Pan African Resources — Advancing to 250koz in annual output in FY26

Pan African Resources (AIM: PAF)

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Research: Metals & Mining

Pan African Resources — Advancing to 250koz in annual output in FY26

Pan African Resources’ (PAF’s) FY23 results, announced on 13 September, were closely in line with our forecasts. Barberton underground, Evander underground and the Barberton Tailings Retreatment Project (BTRP) all recorded higher throughputs at slightly lower grades than we had been expecting, but also lower unit cash costs in ZAR/t terms. Elikhulu performed in line with our expectations in terms of output, albeit at slightly higher unit costs, owing to continued electricity supply disruptions and unfavourable weather. Overall, earnings for H123 and FY23 were US$2.5m higher than our prior forecasts, translating into 8.5% outperformance and 4.3% outperformance, respectively. EPS was in the top half of the consensus forecast range.

Lord Ashbourne

Written by

Lord Ashbourne

Director, Energy & Resources

Pan-African-Resources_resized

Metals & Mining

Pan African Resources

Advancing to 250koz in annual output in FY26

FY23 results

Metals and mining

18 September 2023

Price

14.28p

Market cap

£317m

ZAR23.5744/£, ZAR18.8867/US$, US$1.2483/£

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

22.1

Shares in issue
(effective 1,916.5m postconsolidation, excluding treasury)

2,222.9m

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

5.3

11.0

(19.3)

Rel (local)

1.5

10.3

(23.0)

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

AGM

23 November 2023

Ex-dividend date

29 and 30 November 2023

FY23 dividend payment

12 December 2023

H124 results

February 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) FY23 results, announced on 13 September, were closely in line with our forecasts. Barberton underground, Evander underground and the Barberton Tailings Retreatment Project (BTRP) all recorded higher throughputs at slightly lower grades than we had been expecting, but also lower unit cash costs in ZAR/t terms. Elikhulu performed in line with our expectations in terms of output, albeit at slightly higher unit costs, owing to continued electricity supply disruptions and unfavourable weather. Overall, earnings for H123 and FY23 were US$2.5m higher than our prior forecasts, translating into 8.5% outperformance and 4.3% outperformance, respectively. EPS was in the top half of the consensus forecast range.

Year end

Revenue (US$m)

PBT*
(US$m)

EPS*
(c)

DPS
(c)

P/E
(x)

Yield
(%)

06/22

376.4

117.2

4.44

1.04

4.0

5.8

06/23

321.6

92.9

3.54

0.95

5.0

5.3

06/24e

359.0

136.7

5.40

0.95

3.3

5.3

06/25e

395.1

141.7

5.69

0.95

3.1

5.3

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

Pathway established for 250koz annual production

PAF has at least two organic growth projects in prospect for development in the immediate future, being the Mintails Soweto Cluster and Royal Sheba. Beyond these, it also has at least the Fairview sub-vertical shaft, Rolspruit, Poplar and Evander South assets available for potential development. After FY23, we expect aggregate PAF output to increase by 10.9koz (6.2%) in FY24, before rising by a further 31.5koz (or 16.9%) in FY25 and finally a further 41.2koz (18.9%) in FY26 to take group production over 250koz pa and driving EPS towards 6.00c/share.

Valuation: Cheap by any measure

Despite making a number of adjustments to our model to reflect updated circumstances, as well as guidance, our core (absolute) valuation of the company remains almost unchanged at 34.59c (cf 34.24c previously), based on projects either sanctioned or already in production. However, this valuation rises by a further 18.59–23.61c if other assets (eg Egoli) are also taken into account. Alternatively, if PAF’s historical average price to normalised HEPS ratio of 8.4x in the period FY10–23 is applied to our FY24 and FY25 forecasts, it implies a share price of 36.29p in FY24, followed by one of 38.22p in FY25. As such, PAF’s current share price of 14.28p could be interpreted as discounting normalised HEPS falling to 2.12c per share (cf 5.40c/share and 5.69c/share for FY24 and FY25 forecast, respectively). In the meantime, PAF remains cheaper than its principal London- and South African-listed gold mining peers on at least 94% of commonly used valuation measures if Edison’s forecasts are used and 86% of the same measures if consensus forecasts are used, which collectively imply a share price of 27.24p on the basis of our year one EPS and 35.17p based on our year two EPS. Finally, we estimate that PAF has the sixth highest dividend yield of any precious metals mining company, globally (cf the 10th highest previously). In the meantime, its enterprise value equates to just US$9.41 per resource ounce of gold.

FY23 results

PAF’s FY23 results, announced on 13 September, were closely in line with our forecasts and also confirmed its production results (announced on 7 August), which, among other things, indicated all-in sustaining costs (AISC) for the reporting period in the range of US$1,325–1,350/oz (at an average exchange rate of ZAR17.77/US$) and reiterated output guidance of 178–190koz for FY24. Net senior debt of US$18.9m as at end-June, was also exactly in line with our expectations (see our note Dividend yield trending higher than P/E ratio, published on 18 August) and compared with US$49.9m as at end-December 2022 (see Exhibit 11).

In general, relative to our prior expectations, Barberton underground, Evander underground and the BTRP all recorded a greater throughput tonnage at a slightly lower grade, but also lower unit cash costs in ZAR/t terms (albeit Barberton will have been flattered in this respect owing to a higher proportion of material milled and processed being derived from surface material). At the same time, Elikhulu performed in line with our expectations in terms of output, albeit at slightly higher unit costs, owing to continued electricity supply disruptions and unfavourable weather conditions during the rainy season. The group also sold slightly more gold than it produced in H223, although not enough to make up for the shortfall in sales in H123. Our summary of the group’s aggregate operational results, relative to both H123 and also our prior expectations, is as follows:

Exhibit 1: PAF aggregate operational results, H121–H223

H121

H221

H122

H222

H123

H223e
(prior)

H223

Change*
(%)

Variance**
(%)

FY23

Total tons milled (t)

7,163,424

7,597,920

7,248,591

8,104,217

8,024,228

6,926,129

7,235,156

-9.8

4.5

15,259,384

Head grade (g/t)

0.74

0.69

0.72

0.65

0.63

0.63

0.66

4.8

4.8

0.64

Contained gold (oz)

170,211

167,702

168,457

169,236

162,694

140,980

152,462

-6.3

8.1

315,156

Recovery (%)

57.8

61.7

64.2

57.7

56.7

58.8

54.4

-4.1

-7.5

55.6

Production (oz)

98,386

103,391

108,085

97,603

92,307

82,902

82,902

-10.2

0.0

175,209

Production – other (oz)

0

0

0

0

0

0

0

N/A

N/A

0

Total production (oz)

98,386

103,391

108,085

97,603

92,307

82,902

82,902

-10.2

0.0

175,209

Recovered grade (g/t)

0.43

0.42

0.46

0.37

0.36

0.37

0.36

0.0

-2.7

0.36

Gold sold (oz)

98,386

103,391

107,142

98,546

90,439

82,902

84,321

-6.8

1.7

174,760

Average spot price (US$/oz)

1,865

1,788

1,804

1,846

1,725

1,934

1,955

13.3

1.1

1,836

Average spot price (ZAR/kg)

975,187

836,024

872,175

914,454

960,947

1,132,737

1,143,075

19.0

0.9

1,048,823

Total cash cost (US$/oz)

999

1,068

1,012

1,193

1,106

1,200

1,175

6.2

-2.1

1,142

Total cash cost (ZAR/kg)

522,115

503,135

489,144

590,888

616,134

702,730

694,824

12.8

-1.1

652,426

Total cash cost (US$/t)

13.72

14.65

14.95

14.51

12.47

14.36

13.82

10.9

-3.8

13.11

Total cash cost (ZAR/t)

223.04

212.95

224.88

223.48

216.00

261.62

251.87

16.6

-3.7

233.00

Implied revenue (US$000)

183,520

184,822

193,243

181,886

156,011

160,299

164,846

5.7

2.8

320,857

Implied revenue (ZAR000)

2,984,189

2,688,484

2,906,490

2,802,891

2,703,093

2,920,784

2,997,891

10.9

2.6

5,700,984

Implied revenue (£000)

140,424

132,948

141,777

140,063

132,685

129,912

133,653

0.7

2.9

266,338

Implied cash costs (US$000)

98,276

110,468

108,395

117,584

100,488

99,446

99,091

-1.4

-0.4

199,579

Implied cash costs (ZAR000)

1,597,734

1,617,980

1,630,052

1,811,131

1,733,195

1,812,004

1,822,284

5.1

0.6

3,555,479

Implied cash costs (£000)

75,265

79,830

79,565

90,375

85,148

80,571

80,881

-5.0

-0.4

166,029

Source: Pan African Resources, Edison Investment Research. Note: *H223 cf H123, **H223 cf H223e.

As a result, PAF’s revenue in H223 and FY23 was slightly higher than our expectations. Royalties were materially lower and ‘other expenses’ slightly lower, albeit these (positive) variances were almost exactly offset by higher interest costs and a higher tax charge to leave earnings for both the six- and 12-month periods US$2.5m higher than our prior forecasts, translating into 8.5% outperformance for the H223 period and 4.3% outperformance for the FY23 period, as shown in the table below:

Exhibit 2: PAF P&L statement by half year (H220–H223)

US$000s*

H220

H121

H221

H122

H222

H123

H223e
(prior)

H223

FY23

FY23e
(prior)

Revenue

141,258

183,751

185,164

193,574

182,797

156,489

162,397

165,117

321,606

318,886

Cost of production

(71,956)

(98,245)

(110,570)

(108,368)

(118,077)

(99,282)

(99,446)

(99,508)

(198,790)

(198,728)

Depreciation

(10,977)

(12,741)

(19,333)

(13,268)

(13,160)

(11,122)

(9,600)

(9,277)

(20,399)

(20,722)

Mining profit

58,325

72,766

55,260

71,938

51,560

46,085

53,350

56,332

102,417

99,435

Other income/(expenses)

(27,720)

(6,704)

(6,115)

(7,711)

(2,117)

(3,610)

(4,802)

(3,737)

(7,347)

(8,412)

Loss in associate etc

0

0

0

0

0

0

0

0

0

0

Loss on disposals

0

0

0

0

0

0

0

0

0

0

Impairments

(20)

0

0

0

(467)

0

0

0

0

0

Royalty costs

(266)

(2,404)

(1,050)

(1,316)

(780)

(468)

(4,373)

(495)

(963)

(4,841)

Net income before finance

30,319

63,657

48,096

62,910

48,197

42,007

44,175

52,100

94,107

86,182

Finance income

258

300

456

661

434

456

683

1,139

Finance costs

(5,587)

(3,946)

(3,729)

(1,945)

(3,381)

(3,464)

(6,228)

(9,692)

Net finance income

(5,329)

(3,646)

(3,273)

(1,285)

(2,946)

(3,008)

(3,007)

(5,545)

(8,553)

(6,015)

Profit before taxation

24,990

60,011

44,823

61,626

45,250

38,999

41,168

46,555

85,554

80,167

Taxation

(2,602)

(19,239)

(10,903)

(15,573)

(16,351)

(10,063)

(11,621)

(14,754)

(24,817)

(21,684)

Effective tax rate (%)

10.4

32.1

24.3

25.3

36.1

25.8

28.2

31.7

29.0

27.0

PAT (continuing ops)

22,388

40,773

33,920

46,053

28,899

28,936

29,547

31,801

60,737

58,483

Minority interest

(185)

(136)

0

(266)

(402)

(136)

Ditto (%)

(0.6)

(0.5)

0.0

(0.8)

(0.7)

(0.2)

Attributable profit

29,084

29,072

29,547

32,067

61,139

58,619

Headline earnings

22,416

40,772

33,919

46,053

29,551

29,072

29,547

31,392

60,464

58,619

Est. normalised headline earnings

50,136

47,476

40,034

53,764

31,668

32,682

34,349

35,129

67,811

67,031

EPS (c)

1.16

2.11

1.76

2.39

1.51

1.52

1.54

1.67

3.19

3.06

HEPS** (c)

1.16

2.11

1.76

2.39

1.54

1.52

1.54

1.63

3.15

3.06

Normalised HEPS (c)

2.60

2.46

2.08

2.79

1.65

1.71

1.79

1.83

3.54

3.50

Source: Pan African Resources, Edison Investment Research. Note: As reported basis. *Unless otherwise indicated. **HEPS, headline earnings per share (South African reporting standard).

In addition to exceeding our forecasts, we observe that PAF’s FY23 EPS was also in the top half of the consensus forecast range.

From the perspective of PAF’s three biggest individual operations (86% of the total), there was a noticeable convergence of adjusted EBITDA around the ZAR358m level (US$19.6m at contemporary foreign exchange rates) in H223 at each of Elikhulu, Barberton and Evander:

Exhibit 3: Pan African adjusted EBITDA, by business unit, H115–H223

Source: Pan African Resources, Edison Investment Research

Growth projects

PAF has at least two organic growth projects in prospect (namely the Mintails Soweto Cluster and Royal Sheba) for development in the immediate future. Beyond these, it also has at least the Fairview sub-vertical shaft, Rolspruit, Poplar and Evander South assets available for potential development.

Mintails

Shortly before releasing its production numbers for FY23, on 1 August, PAF announced that all conditions precedent to its ZAR1.3bn (c US$68.8m at prevailing foreign exchange rates) senior debt facility, designated for funding the group’s Mintails project, had been fulfilled and that it had become effective. The senior debt facility was underwritten by Rand Merchant Bank (RMB), with Nedbank acting as co-financier.

As such, following the successful issue of the group’s inaugural Domestic Medium Term Note programme of ZAR800m (c US$42.3m) in December 2022, completion of a ZAR400m (c US$21.2m) derivative funding structure with RMB in March and the closure of the senior debt facility, the full upfront capital of ZAR2.5bn (c US$132.4m) for Mintails’ development has now been secured. At the same time, the South African Department of Mineral Resources and Energy has granted PAF an environmental authorisation for the project in terms of regulation 24(1)(a) of the Environmental Impact Assessment Regulations, 2014.

As a consequence, a process plant is being constructed and steady-state production remains anticipated by December 2024.

Royal Sheba

Mine layout optimisation and scheduling has now been finalised at Royal Sheba and requests for quotations issued for initial development and production activities. Preliminary optimisation work for life-of-mine planning has been completed at a cut-off grade of 1.7g/t, which implies an average mining grade of approximately 3.0g/t and c 235,000oz gold recovered over an eight-year life, with the orebody still open at depth and the potential for further extensions. In the meantime, DRA Global has finalised the feasibility study for placing a crushing and milling circuit at the Royal Sheba Mine site, together with the design to enable slurry pumping from the milling plant at Royal Sheba to the BTRP. The processing plant’s feasibility study and the project’s financial model are being updated and reviewed. A phased approach to capital spending, based on the availability of material to feed the BTRP plant, is also being considered, which will entail the phased development of the decline and production levels as well as the ventilation infrastructure required for initial stoping operations. 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. A trucking cost trade-off analysis indicates that the onsite crushing and milling circuit and pipeline will only be required once production rates reach 45,000t per month. The internal feasibility study for the project is expected to be completed later in CY23.

Group

In the light of these developments (including PAF’s unchanged guidance for FY24), we continue to forecast that group production at PAF will reach c 250koz per year in 2026 and push normalised headline EPS (HEPS) to around 6.00c per share.

Exhibit 4: Estimated Pan African group gold production profile, FY18–29e

Source: Edison Investment Research, Pan African Resources

Updated (absolute) valuation

In deriving our updated estimates for PAF over the life of its operations, we have made a number of changes, which are summarised below:

We have adjusted the production profiles of Barberton, the BTRP, Elikhulu and Mogale to reflect PAF’s guidance for FY24 and FY25. We have also adjusted our longer-term production profile of Elikhulu as per slide 16 of PAF’s results presentation.

We have updated our assumed profits and losses from the hedge relating to its synthetic forward sale of gold as part of the financing package for Mintails and Mogale. We have also added to this profits and losses from its separate zero-cost collars, which form part of the company’s discretionary hedging policy. These are included in ‘other income/expenses’ on the group’s income statement.

We have increased our estimate of long-term unit costs at Elikhulu from ZAR52.16/t to ZAR60.29/t (ie the average in FY23) in real terms over the life of its operations.

We have reduced our forecast of working costs at Evander to ZAR5,500–5,600/t (cf ZAR6,624/t previously) in the aftermath of FY23’s average number of ZAR4,020/t and will keep this measure under review.

We have brought capex into line with company guidance of ZAR2,875m for FY24.

In addition to changes to our immediate operational assumptions, we have adjusted our long-term foreign exchange rates (in real terms), to reflect the recent strength of the dollar and the weakness of sterling (with the rand in between):

From ZAR23.6963/£ at the time of our last note to ZAR23.5744/£ (-0.5%), being that prevailing at the time of writing.

From ZAR18.6022/US$ to ZAR18.8867/US$ (+1.5%).

From US$1.2739/£ to US$1.2483/£ (-2.0%).

We have also updated our gold price forecasts to reflect the passage of another year and the fact that we are now expressing all numbers in real CY23 money terms. Our gold price forecasts in the light of this adjustment are as follows:

Exhibit 5: Edison real terms gold price forecasts (CY23 US$/oz)

Year

2024e

2025e

2026e

2027e

2028e

Gold price (CY23 US$/oz)

1,819

1,749

1,681

1,617

1,555

Source: Edison Investment Research

Finally, we have included deferred tax in our forecasts for FY24–26 (cf only FY23 previously). Readers should note that this has the effect of depressing earnings forecasts for those years. However, it makes no difference to our valuation of the company, given that these are non-cash expenses.

In the aftermath of these changes, our absolute valuation of PAF (based on its existing four producing assets plus the 25 and 26 Level project and Mogale) has risen by a relatively modest 1.0% to 34.59c (cf 34.24c previously), which is 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 FY25. Excludes discretionary exploration investment.

While our valuation of PAF, based on these four assets, has not changed materially, we believe this is one of the strengths of such a real terms valuation methodology in an inflationary (or potentially inflationary) environment.

Stated alternatively, based on our long-term dividend forecasts, we calculate that an investment in PAF’s shares at a price of 14.28p today offers investors a (real) internal rate of return of 25.1% 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 provided in Exhibit 7, below.

Exhibit 7: PAF absolute valuation summary

Project

Current valuation
(USc/share)

Previous valuation
(USc/share)

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

34.59

34.24

FY23e dividend

0.95

0.95

Fairview Sub-Vertical Shaft project

0.83

0.76

Royal Sheba (resource-based valuation)

0.52

0.57

MC Mining shareholding

-

0.08

Sub-total

36.90

36.60

EGM underground resource

0.22-5.24

0.22-5.24

Sub-total

37.12–42.14

36.82–41.84

Egoli

14.66

13.63

MSC

1.40

1.26

Total

53.18–58.20

51.71–56.73

Source: Edison Investment Research. Note: Numbers may not add up owing to rounding.

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 (14.28p) is compared with our forecast normalised HEPS for those years. As is apparent from the chart, PAF’s price to normalised HEPS ratios of 3.3x and 3.1x for FY24 and FY25, respectively, are 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 36.29p in FY24 followed by one of 38.22p in FY25. Stated alternatively, PAF’s current share price of 14.28p, at prevailing foreign exchange rates, appears to be discounting FY24 and/or FY25 normalised HEPS falling to 2.12c per share (cf 5.40c and 5.69c forecast, respectively).

Relative peer group valuation

In the meantime, it may be seen that PAF remains cheaper than its London- and South Africanlisted gold mining peers on at least 94% of comparable common valuation measures (34 out of 36 individual measures in the table below) if Edison forecasts are used or 86% if consensus forecasts are used (31 out of 36 individual measures).

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

5.6

4.1

11.8

8.6

1.6

2.1

Gold Fields

5.1

4.0

12.1

8.4

3.2

4.4

Sibanye Stillwater

2.6

2.2

6.1

5.3

5.4

6.9

Harmony

3.0

3.0

5.5

5.8

1.8

3.7

Centamin

2.8

2.8

7.2

8.7

4.2

4.7

Endeavour Mining (consensus)

4.6

4.3

14.9

12.0

4.1

4.4

Average (excluding PAF)

4.0

3.4

9.6

8.1

3.4

4.4

PAF (Edison)

2.2

2.0

3.3

3.1

5.3

5.3

PAF (consensus)

2.8

2.4

4.6

3.8

5.0

5.7

Source: Edison Investment Research, Refinitiv. Note: Consensus and peers priced at 12 September 2023.

Alternatively, applying PAF’s peer average year one P/E ratio of 9.6x to our normalised HEPS forecast of 5.40c per share for FY24 implies a share price for the company of 27.24p at prevailing foreign exchange rates. Applying its peer average year two P/E ratio of 8.1x to our normalised HEPS forecast of 5.69c per share implies a share price of 35.17p.

Readers’ attention is also drawn to the decline evident in the market’s year one yield estimate for PAF, which appears to suggest that it believes the company will cut its dividend in FY24 (or that the rand will fall very sharply versus the US dollar, but that this will not be reflected in the company’s results), which we regard as highly unlikely, except in extenuating circumstances.

Financials

Pan African reported net debt of US$22.1m on its balance sheet as at end-June 2023 (cf US$53.7m as at end-December 2022), which equated to a gearing ratio (net debt/equity) of just 7.5% and a leverage ratio (net debt/[net debt+equity]) of just 7.0%, after cash flow from operating activities of US$88.5m before dividends in H2 (cf US$31.6m in H1). However, this was in line with our expectations for the full year, given the company’s capex guidance of ZAR1.8bn for FY23 (plus investment into its newly acquired Mogale asset).

Capex guidance for FY24 is ZAR2.9bn (c US$152.2m at prevailing foreign exchange rates). At the same time, we forecast that PAF will continue to generate cash from operations at or above the US$100m pa level into the foreseeable future, such that net debt peaks at end-FY24 at US$76.8m (equating to a gearing ratio of 20.9% and a leverage ratio of 17.3%), before being eliminated in FY25 when we assume that capex will once again return to near-sustaining levels.

Exhibit 10: Pan African current estimated net debt* profile forecast, FY17–FY26e

Source: Edison Investment Research, Pan African Resources. Note: *Excluding ‘other’ (see Exhibits 11 & 13).

Readers should note that the implication of our forecast of a positive net cash balance at end-FY25 is that, all other things, being equal, PAF might be in a position to increase its dividend that year. For the moment, we have 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-June was US$22.0m (cf US$53.7m at end-December), as shown below:

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

US$m

FY20

H121

FY21

H122

FY22

H123

FY23

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

Cash

33.5

28.0

35.1

35.2

27.0

33.9

34.8

Net debt to financial institutions

55.7

59.8

23.6

13.3

(0.8)

41.1

18.6

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

Net senior debt

62.3

60.1

33.7

23.9

9.3

49.9

18.9

Lease liabilities

14.1

5.0

5.3

4.5

4.4

4.3

3.5

Other

0.0

0.0

0.0

(0.2)

(0.7)

(0.5)

(0.4)

Total net debt

76.4

65.2

39.0

28.2

13.0

53.7

22.0

Change

N/A

(11.2)

(26.2)

(10.8)

(15.2)

(40.7)

(31.7)

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

The US$0.1m difference between net debt, as apparent on PAF’s group balance sheet of US$22.1m, and its net debt of US$22.0m as per Exhibit 11 is accounted for by the US$0.1m 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)

H118

FY18*

H119

FY19

H120

FY20

H121

FY21

H122

FY22

H123

FY23

Net debt:equity

Must be less than 1:1

0.19

0.78

0.85

0.71

0.6

0.4

0.3

0.1

0.1

0.04

0.2

0.07

Net debt:adjusted EBITDA

Must be less than 2:1

2.25

3.73

3.24

2.2

1.6

0.7

0.5

0.3

0.2

0.1

0.5

0.2

Interest cover ratio

Must be greater than 4x

4.62

4.61

3.64

4.1

5.8

10.1

17.7

23.0

29.0

34.1

26.9

18.4

Debt service cover ratio

Must be greater than 1:3x

1.85

3.84

2.85

1.4

3.0

3.4

3.3

3.0

3.0

7.3

8.5

7.5

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

Exhibit 13: Financial summary

US$'000s

2018

2019

2020

2021

2022

2023

2024e

2025e

Year end 30 June

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

145,829

218,818

274,107

368,915

376,371

321,606

359,009

395,107

Cost of sales

(107,140)

(152,980)

(158,457)

(208,815)

(226,445)

(198,790)

(191,107)

(210,782)

Gross profit

38,689

65,838

115,650

160,100

149,926

122,816

167,902

184,324

EBITDA

 

 

38,131

65,484

115,176

156,646

147,830

121,853

165,101

180,496

Operating profit (before GW and except.)

 

 

31,506

49,256

93,673

124,572

121,402

101,454

138,693

148,592

Intangible amortisation

0

0

0

0

0

0

0

0

Exceptionals

(16,521)

10,596

(28,593)

(12,819)

(10,295)

(7,347)

(12,314)

(6,112)

Other

0

0

0

0

0

0

0

0

Operating profit

14,985

59,852

65,079

111,753

111,107

94,107

126,380

142,480

Net interest

(2,222)

(12,192)

(12,881)

(6,919)

(4,231)

(8,553)

(1,986)

(6,908)

Profit before tax (norm)

 

 

29,284

37,064

80,791

117,653

117,171

92,901

136,707

141,684

Profit before tax (FRS 3)

 

 

12,763

47,660

52,198

104,834

106,876

85,554

124,394

135,572

Tax

2,826

(8,174)

(7,905)

(30,141)

(31,924)

(24,817)

(33,240)

(32,708)

Profit after tax (norm)

32,110

28,890

72,887

87,511

85,247

68,084

103,467

108,976

Profit after tax (FRS 3)

15,589

39,486

44,293

74,692

74,952

60,737

91,154

102,864

Average number of shares outstanding (m)

1,809.7

1,928.3

1,928.3

1,928.3

1,926.1

1,916.5

1,916.5

1,916.5

EPS - normalised (c)

 

 

1.31

1.64

3.78

4.54

4.44

3.54

5.40

5.69

EPS - FRS 3 (c)

 

 

0.87

2.05

2.30

3.87

3.90

3.19

4.76

5.37

Dividend per share (c)

0.00

0.15

0.84

1.27

1.04

0.95

0.95

0.95

Gross margin (%)

26.5

30.1

42.2

43.4

39.8

38.2

46.8

46.7

EBITDA margin (%)

26.1

29.9

42.0

42.5

39.3

37.9

46.0

45.7

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

21.6

22.5

34.2

33.8

32.3

31.5

38.6

37.6

BALANCE SHEET

Fixed assets

 

 

315,279

361,529

314,968

398,533

401,139

439,676

561,955

555,612

Intangible assets

56,899

49,372

43,466

50,548

44,210

44,429

46,606

48,773

Tangible assets

254,247

305,355

270,286

346,922

355,802

395,247

515,349

506,838

Investments

4,134

6,802

1,216

1,064

1,127

0

0

0

Current assets

 

 

29,009

31,601

53,648

84,558

55,953

61,263

39,312

111,906

Stocks

4,310

6,323

7,626

11,356

9,977

9,567

11,976

13,180

Debtors

22,577

18,048

11,245

37,211

17,546

15,182

25,593

28,165

Cash

922

5,341

33,530

35,133

26,993

34,771

0

68,819

Current liabilities

 

 

(44,395)

(63,855)

(78,722)

(105,978)

(58,989)

(77,386)

(114,871)

(102,629)

Creditors

(37,968)

(39,707)

(62,806)

(75,303)

(57,117)

(65,884)

(72,819)

(95,459)

Short-term borrowings

(6,426)

(24,148)

(15,916)

(30,675)

(1,872)

(11,502)

(42,051)

(7,169)

Long-term liabilities

 

 

(152,906)

(145,693)

(106,276)

(93,482)

(103,494)

(128,957)

(118,912)

(112,806)

Long-term borrowings

(112,827)

(109,618)

(73,333)

(28,011)

(37,088)

(45,334)

(34,709)

(27,650)

Other long-term liabilities

(40,078)

(36,076)

(32,943)

(65,471)

(66,406)

(83,623)

(84,202)

(85,156)

Net assets

 

 

146,988

183,582

183,620

283,632

294,609

294,596

367,485

452,083

CASH FLOW

Operating cash flow

 

 

5,345

59,822

73,399

124,549

142,879

132,941

116,016

167,537

Net Interest

(6,076)

(14,685)

(10,834)

(5,623)

(2,794)

(5,121)

(1,986)

(6,908)

Tax

(1,634)

(4,497)

(5,804)

(18,902)

(8,520)

(7,722)

(9,463)

(13,103)

Capex

(127,279)

(52,261)

(30,849)

(44,151)

(81,951)

(109,952)

(148,687)

(25,559)

Acquisitions/disposals

6,319

466

207

3

563

(2,779)

0

0

Financing

11,944

(0)

0

0

(3,222)

0

0

0

Dividends

(11,030)

(2,933)

(2,933)

(17,782)

(21,559)

(19,975)

(21,200)

(18,265)

Net cash flow

(122,411)

(14,088)

23,186

38,095

25,396

(12,608)

(65,320)

103,701

Opening net debt/(cash)

 

 

3,138

118,332

128,424

55,719

23,553

11,967

22,065

76,760

Exchange rate movements

(619)

537

1,663

7,979

(4,401)

(4,481)

0

0

Other

7,836

3,459

47,856

(13,907)

(9,409)

6,991

10,625

7,060

Closing net debt/(cash)

 

 

118,332

128,424

55,719

23,553

11,967

22,065

76,760

(34,000)

Source: Company sources, 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 2023 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 2023 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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