PAN African Resources (Pan African) said the disruption of the 2018 financial year, which resulted in it passing the dividend, was firmly behind it following painful decisions including the closure of its Evander Mines’ underground with the loss of 1,635 jobs.
Given the removal of high cost gold production following the Evander Mines’ closure, and the commissioning of the firm’s R1.7bn Elikhulu processing plant, Pan African had targeted resuming the dividend in the current financial year. Production guidance has been put at about 170,000 ounces, roughly a return to the output levels of the 2017 financial year.
Production for 2018 was 160,448 oz which was significantly affected by 58 lost production days at Barberton Mines owing to industrial action and community unrest. Due to the group’s lower gold production, the group’s all-in sustaining cost (AISC) per oz increased to $1,358/oz which compares to AISC of $1,177/oz in the 2017 financial year.
Commenting in his CEO’s notes, Cobus Loots suggested 2019 represented a fresh chapter for the company of which a key feature is small but profitable bolt-on projects.
One of these is Royal Sheba, a 900,000 oz resource near Barberton Mines of which some 350,000 oz sits in a section that can be mined by open pit methods. The average grade is 3.8 grams/tonne.
Another project, the high yielding section of Evander Mines – Egoli (previously known as the 2010 Pay Channel Project) – has an estimated one million ounces of contained gold. However, it is not currently being considered for development. “The project is attractive, but our shareholders do not have an appetite for this type of ‘Wits’ project,” said Loots in the full-year results presentation, referring to the deep-level nature of the prospect.
It’s worth noting that Pan African’s growth aspirations will have to be balanced against its current net debt of R1.62bn, nearly R1bn more than net debt as of June 30, 2017 and about half its market capitalisation of $178m (R3.5bn).
IMPAIRMENT CHARGE CUTS DEEP
The closure of Evander Mines underground section, at a cost of R161m in retrenchments and an impairment of R1.7bn, was behind the R1.56bn loss booked by Pan African for the 2018 financial year. From a headline share earnings perspective, which strips out exceptional items, the number was 18.71 cents/share which compares with 38,72c/share in headline earnings in the 2017 financial year.
Shares in Pan African are down just under 31% over the last 12 months.
“Given all the difficulties we experienced in the past year, our board elected not to recommend a final dividend for the 2018 financial year,” said Loots. “Even though this decision was expected by most shareholders, it remains disappointing, given our group’s excellent track record of sector-leading dividends.”
“Our board is confident that at prevailing ZAR (rand) gold prices, and as a result of the remedial measures implemented, Pan African Resources will be able to resume its attractive dividends in the near future.”
Loots said all of the group’s operations were now cash flow positive, doubtless assisted by the improvement in the rand gold price which is currently at R568,997 per kilogram which compares with the average price received of R538,100/kg in the 2018 financial year (2017: R542,773/kg).
