Cobus Loots, chief executive of Pan African Resources (PAF), maintains the gold miner has “started the 2019 financial year well”, despite the suspension of the FY2018 dividend, questions over production, and net debt up from £4m to £89.8m in the space of a year. It brings to mind Marshall Foch’s message to headquarters during the Battle of the Marne: “My centre is giving way, my right is retreating, situation excellent. I am attacking”.
We were forced to flip our buy call in February as a reinvigorated South African rand (ZAR) narrowed the gap between realised ZAR-denominated gold prices and all-in sustaining costs. Worryingly, those metrics came in at ZAR538,100/kg and ZAR561,468/kg, respectively, for the June year-end. Broad expectations for the South African Reserve Bank to hike interest rates later this year do not bode well.
That’s out of management’s control, but it has been pursuing self-help measures to trim overheads, including the closure of high-cost underground workings at the Evander Mines, which resulted in a ZAR1.78bn (£106m) impairment and a net earnings loss for the period. Progress has been made towards the completion of the Elikhulu tailings re-treatment plant, while the Royal Sheba Project at Barberton “offers the potential to access low-cost near surface ounces”.
Broker consensus gives adjusted EPS of 1.3p for the June 2019 year-end, against 0.4p for FY2018. Gross margins and cash profits are also expected to rise.
| PAN AFRICAN RESOURCES (PAF) | ||||
| ORD PRICE: | 8.5p | MARKET VALUE: | £ 190m | |
| TOUCH: | 8.47-8.73p | 12-MONTH HIGH: | 15.8p | LOW: 6.5p |
| DIVIDEND YIELD: | NIL | PE RATIO: | 13 | |
| NET ASSET VALUE: | 5.2p | NET DEBT: | 78% | |
| Year to 31 Dec | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
| 2014 | 154 | 33.9 | 1.50 | 0.81 |
| 2015 | 141 | 15.8 | 0.60 | 0.53 |
| 2016 | 161 | 33.9 | 1.41 | 0.88 |
| 2017 | 125* | 44.9 | 2.60 | 0.49 |
| 2018 | 109* | 9.4 | 0.63 | nil |
| % change | -13 | -79 | -76 | - |
| Ex-div: | - | |||
| Payment: | - | |||
| * Revenues for 2017 & 2018 were subject to negative revaluations of £44.5m and £47m respectively, representing discontinued operations at Evander Mines | ||||
