted EBITDA numbers that were close to record levels in rand terms to result in a record adjusted EBITDA outcome for the group as a whole of ZAR1,512.6m – 20.2% above H222 and a comfortable 19.6% above the next highest number, of ZAR1,264.8m, set in H122.

Lord Ashbourne

Written by

Lord Ashbourne

Director of Content, Mining

Metals & Mining

Pan African Resources

A happy valentine

H124 results

Metals and mining

20 February 2024

Price

17.20p

Market cap

£330m

ZAR23.8988/£, ZAR18.9774/US$, US$1.2593/£

Net debt (US$m) at end-December 2023

61.7

Shares in issue

1,916.5m

Free float

85%

Code

PAF

Primary exchanges

AIM/JSE

Secondary exchanges

Level 1 ADR, OTCQX Best Market and A2X

Share price performance

%

1m

3m

12m

Abs

9.21

6.35

14.94

Rel (local)

5.73

3.17

19.20

52-week high/low

20.2p

12.0p

Business description

Pan African Resources has four major producing precious metals assets in South Africa: Barberton (target output 95koz Au pa), the Barberton Tailings Retreatment Project, or BTRP (20koz), Elikhulu (55koz) and Evander underground, incorporating Egoli (currently 30koz, rising to >100koz).

Next events

FY24 results

September 2024

Mintails first production

Late 2024

AGM

November 2024

FY24e dividend payment

December 2024

Analyst

Lord Ashbourne

+44 (0)20 3077 5700

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

Pan African Resources’ (PAF’s) H124 results were released on 14 February, with earnings (and headline earnings) within 1.5% of our forecast and normalised headline earnings within 1.2% of our forecast (see Exhibit 4). While only one asset (BTRP) achieved record adjusted EBITDA, PAF’s three other main assets all recorded adjusted EBITDA numbers that were close to record levels in rand terms to result in a record adjusted EBITDA outcome for the group as a whole of ZAR1,512.6m – 20.2% above H222 and a comfortable 19.6% above the next highest number, of ZAR1,264.8m, set in H122.

Year
end

Revenue
(US$m)

PBT*
(US$m)

Headline
EPS*(c)

DPS
(c)

P/E
(x)

Yield
(%)

06/22

376.4

117.2

4.44

1.04

4.9

4.8

06/23

321.6

92.9

3.54

0.95

6.1

4.4

06/24e

369.7

118.5

4.81

0.95

4.5

4.4

06/25e

404.6

150.4

5.81

0.95

3.7

4.4

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

Production guidance maintained

Notwithstanding strong production of 98,458oz gold in H124, PAF declined to raise its guidance for FY24 of 180,000–190,000oz for the full year (albeit with the proviso that ‘increased guidance may be considered in due course’). This implies H224 production of 81,542–91,542oz, which, while possible, appears conservative. Nevertheless, in deference to management guidance, we have, for the moment, shaved our FY24 production forecasts (by 9.1%) and our normalised HEPS forecast by 9.4% (to 4.81c/share), albeit with plenty of upside ‘risk’.

Valuation: 41.15c (32.68p) plus upside

Given our revised forecasts, our core (absolute) valuation of Pan African has declined by a modest 1.12 US cents to 40.91c/share (32.68p), based on projects either sanctioned or already in production. This valuation rises by a further 21.04–26.06c if other assets (eg Egoli) are also taken into account. Alternatively, if PAF’s historical average price to normalised headline earnings per share (HEPS) ratio of 8.4x in the period FY10–23 is applied to our FY24 and FY25 forecasts, it implies a value of 32.02p in FY24, followed by 38.72p in FY25. As such, PAF’s current share price of 17.20p could be interpreted as discounting normalised HEPS falling to 2.58c per share (cf 4.81c/share and 5.81c/share forecast for FY24 and FY25, respectively). In the meantime, PAF remains cheaper than its principal London- and South African-listed gold mining peers on at least 91% of commonly used valuation measures regardless of whether Edison or consensus forecasts are used. Performing a relative valuation analysis, PAF’s peers’ ratings imply a comparable valuation for PAF of 44.01c based on our year one EPS estimate and one of 41.03c based on our year two EPS estimate. Separately, we estimate that PAF has the 14th highest dividend yield of the 61 precious metals mining companies expected to pay dividends to shareholders in the next 12 months (globally). Finally, we calculate that it is trading at an enterprise value that equates to just US$11.77 per resource ounce of gold.

H124 financial results

Pan African’s financial results, released on 14 February, were announced in the context of already known production of 98,458oz gold in H124 (cf 93,307oz in H123), which was made public on 22 January and exceeded both our prior expectation – of 96,000oz – and prior market guidance of 94,000–98,000oz. In addition, the group reported:

An all-in sustaining cost (AISC) of US$1,287/oz. This compared to our prior expectation of US$1,222/oz, but previous guidance of US$1,350/oz for the full year (at a forex rate of ZAR18.50/US$). As a result, Pan African reduced its AISC per ounce guidance range for the full year from US$1,350/oz to US$1,325–1,350/oz (again, at an assumed forex rate of ZAR18.50/US$).

An improvement in the total recordable injury frequency rate from 8.54 per million human hours in FY22 to 6.13 per million human hours.

Four million fatality-free shifts achieved at Barberton in November.

That the Mogale Tailings Retreatment (MTR) project construction is proceeding on time and within budget, with commissioning still expected in the latter half of the 2024 calendar year.

That commissioning of the Fairview mine’s 8.75MW solar plant is on schedule for June 2024.

A comparison of the performance of each of PAF’s major assets, relative to our prior forecasts, is provided in the table below. In general, tonnes milled and processed at PAF’s operations during the six-month period exceeded our forecasts, albeit at slightly lower grades, to result in the higher production, albeit at slightly higher than forecast aggregate costs.

Exhibit 1: PAF mines* operational statistics, H124a cf H124e

Barberton

Elikhulu

Evander

BTRP

Total

H124e

(prior)

H124a

H124e

(prior)

H124a

H124e

(prior)

H124a

H124e

(prior)

H124a

H124e

(prior)

H124a

Total tons milled (t)

165,299

180,773

6,971,392

7,169,793

69,285

89,650

385,072

432,587

7,495,419

7,974,470

Head grade (g/t)

7.63

6.95

0.27

0.35

9.39

7.62

1.63

1.39

0.60

0.65

Contained gold (oz)

40,545

40,418

59,455

80,303

20,918

21,966

20,142

19,341

144,704

166,240

Recovery (%)

92.5

91.0

46.3

35.0

98

97

42.2

51

66.3

59.2

Production (oz)

37,500

36,780

27,500

28,106

20,500

21,307

8,500

9,864

96,000

98,458

Production – other (oz)

Total production (oz)

37,500

36,780

27,500

28,106

20,500

21,307

8,500

9,864

96,000

98,458

Recovered grade (g/t)

7.06

6.33

0.12

0.12

9.20

7.39

0.69

0.71

0.40

0.38

Gold sold (oz)

38,000

36,780

27,500

28,106

20,500

21,307

8,500

9,864

96,500

98,458

Average spot price (US$/oz)

1,940

1,949

1,940

1,986

1,940

1,967

1,940

1,949

1,940

1,961

Average spot price (ZAR/kg)

1,167,001

1,171,436

1,167,001

1,193,104

1,167,001

1,181,950

1,167,001

1,171,435

1,167,001

1,178,433

Total cash cost (US$/oz)

1,317

1,389

817

879

903

1,160

644

609

1,033

1,130

Total cash cost (ZAR/kg)

792,302

834,556

491,390

528,033

543,316

697,092

387,308

365,866

621,665

678,941

Total cash cost (US$/t)

302.78

282.51

3.22

3.44

267.23

275.67

14.21

13.88

13.30

13.95

Total cash cost (ZAR/t)

5,665.14

5,281.00

60.29

64.38

5,000

5,153

265.91

259.37

248.94

260.72

Implied revenue (US$000)

73,719

71,684

53,349

55,819

39,769

41,911

16,490

19,225

187,207

193,080

Implied revenue (ZAR000)

1,379,306

1,340,095

998,182

1,042,996

744,099

783,298

308,529

359,399

3,502,710

3,608,788

Implied revenue (£000)

58,813

57,164

42,562

44,512

31,728

33,422

13,155

15,331

149,353

153,972

Implied cash costs (US$000)

50,049

51,070

22,464

24,694

18,515

24,714

5,473

6,002

99,726

111,222

Implied cash costs (ZAR000)

936,440

954,662

420,305

461,600

346,427

461,966

102,396

112,200

1,865,903

2,079,082

Implied cash costs (£000)

39,940

40,738

17,927

19,698

14,776

19,714

4,367

4,788

79,583

88,721

Source: Pan African Resources, Edison Investment Research. Note: *Excludes Evander surface operations.

Together with lower-than-expected effective tax and royalty rates, these two effects (revenues and costs) approximately cancelled one another out to result in earnings (and headline earnings) that were within 1.5% of our prior forecast and normalised headline earnings that were within 1.2% of our prior forecast (see Exhibit 4, below).

While only one asset (BTRP) achieved record adjusted EBITDA, all of PAF’s three other main assets recorded adjusted EBITDA numbers that were close to record levels in rand terms (see Exhibit 2, below), to result in a record adjusted EBITDA outcome for the group as a whole in a six-month period of ZAR1,512.6m – 20.2% above H222 and a comfortable 19.6% above the next highest number, or ZAR1,264.8m, set in H122.

Exhibit 2: Pan African principal assets’ adjusted EBITDA, H115–H124 (ZAR000s)

Source: Edison Investment Research, Pan African Resources

Barberton Mines, in particular, benefited from the implementation of continuous operations, which contributed to increases in mined tonnage and grade relative to H123 (when output was 32,022oz), while Evander Mines (underground) successfully ramped up mining operations at 24 Level to replace the depletion of 8 Shaft pillar ore resources (consistent with its mine plan). In the meantime, equipping the ventilation shaft to hoist ore and waste from 24 to 26 Levels – which will significantly reduce the use of EGM’s ageing conveyor belt infrastructure – remains on track for commissioning in the near future.

A summary of each of PAF’s assets’ production figures in H124 together with our updated expectations for H224 and FY24, in the light of PAF’s unchanged production guidance of 180,000–190,000oz for the full year (albeit with the proviso that ‘increased guidance may be considered in due course’) is as follows:

Exhibit 3: Pan African production, H220–H224e (oz)

Operation

H220

H121

H221

H122

H222

H123

H223

FY23

H124

H224e

(prior)

H224e

(current)

FY24e

(current)

FY24e

(prior)

Barberton UG*

31,392

42,350

42,476

39,991

35,747

32,022

32,564

64,586

36,780

36,500

35,175

71,955

74,000

BTRP*

9,516

10,004

8,235

9,126

10,434

10,012

9,863

19,875

9,864

6,500

5,136

15,000

15,000

Barberton

40,908

52,354

50,711

49,117

46,181

42,034

42,427

84,461

46,644

43,000

40,311

86,955

89,000

Evander UG

9,117

12,607

23,409

27,312

21,538

19,173

10,359

29,532

21,307

27,225

20,413

41,720

47,725

Evander surface

6,176

6,560

4,677

5,756

3,564

5,270

5,373

10,643

2,401

1,000

1,386

3,787

3,000

Evander

15,293

19,169

28,086

33,068

25,102

24,443

15,732

40,175

23,708

28,225

21,799

45,507

50,725

Elikhulu

30,315

26,863

24,596

25,900

26,320

25,830

24,743

50,573

28,106

22,500

23,130

51,236

50,000

Total

86,516

98,386

103,391

108,085

97,603

92,307

82,902

175,209

98,458

93,725

85,240

183,698

189,725

Source: Edison Investment Research, Pan African Resources. Note: *Surface sources from Fairview mine included in BTRP production. Totals may not add up owing to rounding. UG, underground. BTRP, Barberton Tailings Retreatment Project.

For the moment, Edison’s production forecasts for FY24 remain broadly consistent with PAF’s guidance, with the result that our H224 estimates appear conservative for Elikhulu and the BTRP, in particular, in the light of their H124 performances. At the same time, our forecast for Barberton in H224, while consistent with guidance, appears to leave little room for additional improvements as a result of the implementation of continuous operations at Fairview and Sheba (which are expected) and contractor mining at Consort. As such, we believe that production guidance at all of these assets could increase in the future.

In the light of these changes, our detailed financial forecasts for FY24 (plus PAF’s H124 performance relative to our prior expectations) are shown below.

Exhibit 4: Pan African P&L statement by half year (H123–FY24e)

US$000s*

H123

H223

FY23

H124e

H124a

***Variance

(%)

H224e

(current)

FY24e

(current)

FY24e

(prior)

****Change

(%)

Revenue

156,489

165,117

321,606

189,033

193,947

2.6

175,750

369,697

367,366

0.6

Cost of production

(99,282)

(99,508)

(198,790)

(99,726)

(110,292)

10.6

(101,559)

(211,851)

(197,963)

7.0

Depreciation

(11,122)

(9,277)

(20,399)

(9,611)

(10,768)

12.0

(11,132)

(21,900)

(26,533)

-17.5

Mining profit

46,085

56,332

102,417

79,696

72,887

-8.5

63,059

135,946

142,870

-4.8

Other income/(expenses)

(3,610)

(3,737)

(7,347)

(7,189)

(7,231)

0.6

(17,148)

(24,379)

(12,327)

97.8

Loss in associate etc

0

0

0

0

0

N/A

0

0

0

N/A

Loss on disposals

0

0

0

0

0

N/A

0

0

0

N/A

Impairments

0

0

0

0

0

N/A

0

0

0

N/A

Royalty costs

(468)

(495)

(963)

(5,325)

(1,242)

-76.7

(2,202)

(3,444)

(2,926)

17.7

Net income before finance

42,007

52,100

94,107

67,183

64,414

-4.1

43,709

108,123

127,617

-15.3

Finance income

456

683

1,139

760

N/A

Finance costs

(3,464)

(6,228)

(9,692)

(5,594)

N/A

Net finance income

(3,008)

(5,545)

(8,553)

(2,272)

(4,834)

112.8

(9,201)

(14,035)

(4,557)

208.0

Profit before taxation

38,999

46,555

85,554

64,911

59,580

-8.2

34,508

94,088

123,060

-23.5

Taxation

(10,063)

(14,754)

(24,817)

(21,717)

(17,223)

-20.7

(9,365)

(26,588)

(33,562)

-20.8

Effective tax rate (%)

25.8

31.7

29.0

33.5

28.9

-13.7

27.1

28.3

27.3

3.7

PAT (continuing ops)

28,936

31,801

60,737

43,194

42,357

-1.9

25,143

67,500

89,497

-24.6

Minority interest

(136)

(266)

(402)

0

(224)

N/A

0

(224)

0

N/A

Ditto (%)

(0.5)

(0.8)

(0.7)

0.0

(0.5)

N/A

0.0

(0.3)

0.0

N/A

Attributable profit

29,072

32,067

61,139

43,194

42,581

-1.4

25,143

67,724

89,497

-24.3

Headline earnings

29,072

31,392

60,464

43,194

42,581

-1.4

25,143

67,724

89,497

-24.3

Est. normalised headline earnings

32,682

35,129

67,811

50,383

49,812

-1.1

42,291

92,103

101,825

-9.5

EPS (c)

1.52

1.67

3.19

2.25

2.22

-1.3

1.31

3.53

4.67

-24.4

HEPS** (c)

1.52

1.63

3.15

2.25

2.22

-1.3

1.31

3.53

4.67

-24.4

Normalised HEPS (c)

1.71

1.83

3.54

2.63

2.60

-1.1

2.21

4.81

5.31

-9.4

Source: Pan African Resources, Edison Investment Research. Note: As reported basis. *Unless otherwise indicated. **HEPS, headline earnings per share (company adjusted basis). ***H124a cf H124e. ****FY24e (current) cf FY24e (prior).

In this case, our updated AISC forecast for FY24 is US$1,315/oz (at an average forex rate for the year of ZAR18.82/US$) after achieving US$1,348/oz in H224.

Otherwise, readers should note the greater declines in our forecast EPS and HEPS in H224 relative to normalised HEPS. We attribute these declines to a contract liability for the ZAR400m upfront payment that we estimate PAF will incur at a rand gold price in excess of ZAR1,025,000/kg as a result of its Mintails stream (see our note Innovative funding avoids dilution, published on 17 March 2023) – notwithstanding the fact that we continue to regard it as a materially beneficial form of funding for PAF – which, owing to its nature, we define as being ‘exceptional’ in nature.

Growth projects

PAF has two organic growth projects currently underway (namely the MTR project within the Mintails Soweto Cluster and the Evander 24 to 26 Level expansion project) and one more immediately in prospect (the Sheba Fault project). Beyond these, it has at least the Fairview sub-vertical shaft, Egoli, Rolspruit, Poplar and Evander South assets also available for development.

Mogale (MTR)

On 1 August 2023, PAF announced that all conditions precedent for its ZAR1.3bn senior debt facility, designated for funding the group’s MTR project, had been fulfilled, thereby completing the full upfront funding package of ZAR2.5bn. Since then, PAF reports that significant progress has been made with the MTR plant at Mogale, with commissioning still on track for the latter half of CY24. Within that:

Project construction is reported to be progressing on time and within budget.

Foundations for all nine of the CIL tanks are now in place and the tower crane’s construction has been completed.

Environmental rehabilitation is ongoing, including the clean-up of historical spillages and pipelines, wetland remediation and removal of alien vegetation.

Evander 24 to 26 Level expansion project

Progress at Evander’s 24 to 26 Level underground expansion project remains on track, with the following notable achievements during H124:

Construction of Phase 2 of the refrigeration plant on 24 Level at Evander’s 8 Shaft is currently at an advanced stage, with completion anticipated this financial year, as 24 Level mining operations ramp up.

Development to access 25 and 26 Level mining areas has commenced (and access to 25 Level mining areas is expected to be completed in FY26).

Equipping of the existing 17 Level underground ventilation shaft – with a hoisting capacity of up to 40,000tpm – is expected to be completed during FY24, improving efficiencies and circumventing the ageing conveyor belt system.

At the same time, the Egoli project’s 7 Shaft number 3 Decline has been dewatered to below 20 Level, where permanent pumping infrastructure will be installed together with a drilling platform for long, inclined borehole drilling into the resource block to improve reserve delineation and further define the ore pay-shoot and its grade variability.

BTRP life of mine extension and Royal Sheba

The remaining life of mine from the BTRP’s current tailings sources is estimated at two years and will then be supplemented with the Sheba Fault project first from Royal Sheba and then Western Cross, where the extraction and processing of a 10,000t bulk sample was recently, and successfully, completed.

Preliminary optimisation work estimates an eight-year lifespan at Royal Sheba, with production of around 235,000oz of gold at an average mining grade of 3g/t over the life of mine, with the potential for further extensions as the orebody remains open at depth. First stoped ore is planned in 2025 at 5,000t per month, ramping up to 10,000t, 30,000t and 45,000t per month, every 12 months thereafter in line with a set lateral and vertical development schedule.

The Western Cross orebody at Sheba Mine is a lower-grade (3–4g/t) 10m wide free-milling orebody that is currently accessed via the South Wall Adit and forms part of the mine’s production profile. The orebody is amenable to bulk mining, similar to that planned at Royal Sheba, and will further supplement feed material to the BTRP. Drilling is planned for the 2025 financial year to update the geological model, confirm available mineral resource blocks and update the existing feasibility study.

Group production

In the wake of the company’s production update, our longer-term forecasts remain, to all intents and purposes, unchanged. As such, we are continuing to forecast that group production at PAF will reach c 250koz per year in 2026 and drive normalised HEPS beyond 6.00c per share and potentially as high as 9.00c per share (see Exhibit 6).

Exhibit 5: Estimated Pan African group gold production profile, FY18–29e

Source: Edison Investment Research, Pan African Resources

PAF absolute valuation

Given our updated expectations for H124 and FY24, our absolute valuation of Pan African (based on its existing four producing assets plus the Evander 24 to 26 Level project and Mogale) remains little changed at 41.15c (cf 42.27c previously), based on the present value of the estimated maximum potential dividend stream payable to shareholders over the life of its mining operations (applying a 10% discount rate to US dollar dividends).

Exhibit 6: PAF estimated life of operations’ diluted EPS and (maximum potential*) DPS

Source: Pan African Resources, Edison Investment Research. Note: *From FY26. Excludes discretionary exploration investment.

Stated alternatively, based on our long-term dividend forecasts, we calculate that an investment in PAF’s shares at a price of 17.20p today (ex-dividend) offers investors a (real) internal rate of return of 21.9% per year in US dollar terms to at least the end of FY39.

Including its other growth projects and assets, our updated total valuation of PAF as a whole is as follows:

Exhibit 7: PAF absolute valuation summary

Project

Current valuation
(USc/share)

Previous valuation
(USc/share)

Existing producing assets (including 24 Level and 25 and 26 Level and Mogale projects)

41.15

42.27

FY23 dividend

-

-

Royal Sheba*

0.63

0.64

Other*

1.14

1.03

Sub-total

42.92

43.94

EGM underground resource

0.22–5.24

0.22–5.24

Sub-total

43.14–48.16

44.16–49.18

Egoli

17.09

16.99

MSC

1.93

1.89

Total

62.16–67.18

63.04–68.06

Source: Edison Investment Research. Note: Numbers may not add up owing to rounding. *Resource based valuation.

Historical relative and current peer group valuation

Historical relative valuation

Exhibit 8 below depicts PAF’s average share price in each of the financial years from FY10 to FY23 and compares this with HEPS in the same year. For FY24 and FY25, the current share price (17.20p) is compared with our forecast normalised HEPS for those years. As is apparent from the chart, PAF’s price to normalised HEPS ratios of 4.5x and 3.7x for FY24 and FY25, respectively, are close to and below the bottom of the range of recent historical P/E ratios of 4.1–14.8x for the period FY10–23:

Exhibit 8: PAF historical price to normalised HEPS** ratio, FY10–25e

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. **HEPS shown in pence prior to 2018 and US cents thereafter.

If PAF’s average year one price to normalised EPS ratio of 8.4x for the period FY10–23 is applied to our normalised earnings forecasts, it implies a share price for PAF of 32.02p in FY24, followed by one of 38.72p in FY25. Stated alternatively, PAF’s current share price of 17.20p, at prevailing foreign exchange rates, appears to be discounting FY24 and/or FY25 normalised HEPS falling to 2.58c per share, whereas we are forecasting it to rise, to 4.81c and 5.81c, respectively.

Relative peer group valuation

Simultaneously, PAF remains cheaper than its London- and South Africanlisted gold mining peers on at least 91% of comparable common valuation measures (33 out of 36 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

Company

EV/EBITDA (x)

P/E (x)

Yield (%)

Year 1

Year 2

Year 1

Year 2

Year 1

Year 2

AngloGold Ashanti

6.3

4.2

13.8

9.2

1.4

2.0

Gold Fields

5.7

4.7

13.7

10.2

2.7

3.6

Sibanye Stillwater

3.3

2.9

9.6

10.0

2.7

4.5

Harmony

4.2

3.5

7.4

5.9

1.9

2.6

Centamin

5.2

3.9

9.2

7.5

3.5

4.0

Endeavour Mining (consensus)

4.4

3.8

15.5

10.6

4.9

5.1

Average (excluding PAF)

4.8

3.8

11.5

8.9

2.9

3.6

PAF (Edison)

3.1

2.4

4.5

3.7

4.4

4.4

PAF (consensus)

3.3

2.9

5.4

4.5

4.0

15.1

Source: Edison Investment Research, Refinitiv. Note: Consensus and peers priced at 19 February 2024.

Alternatively, applying PAF’s peer average year one P/E ratio of 11.5x (cf 12.1x at the time of our last note in January) to our normalised HEPS forecast of 4.81c per share for FY24 implies a share price for the company of 44.01p. Applying its peer average year two P/E ratio of 8.9x to our normalised HEPS forecast of 5.81c per share implies a share price of 41.03p.

Readers’ attention is drawn to the market’s year two dividend yield forecast of 15.1%. We are reasonably confident that this figure is incorrect and arises from a confusion as to whether certain estimates are expressed in US$/share or US cents per share.

Financials

Pan African reported net debt of US$61.7m on its balance sheet as at end-December 2023 (cf US$22.1m as at end-June 2023 and US$53.7m as at end-December 2022), which equated to a gearing ratio (net debt/equity) of 18.8% (cf 7.5% at end-June 2023) and a leverage ratio (net debt/[net debt+equity]) of just 15.8% (cf 7.0%), after cash flow from operating activities of US$45.5m before dividends (cf US$88.5m in H223 and US$31.6m in H123). Capex guidance for FY24 is ZAR2.9bn (c US$152.8m at prevailing foreign exchange rates). Beyond that, we forecast that PAF will continue to generate cash from operations comfortably above the US$100m pa level into the foreseeable future, such that net debt peaks at end-FY24 (in reality at end-December 2024) at US$105.6m (excluding its ZAR350m, or c US$18.4m, Renewable Energy Green Loan facility), equating to a gearing ratio of 30.6% and a leverage ratio of 23.5%, before being eliminated in FY26 by which time we assume that capex will once again have returned to near-sustaining levels.

Exhibit 10: Pan African current estimated net debt* profile forecast, FY17–26e (annually)

Source: Edison Investment Research, Pan African Resources. Note: *Excluding ‘other’ (see Exhibits 11 and 13) and ZAR350m, c US$18.4m, Renewable Energy Green Loan facility.

Within this context, we have, for the moment, decided to leave our dividend forecasts flat in rand terms in FY24 and FY25. However, we will keep this assumption under review.

Including all other components, total net debt as at end-December was US$64.3m (cf US$22.0m at end-June and US$53.7m at end-December 2022), as shown below:

Exhibit 11: Pan African components of total net debt (US$m)

US$m

FY20

H121

FY21

H122

FY22

H123

FY23

H124

Long-term debt to financial institutions

28.0

48.2

Short-term debt to financial institutions

30.7

0.3

Total debt to financial institutions

89.2

87.8

58.7

48.5

26.2

75.0

53.4

89.8

Cash

33.5

28.0

35.1

35.2

27.0

33.9

34.8

31.3

Net debt to financial institutions

55.7

59.8

23.6

13.3

(0.8)

41.1

18.6

58.5

Redink Rentals loan facility

9.9

8.9

8.4

7.5

-

-

Other

6.6

0.3

0.2

1.7

1.7

1.3

0.3

1.6

Net senior debt

62.3

60.1

33.7

23.9

9.3

49.9

18.9

60.1

Lease liabilities

14.1

5.0

5.3

4.5

4.4

4.3

3.5

3.3

Other

0.0

0.0

0.0

(0.2)

(0.7)

(0.5)

(0.4)

0.9

Total net debt

76.4

65.2

39.0

28.2

13.0

53.7

22.0

64.3

Change

N/A

(11.2)

(26.2)

(10.8)

(15.2)

(40.7)

(31.7)

42.3

Source: Pan African Resources. Note: Totals may not add up owing to rounding.

The difference between net debt, as apparent on PAF’s interim balance sheet of US$61.7m, and its net debt of US$64.3m as per Exhibit 11 is accounted for by the aggregate US$2.5m in ‘other’ items.

In the meantime, the group remains very comfortably within its revolving credit facility debt covenants:

Exhibit 12: Pan African group debt covenants

Measurement

Constraint (updated)

FY18*

H119

FY19

H120

FY20

H121

FY21

H122

FY22

H123

FY23

H124

Net debt:equity

Must be less than 1:1

0.78

0.85

0.71

0.6

0.4

0.3

0.1

0.1

0.04

0.2

0.07

0.2

Net debt:adjusted EBITDA

Must be less than 2:1

3.73

3.24

2.2

1.6

0.7

0.5

0.3

0.2

0.1

0.5

0.2

0.5

Interest cover ratio

Must be greater than 4x

4.61

3.64

4.1

5.8

10.1

17.7

23.0

29.0

34.1

26.9

18.4

16.7

Debt service cover ratio

Must be greater than 1:3x

3.84

2.85

1.4

3.0

3.4

3.3

3.0

3.0

7.3

8.5

7.5

4.6

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

Exhibit 13: Financial summary

US$'000s

2022

2023

2024e

2025e

Year end 30 June

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

376,371

321,606

369,697

404,595

Cost of sales

(226,445)

(198,790)

(211,851)

(205,532)

Gross profit

149,926

122,816

157,846

199,063

EBITDA

 

 

147,830

121,853

154,402

194,938

Operating profit (before amort. and excepts.)

 

 

121,402

101,454

132,502

159,890

Intangible amortisation

0

0

0

0

Exceptionals

(10,295)

(7,347)

(24,379)

(7,601)

Other

0

0

0

0

Operating profit

111,107

94,107

108,123

152,289

Net interest

(4,231)

(8,553)

(14,035)

(9,502)

Profit Before Tax (norm)

 

 

117,171

92,901

118,467

150,388

Profit before tax (FRS 3)

 

 

106,876

85,554

94,088

142,787

Tax

(31,924)

(24,817)

(26,588)

(38,992)

Profit after tax (norm)

85,247

68,084

91,879

111,396

Profit after tax (FRS 3)

74,952

60,737

67,500

103,795

Average Number of Shares Outstanding (m)

1,926.1

1,916.5

1,916.5

1,916.5

EPS - normalised (c)

 

 

4.44

3.54

4.81

5.81

EPS - FRS 3 (c)

 

 

3.90

3.19

3.53

5.42

Dividend per share (c)

1.04

0.95

0.95

0.95

Gross margin (%)

39.8

38.2

42.7

49.2

EBITDA margin (%)

39.3

37.9

41.8

48.2

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

32.3

31.5

35.8

39.5

BALANCE SHEET

Fixed assets

 

 

401,139

439,676

570,853

604,955

Intangible assets

44,210

44,429

46,613

48,799

Tangible assets

355,802

395,247

524,240

556,156

Investments

1,127

0

0

0

Current assets

 

 

55,953

61,263

40,401

97,951

Stocks

9,977

9,567

12,323

13,496

Debtors

17,546

15,182

26,335

28,841

Cash

26,993

34,771

0

53,871

Current liabilities

 

 

(58,989)

(77,386)

(93,387)

(105,406)

Creditors

(57,117)

(65,884)

(77,516)

(98,216)

Short-term borrowings

(1,872)

(11,502)

(15,871)

(7,190)

Long-term liabilities

 

 

(103,494)

(128,957)

(173,949)

(167,965)

Long-term borrowings

(37,088)

(45,334)

(89,706)

(82,680)

Other long-term liabilities

(66,406)

(83,623)

(84,244)

(85,286)

Net assets

 

 

294,609

294,596

343,918

429,535

CASH FLOW

Operating Cash Flow

 

 

142,879

132,941

96,364

175,350

Net Interest

(2,794)

(5,121)

(14,035)

(9,502)

Tax

(8,520)

(7,722)

(2,192)

(15,969)

Capex

(81,951)

(109,952)

(153,077)

(69,149)

Acquisitions/disposals

563

(2,779)

0

0

Financing

(3,222)

0

0

(0)

Dividends

(21,559)

(19,975)

(21,200)

(18,178)

Net cash flow

25,396

(12,608)

(94,140)

62,552

Opening net debt/(cash)

 

 

23,553

11,967

22,065

105,576

Exchange rate movements

(4,401)

(4,481)

0

0

Other

(9,409)

6,991

10,628

7,026

Closing net debt/(cash)

 

 

11,967

22,065

105,576

35,999

Source: company accounts, Edison Investment Research


General disclaimer and copyright

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 £60,000 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.

Accuracy of content: 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 and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. 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.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, 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 securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. 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, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2024 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

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. 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 (i.e. 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.

United Kingdom

This document is prepared and provided by Edison 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.

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.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison 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. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

General disclaimer and copyright

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 £60,000 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.

Accuracy of content: 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 and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. 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.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, 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 securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. 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, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2024 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

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. 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 (i.e. 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.

United Kingdom

This document is prepared and provided by Edison 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.

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.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison 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. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

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