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Pan African hit by rand turmoil

If exchange rates weren’t bad enough, the South African miner’s operations continue to pose problems
February 13, 2018

Pan African Resources’ (PAF) interims landed this week just as Jacob Zuma was given his marching orders by the ANC. A backdrop of political turmoil was only appropriate. A fortnight earlier, the South African goldminer had trailed its half-year numbers with a reported drop in output, and the ominous admission that a strong rand had left the group “reviewing its costs base and the strategic merits of our portfolio”. Full-year production guidance is now 177-181koz, down from 190koz.  

IC TIP: Sell at 9.71p

Added to this, the Barberton mines have encountered several challenges. Community unrest and strikes have hampered production shifts, and recoveries and throughput have fallen at the tailings retreatment plant, and the design and flexibility of the Fairview underground mining operation has been found wanting.

None of these problems are terminal, and Pan African has remedial measures in place for each, including the ZAR105m (£6.4m) construction of a new shaft at Fairview and the imminent commissioning of a re-grind mill at the tailing plant. But if there is one metric by which Pan African should be judged, it is the rand-denominated gold price, which averaged ZAR551,506 per kilogramme in the six months to December, compared with an all-in sustaining cost of ZAR545,908/kg. That's not sustainable. Before likely downgrades, analysts were guiding for adjusted pre-tax profit of £42.7m and 1.6p for the June 2018 year-end, and £49.2m and 1.9p in 2019.

 PAN AFRICAN RESOURCES (PAF)  
ORD PRICE:9.7pMARKET VALUE:£ 217m
TOUCH:9.7-9.8p12-MONTH HIGH:18pLOW: 8.6p
DIVIDEND YIELD:4.6%^PE RATIO:25
NET ASSET VALUE:9.5pNET DEBT:18%
Half-year to 31 DecTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
201690.118.00.93nil
201782.94.70.18nil
% change-8-74-81-
Ex-div:n/a   
Payment:n/a   
^Includes full-year dividend, paid 21 Dec 2017.