REG-Pan African Resources Plc: Final Results & Proposed Final Dividend Announcement <Origin Href="QuoteRef">PAFR.L</Origin> - Part 1
20/09/2017 07:06
Pan African Resources PLC
('Pan African Resources' or the 'company' or the 'group')
(Incorporated and registered on 25 February 2000 in England and Wales under
the Companies Act 1985, registration number 3937466)
Share code on AIM : PAF
Share code on JSE : PAN
ISIN : GB0004300496
Provisional audited results for the year ended 30 June 2017 and proposed final
dividend announcement
Cobus Loots, CEO of Pan African Resources commented: “The 2017 financial
year was operationally challenging. The remedial actions successfully
implemented by management are however delivering the expected results. We
have appropriately addressed critical shaft infrastructure repairs at Evander
Mines, and the operation’s cost base is now leaner, without compromising the
safety or sustainability of the business. Pan African Resources looks
forward to a much improved performance from Evander Mines in the 2018
financial year, with a substantial increase in expected gold production.
Despite mining flexibility challenges, Barberton Mines, our flagship long-life
cash flow producer, is currently mining high-grade panels in its Fairview
11-block and is poised to contribute substantially to our production guidance
of 190,000oz for the 2018 financial year. The Elikhulu Project is on schedule,
with environmental approvals now in place, and is expected to produce first
gold in the final quarter of the 2018 calendar year. Additionally, we are
excited about the prospects for Evander Mines’ 2010 Pay Channel project and
our team has commenced a feasibility study on this project.
The disposal of the Uitkomst Colliery on 30 June 2017 to Coal of Africa
realised a profit of R91.3 million, demonstrating the value created over the
15 months of our ownership. The recently announced disposal of Phoenix
Platinum to Sylvania reaffirms our focus on core operations and the cash
consideration will further strengthen our financial position. The benefits of
the PAR Gold transaction, completed in the prior financial year, has the
accounting effect of reducing the issued share capital by 436.4-million shares
in the 2017 financial year, equating to 19.53% of the issued share capital of
the company.
The board is proposing a final dividend of R185 million, or GBP10.9 million,
which again results in an attractive cash return to our shareholders.”
Key features reported in South African Rand (‘ZAR’ or ‘R’) and Pound
Sterling (‘GBP’)
Financial key features
* Group revenue from continuing operations decreased by 15.5% to R2,925.3
million (2016: R3,460.1 million). In GBP terms, group revenue increased by
5.1% to GBP169.6 million (2016: GBP161.3 million), the GBP percentage movement
was positive due to the appreciation of the ZAR/GBP exchange rate.
* In ZAR terms, group profit after taxation decreased by 43.3% to R309.9
million (2016: R547.0 million), while in GBP terms, group profit after
taxation decreased by 29.8% to GBP17.9 million (2016: GBP25.5 million).
Profits were adversely impacted by reduced gold production and a flat rand
gold price during the year.
* Earnings per share (‘EPS’) decreased by 34.4% to 19.81 cents per share
(2016: 30.20 cents per share), while in GBP terms, EPS decreased by 19.1% to
1.14 pence per share (2016: 1.41 pence per share).
* Gold production and realisation costs were well contained, increasing by
only 7.7% to R2,343.1 million (2016: R2,176.0 million).
* The Pan African Resources board of directors (the ‘board’) approved the
R1.74 billion Elikhulu tailings retreatment project (‘Elikhulu Project’)
during the 2017 financial year. The project is now fully funded with all
environmental approvals in place and construction commenced in August 2017.
* Uitkomst Colliery Proprietary Limited (‘Uitkomst Colliery’) performed
well and contributed R35.4 million (2016: R12.7 million), or 11.4%, to group
profit after taxation, before its disposal to Coal of Africa Limited (‘Coal
of Africa’) on 30 June 2017. The disposal of Uitkomst Colliery to Coal of
Africa realised a profit on sale of R91.3 million. (Note 1)
* The statement of financial position is robust with net debt reducing to
R67.6 million (2016: R339.6 million) at year end.
* The board has proposed a final dividend of R185 million, or approximately
GBP10.9 million (2016: R300 million or GBP17.1 million), equating to R0.08279
per share, or approximately 0.48697 pence per share (2016: R0.1544 per share
or 0.88 pence per share) for the 2017 financial year. This dividend is subject
to shareholder approval at the annual general meeting (‘AGM’), which will
take place on Tuesday, 21 November 2017. (Note 2)
* Post year end, Pan African Resources concluded a sale agreement to dispose
of Phoenix Platinum Proprietary Limited (‘Phoenix Platinum’) to Sylvania
Platinum Limited (‘Sylvania’) for a cash consideration of R89 million.
This transaction remains subject only to Competition Commission approval. The
transaction resulted in an impairment of Phoenix Platinum by R100.9 million at
year end.
Operational key features
* Following a challenging operational year, group gold production decreased by
15.4% to 173,285oz (2016: 204,928oz).
* Effective ZAR gold price received remained unchanged at R542,773/kg (2016:
R542,850/kg), with the average ZAR/USD exchange rate being 6.3% stronger at
R13.59:1 (2016: R14.51:1) and the USD gold price increasing by only 6.7% to
USD1,242/oz (2016: USD1,164/oz).
* Cash cost per kilogramme increased in ZAR terms to R430,863/kg (2016:
R338,242/kg) and, in USD terms, cash costs per ounce increased to USD986/oz
(2016: USD725/oz), predominantly due to lower gold production.
* All-in sustaining cost per kilogramme increased in ZAR terms to R514,435/kg
(2016: R405,847/kg) and, in USD terms, all-in sustaining cost per ounce
increased to USD1,177/oz (2016: USD870/oz).
* Pan African Resources advised shareholders on 25 August 2017 that the
Integrated Water Use Licence for the Elikhulu Project had been granted by the
Department of Water and Sanitation, for a period of 20 years. Furthermore, the
Integrated Environmental Authorisation was also issued in terms of the
National Environmental Management Act 107 of 1998. All environmental
regulatory permits are therefore in place for the group to commence
construction and operation of the Elikhulu Project, which will add
approximately 56,000oz per annum to the group’s production profile from the
last quarter of the 2018 calendar year.
* At 30 June 2017, group gold resources were relatively unchanged at 34.4Moz
(30 June 2016: 34.9Moz).
* The group unfortunately had three employees fatally injured in the current
financial year (2016: one employee fatally injured), and remains focused on
reducing the severity of accidents. The group’s lost-time injury frequency
rate (‘LTIFR’) remained stable at 3.51 (2016: 3.50) whilst the reportable
injury frequency rate (‘RIFR’) improved to 1.53 (2016: 2.04). Significant
progress has been made on ensuring the on-mine safety management teams are
appropriately staffed and skilled to drive our safety improvement campaigns.
The safety performance at Barberton Mines Proprietary Limited (‘Barberton
Mines’) and Evander Gold Mines Limited
(‘Evander Mines’) is better than the average industry safety rates, and
the focus remains on improving safety year-on-year.
* Uitkomst Colliery produced and sold 326,744 tonnes of coal (2016: 87,538t)
from the underground mining operations, and 343,466 tonnes of coal
(2016:48,564t) acquired from third parties for blending and processing, prior
to the conclusion of the sale to Coal of Africa.
* Tonnes processed by Phoenix Platinum increased by 13.7% to 283,067t (2016:
248,981t), and platinum group elements (‘PGEs’) sold increased by 4.4% to
8,709oz (2016: 8,339oz). The plant recoveries improved by 20.9% to 52.0%
(2016: 43.0%) following the installation of high-energy cells, but this was
offset by the head grade reducing by 21.1% to 2.43g/t (2016:3.08g/t).
* The group’s detailed operational and financial summaries per entity are
disclosed on the Pan African Resources website at
http://www.panafricanresources.com/investors/financial-reports/.
Movement For the year ended 30 June 2017 For the year ended 30 June 2016 Unit Salient Features Unit For the year ended 30 June 2016 For the year ended 30 June 2017 Movement
(15.4%) 5,390 6,374 (Kilogrammes) Gold sold (Oz) 204,928 173,285 (15.4%)
(15.5%) 2,925.3 3,460.1 (R millions) Revenue (GBP millions) 161.3 169.6 5.1%
0.0% 542,773 542,850 (R/kg) Average gold price received (USD/oz) 1,164 1,242 6.7%
27.4% 430,863 338,242 (R/kg) Cash costs (USD/oz) 725 986 36.0%
26.8% 514,435 405,847 (R/kg) All-in sustaining costs (USD/oz) 870 1,177 35.3%
31.8% 540,693 410,206 (R/kg) All-in costs (USD/oz) 879 1,237 40.7%
(45.6%) 524.6 963.5 (R millions) Adjusted EBITDA (Note 3) (GBP millions) 44.9 30.4 (32.3%)
(43.3%) 309.9 547.0 (R millions) Attributable earnings (GBP millions) 25.5 17.9 (29.8%)
(42.3%) 315.6 547.1 (R millions) Headline earnings (GBP millions) 25.5 18.3 (28.2%)
(34.4%) 19.81 30.20 (cents) Earnings per share (‘EPS’) (pence) 1.41 1.14 (19.1%)
(33.2%) 20.17 30.20 (cents) Headline earnings per share (‘HEPS’) (pence) 1.41 1.17 (17.0%)
(80.1%) 67.6 339.6 (R millions) Net debt (GBP millions) 17.2 4.0 (76.8%)
24.2% 330.0 265.7 (R millions) Total sustaining capital expenditure (GBP millions) 12.4 19.1 54.3%
102.7% 613.1 302.4 (R millions) Total capital expenditure (Note 4) (GBP millions) 14.0 35.5 153.6%
5.5% 201.3 190.8 (cents) Net asset value per share (pence) 10.0 12.0 20.0%
(13.6%) 1,564.3 1,811.4 (millions) Weighted average number of shares in issue (millions) 1,811.4 1,564.3 (13.6%)
(6.3%) 13.59 14.51 (R/USD) Average exchange rate (R/GBP) 21.45 17.25 (19.6%)
(11.8%) 13.04 14.78 (R/USD) Closing exchange rate (R/GBP) 19.78 16.96 (14.3%)
Note 1: The Uitkomst Colliery contribution excludes corporate management
fees and inter-company interest on-charged to the operation during year.
Note 2: The GBP proposed final dividend was calculated based on
2,234,687,537 total shares in issue and an illustrative exchange rate of
R17:1. Shareholders on the United Kingdom register are to note that a revised
exchange rate will be communicated prior to approval of the final dividend at
the AGM.
Note 3: Adjusted EBITDA is represented by earnings before interest,
taxation, depreciation and amortisation, impairments, discontinued operations
and profit/(loss) on disposal of investments.
Note 4: The Elikhulu Project incurred R175.5 million in capital expenditure
to 30 June 2017 on civil engineering works and the procurement of
long-lead-time items, such as the tower crane and the carbon-in-leach tanks,
which are critical to ensuring construction deadlines are met.
CEO STATEMENT
Pan African Resources experienced a difficult year operationally, with lower
gold production and a flat ZAR gold price environment. Regrettably three
employees were fatally injured while on duty underground. We have conducted
internal assessments to take procedural learnings from each fatal incident.
Despite the severe setback related to the employee fatalities, our safety
performance rates relative to prior years have improved, with our LTIFR
stabilising and the RIFR improving year-on-year. The improvement in the
group’s overall safety performance is encouraging and we continue to strive
towards a zero-harm environment. Gold production was lower than expected as
Evander Mines suspended production for 55 days to carry out critical
refurbishments to its shaft infrastructure, and production at Barberton Mines
was below target due to logistical and flexibility constraints at Fairview,
compounded by community unrest in the Barberton Mines area and Department of
Mineral Resources (‘DMR’) safety stoppages (‘Section 54 regulatory
notices’) during the first half of the financial year.
Evander Mines restructured its operations during the reporting period, which
has resulted in improved operational efficiencies and a leaner and more
sustainable cost base. The shaft failure at Evander Mines, as reported in
February 2017, prompted a review of the mine’s engineering functions to
ensure similar problems are detected timeously in future. Evander Mines’
shaft infrastructure has also been subject to a number of internal and
external engineering reviews and we believe the risk of another failure is
materially reduced. Our engineering reviews have identified further
infrastructural issues, which are being addressed to ensure the risk
associated with the mine’s infrastructure is further reduced.
These challenges, which were well flagged during the year, impacted the
group’s results, with gold revenues decreasing by 15.5% to R2,925.3 million
(2016: R3,460.1 million), mostly due to the 15.4% decrease in gold production.
The average ZAR gold price received remained relatively unchanged at
R542,773/kg (2016: R542,850/kg) in a particularly volatile environment, and
the ZAR ended the financial year stronger against the US dollar at R13.59,
compared to R14.51 at the prior year end. Looking ahead, the outlook for the
ZAR is predominantly negative due to ongoing political, economic and social
uncertainties facing South Africa.
Despite the challenges and setbacks, at the end of the 2017 financial year the
group has emerged stronger, with reduced debt levels, and a renewed focus on
core operations and its strategic growth path. Developments at our Evander
Mines include the approval and commencement of construction (after year end)
of the Elikhulu Project and improvements to the reliability of mine
infrastructure, with the completion of critical structural and engineering
refurbishments at Evander Mines’ No 7 Shaft during March and April 2017. The
exploration programme at Evander Mines’ 2010 Pay Channel has commenced, and
if this area is proven to be a viable mining proposition, the orebody will be
mined from the existing No 7 Shaft, thereby saving the cost of sinking another
deep-level shaft. Work is progressing well at Barberton Mines’ Fairview
shaft, with the development of a sub-vertical shaft to improve access capacity
in mining the 11-block high-grade and long-life orebody.
The sale of Uitkomst Colliery in KwaZulu-Natal to Coal of Africa realised a
profit on sale of R91.3 million and further boosted the group’s already
strong financial position. The group announced on 31 July 2017 that it will
dispose of all of its shares and loan accounts in Phoenix Platinum to Sylvania
for a total cash consideration of R89 million. The transaction remains subject
only to Competition Commission approval. The results for Uitkomst Colliery and
Phoenix Platinum were reclassified to discontinued operations in the current
and prior financial year on the statement of comprehensive income.
An important development during the financial year under review was the
gazetting of the revised Mining Charter by the Minister of Mineral Resources
in June 2017, amid controversies surrounding the lack of consultation between
the government and other stakeholders, including the labour and mining
industry, as well as concerns about specific impositions in this new
charter. The revised Mining Charter was subsequently suspended in July 2017,
and is now the subject of discussions as well as legal actions by industry
stakeholders. Pan African Resources is supportive of constructive engagement
that results in a Mining Charter geared to the revitalisation of the mining
industry and which underpins job creation and much-needed economic growth.
While we closely monitor developments regarding the revised Mining Charter, we
are proud of the progress made in our transformation during the past years,
which include our involvement in the communities in which we operate, and the
establishment of employee ownership structures at all our gold operations.
In the 2017 financial year, the group’s gold production decreased by 15.4%
to 173,285oz (2016: 204,928oz), primarily due to the following challenges:
* The suspension of production for 55 days at Evander Mines to complete the
refurbishment of critical shaft infrastructure at No 7 Shaft. The consistent
review and inspection of critical infrastructure to manage and ensure limited
loss of production going forward is progressing well.
* Loss of production shifts due to frequent instances of community unrest in
the Barberton Mines area as a result of service delivery protests, compounded
by Section 54 regulatory notices issued at both Barberton Mines and Evander
Mines during the first half of the financial year. The group continues to
engage with all stakeholders to ensure its operations can function in a stable
and consistent manner.
* Barberton Mines experienced flexibility issues at Fairview, specifically at
its high-grade 11-block, which resulted in lower grades being mined. Work is
underway to develop additional production platforms to expose further
high-grade panels to increase mining grades and flexibility.
Uitkomst Colliery produced and sold 326,744 tonnes of coal from its
underground mining operations, and 343,466 tonnes of third-party coal acquired
for blending and processing, during the current reporting period. The
operation contributed to profitability during the 2017 financial year prior to
the conclusion of its sale to Coal of Africa on 30 June 2017.
Phoenix Platinum’s production increased by 4.4% to 8,709oz (2016: 8,339oz),
and its recoveries increased significantly to 52% from 43%, following the
implementation of high-energy agitation cells in the plant. Production in the
current reporting period was however negatively affected by a reduction in the
head grade achieved on the tailings processed from the Kroondal and
Elandskraal tailings.
Mineral reserves and resources
The group’s mineral resources and reserves in compliance with the South
African Code for Reporting of Mineral Resources and Mineral Reserves (the
SAMREC Code) are summarised as follows:
* Gold resources of 34.4Moz (2016: 34.9Moz)
- Gold reserves of 11.2Moz (2016: 10.0Moz)
* PGE resources of 0.6Moz (2016: 0.6Moz)
- PGE reserves of 0.2Moz (2016: 0.2Moz)
In determining our reserves and resources in the 2017 financial year, gold
reserves were modelled at R550,000/kg and gold resources at R600,000/kg.
During the current year the group’s mineral resources and reserves were
independently reviewed by SRK Consulting (South Africa) (Pty) Ltd.
Near- to medium-term growth projects
Elikhulu Project
Following the successful R696 million equity raise in April 2017, Pan African
Resources commenced capital expenditure on the project’s civil engineering
works and the procurement of long-lead-time items, such as the tower crane and
the carbon-in-leach tanks, which are critical to ensuring project deadlines
are met. The Elikhulu Project is progressing according to schedule and is on
budget. As announced on 25 August 2017, all environmental regulatory approvals
have been received, allowing construction to begin, with project completion
and first gold expected in the last quarter of the 2018 calendar year.
Capital expenditure of R175.5 million was incurred on the Elikhulu Project
during the current reporting period, and capital spend remains on track
relative to the total initial forecast capital expenditure of R1.74 billion,
which includes contingencies of R200 million.
The R1 billion term debt facility agreement, which was underwritten by Rand
Merchant Bank, a division of FirstRand Bank Limited, has also become effective
and was successfully syndicated, with an over-subscription of more than 50%.
Together with the group’s existing R1 billion revolving credit facility,
these facilities comprise the core debt instruments for funding the group’s
capital expenditure programmes. The low-cost, long-life Elikhulu Project is
expected to increase the group’s annual gold production by 56,000oz per
annum in the initial eight years and substantially reduce the group’s
weighted average all-in cost of production.
Evander Mines’ 2010 Pay Channel
The 2010 Pay Channel resource is adjacent to the No 7 Shaft infrastructure and
extends from the boundary of Taung Gold International Limited’s No 6 Shaft
project and mining rights. The Resources for this project are summarised in
the table below:
No 7 Shaft: No 3 Decline and 2010 Pay Channel resources
Category Tonnes Grade Contained gold
Million g/t Tonnes Moz
Measured 0.45 8.94 4.0 0.13
Indicated 0.70 7.11 5.0 0.16
Inferred 4.13 8.93 36.9 1.19
Total 5.28 8.69 45.9 1.48
As previously reported, Evander Mines embarked on an exploration programme to
drill a further exploration borehole from surface. During 2017, the
exploration borehole successfully intersected the Kimberley reef at a depth of
approximately two kilometres. Refer below to the table highlighting reef
intersections and deflections. The previous borehole into the 2010 Pay Channel
yielded a reef intersection with a 49cm width at 36.0g/t.
2010 Pay Channel exploration borehole results
Detail Intersection Depth(metres) Core width (centimetres) Grades
g/t cmg/t
Original 1 2059.3 49 36.0 1,766
Intersection 2 2014.6 5.7 36.8 210
Deflection 1 3 2014.9 5.7 33.2 189
Deflection 2 4 2014.8 4.8 144.7 694
Harmony Gold Mining Company Limited (‘Harmony’) previously started
development from the No 7 Shaft mine workings towards the 2010 Pay Channel.
Due to financial constraints and a reassessment of capital expenditure
priorities, Harmony halted all development on the Evander Mines’ shafts
(other than No 8 Shaft) in 2009, resulting in the controlled flooding of the
development ends and No 7 Shaft’s No 3 Decline, from 21 Level up to 18
Level. Following dewatering, only standard footwall and on-reef development
would need to be completed by Evander Mines, with the associated engineering
infrastructure, before mining can commence.
The 2010 Pay Channel is approximately 4.5 kilometres in tramming distance from
No 7 Shaft, which is currently used by Evander Mines for hoisting to the
Kinross metallurgical plant. This compares favourably with the No 8 Shaft
mining areas, which are approximately 12 kilometres in tramming distances from
No 7 Shaft.
The group’s project team has commenced a feasibility study on No 7 Shaft’s
No 3 Decline and 2010 Pay Channel resource, which will address the following
critical issues:
* Collation of geological data from the drill-hole intersection and
deflections.
* The cost and timing of dewatering and re-equipping the No 7 Shaft’s No 3
Decline from 18 Level to 21 Level.
* The development cost and timing to access the 2010 Pay Channel.
* The economic viability of the project.
The 2010 Pay Channel can potentially increase Evander Mines’ underground
gold production significantly at a relatively low capital cost, using Evander
Mines’ established shaft and metallurgical facilities. The feasibility
study for the project is expected to be completed during the first quarter of
the 2018 financial year.
Barberton Mines’ sub-vertical shaft project at Fairview
The Fairview mining operation is currently restricted by the hoisting capacity
of its No 3 Decline, which is used to access workings below 42 Level. This
decline is currently used to transport employees and material and for rock
hoisting. The 11-block of the main reef complex orebody has an average grade
of 31.3 g/t and current life-of-mine of 20 years. With no intervention,
future mining at depth will result in increased travelling distance, reduce
employee face time, and cause a lack of capacity to ensure both ore
replacement and exploration development.
Pan African Resources, with the assistance of DRA Projects SA Proprietary
Limited (‘DRA’), has completed a feasibility study on the construction of
a raise-bored, sub-vertical shaft from Fairview’s 42 Level to 64 Level, with
the potential of continuing the vertical shaft to 68 Level in future. This
sub-vertical shaft will be used to transport employees and material to the
working areas, which will allow the No 3 Decline to be used exclusively for
rock hoisting, increasing overall capacity and production from this mining
area.
DRA has reviewed the technical and commercial aspects of the project and the
supporting feasibility study has yielded very positive results. The estimated
capital expenditure for the project, including contingencies, is approximately
R105 million, to be incurred over a two-year period. The productivity
improvements for Fairview are estimated to yield an additional 7,000oz of gold
per annum, which can be optimised further to more than 10,000oz per annum.
Outlook
In the 2018 financial year, the key focus areas for the group, from an
operational perspective, include:
* Continuing to improve our safety and regulatory compliance across all
operations.
* Achieving its gold production guidance of 190,000oz for the 2018 financial
year.
* Ensuring construction of the Elikhulu Project progresses according to the
original schedule and budget.
* Completing the drilling programme deflections on the Evander Mines 2010 Pay
Channel and finalising the technical and economic evaluation of the project.
* Commencing construction of the Barberton Mines’ sub-vertical shaft project
at Fairview.
* Ensuring sustainable and optimal operating performance at our gold mining
operations.
* Further improving stakeholder engagement to minimise operational stoppages.
* Concluding the R89 million disposal of Phoenix Platinum to Sylvania.
The group continues to evaluate acquisitive opportunities, particularly within
other African jurisdictions, in accordance with the group’s rigorous capital
allocation criteria.
We extend our appreciation to our management teams and all other staff for
their hard work and persistence during this challenging period. Their
commitment and perseverance has enabled Pan African Resources to continue
operating successfully. We also thank our fellow directors for their support
and guidance.
FINANCIAL PERFORMANCE
When assessing and discussing Pan African Resources reported financial
performance, financial position and cash flows, management refers to
Alternative Performance Measures (‘APMs’) of historical or future
financial performance, financial position or cash flows that are not defined
or specified under International Financial Reporting Standards (‘IFRS’).
Examples of APMs are headline earnings and adjusted EBITDA and net debt. These
APMs have been described and reconciled in accordance with the respective
listing requirements for this announcement. The Integrated Annual Report which
will be published prior to the AGM and will have all the APMs reconciled to
the closest IFRS term.
Exchange rates and their impact on results
All of the group’s subsidiaries are incorporated in South Africa and their
functional currency is ZAR. The group’s business is conducted in ZAR and the
accounting records are maintained in this same currency, with the exception of
precious metal product sales, which are conducted in USD prior to conversion
into ZAR. The ongoing review of the operational results by executive
management and the board is also performed in ZAR.
The group’s presentation currency is GBP due to its ultimate holding
company, Pan African Resources, being incorporated in England and Wales and
being dual-listed in the United Kingdom (‘UK’) and South Africa.
During the period under review the average ZAR/GBP exchange rate was R17.25:1
(2016: R21.45:1) and the closing ZAR/GBP exchange rate was R16.96:1 (2016:
R19.78:1). The year-on-year change in the average and closing exchange rates
of 19.6% and 14.3%, respectively, must be taken into account for the purposes
of translating and comparing year-on-year results.
The group records its revenue from precious metals sales in ZAR and the
strength in the value of the ZAR/USD exchange rate during the period under
review had a negative impact on the USD revenue received when translated into
ZAR. The average ZAR/USD exchange rate was 6.3% stronger at R13.59:1 (2016:
R14.51:1).
The commentary below analyses the current and prior comparative period’s
results. Key aspects of the group’s ZAR results appear in the body of this
commentary and have been used as the basis against which its financial
performance is measured. The gross GBP equivalent figures can be calculated by
applying the exchange rates as detailed above.
Analysing the group’s financial performance
Revenue
The group’s total revenue from continuing and discontinued operations,
year-on-year, decreased in ZAR terms by 5.3% to R3,440.4 million (2016:
R3,632.8 million) and in GBP terms increased by 17.7% to GBP199.4 million
(2016: GBP169.4 million). Group revenue was mainly impacted by:
1. The average ZAR gold price received decreased marginally to R542,773/kg
(2016: R542,850/kg), as a result of the average ZAR/USD exchange rate
strengthening by 6.3% to R13.59:1 (2016: R14.51:1) and the USD gold price
received increasing by 6.7% to USD1,242/oz (2016: USD1,164/oz). The GBP
revenue figures were positively impacted by the ZAR/GBP average exchange rate
strengthening by 19.6% year-on-year.
2. Gold ounces sold decreased by 15.4% to 173,285oz (2016: 204,928oz), as
result of the operational challenges highlighted.
3. Uitkomst Colliery revenue of R432.8 million (2016: R98.0 million), or
GBP25.1 million (2016: GBP4.6 million), disclosed in discontinued operations,
following the conclusion of the disposal to Coal of Africa on 30 June 2017.
4. Phoenix Platinum revenue of R82.2 million (2016: R74.7 million) or GBP4.8
million (2016: GBP3.5 million) disclosed in discontinued operations, following
its classification as an asset held for sale ahead of the signing of a
disposal agreement with Sylvania.
Cost of production
Gold operations cost of production
The group’s total cost of production (including realisation costs) for gold
operations was well controlled and increased by 7.7% to R2,343.1 million
(2016: R2,176.0 million).
Pan African Resources’ gold cost of production (excluding realisation
costs), per the statement of comprehensive income, increased by 7.2% to
R2,311.6 million (2016: R2,155.5 million). The main cost contributors that
impacted the year-on-year cost increase during the current reporting period
are summarised as follows:
* Group gold operations’ salaries and wages (represents 43.1% of the total
gold cost of production) increased by 4.5% to R1,010.8 million (2016: R967.7
million). Salaries and wages increased in line with the gold labour agreements
signed in the 2016 financial year, but this was off-set by the reduction in
labour costs at Evander Mines due to the retrenchment of 628 employees at the
operation.
* The group’s electricity costs (represents 13.8% of the total gold cost of
production) increased by 2.1% to R324.0 million (2016: R317.3 million). The
National Energy Regulator of South Africa approved an increase of 7.9% for the
period 1 July 2016 to 31 March 2017, and 2.2% from 1 April 2017. Production
challenges detailed previously also contributed to lower power consumption,
specifically at Evander Mines during the 55-day suspension of underground
operations.
* The group’s mining and processing costs (represents 28.3% of total gold
cost of production) increased by 18.0% to R662.6 million (2016: R561.3
million), mainly due to the following material expenses: * The Evander
Tailings Retreatment Plant’s (‘ETRP’) processing costs increased by
R60.4 million or 44.2% due to treating additional surface feedstock material.
The tonnes of surface feedstock processed increased by 17.8% to 467,610 tonnes
(2016: 396,942 tonnes) and this contributed an additional R33.4 million to the
group’s adjusted EBITDA.
* Maintenance of Evander Mines’ No 7 Shaft infrastructure resulted in an
additional R4.5 million expenditure being incurred.
* In the comparative reporting period the gold operations recorded an
inventory adjustment in operational costs of R4.6 million, due to releasing
gold inventory at 30 June 2016, whilst in the current financial year the gold
inventory adjustment was a R12.7 million credit to costs due to holding more
gold inventory at financial year end.
The group’s gold cost of production per kilogramme increased by 27.4% to
R430,863/kg (2016: R338,242/kg). The increase is attributed to:
* Gold sold decreasing by 15.4% to 173,285oz (2016: 204,928oz).
* The 7.7% increase in gold production and realisation costs as a result of
the reasons highlighted above.
The group’s all-in sustaining cost of production per kilogramme of gold
(including direct cost of production, royalties, associated corporate costs
and overheads, and sustaining capital expenditure, excluding cost-collar
mark-to-market expenses) increased by 26.8% to R514,435/kg (2016:
R405,847/kg). In USD terms the all-in sustaining cost per ounce increased to
USD1,177/oz (2016: USD870/oz). The group’s all-in sustaining costs were
primarily impacted by an increase in gold production costs and a decrease in
gold sold.
The all-in gold cost per kilogramme (sustaining cost of production and
once-off expansion capital, but excluding the Elikhulu Project capital)
increased by 31.8% to R540,693/kg (2016: R410,206/kg), due to the increase in
once-off capital expansion costs to R100.8 million (2016: R27.8 million),
which related mostly to the construction of the Barberton Tailings Retreatment
Plant’s (‘BTRPs’) cyanide detoxification plant of R17.8 million and
Fairview’s ventilation refrigeration and infrastructure of R41.5 million. In
USD terms, the all-in cost per ounce increased to USD1,237/oz (2016:
USD879/oz).
PGE cost of production
Phoenix Platinum’s cost of production is disclosed within discontinued
operations on the statement of comprehensive income, following the
announcement on 31 July 2017 that a sale agreement, for R89 million cash
consideration, was signed with Sylvania, and now remains subject to
Competition Commission approval. Phoenix Platinum is classified as an asset
held for sale on the statement of financial position in the current reporting
period, as Pan African Resources’ intent is to dispose of the operation
within the next 12 months.
The PGE cost of production increased by 16.6% to R86.4 million (2016: R74.1
million), largely due to refining and processing costs increasing by 18.2% to
R57.1 million (2016: R48.3 million). Higher refining costs were incurred due
to higher chrome prevalence in the tailings processed from the
Elandskraal/Kroondal tailings prior to entering into a new refining agreement
effective in December 2016. Additional transport costs were also incurred to
deliver tailings material from the more distant Elandskraal/Kroondal tailings
sites.
Coal cost of production
The Uitkomst Colliery’s production cost in the current financial year of
R375 million (2016: R91.8 million) is disclosed within the discontinued line
item on the statement of comprehensive income while, in the comparative
period, production costs was only for three months from 1 April 2016 to 30
June 2016.
Realisations costs
The group’s realisation costs increased to R31.5 million (2016: R20.5
million) due to an additional R15.4 million in refining costs associated with
the extraction and recovery of gold from various sections of the Evander
Mines’ processing plant by a contractor. This initiative contributed
160.5kg (5,160.9oz) of gold to Evander Mines’ production over the life of
the project.
Depreciation costs
Depreciation from continuing operations decreased by 15.6% to R181.0 million
(2016: R214.4 million). The depreciation charge is based on the available
units of production over the life of the operations and, with the reduced
mining tonnages and gold production for the reasons mentioned in the CEO
statement, the gold operations’ depreciation reduced commensurately. The
depreciation was further reduced by an adjustment to residual values of
property, plant and equipment on the gold operations.
Other expenditure and income
The group had no outstanding short-term hedges at 30 June 2017. In July 2015,
Barberton Mines entered in a cost collar, when the prevailing spot gold price
was R440,000/kg, to protect its cash flows and the group’s annual dividend
against severe adverse movements in the ZAR gold price. During the current
reporting period, the group recorded a pre-tax realised mark-to-market
fair-value gain of R94.7 million on this cost collar (2016: pre-tax realised
cost-collar derivative fair-value loss of R113.8 million). This gain resulted
from a reversal of the prior financial year’s cost-collar mark-to-market
liability, which was valued at a R625,000/kg gold price, which regressed to an
average gold price received of R542,773/kg in the current financial year.
The fair-value adjustment of the group’s rehabilitation liability resulted
in an increase of R0.4 million (2016: R38.2 million decrease in liability).
The rehabilitation investment decreased by R0.9 million (2016: R9.2 million
increase in the investment) due to movements in the market values of the
underlying investments.
Finance costs increased to R48.6 million (2016: R31.1 million), following
increased revolving credit facility utilisation during the period under
review.
During December 2016, the group disposed of an investment in a listed entity.
The investment represented 1,750,850 shares, which were sold for R23.4
million, and resulted in a profit of R4.6 million being recognised in the
statement of comprehensive income during the period under review. Dividends
received for the period under review, prior to disposal, amounted to R0.6
million (2016: R1.0 million).
Taxation
The group’s total taxation charge decreased to R4.2 million (2016: R184
million).
The taxation charge comprised of:
* A decrease in the current taxation charge by 60.1% to R80.4 million (2016:
R203.9 million).
* An increase in the deferred taxation credit to R76.2 million (2016: deferred
taxation credit of R19.9 million), predominantly due to the deferred taxation
associated with the pre-tax realised mark-to-market fair-value gain of R94.7
million, and a reduction of the long-term deferred taxation rate to 23.1% from
28% and 25.5% for Barberton Mines and Evander Mines, respectively.
EPS and HEPS
The group’s EPS in ZAR decreased by 34.4% to 19.81 cents (2016: 30.20
cents). The group’s HEPS in ZAR decreased by 33.2% to 20.17 cents (2016:
30.20 cents). The difference between the EPS and HEPS has been reconciled
below.
The EPS and HEPS are calculated by applying the group’s weighted average
number of shares in issue to the attributable and headline earnings. The
weighted average number of shares in issue decreased by 13.6% to 1,564.3
million shares (2016: 1,811.4 million shares). The decrease in shares was
attributed to eliminating the PAR Gold Proprietary Limited (‘PAR Gold’)
shares held in Pan African Resources, whilst including the additional 291.5
million shares issued in the equity raise concluded on 12 April 2017.
The weighted average number of shares in issued for calculating earnings per
share is reconciled below:
30 June 2017 30 June 2016
Shares in issue at beginning of year 1,943.2 1,831.5
Issue of 291,5 million shares – vendor placement (date 12 April 2017) (Note 1) 57.5 -
Issue of 111.7 million shares – vendor placement (date 3 June 2016) - 8.5
Elimination of shares held by PAR Gold (Note 2) ( 436.4) (28.6)
Weighted average shares in issue at end of year 1,564.3 1,811.4
Note 1: On 12 April 2017 the group issued 291,480,983 ordinary shares to fund
the equity component of the Elikhulu Project’s construction.
Note 2: The PAR Gold shares were acquired on 7 June 2016 and, in the current
reporting period, the group benefitted from a full year exclusion of these
shares in the calculation of the weighted average number of shares compared to
the period of less than a month in the corresponding results.
Total headline earnings per share is calculated as follows:
30 June 2017 30 June 2016 30 June 2017 30 June 2016
GBP million GBP million ZAR million ZAR million
Basic earnings 17.9 25.5 309.9 547.0
Adjustments:
Profit on disposal of investment (0.2) - (4.6) -
Taxation on profit realised on disposal of investment 0.1 - 1.0 -
Profit on disposal of Uitkomst Colliery (5.4) - (91.3) -
Profit on disposal of property plant and equipment (0.1) - (0.4) -
Taxation on profit realised on property plant and equipment sale - - 0.1 -
Impairment of Phoenix Platinum 6.0 - 100.9 -
Headline earnings 18.3 25.5 315.6 547.0
Headline earnings per share 1.17 1.41 20.17 30.20
Diluted headline earnings per share 1.17 1.41 20.17 30.19
Continuing operations headline earnings per share is calculated as follows:
30 June 2017 30 June 2016 30 June 2017 30 June 2016
GBP million GBP million ZAR million ZAR million
Basic earnings for continuing operations 22.8 25.3 391.9 543.3
Adjustments:
Profit on disposal of Investment (0.2) - (4.6) -
Taxation on profit on disposal of Investment - - 1.0 -
Profit on disposal of subsidiary (5.4) - (91.3) -
Profit on disposal of property plant and equipment - - - 0.1
Headline earnings for continuing operations 17.2 25.3 297.0 543.4
Headline earnings per share for continuing operations 1.10 1.40 18.98 30.00
Diluted headline earnings per share for continuing operations 1.10 1.40 18.97 29.99
Historical dividends paid
The group paid a final dividend of R300 million or GBP17.1 million on
22 December 2016, relating to the 2016 financial year. This dividend equated
to R0.1544 per share, or 0.88 pence per share.
Following the PAR Gold transaction, the company received 22.46% or R67.4
million of the R300 million dividend, resulting in a net dividend of R232.6
million paid to external shareholders.
Dividend policy
Pan African Resources aspires to pay a regular dividend to its shareholders.
In balancing this cash return to shareholders with the group’s strategy of
generic and acquisitive growth, Pan African Resources believes a target
pay-out ratio of 40% of net cash generated from operating activities - after
allowing for the cash flow impact of sustaining capital, contractual debt
repayments and the cash flow impact of once-off items - is appropriate. This
measure aligns dividend distributions with the cash generation potential of
the business. In proposing a dividend, the board will also take into account
the company’s financial position, future prospects, satisfactory solvency
and liquidity assessments and other factors deemed relevant at the time. The
board also allows itself flexibility to deviate from the above policy, when
deemed appropriate.
Although cash generated by operating activities for the period were below
expectations, the cash flow generated by the sale of Uitkomst Colliery and
other investments amounted to R148.4 million and largely constitutes the
return to shareholders of the profits realised on the original investments.
Whilst this is a deviation from the group’s stated dividend policy, the
board considered that the exceptional circumstances warrant the proposed
dividend as the Elikhulu Project debt facility has been closed and sustaining
capital can be funded from operational cash flows at the prevailing gold
price.
Net debt
Total debt facilities utilised at 30 June 2017 amounted to R227.8 million
(2016: R392.2 million), and cash holdings were R160.2 million (2016: R52.6
million), resulting in a decrease in net debt to R67.6 million (2016: R339.6
million).
The decrease in net debt was predominantly as a result of the gross proceeds
received from the R696 million equity raised on 12 April 2017.
Summary of the long-term debt liabilities:
Revolving credit facility Evander Mines gold loan Total
30 June 2017 30 June 2016 30 June 2017 30 June 2016 30 June 2017 30 June 2016
ZAR millions ZAR millions ZAR millions ZAR millions ZAR millions ZAR millions
Non-current portion 180.5 279.3 - 26.6 180.5 305.9
Current portion 20.7 31.1 26.6 55.2 47.3 86.3
Total 201.2 310.4 26.6 81.8 227.8 392.2
The group’s performance against the revolving credit facility debt covenant
limits are summarised below:
Measurement 30 June 2017 30 June 2016 Description
Net-debt-to-equity ratio Must be less than 1:1 0.01 0.11 Improvement
Net-debt-to-adjusted EBITDA ratio Must be less than 2.5:1 0.05 0.38 Improvement
Interest cover ratio Must be greater than 4 times 10 26 Regression due to reduced profits and higher interest expense
Capital expenditure
Group capital expenditure for the 2017 financial year has been summarised per
operation in the table below:
Continuing Operations Discontinued Operations Group Total
Barberton Mines (Note 1) Evander Mines (Note 2) Elikhulu Corporate Phoenix Platinum Uitkomst Colliery
ZAR million ZAR million ZAR million ZAR million ZAR million ZAR million ZAR million
Development capital 65.7 79.8 - - 7.0 152.5
Maintenance capital 50.8 118.6 - 1.4 3.4 3.3 177.5
Sustaining capital total 116.5 198.4 - 1.4 3.4 10.3 330.0
Expansion capital 77.0 23.8 175.5 - 2.0 4.8 283.1
Total capital expenditure 193.5 222.2 175.5 1.4 5.4 15.1 613.1
Note 1: The R77 million once-off expansion capital related to the
construction of the BTRP detoxification plant for R17.1 million and the
acquisition of additional tailings resources for R5 million. Barberton Mines
incurred R41.5 million for the construction of the installation of
refrigeration at Fairview, and R13.4 million on development of Royal Sheba.
Note 2: Evander Mines incurred R15.8 million on 25 A Block and 26
Level decline development, and R8 million on the 2010 Pay Channel project
drilling programme. Evander Mines also incurred an additional R42 million in
relation to maintenance capital following the refurbishment of No 7 Shaft
infrastructure.
Cash flow summary
Cash generated by operations before dividends decreased by R452.4 million to
R339.0 million (2016: R791.4 million), due to lower gold production following
the operational disruptions and challenges noted previously. Cash generated by
operations after taking into account net dividends paid to shareholders of
R232.6 million (2016: R210 million), decreased to R106.5 million (2016: R581.4
million).
The cash outflows from investing activities was R491 million (2016: R969
million), predominantly due to:
* Capital expenditure incurred increased to R613.1 million (2016: R302.4
million), due to the Elikhulu Project and higher once-off capital expenditure
predominantly due to the construction of the BTRP cyanide detoxification plant
and Fairview’s ventilation refrigeration and infrastructure.
* Proceeds on the sale of a listed investment of R23.4 million, and proceeds
on the sale of property plant and equipment of R7 million at Uitkomst
Colliery.
* Inflow of funds of R125 million following the sale of Uitkomst Colliery,
with net proceeds of the disposal being R111.7 million, net of the cash
transferred within the business.
Net cash inflows from financing activities was R493 million (2016: R375.9
million outflow), predominantly due to:
* The utilisation of the revolving credit facility to fund operational capital
expenditure.
* Share issues resulting in gross proceeds of R696 million, and R672 million
net of share issue costs.
Evander Mines incurred cash outflows of R345.2 million during the financial
year, following the refurbishment of critical shaft infrastructure which
resulted in lower gold production.
The R345.2 million cash outflows is summarised as follows:
* Cash outflows of Evander Mines operations of R116.3 million;
* Cash outflows from investing activities in capital expenditure (excluding
the Elikhulu Project) of R222.2 million, of which R42 million related to the
refurbishment of critical No 7 Shaft’s infrastructure and R180.2 million was
normalised operational capital expenditure;
* Cash outflows from financing activities of R6.7 million.
COMMITMENTS REPORTED IN ZAR AND GBP
The group identified no contingent liabilities in the current or prior
financial period.
The group had outstanding open orders contracted for at period end of R1.22
billion (2016: R12.7 million), or GBP72 million (2016: GBP0.6 million).
Outstanding orders in the current reporting period related mostly to the
Elikhulu Project.
Authorised commitments for the 2018 financial period, not yet contracted for,
totalled R328.7 million (2016: R345.9 million) or GBP19.4 million (2016:
GBP17.5 million).
At 30 June 2017, the group had guarantees in place of R24.6 million (2016:
R24.6 million) or GBP1.4 million (2016: GBP1.2 million) in favour of Eskom
Holdings SOC Limited and R14.0 million (2016: R14.0 million) or GBP0.8 million
(2016: GBP1.0 million) in favour of the DMR.
Operating lease commitments, which fall due within the next financial year,
amounted to R2.7 million (2016: R2.9 million) or GBP0.16 million (2016:
GBP0.16 million).
FAIR VALUE INSTRUMENTS
Financial instruments measured at fair value are grouped into levels 1 to 3
based on the extent to which fair value is observable.
The levels are classified as follows:
Level 1 - fair value is based on quoted prices in active markets for identical
financial assets or liabilities.
Level 2 - fair value is determined using inputs other than quoted prices
included within level 1 that are observable for the asset or liability.
Level 3 - fair value is determined on inputs not based on observable
market data.
Level 1 financial instruments:
Pan African Resources hold 261,287,625 shares in Coal of Africa (9.3%
shareholding), which is fair valued at R127.6 million (GBP7.5 million). The
fair value of the listed investment is treated as Level 1 of the fair value
hierarchy, as the share price is quoted on a stock exchange.
The group’s rehabilitation trust funds are valued at R320.6 million (2016:
R321.5 million) or GBP18.9 million (2016: GBP16.2 million), which comprise
investments in guaranteed equity-linked notes, bonds and interest-bearing call
accounts.
Level 2 financial instruments:
During the financial year under review, the cost collar referred to earlier
was settled, resulting in no financial exposure to be fair valued on a
mark-to-market basis, whilst in the prior financial year the cost-collar
mark-to-market liability was R117.6 million.
The group’s cash settled share option liability, which is valued on a
mark-to-market basis according to the Pan African Resources quoted share
price, amounted to R46.4 million (2016: R104 million).
Level 3 financial instruments:
The group’s employee share ownership plan (‘ESOP’) liability is
accounted for on a cash settled share option basis and valued on a
mark-to-market basis on the net present value of the discounted future cash
flows applicable to the beneficiaries of the schemes. The ESOP liability was
R1.9 million (2016: R5.6 million).
BASIS OF PREPARATION OF THE FINANCIAL STATEMENTS AND ACCOUNTING POLICIES
Investors should consider non-Generally Accepted Accounting Principles
('non-GAAP') financial measures shown in this provisional announcement in
addition to, and not as a substitute for or as superior to, measures of
financial performance reported in accordance with International Financial
Reporting Standards ('IFRS'). The IFRS results reflect all items that affect
reported performance and therefore it is important to consider the IFRS
measures alongside the non-GAAP measures.
The provisional announcement has been prepared using accounting policies that
comply with the IFRS adopted by the European Union and South Africa, which are
consistent with those applied in the financial statements for the prior years
ended 30 June 2016 and 30 June 2015.
The provisional audited results announcement is only a summary of the
information in the Integrated Annual Report and does not contain full or
complete details. Any investment decision by investors and/or shareholders
should be based on consideration of the final Integrated Annual Report to be
published on the company’s website as a whole.
JSE LIMITED (‘JSE’) LISTING
The company has a dual primary listing on the JSE in South Africa and the AIM
market ('AIM') of the London Stock Exchange (‘LSE’).
This provisional announcement has been prepared in accordance with the
framework concepts and the measurement and recognition requirements of IFRS
and SAICA Financial Reporting Guides as issued by the Accounting Practice
Committee, and the Financial Pronouncements as issued by the Financial
Reporting Standards Council, and the minimum information as required by
International Accounting Standards 34: Interim Financial Reporting. The
accounting policies are in terms of IFRS and are consistent with those applied
in the 2016 consolidated financial statements.
The group's South African external auditors, Deloitte & Touche, have issued
their opinions on the consolidated financial statements and the provisional
summarised consolidated financial statements for the year ended 30 June 2017.
The audits were for both the
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