Pan African Resources — Forecast upgrade

Pan African Resources (AIM: PAF)

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Research: Metals & Mining

Pan African Resources — Forecast upgrade

Pan African Resources (PAF) announced its FY23 interim results in the context of known production results and a JSE listing requirement paragraph 3(b) trading statement that indicated both earnings per share and headline earnings per share (HEPS) in the range 1.40–1.64c at the interim stage. In the event, HEPS and EPS for the six-month period were exactly in the middle of the guided range at 1.52c/share. In the wake of the H123 results, we have upgraded our forecast for normalised HEPS for FY23 from 3.82c/share to 4.17c/share (assuming the gold price remains at US$1,835/oz for the remainder of the year). NB Our upgrade would have been to 3.91c/share had our gold price forecast for the balance of the year remained unchanged at US$1,749/oz. Further out, we estimate that development of additional productive assets will increase PAF’s production to c 250koz in 2026 and its normalised HEPS to c 6.00c/share.

Lord Ashbourne

Written by

Lord Ashbourne

Director of Content, Mining

Pan-African-Resources_resized

Metals & Mining

Pan African Resources

Forecast upgrade

HY23 results

Metals and mining

16 February 2023

Price

14.60p

Market cap

£280m

ZAR21.7126/£, ZAR17.9554/US$, US$1.2096/£

Net debt (US$m) at end-December 2022

53.7

Shares in issue

(effective 1,916.5m post-consolidation, excluding treasury)

2,222.9m

Free float

85%

Code

PAF

Primary exchange

AIM/JSE

Secondary exchanges

Level 1 ADR, OTCQX Best Market and A2X

Share price performance

%

1m

3m

12m

Abs

(21.4)

(20.2)

(24.2)

Rel (local)

(22.8)

(26.0)

(26.2)

52-week high/low

24.0p

14.6p

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 45koz, rising to >75koz).

Next events

FY23 results

September 2023

AGM

November 2023

Ex-dividend date

November 2023

FY23 dividend payment

December 2023

Analyst

Lord Ashbourne

+44 (0)20 3077 5700

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

Pan African Resources (PAF) announced its FY23 interim results in the context of known production results and a JSE listing requirement paragraph 3(b) trading statement that indicated both earnings per share and headline earnings per share (HEPS) in the range 1.40–1.64c at the interim stage. In the event, HEPS and EPS for the six-month period were exactly in the middle of the guided range at 1.52c/share. In the wake of the H123 results, we have upgraded our forecast for normalised HEPS for FY23 from 3.82c/share to 4.17c/share (assuming the gold price remains at US$1,835/oz for the remainder of the year). NB Our upgrade would have been to 3.91c/share had our gold price forecast for the balance of the year remained unchanged at US$1,749/oz. Further out, we estimate that development of additional productive assets will increase PAF’s production to c 250koz in 2026 and its normalised HEPS to c 6.00c/share.

Year

end

Revenue
(US$m)

PBT*
(US$m)

EPS*
(c)

DPS
(c)

P/E
(x)

Yield
(%)

06/21

368.9

117.7

4.54

1.27

4.0

7.0

06/22

376.4

117.2

4.44

1.04

4.1

5.7

06/23e

355.0

109.0

4.17

1.00

4.4

5.5

06/24e

342.1

100.2

4.31

1.00

4.2

5.5

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

Still on track to hit guidance of 195–205koz for FY23

Output of 92,307oz for H123 was towards the lower end of the range of what would ordinarily be expected, given full-year guidance of 195–205koz for the full year (on a pro-rata basis), but was consistent with our expectations, the normal variance in production at PAF’s operations in half-year periods and the fact that the company is guiding towards production of 103–112koz gold for H223. This compares with our updated forecast for production of 108.3koz in H223 and 200.6koz for FY23 after the reconfiguration of shift cycles at the Fairview and Sheba Mines to continuous (24-hour) operations, seven days a week (cf five previously) from this month, while the Consort Mine will be converted to a contractor mining model.

Valuation: Closer to 30p than 20p

Pan African is cheap relative to both its historical trading record and its peers. Our core (absolute) valuation of the company has risen by 4.1% to 32.59c (cf 31.30c previously), based on projects either sanctioned or already in production. However, this valuation rises by a further 16.09–21.11c (13.30–17.45p) once other assets (eg Egoli) are also taken into account. Alternatively, if Pan African’s historical average price to normalised HEPS ratio of 8.6x in the period FY10–22 is applied to our FY23 and FY24 forecasts, it implies a share price of 29.53p in FY23, followed by 30.49p in FY24. As such, PAF’s current share price of 14.60p could be interpreted as discounting normalised HEPS falling to 2.13c/share (cf 4.44c recorded in FY22 and 4.17c forecast in FY23). In the meantime, PAF remains cheaper than its principal London- and JSE-listed gold mining peers on at least 86% of commonly used valuation measures, which collectively imply a share price of 36.8p in FY23 and one of 33.3p in FY24. Finally, in FY23, Pan African still has the 11th highest dividend yield of any precious metals mining company, globally.

Overview

Pan African announced its FY23 interim results in the context of known production results, which were released to the market on 30 January and a JSE listing requirement paragraph 3(b) trading statement that indicated both earnings per share and HEPS in the range 1.40–1.64c at the interim stage. The operational review of 30 January provided both H123 output results as well as H223 guidance. Overall, output of 92,307oz for H123 was towards the lower end of the range of what would ordinarily be expected from full-year guidance of 195–205koz (on a pro-rata basis), but was consistent with our expectations, the normal variance in production at PAF’s operations in half-year periods and the fact that the company is still guiding towards production of 103–112koz gold for H223 and 195–205koz for FY23. The improvement in production in H223 will arise from a change in labour practices at Barberton, in particular, which will see the shift cycles at Fairview and Sheba reconfigured to continuous (24-hour) operations, seven days a week (cf five previously), while the Consort Mine will be converted to a contract mining model – a change that was the ostensible subject of a site visit to the Fairview mine on 1 February attended by the analyst and author of this report. At the same time, a new, modern computerised mine planning system will allow mine planning to be conducted as often as every 20 minutes (cf annually previously) and will allow weekly reconciliations between gold mined and expected gold mined.

Subject to the normal permitting process, Pan African will embark upon the development of its Mogale project later this year, which we believe will increase the group’s medium-term production to c 250koz pa in 2026 and push normalised HEPS to close to 6.00c/share.

HY23 results

A summary of both half year results for the period to 31 December and our expectations for H223e and FY23e relative to earlier and forecast periods is provided in the exhibit below:

Exhibit 1: Pan African production, H118–H223 (oz)

Operation

H119

H219

H120

H220

H121

H221

H122

H222

H123

H223e

FY23e

FY23e

(prior)

Barberton UG

38,550

36,806

36,737

31,392

42,350

42,476

39,991

35,747

32,022

41,500

73,522

76,000

BTRP

12,006

12,001

10,619

9,516

10,004

8,235

9,126

10,434

10,012

11,000

21,012

19,000

Barberton

50,556

48,807

47,356

40,908

52,354

50,711

49,117

46,181

42,034

52,500

94,534

95,000

Evander UG

8,821

8,058

11,553

9,117

12,607

23,409

27,312

21,538

19,173

21,950

41,123

43,900

Evander surface

6,345

3,654

4,731

6,176

6,560

4,677

5,756

3,564

5,270

5,856

11,126

11,000

Evander

15,166

11,712

16,284

15,293

19,169

28,086

33,068

25,102

24,443

27,806

52,249

54,900

Elikhulu

15,292

30,909

29,301

30,315

26,863

24,596

25,900

26,320

25,830

28,000

53,830

53,000

Total

81,014

91,428

92,941

86,516

98,386

103,391

108,085

97,603

92,307

108,306

200,613

202,903

Source: Edison Investment Research, Pan African Resources. Note: Totals may not add up owing to rounding. UG = underground. BTRP = Barberton Tailings Retreatment Project.

Most apparent in H123 were the concurrent declines in output at both Barberton and Evander underground. In the case of the former, this could be attributed to increased travelling time to the deeper production stope platforms at Fairview, which resulted in reduced face-time and associated logistical constraints, adversely affecting productivity within the high-grade Main Reef Complex (MRC) section and depletion of the high-grade 42 Level block at Consort. In addition, the reduced strike lengths on the high-grade MRC platforms at Fairview (owing to geological complexity) resulted in a reduction in grades and a decrease in mined tonnes. In the case of the latter, the decrease in 8 Shaft pillar production resulted from the normalisation of mining face grades to c 8g/t (cf 13g/t in H121), in line with planned grades of 7g/t and reduced mining rates and face availability, which affected ore tonnes delivered for processing, following depletion of the mineral reserves in accordance with the geotechnical parameters for the safe extraction of the pillar. As a result, Evander overtook Barberton once again as the second largest contributor towards Pan African’s adjusted EBITDA:

Exhibit 2: Pan African adjusted EBITDA, by business unit, H115–H123

Source: Pan African Resources, Edison Investment Research

Readers should note that on this measure of adjusted EBITDA, Pan African’s performance in H123 was nevertheless its fifth best on record since at least H116.

H123 financial results

While production was lower than in the immediately preceding historical periods, costs (in rand per tonne processed terms) were well controlled at all of Pan African’s five major producing units, while the rand once again reverted to close to its trend rate of decline versus the US dollar (since at least H113):

Exhibit 3: South African rand versus US dollar (H113–H123)

Source: Pan African Resources, Bloomberg.

In the light of PAF’s interim results (as well as the increase in the gold price to US$1,855/oz cf US$1,749/oz forecast at the time of our last note on the company in 2022 (see Setting the scene for FY23 and beyond, published on 14 November 2022), our revised forecasts for the group for H223 and FY23 are as follows:

Exhibit 4: Pan African P&L statement by half-year (H120–FY23e)

US$000s*

H120

H220

H121

H221

H122

H222

H123

H223e

FY23e

FY23e

(prior)

Revenue

132,849

141,258

183,751

185,164

193,574

182,797

156,489

198,497

354,986

352,119

Cost of production

(86,501)

(71,956)

(98,245)

(110,570)

(108,368)

(118,077)

(99,282)

(103,185)

(202,467)

(217,920)

Depreciation

(10,526)

(10,977)

(12,741)

(19,333)

(13,268)

(13,160)

(11,122)

(18,336)

(29,458)

(33,858)

Mining profit

35,821

58,325

72,766

55,260

71,938

51,560

46,085

76,976

123,061

100,341

Other income/(expenses)

(962)

(27,720)

(6,704)

(6,115)

(7,711)

(2,117)

(3,610)

(3,610)

(7,220)

(1,470)

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

109

(20)

0

0

0

(467)

0

0

0

0

Royalty costs

(208)

(266)

(2,404)

(1,050)

(1,316)

(780)

(468)

(7,530)

(7,998)

(1,904)

Net income before finance

34,761

30,319

63,657

48,096

62,910

48,197

42,007

65,836

107,843

96,966

Finance income

207

258

300

456

661

434

456

Finance costs

(7,760)

(5,587)

(3,946)

(3,729)

(1,945)

(3,381)

(3,464)

Net finance income

(7,553)

(5,329)

(3,646)

(3,273)

(1,285)

(2,946)

(3,008)

(3,007)

(6,015)

(1,077)

Profit before taxation

27,208

24,990

60,011

44,823

61,626

45,250

38,999

62,829

101,828

95,889

Taxation

(5,303)

(2,602)

(19,239)

(10,903)

(15,573)

(16,351)

(10,063)

(19,187)

(29,250)

(24,176)

Effective tax rate (%)

19.5

10.4

32.1

24.3

25.3

36.1

25.8

30.5

28.7

27.3

PAT (continuing ops)

21,906

22,388

40,773

33,920

46,053

28,899

28,936

43,642

72,578

71,713

Minority interest

(185)

(136)

0

(136)

0

Ditto (%)

(0.6)

(0.5)

0.0

(0.2)

0.0

Attributable profit

29,084

29,072

43,642

72,714

71,713

Headline earnings

21,742

22,416

40,772

33,919

46,053

29,551

29,072

43,642

72,714

71,713

Est. normalised headline earnings

22,704

50,136

47,476

40,034

53,764.1

31,668

32,682

47,252

79,934

73,184

EPS (c)

1.14

1.16

2.11

1.76

2.39

1.51

1.52

2.28

3.79

3.74

HEPS** (c)

1.13

1.16

2.11

1.76

2.39

1.54

1.52

2.28

3.79

3.74

Normalised HEPS (c)

1.18

2.60

2.46

2.08

2.79

1.65

1.71

2.47

4.17

3.82

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

Once again, deferred taxes accounted for the majority (93%) of the total tax charge for the year, with cash taxes paid amounting to less than half the total tax charge.

H123 operational analysis

Barberton underground (35% of production; 20% of adjusted EBITDA)

Full details of Barberton’s performance in H123 are available in Pan African’s results announcement. In summary however, the decline in production at Barberton relative to previous periods could be attributed to increased travelling times to the deeper production stope platforms at Fairview, which resulted in reduced face-time and associated logistical constraints, adversely affecting productivity within the high-grade MRC section and depletion of the high-grade 42 Level block at Consort. In addition, the reduced strike lengths on the high-grade MRC platforms at Fairview (owing to geological complexity) resulted in a reduction in grades and a decrease in mined tonnes. Of particular note at Barberton during the first six-month period of the financial year was the close control of costs, with unit working costs declining by 4.6% in rand terms, to ZAR4,523/t in H123 relative to the prior year period, against a background of otherwise generally rising costs in the industry. This was achieved as a result of cost-saving initiatives such as the implementation of new time and attendance software and a reduction in production bonuses and despite an increase in vamping and toll treatment costs and a 15.4% increase in engineering & technical costs (9.7% of the group total) owing to repairs and maintenance on its load, haul and dump (LHD) vehicles.

Nevertheless, multiple mining platforms remain available at the MRC and Rossiter orebodies at Fairview Mine. At a site visit attended by the analyst, it was confirmed that the shift cycles at the Fairview and Sheba Mines will be reconfigured from this month (February) to continuous (24 hour) operations, seven days a week (cf five previously), while the Consort Mine will be converted to a contract mining model. Agreements have been reached with representative unions at both Fairview and Consort, with the result that management is anticipating a materially improved second half, with output guided in the range 41–43koz for H223, as shown in the exhibit below. At the same time, a new, modern computerised mine planning system will allow mine planning to be conducted as often as every 20 minutes (cf annually previously) and will allow weekly reconciliations between gold mined and expected gold mined.

Exhibit 5: Barberton underground operational statistics and estimates, H220–FY23e

H220

H121

H221

H122

H222

H123

H223e

FY23e

FY23e

(prior)

Tonnes milled underground (t)

116,035

122,199

133,473

125,257

126,804

118,399

155,106

273,505

Head grade underground (g/t)

*8.79

11.25

*10.42

*10.46

*9.20

*8.72

9.00

8.88

Underground gold contained (oz)

32,791

44,195

44,724

42,125

37,515

33,193

44,870

78,063

Tonnes milled surface (t)

56,593

39,267

30,078

27,740

42,237

51,227

51,227

Head grade surface (g/t)

*0.73

1.06

*0.98

*0.98

*0.68

1.21

1.21

Surface gold contained (oz)

1,331

1,343

949

876

923

1,996

0

1,996

Tons milled (t)

172,628

161,466

163,551

152,997

169,041

169,626

155,106

324,732

310,211

Head grade (g/t)

6.15

8.77

8.69

8.74

7.07

6.45

9.00

7.67

8.24

Contained gold (oz)

34,122

45,538

45,673

43,001

38,438

35,189

44,870

80,059

82,171

Recovery (%)

92.0

93.0

93.0

93.0

93.0

91.0

92.5

91.8

92.5

Production underground (oz)

31,392

42,350

42,476

39,991

35,747

32,022

41,500

73,522

76,000

Production calcine dumps/surface ops (oz)

0

0

0

0

0

0

Total production (oz)

31,392

42,350

42,476

39,991

35,747

32,022

41,500

73,522

76,000

Recovered grade (g/t)

5.66

8.16

8.08

8.13

6.58

5.87

8.32

7.04

7.62

Gold sold (oz)

31,392

42,350

42,476

39,308

36,430

31,074

41,500

72,574

76,000

Average spot price (US$/oz)

1,647

1,877

1,805

1,792

1,876

1,722

1,850

1,795

1,737

Average spot price (ZAR/kg)

882,504

981,381

843,828

866,671

928,970

959,230

1,057,204

1,015,254

964,635

Total cash cost (US$/oz)

1,053

997

1,150

1,227

1,372

1,425

1,015

1,175

1,105

Total cash cost (ZAR/kg)

572,432

521,351

542,629

593,380

679,598

793,895

580,006

662,891

613,586

Total cash cost (US$/t)

191.44

261.64

298.72

315.34

295.71

261.05

271.50

266.04

270.62

Total cash cost (ZAR/t)

3,237.70

4,253.00

4,383.29

4,742.00

4,555.38

4,523.00

4,826.79

4,668.10

4,675.62

Implied revenue (US$000)

53,724

79,491

76,250

70,440

68,236

53,509

76,758

130,267

131,982

Implied revenue (ZAR000)

893,997

1,292,694

1,105,899

1,059,597

1,050,996

927,098

1,364,622

2,291,720

2,280,255

Implied revenue (£000)

42,614

60,824

54,762

51,680

52,509

45,509

63,322

108,831

112,352

Implied cash costs (US$000)

33,047

42,246

48,857

48,246

49,987

44,281

42,111

86,392

83,950

Implied cash costs (ZAR000)

558,918

686,715

716,891

725,512

770,046

767,218

748,662

1,515,881

1,450,427

Implied cash costs (£000)

26,203

32,349

35,265

35,413

38,390

37,692

34,749

72,441

71,494

Reported adjusted EBITDA (ZAR000)

262,200

543,900

421,700

341,000

396,600

193,000

Source: Pan African Resources, Edison Investment Research. Note: *Estimated.

Note that Edison’s production forecast of 41.5koz for H223 is in the middle of management’s guided range of 40–43koz.

In the meantime, Barberton is maintaining its exploration focus on the down-dip extensions of its existing orebodies. In FY22, Barberton Mines conducted underground diamond core drilling programmes in excess of 9,000m and exploration metres drilled will remain at these levels in the foreseeable future. Specific focus is being placed on near-mine in-fill drilling, as well as down-dip reserve delineation drilling of underground mineral resources. Drilling into the down-dip extensions of the orebodies was reported to have yielded excellent results and improved the geological understanding of operations at Barberton as well as demonstrating their extent and quality, while continued drilling has also provided the opportunity for the grade control modelling protocols of the various operations to be upgraded to allow for improved mine design and orebody extraction in conjunction with the roll-out of more advanced and interconnected mining-related software packages to further optimise production. In the meantime, broader-scale exploration drilling is focused on the Hope, Main Muiden and Golden Quarry reefs, with desktop studies being conducted on various known but unmined lower-grade blocks in all orebodies.

Elikhulu (28% of production; 37% of adjusted EBITDA)

Gold production at Elikhulu remained steady at 25,830oz (cf 25,900oz in H122) at an all-in sustaining cost (AISC) of US$947/oz (cf US$937/oz), despite electricity supply disruptions and inclement weather conditions during the November and December rainy season. Operations were once again characterised by near-record throughput despite the heavy rains and an increasing grade profile, which offset higher than expected concentrations of historically processed fine carbon in the lower benches of the Kinross tailings storage facility (TSF) that continued to adversely affect metallurgical recoveries, which remained at lower levels, compounded by the mining of the coarser but high-grade outer wall of the Kinross TSF. As a result, Elikhulu’s share of group adjusted EBITDA remained near 40% in H123 and easily covered capex, which remained high at ZAR159.9m (as expected), owing to the switchover of operations from the Kinross to the Leslie and Bracken tailings storage facilities (Phase 2). Notwithstanding its increase, capex at Elikhulu remained a fraction of that at Pan African’s underground operations and, despite peaking in FY23, will still only approximate sustaining capex at Barberton. With the completion of the TSF extension and the Leslie/Bracken pump station at Elikhulu during FY23, capital expenditure will once again revert to previous (negligible) levels of sustaining capital thereafter (until the transition to the Winkelhaak TSF in 2026).

Management expects gold production from Elikhulu to increase marginally in the second half of FY23, as material from the Leslie/Bracken TSF is re-treated, following the installation of the 6km pipeline and successful commissioning of the pump station in September 2022. A full analysis of Elikhulu’s performance in H123 relative to both previous half-year periods and our prior expectations is provided in the table below, including our updated expectations for FY23:

Exhibit 6: Elikhulu operational statistics and estimates, H120–FY23e

H120

H220

H121

H221

H122

H222

H123

H223e

FY23e

FY23e

(prior)

Tonnes processed tailings (t)

6,211,028

6,882,546

6,278,191

6,776,576

6,442,397

7,289,750

7,164,748

7,200,000

14,364,748

14,400,000

Head grade tailings (g/t)

*0.28

0.32

0.31

0.29

0.34

0.34

0.35

0.32

0.33

0.30

Tailings gold contained (oz)

56,348

70,494

62,472

63,038

70,000

79,200

80,719

73,684

154,403

139,474

Recovery (%)

52.0

43.0

43.0

39.0

37.0

33.2

32.0

38.0

34.9

38.0

Production tailings (oz)

29,301

30,315

26,863

24,596

25,900

26,320

25,830

28,000

53,830

53,000

Total production (oz)

29,301

30,315

26,863

24,596

25,900

26,320

25,830

28,000

53,830

53,000

Recovered grade (g/t)

0.15

0.14

0.13

0.11

0.13

0.11

0.11

0.12

0.12

0.11

Gold sold (oz)

29,301

30,315

26,863

24,596

25,900

26,320

25,830

28,000

53,830

53,000

Average spot price (US$/oz)

1,451

1,647

1,852

1,805

1,813

1,876

1,728

1,850

1,791

1,719

Average spot price (ZAR/kg)

685,680

882,504

968,130

843,828

876,640

928,970

962,535

1,057,204

1,013,037

965,835

Total cash cost (US$/oz)

621

495

656

849

806

938

845

754

798

820

Total cash cost (ZAR/kg)

293,608

265,166

342,917

396,698

389,660

464,514

470,502

431,228

450,073

455,637

Total cash cost (US$/t)

2.93

2.15

2.81

3.05

3.24

3.39

3.05

2.93

2.99

3.02

Total cash cost (ZAR/t)

43.00

36.33

45.63

44.78

48.72

52.16

52.76

52.16

52.46

52.16

Implied revenue (US$000)

42,516

50,783

49,750

43,442

46,957

47,875

44,634

51,788

96,423

92,040

Implied revenue (ZAR000)

624,898

837,196

808,898

626,289

706,198

736,997

773,298

920,709

1,694,006

1,590,173

Implied revenue (£000)

33,740

40,283

38,067

31,097

34,451

36,797

37,961

42,723

80,684

78,350

Implied cash costs (US$000)

18,209

14,818

17,626

20,657

20,874

24,689

21,817

21,124

42,941

43,474

Implied cash costs (ZAR000)

267,600

250,023

286,500

303,480

313,900

380,268

378,000

375,552

753,552

751,104

Implied cash costs (£000)

14,455

11,784

13,496

14,986

15,322

18,978

18,570

17,431

36,002

37,023

Adjusted EBITDA (ZAR000)

333,100

564,000

484,800

301,200

367,000

523,900

361,600

Source: Pan African Resources, Edison Investment Research. Note: *Estimate.

Re-mining of the Leslie/Bracken TSF will continue for the next five years, whereafter it will move to the Winkelhaak TSF for the remainder of its life. In the meantime, it remains one of the lowest-cost gold mining operations in southern Africa, and is expected to produce an average of c 50koz gold per annum over its remaining 11-year mine life.

Evander underground (21% of production; 30% of adjusted EBITDA)

Underground production at Evander decreased by 29.8% to 19,173oz (cf 27,312oz in H122) despite an increase in processed tonnes of 6.0% to 73,946t (cf 69,790t). While slightly larger than anticipated, the decrease resulted from:

normalisation of mining face grades to c 8g/t (cf 13g/t in H122), in line with planned grades of 7g/t, and

reduced mining rates and face availability, which reduced ore tonnes delivered for processing, following depletion of mineral reserves in accordance with geotechnical parameters for the safe extraction of the pillar.

At the same time, unit working costs reduced by almost a third in rands per tonne processed terms relative to H222, to ZAR4,460/t. In part this reduction was achieved as a result of lower production bonuses, but it also arose as a consequence of a number of energy efficiency and management initiatives in FY22, including high efficiency motors and compressors, and pumps, geysers and motors replaced with power-saving models. Similarly, the recycling of underground water continues to reduce the amount of energy consumed. The reduction in costs was also helped by the capitalisation of salaries, mining and processing and electricity costs related to 24 Level development. As a result, adjusted EBITDA increased 50.5% relative to H222 (despite a US$149/oz lower gold price) to a level that was its third highest on record for a six-month period since Evander was acquired by Pan African in February 2013.

Exhibit 7: Evander operational statistics and estimates, H120–FY23e

H120

H220

H121

H221

H122

H222

H123

H223e

FY23e

FY23e

(prior)

Tonnes milled (t)

30,044

21,392

50,634

69,812

69,790

59,297

73,946

70,000

143,946

140,000

Head grade (g/t)

12.59

5.16

8.51

10.56

12.55

11.35

8.31

9.95

9.11

9.95

Contained gold (oz)

12,161

3,549

13,854

23,709

28,157

21,647

19,766

22,398

42,164

44,796

Recovery (%)

95

94

91

99

97

99

97

98

97.5

98.0

Underground production (oz)

11,553

9,117

12,607

23,409

27,312

21,538

19,173

21,950

41,123

43,900

Production from surface sources (oz)

0

0

0

0

Total production (oz)

11,553

9,117

12,607

23,409

27,312

21,538

19,173

21,950

41,123

43,900

Recovered grade (g/t)

11.96

13.26

7.74

10.43

12.17

11.30

8.06

9.75

8.89

9.75

Gold sold (oz)

9,214

5,863

12,607

23,409

27,312

21,538

18,723

21,950

40,673

43,900

Average spot price (US$/oz)

1,451

1,647

1,852

1,805

1,813

1,876

1,727

1,850

1,793

1,719

Average spot price (ZAR/kg)

685,658

882,504

968,072

843,828

876,639

928,970

962,140

1,057,204

1,013,443

964,635

Total cash cost (US$/oz)

1,420

1,241

1,604

1,030

915

1,184

1,016

1,188

1,120

1,223

Total cash cost (ZAR/kg)

671,299

665,209

838,665

481,582

442,226

586,318

566,246

679,170

627,226

679,156

Total cash cost (US$/t)

546.00

169.14

399.31

342.36

357.95

429.71

263.56

372.59

316.58

383.39

Total cash cost (ZAR/t)

6,404

5,671

6,496

5,023

5,383

6,624

4,460.00

6,624

5,512.34

6,623.87

Implied revenue (US$000)

13,370

9,879

23,348

41,877

49,517

39,244

32,335

40,598

72,933

76,236

Implied revenue (ZAR000)

196,499

167,699

379,599

624,798

744,697

606,299

560,298

721,770

1,282,068

1,317,143

Implied revenue (£000)

10,610

7,836

17,865

30,543

36,329

30,358

27,500

33,492

60,992

64,898

Implied cash costs (US$000)

16,404

3,618

20,218

23,901

24,981

25,481

19,489

26,081

45,571

53,674

Implied cash costs (ZAR000)

192,402

121,306

328,918

350,638

375,680

392,775

329,799

463,680

793,479

927,341

Implied cash costs (£000)

10,393

5,509

15,495

17,312

18,337

19,633

16,202

21,522

37,724

45,710

Adjusted EBITDA (ZAR000)

64,900

(345,600)

49,000

331,000

408,500

196,400

295,600

Source: Pan African Resources, Edison Investment Research.

As per its mine plan, the 8 Shaft pillar now has a remaining life of approximately six months, during which it is expected to produce c 22koz gold. Mining at 24 Level will then extend 8 Shaft’s production profile, post cessation of the 8 Shaft pillar mining, for an additional two and a half years from FY23, as the current pillar mining reaches completion, after which the board has also now approved the development capital for Evander’s 25 & 26 Level project, which is expected to increase the 8 Shaft’s mine life to 13 years at an expected annual production rate of approximately c 65,000oz.

For the moment, the 24 Level project remains in its construction phase, with all development and infrastructure placement for mining progressing according to plan, with the equipping of the existing vent shaft from 17 to 24 Level to enable hoisting via the vertical shaft currently underway. The construction of Phase 1 of the underground refrigeration plant on 24 Level is complete and has been commissioned, and will be expanded to provide cooling on 24 Level for steady-state production (Phase 2) in Q423. Phase 1 will allow mining of both the 24 Level F raise line stopes and 24 Level B, C and D raise lines. Phase 2 will allow for additional mining crews to be placed on 24 Level as well as mining on 25 Level in subsequent years. Thereafter, the board has approved the continued mining of the down-dip extent of this orebody on 25 and 26 Levels, using the 24 Level infrastructure. Development leading from the existing 24 Level footwall infrastructure will allow access to both 25 and 26 Levels, with an on-reef decline layout. The mining of 25 and 26 Levels will thereby extend Evander Mines’ 8 Shaft production, post extraction of the 8 Shaft pillar and 24 Level, at an annual production rate of approximately 65,000oz pa. Access development on 25 and 26 Levels is reported to be on schedule. Dewatering on 25 Level is in progress and blasting of development ends will commence this year, with mining of the first stope planned for FY25.

In the meantime, preliminary work has commenced on the Egoli project, where dewatering of the Number 3 Decline started in June 2022. This decline is anticipated to be dewatered to below 19 Level in Q323, after which reserve delineation drilling will commence to accurately define the Egoli pay-shoot for early mining.

Capex for the 24 and 25 & 26 Level projects at 8 Shaft and equipping costs for Evander Mines’ 7 Shaft infrastructure is estimated at c US$50m, including steel work and development costs, which will be funded from existing cash flows.

Group production profile

In the wake of H123 results, we continue to forecast that group production at Pan African will reach 253.9koz in FY26 (from a guided level of 195–205koz in FY23) and 272.8koz in FY29, and remain at approximately this level until at least FY33 (with production from Egoli still pending):

Exhibit 8: Estimated Pan African group gold production profile, FY18–FY29e

Source: Edison Investment Research, Pan African Resources

Growth projects

Following completion of its transaction to buy Mintails’ assets in October, Pan African has at least two immediate organic growth projects plus one further corporate growth project (Blyvoor tailings) in prospect for development in the future. Beyond these, it also has at least the Fairview sub-vertical shaft, Rolspruit, Poplar and Evander South assets available for potential development.

Corporate growth projects

Mintails Soweto Cluster

On 6 November 2020, Pan African announced it had entered into a conditional agreement with the liquidator of the Mintails group for the purchase of the total share capital and associated loans of Mogale Gold and Mintails SA Soweto Cluster (MSC), comprising a number of TSFs to the west of Johannesburg, for ZAR50.0m (c US$2.9m at prevailing forex rates at the time) and the assumption of a closure environmental liability of c ZAR120m. As part of its due diligence process, on 30 June 2022, Pan African announced that it had successfully completed a definitive feasibility study (DFS) on the Mogale portion of Mintails’ assets. The study demonstrated compelling economics and the potential to significantly increase group gold production by c 25% over an initial mine life of 13 years and this was the subject of our note, Building steam, published on 7 July 2022. On 6 October, Pan African confirmed that it had successfully closed this transaction and, as such, Mogale is now fully incorporated into our valuation of Pan African (below). However, the MSC assets are not.

Although Pan African does not currently include MSC mineral resources in the Mogale mine schedule, a conceptual production schedule for this project was applied, based on available information, entailing the processing of reserves of the combined Mogale and MSC TSFs and demonstrated a more robust recovered ounce profile and an extended mine life for the project in excess of 20 years, as shown below:

Exhibit 9: Mogale and conceptual MSC production profile (oz)

Source: Pan African Resources, Edison Investment Research

Confirmation of the feasibility of including the MSC dumps in the Mogale mine schedule will require further technical studies to be completed. In the meantime, however, we have attempted to quantify what MSC’s valuation could be to Pan African. In formulating this valuation, we have made a number of assumptions, which are summarised below:

A grade and recovery profile close to that of Mogale. This seems reasonable, given that the MSC resource (1.186Moz) and the Mogale resource (1.176Moz) are approximately the same size and the average grade of the Soweto Cluster resource is 0.31g/t (albeit in the inferred category of resources) whereas the average grade of the Mogale resource is 0.29g/t (albeit mostly in the indicated category of resources).

A high conversion rate from resources to reserves. Note that Mogale’s conversion rate is 97.9% for tonnage, 100.0% for grade and 96.9% of ounces.

Unit working costs (ZAR64.43/t [real] average over the life of the operation) comparable to those of Mogale (ZAR62.33/t [real] average of the life of the operation).

Capex of ZAR1.8bn, but with negligible upfront capex (on the assumption that this has already been invested in the Mogale processing plant etc) and the majority (sustaining capex) being expended approximately evenly over the life of operations.

Depreciation is assumed to be on a straight-line basis over the life of operations.

Tax is assumed to be levied according to the standard mining tax formula in South Africa:
y = 34 - 170/x, where y is the tax rate to be determined and x is the ratio of taxable income to the total income (expressed as a percentage). Note that these tailings dumps are largely pre-1 May 2004 dumps and, as such, are exempt from royalties.

On the basis of the above assumptions, we have calculated the following valuation and financial parameters with respect to MSC:

An immediate valuation – based on the net present value (NPV) of dividends payable to Pan African from the MSC operation discounted at Edison’s customary rate of 10% pa – of US$20.1m, or 1.05 US cents per share (cf US$84.5m, or 4.41c per share for Mogale), which equates to US$16.98 per MSC resource ounce, US$26.67 per ounce of gold mined and US$54.28 per ounce of gold recovered (cf US$71.85/oz, US$74.22/oz and US$139.13/oz for Mogale, respectively). The profile of the estimated evolution of value over the period of MSC’s operational life is presented in the graph below:

Exhibit 10: MSC life of mine free cash flow and dividend NPV (US$000s and US$ per residual resource oz)

Source: Edison Investment Research

At the end of the life of operations, we estimate that c 755koz of resources at MSC will have been mined, of which c 371koz will have been recovered, 431koz (ie approximately eight years’ worth of production) will have remained unmined and 384koz will have been redeposited in upgraded tailings storage facilities.

On this basis, we calculate that the project will enhance Pan African’s earnings per share by an average 0.41c per share over the life of the operation, as shown below:

Exhibit 11: MSC life of mine contribution to PAF EPS and valuation (US cents per share)

Source: Edison Investment Research

In the meantime, readers should note that our US$20.1m valuation of MSC as a development asset reconciles tolerably closely with our valuation of it of US$11.7m (or 0.61c per share) as an in-situ resource, based on the average value of in-situ gold resources listed in London of US$9.88/oz calculated in our report Gold stars and black holes, published in January 2019.

Blyvoor tailings

On 15 December 2021, Pan African announced that it had entered into a conditional agreement to acquire the entire issued share capital of Blyvoor Gold Operations from Blyvoor Gold (Pty) Ltd, subject to due diligence, for a cash consideration of ZAR110m (currently c US$6.1m cf US$6.4m previously). The principal assets of Blyvoor Gold Operations are six historical TSFs with a total mineral resource of 1.4Moz gold at a grade of 0.31g/t and a mineral reserve (as at 1 December 2020) of 0.8Moz gold at a grade of 0.30g/t. A recent (2020) technical study completed to pre-feasibility standards indicated the potential to process c 6Mt of tailings annually by hydro-mining (ie similar to Elikhulu) to produce c 25–30koz gold annually over a life of 15 years (extendable to 25 years) at an expected carbon-in-leach metallurgical recovery of c 54%.

Having concluded an initial ‘fatal flaw’ analysis, Pan African, together with its independent consultants, has embarked on a full fatal flaw assessment and gap analysis as part of its due diligence process and has extended the period for completion of the transaction to coincide with the completion of a DFS. In the meantime, by way of comparison, investors should note that Blyvoor’s resource of 1.4Moz is similar to Elikhulu’s original resource of 1.7Moz, while its initial reserve of 0.8Moz is approximately half the size of Elikulu’s 1.5Moz, albeit at a fractionally higher grade of 0.30g/t (cf Elikhulu’s 0.29g/t). Pan African announced the results of an independent DFS on Elikhulu on 5 December 2016, which demonstrated an NPV9 of US$75.9m (or, then, 5.0c/share, or US$40.95 per resource ounce) at a gold price of US$1,180/oz and a forex rate of ZAR14.50/US$. At the time, we estimated Elikhulu to be worth US$69.9m (or 4.6c/share) at a 10% discount rate and to be capable of adding 1.33p to EPS in the first eight years of its operation (albeit there are now 27% more shares in issue). Now, however, with capex having been expended and associated debt repaid, we estimate a valuation for Elikhulu of c US$81.32 per initial resource ounce or US$106.83 per remaining resource ounce. With suitable caveats therefore, Pan African could be on the cusp of acquiring for US$4.36/oz an asset that should be worth US$9.88/oz as an in-situ resource (see Gold stars and black holes, published in January 2019) and may eventually be worth up to a peak of US$129.36 per remaining ounce (or US$81.32 per initial ounce), at steady-state production after debt repayment.

Royal Sheba

Royal Sheba is a world-class orogenic greenstone gold deposit, where historical mining has enabled high-resolution modelling of the orebody to be completed and a resource of over 1Moz Au to be defined at an average grade of c 2g/t over mineralised widths averaging 10m delineated by drilling to 150m below surface over a strike extent in excess of 850m.

Historically, Royal Sheba material was treated at Barberton’s Sheba metallurgical plant and existing Barberton milling capacities (especially at the BTRP) are sufficient to cater for a throughput of c 40ktpm of run-of-mine production from Royal Sheba, while grade control drilling results have confirmed expected recoveries. The down-dip extent of the ore body has been proven up to 650m below surface and may be accessed from the 23 Level development at Sheba Mine’s ZK Shaft, but is open beyond that.

Recent development at Royal Sheba commenced in May 2021 via an already established surface adit located approximately 1.2km to the east of the existing Sheba metallurgical plant. The decline and associated cross-cut have provided access for the extraction of a 10,000t bulk sample from historically unmined areas, located 26m below surface, between 6 and 7 Levels, which has now been completed. An average feed grade of 1.22g/t and metallurgical recovery of 84% were achieved (cf 0.5g/t and 85% planned, respectively). If fully approved by the board, first ore from Royal Sheba could provide feed to the BTRP this year, following the installation of a run-of-mine crushing circuit, which will increase the latter’s life by an approximate 18 years. To date, the development has progressed through the historically mined voids, filling them with waste rock followed by capping with steel beams and sets, while aerated cement has been used to stabilise workings. The development plan is set to target the extraction of 40,000tpm from the project at an average head grade of 3g/t over its mine life, which will be achieved by implementing long hole open stoping mining methods from a decline system through the use of trackless mining machinery and automation, requiring a minimal labour complement.

In the meantime, work on the Dibanisa project, which is designed to combine the Fairview and Sheba Mine infrastructures to optimise costs and efficiency, is well advanced. Project Dibanisa aims to connect the underground tramming and hoisting infrastructure of Fairview Mine 38 Level with Sheba Mine 23 Level, allowing underground production below 23 Level from Sheba Mine to be transported to surface using the existing Fairview Mine 2 Decline infrastructure. The hoisted ore will then be processed at Fairview’s metallurgical plant, which will create capacity at Sheba’s metallurgical plant, which will initially be used for the treatment of Royal Sheba ore, thereby reducing the initial capital requirements for the Royal Sheba project. All rails and haulages on both the Fairview project and Sheba Mine’s respective sections have been rehabilitated and a series of three ore passes between the 23 Level Sheba haulage and the 38 Level Fairview haulage established.

Macro assumptions

In recognition of the recent moves in the price of gold, we have adjusted our short-term gold price forecasts from US$1,749/oz in H223 to US$1,850/oz (note this implicitly assumes that the gold price will remain at US$1,835/oz for the remainder of Pan African’s financial year). Thereafter, we assume that it will decline in real terms to bottom out at US$1,524/oz (real) in CY27 (unchanged).

At the same time, we have adjusted our foreign exchange rates:

From ZAR20.3511/£ to ZAR21.7126/£ (+6.7%)

From ZAR17.2319/US$ to ZAR17.9554/US$ (+4.2%)

From US$1.1810/£ to US$1.2096/£ (+2.4%)

Updated (absolute) valuation

In the light of our refinements (as well as revised external factors such as the gold price and forex rates, above), our absolute valuation of Pan African (based on its existing four producing assets plus the 25 and 26 Level project and Mogale) is 32.59c (cf 31.30c previously), albeit excluding any contribution from Egoli. We are valuing Egoli separately, for the moment, as a standalone project at 13.36c/share, on the basis of the present value of our estimated maximum potential stream of dividends payable to shareholders over the life of its mining operations (applying a 10% discount rate):

Exhibit 12: Pan African 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 Pan African’s shares at a price of 14.60p offers investors an internal rate of return of 20.4% per annum in US dollar terms to at least the end of FY39.

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

Exhibit 13: Pan African 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)

32.59

31.30

FY22 dividend

N/A

1.04

Fairview Sub-Vertical Shaft project

0.76

0.76

Royal Sheba (resource-based valuation)

0.58

0.66

MC Mining shares

0.12

0.10

Sub-total

34.05

33.86

EGM underground resource

0.22–5.24

0.22–5.24

Sub-total

34.27–39.29

34.0839.10

Egoli

13.36

13.03

MSC

1.05

0.95

Total

48.68–53.70

48.0653.08

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

Historical relative and current peer group valuation

Historical relative valuation

Exhibit 14 below depicts Pan African’s average share price in each of its financial years from FY10 to FY22 and compares this with HEPS in the same year. For FY23 and FY24, the current share price (14.60p) is compared with our forecast normalised HEPS for FY23 to FY24. As is apparent from the graph, Pan African’s price to normalised HEPS ratios of 4.4x and 4.2x for FY23 and FY24 respectively (based on our forecasts, see Exhibit 19) are very close to the bottom of the range of recent historical P/E ratios of 4.1–14.8x for the period FY10–22:

Exhibit 14: Pan African historical price to normalised HEPS** ratio, FY10–FY24e

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 Pan African’s average year one price to normalised EPS ratio of 8.6x for the period FY10–22 is applied to our normalised earnings forecasts, it implies a share price for Pan African of c 29.53p in FY23 followed by 30.49p in FY24. Stated alternatively, Pan African’s current share price of 14.60p, at prevailing forex rates, appears to be discounting FY23 and/or FY24 normalised HEPS falling to 2.13c/share (cf 4.44c reported in FY22 and 4.17c and 4.31c forecast in FY23 and FY24, respectively).

Relative peer group valuation

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

Exhibit 15: Comparative valuation of Pan African 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

5.5

4.6

14.1

11.1

2.1

1.6

Gold Fields

4.7

4.7

10.7

9.8

3.1

3.3

Sibanye Stillwater

2.6

2.3

5.0

4.1

6.7

8.2

Harmony

3.9

3.3

8.3

6.0

1.3

0.1

Centamin

3.8

3.4

9.0

10.2

4.8

4.7

Endeavour Mining (consensus)

4.8

5.1

17.0

14.9

3.5

3.9

Average (excluding Pan African)

4.2

3.9

10.7

9.4

3.6

3.6

Pan African (Edison)

2.8

3.1

4.4

4.2

5.5

5.5

Pan African (consensus)

3.1

2.7

5.0

4.6

5.7

5.9

Source: Edison Investment Research, Refinitiv. Note: Consensus and peers priced at 14 February 2023.

Alternatively, applying Pan African’s peers’ average year one P/E ratio of 10.7x to our forecast normalised HEPS forecast of 4.17c/share for FY23 implies a share price for the company of 36.8p at prevailing forex rates. Applying its peers’ average year two P/E ratio of 9.4x to our forecast normalised HEPS forecast of 4.31c/share implies a share price of 33.3p.

Share buyback programme

According to our estimates, Pan African will have the 11th highest dividend yield of any precious metals mining company in the world in FY23. To broaden its strategy to return value to shareholders and given the quality and profitability of its existing operations and growth projects, on 1 April 2022, Pan African announced the initiation of phase one of a share buyback programme to purchase up to ZAR50m (then c £2.6m) of ordinary shares of the company over the course of the month, starting on 1 April on the London Stock Exchange (LSE) and the Johannesburg Stock Exchange (JSE) in approximately equal amounts. Subsequently, on 12 May 2022, Pan African announced that it had completed Phase 1 of its share buyback programme, repurchasing a total of 11.8m shares for a total consideration of ZAR50.3m (c £2.55m), of which a total of 7.6m were repurchased on the LSE at a volume weighted average price of 21.67p and a total of 4.3m were repurchased on the JSE at a volume weighted average price of 418.21 South African cents per share. All shares purchased under the programme were subsequently cancelled, such that the company now has 2,222,862,046 ordinary shares in issue, of which 306,358,058 ordinary shares are held in treasury to result in a post-consolidation figure for shares outstanding of 1,916,503,988 shares.

Although small in initial scale (0.5% of shares in issue prior to the announcement), this initiative nevertheless demonstrates that the company is prepared to consider share buybacks as a means of returning capital to shareholders as and when it is appropriate to do so.

Financials

Pan African reported net debt of US$52.8m on its balance sheet as at end-December 2022 (cf US$12.0m as at end-June 2022), which equated to a gearing ratio (net debt/equity) of just 18.1% and a leverage ratio (net debt/[net debt+equity]) of just 15.3%, after cash flow from operating activities of US$31.6m in the six-month period (before dividends). However, this is 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). At the same time, we forecast that the company will continue to generate cash from operations at or above the US$100m per annum level into the foreseeable future, such that net debt peaks at end-FY24 at US$107.0m (equating to a gearing ratio of 26.1% and a leverage ratio of 20.7%), before being eliminated in FY25 when we assume that capex will reduce once again to merely sustaining levels.

Exhibit 16: Pan African current estimated net debt* profile forecast, FY17–FY25e

Source: Edison Investment Research, Pan African Resources. Note: *Excluding ‘other’ (see Exhibit 19).

Pan African reports that it received a number of financing offers from financial institutions and third-party financiers with respect to the funding of the Mogale project. Following due consideration however, it has agreed a credit-approved and underwritten term sheet with RMB for US$80.0m of senior debt, for part funding of the project’s construction. In the meantime, it reports that it is in the process of evaluating a number of further funding options for the balance of its capital requirement, with the intent of having the funding package finalised by March 2023.

Note that, including all other components, total net debt as at end-December 2022 amounted to US$53.7m, as shown below:

Exhibit 17: Pan African components of total net debt (US$m)

Item

FY20

H121

FY21

H122

FY22

H123

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

Cash

33.5

28.0

35.1

35.2

27.0

33.9

Net debt to financial institutions

55.7

59.8

23.6

13.3

(0.8)

41.1

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

Net senior debt

62.3

60.1

33.7

23.9

9.3

49.9

Lease liabilities

14.1

5.0

5.3

4.5

4.4

4.3

Other

0.0

0.0

0.0

(0.2)

(0.7)

(0.5)

Total net debt

76.4

65.2

39.0

28.2

13.0

53.7

Change

N/A

(11.2)

(26.2)

(10.8)

(15.2)

(40.7)

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

Readers are reminded that Pan African’s liability to Redink Rentals relates to its funding of the solar photovoltaic renewable energy plant located at Evander Mines and, as such, is included in long-term and short-term borrowings in Exhibit 19, below, as are leases. Otherwise, the US$0.9m difference between net debt, as apparent on Pan African’s group balance sheet of US$52.8m and its net debt of US$53.7m as per Exhibit 17 is accounted for in terms of the US$0.8m in ‘other’ items in Exhibit 17 plus rounding.

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

Exhibit 18 Pan African group debt covenants

Measurement

Constraint (updated)

FY17

H118

FY18*

H119

FY19

H120

FY20

H121

FY21

H122

FY22

H123

Net debt:equity

Must be less than 1:1

0.02

0.19

0.78

0.85

0.71

0.6

0.4

0.3

0.1

0.1

0.04

0.2

Net debt:adjusted EBITDA

Must be less than 2:1

0.08

2.25

3.73

3.24

2.2

1.6

0.7

0.5

0.3

0.2

0.1

0.5

Interest cover ratio

Must be greater than 4x

19.32

4.62

4.61

3.64

4.1

5.8

10.1

17.7

23.0

29.0

34.1

26.9

Debt service cover ratio

Must be greater than 1.3x

9.11

1.85

3.84

2.85

1.4

3.0

3.4

3.3

3.0

3.0

7.3

8.5

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

Exhibit 19: Financial summary

US$'000s

2018

2019

2020

2021

2022

2023e

2024e

Year end 30 June

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

145,829

218,818

274,107

368,915

376,371

354,986

342,091

Cost of sales

(107,140)

(152,980)

(158,457)

(208,815)

(226,445)

(202,467)

(206,109)

Gross profit

38,689

65,838

115,650

160,100

149,926

152,519

135,982

EBITDA

 

 

38,131

65,484

115,176

156,646

147,830

144,521

130,099

Operating profit (before GW and except.)

 

31,506

49,256

93,673

124,572

121,402

115,063

106,949

Intangible amortisation

0

0

0

0

0

0

0

Exceptionals

(16,521)

10,596

(28,593)

(12,819)

(10,295)

(7,220)

(1,514)

Other

0

0

0

0

0

0

0

Operating profit

14,985

59,852

65,079

111,753

111,107

107,843

105,435

Net interest

(2,222)

(12,192)

(12,881)

(6,919)

(4,231)

(6,015)

(6,701)

Profit before tax (norm)

 

 

29,284

37,064

80,791

117,653

117,171

109,048

100,248

Profit before tax (FRS 3)

 

 

12,763

47,660

52,198

104,834

106,876

101,828

98,734

Tax

2,826

(8,174)

(7,905)

(30,141)

(31,924)

(29,250)

(17,714)

Profit after tax (norm)

32,110

28,890

72,887

87,511

85,247

79,798

82,534

Profit after tax (FRS 3)

15,589

39,486

44,293

74,692

74,952

72,578

81,020

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

EPS - normalised (c)

 

 

1.31

1.64

3.78

4.54

4.44

4.17

4.31

EPS - FRS 3 (c)

 

 

0.87

2.05

2.30

3.87

3.90

3.79

4.23

Dividend per share (c)

0.00

0.15

0.84

1.27

1.04

1.00

1.00

Gross margin (%)

26.5

30.1

42.2

43.4

39.8

43.0

39.8

EBITDA margin (%)

26.1

29.9

42.0

42.5

39.3

40.7

38.0

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

21.6

22.5

34.2

33.8

32.3

32.4

31.3

BALANCE SHEET

Fixed assets

 

 

315,279

361,529

314,968

398,533

401,139

517,985

616,345

Intangible assets

56,899

49,372

43,466

50,548

44,210

46,235

48,336

Tangible assets

254,247

305,355

270,286

346,922

355,802

470,623

566,882

Investments

4,134

6,802

1,216

1,064

1,127

1,127

1,127

Current assets

 

 

29,009

31,601

53,648

84,558

55,953

38,747

37,242

Stocks

4,310

6,323

7,626

11,356

9,977

11,894

11,414

Debtors

22,577

18,048

11,245

37,211

17,546

25,417

24,391

Cash

922

5,341

33,530

35,133

26,993

0

0

Current liabilities

 

 

(44,395)

(63,855)

(78,722)

(105,978)

(58,989)

(105,023)

(138,337)

Creditors

(37,968)

(39,707)

(62,806)

(75,303)

(57,117)

(67,656)

(68,394)

Short-term borrowings

(6,426)

(24,148)

(15,916)

(30,675)

(1,872)

(37,367)

(69,943)

Long-term liabilities

 

 

(152,906)

(145,693)

(106,276)

(93,482)

(103,494)

(103,735)

(105,468)

Long-term borrowings

(112,827)

(109,618)

(73,333)

(28,011)

(37,088)

(37,088)

(37,088)

Other long-term liabilities

(40,078)

(36,076)

(32,943)

(65,471)

(66,406)

(66,647)

(68,380)

Net assets

 

 

146,988

183,582

183,620

283,632

294,609

347,975

409,782

CASH FLOW

Operating cash flow

 

 

5,345

59,822

73,399

124,549

142,879

118,338

130,829

Net Interest

(6,076)

(14,685)

(10,834)

(5,623)

(2,794)

(6,015)

(6,701)

Tax

(1,634)

(4,497)

(5,804)

(18,902)

(8,520)

(5,407)

(15,982)

Capex

(127,279)

(52,261)

(30,849)

(44,151)

(81,951)

(146,304)

(121,509)

Acquisitions/disposals

6,319

466

207

3

563

0

0

Financing

11,944

(0)

0

0

(3,222)

0

(0)

Dividends

(11,030)

(2,933)

(2,933)

(17,782)

(21,559)

(23,100)

(19,213)

Net cash flow

(122,411)

(14,088)

23,186

38,095

25,396

(62,488)

(32,576)

Opening net debt/(cash)

 

 

3,138

118,332

128,424

55,719

23,553