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Research: Metals & Mining
Pan African Resources
Pan African Resources |
Better than expected |
H116 results |
Metals & mining |
25 February 2016 |
Share price performance
Business description
Next event
Analyst
Pan African Resources is a research client of Edison Investment Research Limited |
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Pan African’s (PAF) half-year results to 31 December 2015 were ahead of our expectations, with strong performances at both of its tailings retreatment operations complementing a solid recovery in the underground head grade at Evander, which effectively portends its exit from the low-grade mining cycle. We have adjusted our FY16 PBT and EPS forecasts (which nevertheless remain under further review) slightly to reflect flat (rather than declining) unit costs in H216, although PAF will clearly benefit from continued rand weakness and gold price strength in H216, while maintaining longer-term expansion options in the form of Elikhulu and Evander South (among others).
Year end |
Revenue (£m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
06/14 |
154.2 |
34.0 |
1.46 |
0.82 |
9.1 |
6.2 |
06/15 |
140.4 |
16.0 |
0.64 |
0.54 |
20.7 |
4.1 |
06/16e |
167.0 |
43.3 |
1.70 |
0.54 |
7.8 |
4.1 |
06/17e |
202.1 |
91.3 |
3.58 |
0.82 |
3.7 |
6.2 |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles and exceptional items.
Production up, costs down
PAF reported H116 EPS of 0.60p per share, cf our forecast of 0.50p. Gold sold increased by 17.4% cf H115 to 101,797oz. In general, however, total costs were lower than our expectations – pointing to good cost control and rand depreciation – with cash costs of production declining 25.7% to US$740/oz.
Evander grade shows recovery from low-grade cycle
The results were characterised by strong operational performances at PAF’s tailings retreatment operations (BTRP and ETRP), which both reported higher than expected head grades and, therefore, also metallurgical recoveries. In the meantime, the underground grade at Evander increased from 4.3g/t to 5.8g/t – ahead of management’s expectations (indicating a solid recovery from its low-grade mining cycle), if not quite as high as our hopes (see our 11 February note).
Debt diminishing
Finally, net debt declined from £18.0m at end-June to £16.2m at end-Dec (our calculation), indicating c £11.5m of cash inflows for the period before a dividend payment of £9.7m for FY15. A similar performance in H216 would clearly leave PAF substantially debt-free ahead of the dividend payment for FY16 (currently estimated at £9.9m) and ZAR200m Uitkomst acquisition (£9.4m at current FX rates).
Revisiting our forecasts in due course
In addition to the H116 results, PAF also announced a proposed acquisition of an interest in Shanduka Gold (for which details are not yet available), which should be earnings enhancing. We will review our assumptions and forecasts in more detail in a subsequent note.
Exhibit 1: Financial summary
£000s |
2008 |
2009 |
2010 |
2011 |
2012 |
2013 |
2014 |
2015 |
2016e |
2017e |
||
Year-end 30 June |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
||
PROFIT & LOSS |
||||||||||||
Revenue |
|
|
39,148 |
52,860 |
68,344 |
79,051 |
100,905 |
133,308 |
154,202 |
140,386 |
166,982 |
202,119 |
Cost of sales |
(25,164) |
(28,505) |
(40,554) |
(45,345) |
(46,123) |
(71,181) |
(106,394) |
(110,413) |
(104,861) |
(97,338) |
||
Gross profit |
13,985 |
24,355 |
27,790 |
33,705 |
54,783 |
62,127 |
47,808 |
29,973 |
62,121 |
104,781 |
||
EBITDA |
|
|
13,711 |
22,890 |
25,023 |
28,540 |
45,018 |
53,276 |
44,165 |
28,448 |
57,390 |
100,301 |
Operating profit (before GW and except.) |
11,745 |
20,529 |
21,897 |
25,655 |
41,759 |
47,278 |
34,142 |
18,110 |
44,914 |
91,306 |
||
Intangible amortisation |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
||
Exceptionals |
0 |
(5,025) |
(335) |
0 |
(48) |
7,232 |
(12) |
(198) |
0 |
0 |
||
Other |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
||
Operating profit |
11,745 |
15,504 |
21,562 |
25,655 |
41,711 |
54,510 |
34,130 |
17,912 |
44,914 |
91,306 |
||
Net interest |
200 |
807 |
594 |
762 |
516 |
197 |
(191) |
(2,109) |
(1,623) |
12 |
||
Profit before tax (norm) |
|
|
11,945 |
21,336 |
22,491 |
26,417 |
42,274 |
47,475 |
33,951 |
16,001 |
43,291 |
91,318 |
Profit before tax (FRS 3) |
|
|
11,945 |
16,311 |
22,156 |
26,417 |
42,226 |
54,707 |
33,939 |
15,803 |
43,291 |
91,318 |
Tax |
(4,367) |
(8,219) |
(7,656) |
(9,248) |
(12,985) |
(12,133) |
(7,155) |
(4,133) |
(12,134) |
(25,781) |
||
Profit after tax (norm) |
7,579 |
13,117 |
14,835 |
17,169 |
29,290 |
35,342 |
26,796 |
11,868 |
31,157 |
65,537 |
||
Profit after tax (FRS 3) |
7,579 |
8,091 |
14,500 |
17,169 |
29,242 |
42,574 |
26,785 |
11,670 |
31,157 |
65,537 |
||
Average number of shares outstanding (m) |
1,043.8 |
1,104.4 |
1,366.3 |
1,432.7 |
1,445.2 |
1,619.8 |
1,827.2 |
1,830.4 |
1,832.1 |
1,832.1 |
||
EPS - normalised (p) |
|
|
0.52 |
0.85 |
1.07 |
1.20 |
2.03 |
2.18 |
1.46 |
0.64 |
1.70 |
3.58 |
EPS - FRS 3 (p) |
|
|
0.52 |
0.40 |
1.04 |
1.20 |
2.02 |
2.63 |
1.47 |
0.64 |
1.70 |
3.58 |
Dividend per share (p) |
0.00 |
0.26 |
0.37 |
0.51 |
0.00 |
0.83 |
0.82 |
0.54 |
0.54 |
0.82 |
||
Gross margin (%) |
35.7 |
46.1 |
40.7 |
42.6 |
54.3 |
46.6 |
31.0 |
21.4 |
37.2 |
51.8 |
||
EBITDA margin (%) |
35.0 |
43.3 |
36.6 |
36.1 |
44.6 |
40.0 |
28.6 |
20.3 |
34.4 |
49.6 |
||
Operating margin (before GW and except.) (%) |
30.0 |
38.8 |
32.0 |
32.5 |
41.4 |
35.5 |
22.1 |
12.9 |
26.9 |
45.2 |
||
BALANCE SHEET |
||||||||||||
Fixed assets |
|
|
55,647 |
67,198 |
74,324 |
97,281 |
86,075 |
249,316 |
223,425 |
220,150 |
220,677 |
220,499 |
Intangible assets |
35,577 |
35,397 |
36,829 |
38,229 |
23,664 |
38,628 |
37,040 |
37,713 |
39,449 |
41,186 |
||
Tangible assets |
20,070 |
31,801 |
37,495 |
59,052 |
62,412 |
209,490 |
185,376 |
181,533 |
180,323 |
178,409 |
||
Investments |
0 |
0 |
0 |
0 |
0 |
1,199 |
1,010 |
905 |
905 |
905 |
||
Current assets |
|
|
8,770 |
4,949 |
17,677 |
15,835 |
41,614 |
26,962 |
23,510 |
17,218 |
39,200 |
90,115 |
Stocks |
378 |
358 |
1,126 |
1,457 |
1,869 |
6,596 |
5,341 |
3,503 |
5,572 |
6,744 |
||
Debtors |
2,973 |
2,201 |
3,795 |
4,254 |
6,828 |
15,384 |
12,551 |
10,386 |
11,449 |
13,858 |
||
Cash |
5,419 |
2,389 |
12,756 |
10,124 |
19,782 |
4,769 |
5,618 |
3,329 |
22,179 |
69,512 |
||
Current liabilities |
|
|
(6,611) |
(6,101) |
(7,084) |
(8,960) |
(11,062) |
(24,066) |
(24,012) |
(22,350) |
(22,790) |
(21,553) |
Creditors |
(6,521) |
(6,080) |
(7,084) |
(8,960) |
(11,062) |
(23,202) |
(19,257) |
(17,301) |
(17,741) |
(16,505) |
||
Short-term borrowings |
(89) |
(21) |
0 |
0 |
0 |
(864) |
(4,755) |
(5,049) |
(5,049) |
(5,049) |
||
Long-term liabilities |
|
|
(7,438) |
(9,686) |
(11,431) |
(13,410) |
(14,001) |
(80,004) |
(63,528) |
(67,850) |
(68,648) |
(70,108) |
Long-term borrowings |
(17) |
0 |
0 |
(181) |
(869) |
(11,133) |
(8,141) |
(16,313) |
(16,313) |
(16,313) |
||
Other long-term liabilities |
(7,421) |
(9,686) |
(11,431) |
(13,228) |
(13,132) |
(68,871) |
(55,387) |
(51,537) |
(52,335) |
(53,795) |
||
Net assets |
|
|
50,369 |
56,360 |
73,487 |
90,746 |
102,626 |
172,208 |
159,396 |
147,167 |
168,438 |
218,952 |
CASH FLOW |
||||||||||||
Operating cash flow |
|
|
12,762 |
25,420 |
25,207 |
31,968 |
49,092 |
61,618 |
45,996 |
25,959 |
51,123 |
95,482 |
Net Interest |
200 |
807 |
594 |
762 |
516 |
314 |
(606) |
(2,109) |
(1,623) |
12 |
||
Tax |
(1,723) |
(10,886) |
(7,476) |
(10,743) |
(11,616) |
(13,666) |
(8,536) |
(3,479) |
(11,336) |
(24,321) |
||
Capex |
(5,680) |
(5,705) |
(6,764) |
(21,712) |
(17,814) |
(27,197) |
(21,355) |
(19,554) |
(9,428) |
(8,817) |
||
Acquisitions/disposals |
226 |
(4,205) |
0 |
0 |
(1,549) |
(96,006) |
0 |
(760) |
0 |
0 |
||
Financing |
785 |
0 |
48 |
1,545 |
259 |
47,112 |
349 |
(235) |
0 |
0 |
||
Dividends |
0 |
(6,774) |
0 |
(5,376) |
(7,416) |
0 |
(14,684) |
(15,006) |
(9,886) |
(15,023) |
||
Net cash flow |
6,571 |
(1,343) |
11,609 |
(3,557) |
11,471 |
(27,826) |
1,164 |
(15,184) |
18,850 |
47,333 |
||
Opening net debt/(cash) |
|
|
(136) |
(5,313) |
(2,369) |
(12,756) |
(9,943) |
(18,913) |
7,228 |
7,278 |
18,033 |
(817) |
Exchange rate movements |
(1,394) |
(2,642) |
(281) |
925 |
(1,813) |
594 |
(839) |
(276) |
0 |
0 |
||
Other |
0 |
1,041 |
(940) |
(181) |
(688) |
1,090 |
(375) |
4,705 |
0 |
0 |
||
Closing net debt/(cash) |
|
|
(5,313) |
(2,369) |
(12,756) |
(9,943) |
(18,913) |
7,228 |
7,278 |
18,033 |
(817) |
(48,150) |
Source: Company sources, Edison Investment Research
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