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Pan African anticipates lower 2H costs

The SA gold miner is looking towards lower-cost production coming on-stream through the second half
February 18, 2020

Companies operating in the extractive industries are always in thrall to underlying commodity prices. Average gold prices for Pan African Resources (PAF) were up by a fifth on the 2018 interim rate, and the group exploited that increase to the full by optimising operational efficiencies (where possible) and increasing ounces sold by 13.6 per cent.

IC TIP: Buy at 12.7p

It’s not as if the miner was operating against an advantageous backdrop, as electricity supply constraints and illegal mining contributed to an increase in all-in sustaining costs (AISC), offset to a degree by improved efficiencies across its tailings operations. Mining and processing costs crept up through the period, but South Africa’s ongoing power generation problem meant that electricity costs (representing 15.9 per cent of production costs) increased by 62.4 per cent to $13.8m (£10.6m).

Net operating cash flow halved from a year earlier, although this was primarily due to the adverse impact of gold delivered in settlement of a loan undertaken in July 2018. Net debt fell by 56 per cent to $123.7m, or 1.6 times adjusted cash profits, while interest cover remains well in advance of financial covenants.

Peel Hunt is guiding for adjusted EPS of 2.7¢ for the June 2020 year-end, rising to 2.9¢ in FY2021.

PAN AFRICAN RESOURCES (PAF)  
ORD PRICE:12.7pMARKET VALUE:£284m
TOUCH:12.6-12.7p12-MONTH HIGH:14.5pLOW: 8.5p
DIVIDEND YIELD:0.9%PE RATIO:6
NET ASSET VALUE:NET DEBT:61%*
Half-year to 31 DecTurnover ($m)Pre-tax profit ($m)Earnings per share (¢)Dividend per share (¢)
2018 (restated)97.512.00.50nil
201913327.21.14nil
% change+36+126+128-
Ex-div:na   
Payment:na   
£1=$1.30, *Includes lease liabilities of $5.5m.