[miningmx.com] – PAN African will remain a precious metal producer with a particular focus on gold and does not aim to be a diversified miner despite the deal struck to acquire the Uitkomst coal mine in Kwa-Zulu Natal from Oakleaf Investments and Shanduka Resources which is Pan African’s BEE partner.
That was stressed at today’s presentation in Johannesburg of Pan African’s results for the year to end-June by CEO, Cobus Loots, who described the Uitkomst deal as a “specific opportunity.’
The acquisition has caused some uncertainty over the group’s strategy because some observors do not believe it makes sense for the mid-tier gold and platinum producer which they feel should rather “stick to its knitting’.
When the coal acquisition was announced on June 8, Pan African shares were trading at 210 cents, but they then plunged to as low as 122c by August 7 before recovering to current levels although it must be pointed out Pan African’s peer South African-listed gold companies have also declined sharply over this period.
Interviewed by Miningmx after the presentation Loots commented: “I have been involved in coal in South Africa since 2005. I know the market pretty well.
“We are focussed on profits, cash flows and dividends and this asset presented a specific opportunity.
“My strategy is that here is an asset that is as good as they come which will give us cash flows that you could view as a credit against our costs on the gold side.”
Pan African shares vacillated after release of the results rising initially as high as 154c from Tuesday’s close of 147c before pulling back to around 146c.
That’s despite the dividend declared of 11.5 South African cents a share (2014: 14c a share) which looks generous given that Pan African reported a 53% decline in headline earnings to R213m (R452m), but has only cut the dividend by 17.8%.
Loots highlighted Pan African’s dividend policy as one of the key factors which differentiate the company from its peers and he defended the latest distribution even though the dividend does not appear financially justified on the basis of Pan African’s results for the year to end-June.
The final dividend will cost R210m, but the group’s consolidated cash flow statement showed net cash generated from operating activities of just R95.7m as of end-June.
Also as of that date, cash and cash equivalents had dropped to R64.2m (R101.2m) and borrowings had risen to R500m (R400m) implying part of the dividend would have to paid out of borrowings.
Loots said the dividend would not actually be paid out until December and the Pan African board took into consideration expected earnings between end-June and the payment date when assessing the dividend.
He commented: “Forget the financial reporting period. That’s just numbers. You need to look at the trend because we have done this before and we have always been a leading dividend payer.
“It’s not a big concern for us. The question is can we generate R250m in cash (by December). If we can’t do that then we are in serious trouble. We are comfortable that this coming financial year will be a much better year for us.”
