Pan African promises super dividends

[] — PAN African Resources (Pan African) on Monday proposed to pay a 37.9% increase in dividend, with CEO Jan Nelson saying investors should expect more of the same in future.

Reporting financials for the year to end-June, AIM and JSE-listed Pan African said it would return £7.4m of its £17.1m after-tax profits to shareholders at 0.5135p per share, up from £5.4m in 2010.

“We will continue to pay this dividend,’ Nelson said, adding that the additional revenue streams from the soon-to-be commissioned Phoenix Platinum Chrome Tailing Retreatment Plant, as well the continued favourable outlook for gold, could enable the company to increase the dividend by a similar margin.

Among other key financial figures, gross revenue for gold sales increased by 15.6% to £79.2m, while headline earnings per share were up 12.15% to 1.2p. The profit margin on sales grew by 30.3% to $584/oz, despite a rise in cash costs and production costs (in US dollars) of 20.1% and 11.58% respectively.

Capital expenditure increased by 255% to £21m, largely on the back of spending £14.1m on the development of Phoenix. Nelson said Phoenix would be cold commissioned by end-September, with the first concentrate expected to be ready for delivery by end-December. The group expects to already sell between 5,000 and 6,000 ounces of PGM concentrate in the current financial year, generating income of between R30m to R40m.

One blip on Pan African’s performance during 2011 was a 5.5% decrease in gold production at its Barberton operations. The group had forecast to produce 100,000 oz from the mines, following 2010’s 97,483 oz, but had to settle for 92,043oz.

Output was affected by a strike at the Fairview section in the first quarter, as well as a work interruption in April to address poor rock wall conditions.

“We didn’t reach our target but fortunately the gold price helped us out,’ said Nelson. “We’ll continue to push for between 95,000 oz and 100,000 oz, which is a nice target to have.

“For underground our main priority is to get the grade mix right (10.55 grams per tonne in 2011). We don’t want to push volumes and neglect grade.’ The envisaged Bramber tailings plant at Barberton could add up to another 25,000 oz per year in gold output. A feasibility study would be completed by end-December, with construction estimated to take 12 months.


In rand terms, Barberton’s rise in cash costs came in at 10.5%. Pan African was criticised from some quarters in July by agreeing on 11% wage increases, but Nelson said the group would continue to focus on productivity improvements.

“The philosophy is that if the mine and operations make a lot of money, there is no reason why the workers shouldn’t make some money too,’ Nelson said. “One thing we can control is to raise productivity; and we’re doing some clever things to get that right.’

Nelson said the unions agreed to productivity targets, while the group has spent a lot on infrastructure to improve efficiencies, aiming to bring costs per tonne milled to R1,400 (R1,707/t at present).


Nelson said Pan African would continue to review gold and platinum opportunities that were either in production or close to production in South Africa, and not consider exploration projects – similar to Manica in Mozambique – which was soon to be spun out as a stand-alone entity.

“What South Africa has is very good infrastructure and a skilled labour force,’ he said. “It remains our preferred destination in Africa.

“We built Phoenix in 10 months and wouldn’t have done that anywhere else.’