REG-Pan African Resources PLC: Interim Results for the 6 months ended 31 Dec 2016 <Origin Href="QuoteRef">PAFR.L</Origin> - Part 1
22/02/2017 07:05
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
Interim unaudited results for the six months ended 31 December 2016
Cobus Loots, CEO of Pan African Resources commented:
“Pan African Resources generated higher earnings, revenues and a record
dividend pay-out of R300 million (GBP17.1 million), despite lower production
from our gold operations. The Elikhulu Tailings Retreatment Project
(‘Elikhulu’), which was approved by the Pan African Resources Board during
the period under review, will provide organic production growth of
approximately 56,000oz of gold per annum, and also reduce the overall cost
profile of our operations. Elikhulu reflects Pan African Resource’s strategy
of delivering long-life, low cost quality production ounces, with the focus of
generating attractive returns for our shareholders.”
“Transactions completed in the prior financial year have positively impacted
results in the current reporting period and have been extremely value
accretive. The PAR Gold Proprietary Limited (‘PAR Gold’) acquisition
enhanced earnings per share by 17.7%. Uitkomst Colliery contributed R21.3
million, or 8.5%, towards the group’s profit after taxation.”
“Our immediate focus is to recommence the Evander Mines underground mining
operations, following the temporary suspension of mining to refurbish critical
infrastructure, and to finalise the Elikhulu funding package.”
Key features reported in South African Rand (‘ZAR or R’) and Pound
Sterling (‘GBP’)
Financial key features
* The group’s profit after taxation in ZAR terms increased by 9.8% to R249.8
million (2015: R227.6 million), while in GBP terms, the group’s profit after
taxation increased by 28.4% to GBP14.0 million (2015: GBP10.9 million).
* Earnings per share (‘EPS’) increased by 33.4% to 16.58 cents per share
(2015: 12.43 cents per share), while in GBP terms, EPS increased by 55.0% to
0.93 pence per share (2015: 0.60 pence per share).
* Group revenue increased by 19.2% to R1,878.2 million (2015: R1,575.4
million) and, in GBP terms, group revenue increased by 38.9% to GBP105.0
million (2015: GBP75.6 million). This increase was due to an increase in the
ZAR gold price received and the inclusion of Uitkomst Colliery’s revenue of
R225 million (GBP12.6 million), in the current period (2015: Nil).
* The group paid a final dividend of R300 million or GBP17.1 million (2015:
R210 million or GBP9.7 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 (2015: R0.1147 per share or 0.53 pence per share).
* The Pan African board of directors (the “board”) approved the Elikhulu
project, subject to certainty on the funding of the project.
* The Uitkomst Colliery performed well and contributed R21.3 million (2015:
Nil), or 8.5%, to the group’s profit after taxation.
* The PAR Gold transaction (previously named the Shanduka Gold transaction)
contributed an additional 17.7% to the group’s EPS.
Operational key features
* Group gold production decreased by 10.0% to 91,613oz (2015: 101,797oz).
* Effective rand gold price received increased by 16.5% to R565,298/kg (2015:
R485,215/kg) and, in USD terms, it increased by 13.2% to USD1,257/oz
(2015:USD1,110/oz).
* Due to the lower gold production, all-in sustaining cost per kilogramme
increased in ZAR terms to R456,187/kg (2015: R396,819/kg) and, in USD terms,
all-in sustaining cost per ounce increased to USD1,014/oz (2015:USD908/oz).
* Uitkomst Colliery produced and sold 127,605 tonnes of coal from the
underground mining operations and 199,597 tonnes of coal acquired from third
parties for blending and processing.
* Phoenix Platinum Mining Proprietary Limited (‘Phoenix Platinum’)
increased platinum group elements (‘PGE’) production by 1.8% to 4,574oz
(2015: 4,493oz).
* Group gold resources remained similar relative to the prior financial year
ending 30 June 2016 at 34.9Moz (30 June 2015: 31.9Moz).
* The group is pleased to report no fatalities in the reporting period (2015:
no fatalities) and an improved overall group safety performance.
Movement For the six months ended 31 December 2016 For the six months ended 31 December 2015 Metric Salient features Metric For the six months ended 31 December 2015 For the six months ended 31 December 2016 Movement
(10.0%) 2,849.5 3,166.2 (Kilogrammes) Gold sold (Oz) 101,797 91,613 (10.0%)
19.2% 1,878.2 1,575.4 (R millions) Revenue (GBP millions) 75.6 105.0 38.9%
16.5% 565,298 485,215 (R/kg) Average gold price received (USD/oz) 1,110 1,257 13.2%
29.4% 418,764 323,730 (R/kg) Cash costs (USD/oz) 740 931 25.8%
15.0% 456,187 396,819 (R/kg) All-in sustaining costs (USD/oz) 908 1,014 11.6%
20.3% 478,332 397,692 (R/kg) All-in costs (USD/oz) 910 1,063 16.8%
13.8% 476.5 418.7 (R millions) Adjusted EBITDA (note 1) (GBP millions) 20.1 26.6 32.3%
9.8% 249.8 227.6 (R millions) Attributable earnings (GBP millions) 10.9 14.0 28.4%
8.1% 246.0 227.6 (R millions) Headline earnings (GBP millions) 10.9 13.8 26.6%
33.4% 16.58 12.43 (cents) EPS (pence) 0.60 0.93 55.0%
31.3% 16.32 12.43 (cents) Headline earnings per share (‘HEPS’) (pence) 0.60 0.91 51.7%
43.7% 497.0 345.8 (R millions) Net debt (GBP millions) 15.0 29.4 96.0%
40.4% 140.5 100.1 (R millions) Total sustaining capital expenditure (GBP millions) 4.8 7.9 64.6%
57.9% 203.5 128.9 (R millions) Total capital expenditure (GBP millions) 6.2 11.5 85.5%
27.5% 191.7 150.4 (cents) Net asset value per share (pence) 7.0 11.5 64.3%
(17.7%) 1,506.8 1,831.5 (millions) Weighted average number of shares in issue (millions) 1,831.5 1,506.8 (17.7%)
2.9% 13.99 13.60 (R/USD) Average exchange rate (R/GBP) 20.83 17.88 (14.2%)
(11.8%) 13.70 15.53 (R/USD) Closing exchange rate (R/GBP) 22.99 16.90 (26.5%)
Note 1: Adjusted EBITDA is represented by earnings before interest, taxation,
depreciation and amortisation, impairments and profit/(loss) on disposal of
investments.
CEO STATEMENT
Despite a period of lower gold production and normal inflationary cost
pressures, the group improved its profitability and paid a record dividend of
R300 million (GBP17.1 million) to shareholders. We benefitted from higher
commodity prices and have capitalised on the Uitkomst Colliery and PAR Gold
transactions to significantly improve the group’s EPS and HEPS, when this
set of results is compared to the comparative period.
The Board approved the construction of Elikhulu, which is a further
significant step towards realising shareholder value from our organic growth
projects. The decision to commence construction of the project remains subject
to finalising the most appropriate financing package, with funding tailored to
maximise returns for our shareholders on a risk adjusted basis. On
commissioning, currently planned for the last quarter of the 2018 calendar
year, the group will be on track to achieve 250,000 ounces of annual gold
production from our current portfolio of assets and infrastructure. Elikhulu
demonstrates the group’s commitment to remaining focused on our core
business of low cost gold mining.
Following a challenging operational start to the 2017 financial year, our
mining operations remain focused on improving gold production. During the
period under review, the group’s gold production decreased by 10% to
91,613oz (2015: 101,797oz). The decrease in gold production can, as
previously reported, be attributed to:
* Loss of production shifts due to frequent instances of community unrest in
the Barberton Mines area as a result of service delivery protests targeting
government, compounded by Department of Mineral Resources (‘DMR’) safety
stoppages (‘Section 54 regulatory notices’) issued at both Barberton and
Evander operations. The group continues to engage with all stakeholders to
ensure our operations can function in a stable and consistent manner.
* The shaft accident at Evander Mines’ 7 Shaft, which resulted in a
reduction of rock hoisting speeds whilst repair work is carried out.
* Barberton Mines experienced flexibility issues at its Fairview Mine,
specifically at its high grade 11-block which resulted in lower grades being
mined. Work is underway to develop additional production platforms to expose
additional high-grade panels to increase mining grades and flexibility.
Uitkomst Colliery produced and sold 127,605 tonnes of coal from its
underground mining operations and 199,597 tonnes of third party coal acquired
for blending and processing during the current reporting period. The
newly-acquired operation has contributed to profitability and its management
team is reviewing the viability of expanding and increasing production to
900,000 run-of-mine tonnes per annum from the underground mining operation.
Phoenix Platinum production increased by 1.8% to 4,574oz (2015: 4,493oz) and
its recoveries increased significantly to 57% from 39%, following the
implementation of high energy agitation cells in the plant. Production in the
current reporting period was negatively affected by water shortages as a
result of the current drought, which curtailed the re-mining of tailings.
Safety
Safety remains a focus at all operations and we endeavour to ensure the
group’s culture, behaviour and values align to our ultimate safety objective
of zero harm.
The group is pleased to announce an improved overall safety performance and no
fatalities for the period under review (2015: no fatalities). The lost time
injury frequency rate (‘LTIFR’) improved to 3.96 (2015: 4.01) and the
reportable injury frequency rate (‘RIFR’) improved significantly to 1.61
(2015: 2.08). The group’s total recordable injury frequency rate
(‘TRIFR’) regressed marginally to 14.81 (2015: 14.71).
Mineral reserves and resources
There has been no adjustment to the group’s mineral reserves and resources
statement of 30 June 2016 and the mineral reserves and resources are
summarised as follows:
* Gold reserves of 10.0Moz (30 June 2015: 10.4Moz)
* Gold resources of 34.9Moz (30 June 2015: 31.9Moz)
* PGE reserves of 0.2Moz (30 June 2015: 0.5Moz)
* PGE resources of 0.6Moz (30 June 2015: 0.6Moz)
* Coal resources were 23.3Mt
In determining our reserves and resources, we use what we believe is a
conservative ZAR gold price estimate. In the current year, gold reserves were
modelled at R450,000/kg and gold resources at R550,000/kg.
Elikhulu
As announced on 5 December 2016, the Board approved the construction of the
Elikhulu project, subject to finalisation of the project financing package.
The definitive feasibility study (‘DFS’) was undertaken by DRA Projects SA
Proprietary Limited, who will also be appointed as engineering processing and
construction contractors to the project.
DFS highlights and key assumptions:
* First gold forecast for the final quarter of the 2018 calendar year and full
commissioning in December 2018.
* Annual recoverable gold production of approximately 56,000 ounces for its
initial eight years of operation, and 45,000 ounces of gold for the remaining
five years thereafter.
* Current arisings and inferred gold resource could extend project life beyond
the DFS estimated life of thirteen years.
* Optimal plant capacity for the project allows 12-million tonnes per annum
throughput.
* The project is expected to add approximately 25% to the group´s current
gold ounce production profile and reduce the group´s all-in sustaining cost
profile.
* All-in sustaining cost of USD523/oz over the life of the project.
* Initial capital cost is forecast at approximately R1.74 billion (GBP103.0
million), which includes a contingency of approximately R200 million (or 11.5%
contingency).
* The project has an internal rate of return (real, post-tax) of 23.1% (30.6%
nominal) with a payback period of less than four years, based on an assumed
gold price of USD1,180/oz (R17,110/oz).
* Return on equity (real, post-tax) of 34.3% (42.5% nominal).
* Project net present value (‘NPV’) of R1.1 billion (GBP65.1 million).
* Cash outflow per ounce over the life of the operation is sub USD650/oz,
excluding debt servicing, and amounts to approximately USD805/oz, including of
debt servicing, over the five-year debt redemption term.
* Average gold recovery rate over the life of the project of 47.8%.
* Environmental Impact Assessment and Water Usage Licence processes are
underway, with both approvals expected by late 2017.
DFS economic assumptions:
- Gold price assumption: USD1,180/oz.
- ZAR:USD exchange rate: 14.50:1.
- NPV discount rate: 9% real (16% nominal).
- Debt-to-equity ratio: 115%, debt-to-total-capital ratio of 53%.
- Long-term South African inflation rate of 6.1%.
Rand Merchant Bank, a division of First Rand Bank Limited, has provided Pan
African Resources with a conditional R1 billion underwritten five-year debt
facility on competitive terms (‘RMB facility’). This facility will be
dedicated to funding the project´s development and will be repaid from the
project´s cash flows, generated during the initial five years of production.
This facility is in addition to the group´s current revolving credit facility
(‘RCF’) of R800 million (GBP47.3 million), which can be extended to R1.1
billion (GBP65.1 million), conditional on approval from the RCF lenders. The
group is evaluating a number of proposals to fund the balance of the initial
project capital and, given its strong financial position and track record of
successfully constructing and operating tailings plants, we do not foresee
difficulty in securing the balance of the funding on competitive terms. The
RMB facility´s repayment profile is matched to the project´s cash flow
generation and is not expected to impact Pan African Resources´ existing
dividend policy.
Uitkomst Colliery BEE deal concluded
In September 2016, the Uitkomst Colliery finalised a black economic
empowerment (‘BEE’) ownership transaction for 9% of its issued share
capital, through a vendor financed structure. This BEE transaction is similar
in nature to the current employee share ownership schemes at our gold
operations, with tenure of ten years and the following three BEE participants:
- Mcijo Trust 5% ownership
- Employees Trust 2% ownership
- Community Trust 2% ownership
Evander 2010 pay channel
The Evander 2010 pay channel is a potentially attractive orebody that runs
parallel to the Kinross pay channel and is accessible via Evander Mines’ 7
Shaft. Harmony Gold Mining Company Limited historically developed towards the
orebody before halting all mining operations on 7 Shaft and allowing flooding
of the infrastructure from 21 level to 18 level. The Evander 2010 pay channel
resources are classified in an inferred category and surface drilling is
underway to improve confidence in the resource. The initial results of the
drilling programme have been delayed due to poor rock conditions as well as
due to the intersection of water on various instances. The first reef
intersection is now expected during April 2017. The 2010 pay channel may offer
Evander Mines the possibility of establishing a new underground mining area
without the cost of sinking a new vertical shaft from surface.
Outlook
In the second half of the financial year, the key focus areas for the group,
from an operational perspective, includes:
* Continuing to improve our safety and compliance across all operations.
* Resume underground mining operations at Evander Mines, following the
temporary suspension of mining to refurbish critical infrastructure.
* Improving the operating performance from underground gold mining operations,
to ensure full year production guidance.
* Further improving stakeholder relations to minimise stoppages, particularly
with the communities in which we operate, following the unrest experienced at
Barberton Mines. This will be achieved by continuously engaging with the
communities around our operations to find amicable solutions to their
concerns.
* Ensuring Evander Mines’ 7 Shaft returns to normal hoisting speeds to
improve hoisting capacity.
* Finalising the Elikhulu financing arrangements and progressing towards
construction and full-scale production.
* Finalising the current drilling programme on the Evander 2010 pay channel
and assessing the results of this campaign.
* Uitkomst Colliery will focus on ensuring stable production is maintained and
will review the possibility of expanding run-of-mine production.
* Phoenix Platinum aims to improve and capitalise on its increased production
capacity and recoveries, and grow production even further following the
installation of the high energy agitation cells.
The group continues to evaluate acquisitive opportunities, particularly within
Africa. Any acquisition considered will, however, be subject to the group’s
stringent capital allocation and low cost production criteria, delivering the
requisite returns to our shareholders within a short- to medium-term
timeframe.
We extend our appreciation to our management team, our mine management and all
staff for their hard work and persistence during a challenging period. Their
commitment and perseverance has enabled Pan African Resources to continue to
operate successfully. We also thank our fellow directors for their support and
guidance.
FINANCIAL PERFORMANCE
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 UK and South Africa.
During the period under review the average ZAR/GBP exchange rate was R17.88:1
(2015: R20.83:1) and the closing ZAR/GBP exchange rate was R16.90:1 (2015:
R22.99:1). The period-on-period change in the average and closing exchange
rates of 14.2% and 26.5%, respectively, must be taken into account for the
purposes of translating and comparing period-on-period results.
The group records its revenue from precious metals sales in ZAR and the
marginal deterioration in the value of the ZAR/USD exchange rate during the
period under review had a positive contribution on the USD metals revenue
received. The average ZAR/USD exchange rate was 2.9% weaker at R13.99:1 (2015:
R13.60:1).
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 revenue, period-on-period, increased by 19.2% to R1,878.2
million (2015: R1,575.4 million) mainly impacted by:
1. The consolidation of the Uitkomst Colliery revenue of R225.0 million (2015:
nil), which contributed 14.3% of the increase in the revenue period-on-period.
Uitkomst Colliery was acquired and consolidated with effect from 1 April 2016.
2. The average ZAR gold price received by the group increased by 16.5% to
R565,298/kg (2015: R485,215/kg), as a result of the ZAR/USD exchange rate
weakening by 2.9% to R13.99:1 (2015: R13.60:1) and the USD gold price received
increasing by 13.2% to USD1,257/oz (2015: USD1,110/oz).
3. Gold ounces sold decreased by 10.0% to 91,613oz (2015: 101,797oz).
Cost of production and realisation costs
The group’s total cost of production increased by 32.5% to R1,395.7 million
(2015: R1,053.7 million). The group’s cost of production incorporates the
full half year’s coal production costs from Uitkomst Colliery of R189.0
million (2015: nil).
Pan African Resources’ gold cost of production (excluding realisation
costs), per the statement of comprehensive income, increased by 14.4% to
R1,165.6 million (2015: R1,019.3 million), predominately due to:
* The group’s gold operations salaries and wages increasing by 8.3% to
R515.5 million (2015: R476.0 million) in line with the gold labour agreements
signed in the 2016 financial year.
* The group’s electricity costs increasing by 8.9% to R183.0 million (2015:
R168.1 million). The National Energy Regulator of South Africa approved an
increase applied to electricity consumption of 9.5% for the period under
review, effective from 1 April 2016. Production challenges detailed previously
resulted in less power consumed.
* The group’s mining and processing costs increased by 27.4% to R339.1
million (2015: R266.2 million), mainly due to the following material expenses:
* The Evander Tailings Retreatment Plant (‘ETRP’) processing costs
increased by R31.5 million due to treating additional surface feedstock
material. Tonnes processed for surface feedstock increased by 49.3% to 240,495
tonnes (2015: 161,090). This contributed an additional R30.3 million to the
group’s EBITDA.
* Maintenance of Evander Mines’ 7 Shaft infrastructure resulted in an
additional R4.2 million expenditure being incurred.
* In the comparative reporting period Barberton Mines recorded an inventory
credit adjustment in its operational costs of R23.5 million, due to holding
gold inventory at 31 December 2015, while in the current period no gold
inventory was held.
The Group’s gold cost of production, as detailed above, excluding the
inventory adjustments and additional surface feedstock material costs,
increased by 8.7% to R1,134.1 million (2015: R1,042.8 million).
The group’s gold cost of production per kilogramme increased by 29.4% to
R418,764/kg (2015: R323,730/kg). The increase is attributed to:
* Gold sold decreasing by 10% to 91,613oz (2015: 101,797oz).
* A 14.4% increase in production 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, cost collar mark-to-market
fair value adjustments, associated corporate costs and overheads and
sustaining capital expenditure) increased by 15.0% to R456,187/kg (2015:
R396,819/kg). The group’s all-in sustaining costs were primarily impacted by
an increase in gold production costs and a decrease in other costs, compared
to the comparative period. The group’s all-in sustaining cost of
production per kilogramme (excluding cost collar mark-to-market fair value
adjustments) would have been R487,765/kg (2015: R383,944/kg).
The all-in gold cost per kilogramme (sustaining cost of production and
once-off expansion capital) increased by 20.3% to R478,332/kg (2015:
R397,692/kg), due to the increase in once-off capital expansion costs to R62.9
million (2015: R2.8 million). The increase in once-off capital expenditure
related predominately to the construction of the Barberton Tailings
Retreatment Plant (‘BTRP’) cyanide detoxification plant and Fairview’s
ventilation refrigeration and infrastructure. The group’s all-in cost per
kilogramme (excluding cost collar mark-to-market fair value adjustments) would
have been R509,909/kg (2015: R384,867/kg).
The PGE cost of production increased by 19.5% to R41.1 million (2015: R34.4
million), predominantly due to refining and processing costs increasing by
49.6% to R18.7 million (2015: R12.5 million). Higher refining costs were
incurred due to higher chrome prevalence in the tailings processed from the
Elandskraal/Kroondal tailings. Additional transport costs were also incurred
to deliver tailings material from the more distant Elandskraal/Kroondal
tailings sites.
The Uitkomst Colliery features for the first time in the group’s half year
results (as it was acquired on 31 March 2016), reporting a coal production
cost contribution of R189.0 million.
The group’s realisation costs increased to R27.7 million (2015: R5.7
million) due to an additional R20.1 million in refining costs associated with
the extraction and recovery of gold from various sections of the Evander
Mines’ processing plant by a third party. This initiative contributed
149.2kg (4,796.9oz) of gold to Evander Mines’ production.
Depreciation increased by 4.9% to R115.3 million (2015: R109.9 million),
following the consolidation of Uitkomst Colliery’s depreciation for the full
six-month period and a reassessment of the group’s residual values on
property plant and equipment.
Other expenditure and income
Barberton Mines entered into a short-term strategic hedge (‘the cost
collar’) in July 2015, 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 unrealised mark-to-market fair value gain of
R90.0 million on the cost collar (2015: pre-tax realised cost collar
derivative fair value loss of R40.6 million). The mark-to-market fair value
adjustment gain was due to a reduction in the gold price from R625,000/kg at
30 June 2016 to R507,500/kg at 31 December 2016.
The fair value adjustment of the group’s rehabilitation liability resulted
in it decreasing by R0.5 million (2015: R0.3 million increase in the
liability). The rehabilitation investment decreased by R2.0 million (2015:
R9.6 million increase in the investment).
Finance costs increased to R19.3 million (2015: R11.6 million), following
increased RCF facility utilisation during the period under review. Net debt at
31 December 2016 increased to R497.0 million (30 June 2016: R339.6 million and
31 December 2015: R345.8 million), following increased capital expenditure and
lower gold production.
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, before disposal, amounted to R0.6 million (2015: R0.3
million).
Taxation
The group’s total taxation charge increased by 35.0% to R97.9 million (2015:
R72.5 million).
The taxation charge comprised of:
* A decrease in the current taxation charge by 12.0% to R67.0 million (2015:
R76.1 million).
* An increase in the deferred taxation expense to R30.9 million (2015:
deferred taxation income of R3.6 million), predominantly due to the deferred
taxation associated with the pre-tax unrealised mark-to-market fair value gain
of R90.0 million (2014: pre-tax realised cost collar derivative fair value
loss of R40.6 million).
EPS and HEPS
The group’s EPS in ZAR increased by 33.4% to 16.58 cents (2015: 12.43
cents). The group’s HEPS in ZAR increased by 31.3% to 16.32 cents (2015:
12.43 cents). The difference between the EPS and HEPS resulted from adjusting
the profit after taxation for the profit on the disposal of the investment
referred to above and the disposal of fixed property plant and equipment.
Refer to the statement of comprehensive income for the reconciliation between
EPS and HEPS.
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 17.7% to 1,506.8
million shares (2015:1,831.5 million shares). The decrease in shares was
attributed to eliminating the PAR Gold shares held in Pan African Resources
with effect from 7 June 2016.
Headline earnings per share is calculated as follows:
31 December 2016 31 December 2015 31 December 2016 31 December 2015
GBP GBP ZAR ZAR
Basic earnings 13,970,416 10,924,843 249,791,035 227,564,499
Adjustments:
Profit on disposal of investment (256,311) - (4,582,844) -
Taxation on profit realised on disposal of investment 57,414 - 1,026,557 -
Profit on disposal of property plant and equipment (21,151) - (378,180) -
Taxation on profit realised on property plant and equipment sale 5,922 105,890
Headline earnings 13,756,290 10,924,843 245,962,458 227,564,499
Headline earnings per share 0.91 0.60 16.32 12.43
Diluted headline earnings per share 0.91 0.60 16.31 12.42
Dividends paid and dividend policy
The group paid a final dividend of R300 million or GBP17.1 million (2015: R210
million or GBP9.7 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
(2015: R0.1147 per share or 0.53 pence per share).
Following the PAR Gold transaction, the entity will receive 22.46% or R67.4
million of the R300 million dividend, resulting in a net dividend of R232.6
million paid to external shareholders.
Pan African Resources aspires to pay a regular dividend to 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 condition, future prospects, satisfactory solvency
and liquidity assessments and other factors deemed by the board to be relevant
at the time.
Net debt
Total debt facilities utilised at 31 December 2016 amounted to R565.4 million
(30 June 2016: R392.2 million) and cash holdings were R68.4 million (30 June
2016: R52.6 million), resulting in an increase in net debt by R157.4 million
to R497.0 million (30 June 2016: R339.6 million). The increase in net debt was
mainly as a result of capital expenditure incurred increasing to R203.5
million (2015: R129.0 million) and lower production following the operational
challenges experienced during the period under review.
Summary of the long-term debt liabilities:
Revolving credit facility Evander Mines gold loan Total
31 December 2016 30 June 2016 31 December 2016 30 June 2016 31 December 2016 30 June 2016
ZAR (millions) ZAR (millions) ZAR (millions) ZAR (millions) ZAR (millions) ZAR (millions)
Non-current portion 458.7 279.3 - 26.6 458.7 305.9
Current portion 52.8 31.1 53.9 55.2 106.7 86.3
Total 511.5 310.4 53.9 81.8 565.4 392.2
The group’s RCF debt covenants per the applicable periods are summarised
below:
Measurement 31 December 2016 30 June 2016 31 December 2015
Net-debt-to-equity ratio Must be less than 1:1 0.17:1 0.35:1 0.50:1
Net-debt-to-EBITDA ratio Must be less than 2.5:1 0.48:1 0.12:1 0.13:1
Interest cover ratio Must be greater than 4 times 21.99 23.98 18.08
Cash flow summary
Cash generated by operations decreased by R11.3 million to R372.0 million
(2015: R383.3 million), due to lower gold production.
The cash outflows from investing activities increased to R173.1 million (2015:
129.0 million), predominantly due to:
* Capital expenditure incurred increasing to R203.5 million (2015: R128.9
million).
* Proceeds on the sale of a listed investment of R23.4 million and proceeds on
the sale of property plant and equipment of R7.0 million.
Net cash inflows from financing activities increased to R145.2 million (2015:
R20 million outflow), predominantly due to the utilisation of the RCF to fund
operational capital expenditure.
OPERATIONAL PERFORMANCE
The group’s operational and production summaries are disclosed on the Pan
African Resources website at
http://www.panafricanresources.com/investors/financial-reports/
Review of Barberton Mines
Safety
- The operation reported no fatalities (2015: no fatalities).
- LTIFR improved to 2.07 (2015: 2.47).
- RIFR improved to 0.59 (2015: 0.62).
- TRIFR improved to 12.40 (2015: 14.81).
Operational performance
- Average mining head grade achieved reduced to 9.4g/t (2015: 10.6g/t).
Fairview Mine experienced flexibility issues resulting from temporary lower
grade face values, specifically at its high grade 11-block. Work is underway
to develop additional production platforms to expose additional high-grade
panels to increase mining grades and flexibility.
- Gold sold decreased by 12.8% to 49,212oz (2015: 56,447oz), as a result of
the underground gold sold decreasing to 34,471oz (2015: 43,617oz).
- The BTRP gold sold increased to 14,741oz (2015: 12,830oz), supported by
higher grades of 2.2g/t (2015: 1.3g/t) being achieved. The BTRP tonnages
processed decreased to 388,905t (2015: 464,179t), this was due to re-mining
the base of the Bramber tailings dam therefore limiting and reducing the
tonnages processed by the BTRP.
- Three separate incidents of community unrest, targeting government service
delivery, interrupted production as these protests prevented employees from
reporting to work. Together, these incidents resulted in six days of lost
production.
- Six Section 54 regulatory notices resulted in eight lost production days
(2015: one Section 54 regulatory notice resulting in three lost production
days).
- Revenue marginally increased by 2.2% to R872.9 million (2015: R854.3
million) as a result of a higher effective ZAR gold price, offset by the
decrease in gold sold.
- Cash cost per kilogramme increased to R347,667/kg (2015: R266,690/kg) and,
in USD terms, the cash cost per ounce increased to USD773/oz (2015:
USD610/oz). The increase was predominately as a result of our gold production
decreasing by 12.8% to 49,212oz (2015: 56,447oz).
- All-in sustaining cost per kilogramme decreased by 2.2% to R341,600/kg
(2015: R349,218/kg) and, in USD terms, the all-in sustaining cost per ounce
decreased to USD759/oz (2015: USD799/oz). Excluding the cost collar
mark-to-market fair value adjustments, the all-in sustaining cost per
kilogramme is R400,385/kg (2015: R326,089/kg) and, in USD terms, the all-in
sustaining cost per kilogramme, excluding the cost collar mark-to-market fair
value adjustments, was USD890/oz (2015: USD746/oz).
- All-in cost per kilogramme increased by 4.6% to R365,934/kg (2015:
R349,739/kg) and, in USD terms, the all-in cost per ounce increased to
USD814/oz (2015: USD800/oz).
- Adjusted EBITDA increased to R407.8 million (2015: R310.1 million).
- Capital expenditure increased to R83.5 million (2015: R55.9 million)
summarised in the following categories:
* Sustaining development capital expenditure was R30.2 million (2015: R25.0
million).
* Sustaining maintenance capital expenditure was R16.0 million (2015: R30.0
million).
* Once-off expansion capital was R37.3 million (2015 R0.9 million), which
related to the construction of the BTRP cyanide detoxification plant and
Fairview ventilation refrigeration and infrastructure.
- Effective from 1 July 2016 the life-of-mine of the respective operations
at Barberton Mines is:
* Fairview Mine 22 years (2015: 20 years)
* Sheba Mine 18 years (2015: 20 years)
* New Consort Mine 5 years (2015: 7 years)
* BTRP 14 years (2015: 15 years)
Review of Evander Mines
Safety
- The operation reported no fatalities (2015: no fatalities).
- LTIFR regressed to 5.83 (2015: 5.44).
- RIFR improved to 2.62 (2015: 3.44).
- TRIFR regressed to 17.19 (2015: 14.61).
Operational performance
- Average mining head grade achieved of 5.4g/t (2015: 5.8g/t).
- Due to Section 54 stoppages and a reduction in hoisting speed at 7 Shaft
during the period under review, Evander Mines gold sold decreased by 6.5% to
42,401oz (2015: 45,350oz).
- Revenue increased by 8.2% to R737.9 million (2015: R682.0 million) due to
an increase in the effective ZAR gold price achieved, which was off-set by a
reduction in the gold sold.
- ETRP produced 15,924oz (2015: 8,980oz), following an increase in gold
produced from surface feedstock to 11,480oz (2015: 5,272oz) and tailings
contributing 4,444oz (2015: 3,708oz).
- Evander Mines’ 7 Shaft, which is used to hoist ore from underground
mining operations to surface for processing, is undergoing critical
infrastructure repairs and maintenance and requires a suspension of the
underground mining operations for a period of up to 55 days effective 20
February 2017.
- Evander Mines experienced a material increase in DMR-initiated safety
stoppages during the past six months. The operation was issued with four
Section 54 regulatory notices, which resulted in 13 lost production days
(2015: three Section 54 regulatory notices resulting in two lost production
days). The majority of the lost production days related to the 7 Shaft
incident.
- Cash costs per kilogramme increased by 28.0% to R501,281/kg (2015:
R394,730/kg) and, in USD terms, the cash cost per ounce increased to
USD1,114/oz (2015: USD 903/oz).
- All-in sustaining cost per kilogramme increased by 29.2% to R589,181/kg
(2015: R456,070/kg) and, in USD terms, the all-in sustaining cost per ounce
increased to USD1,310/oz (2015: USD1,043/oz), in line with the increase in
cash costs.
- All-in cost per kilogramme increased by 33.1% to R608,783/kg (2015:
R457,380/kg) and, in USD terms, the all-in cost per ounce increased to
USD1,353/oz (2015:USD1,046/oz).
- Adjusted EBITDA decreased to R63.8 million (2015: R124.2 million).
- Capital expenditure increased to R111.8 million (2015: R71.9 million)
summarised in the following categories:
* Sustaining development capital expenditure was R48.8 million (2015: R39.4
million).
* Sustaining maintenance capital expenditure was R37.4 million (2015: R30.6
million).
* Once-off expansion capital expenditure was R25.6 million (2015: R1.9
million), relating to costs associated with 8 Shaft’s 25 and 26 decline and
A Block development.
- Effective from 1 July 2016, the life-of-mine of 8 Shaft and the ETRP was
16 years (2015: 16 years).
Review of Phoenix Platinum
Safety
Phoenix Platinum maintained its excellent safety record, with no injuries.
Operational performance
- Tonnes processed increased by 3.9% to 122,024 tonnes (2015: 117,461
tonnes). In July 2016 the operation commissioned a scrubber, which increased
the production capacity by 25%, but unfortunately re-mining was limited by the
recent drought during October 2016.
- The head grade achieved decreased by 31.2% to 2.2g/t (2015: 3.2g/t), due
to re-mining from the lower-grade Elandskraal/Kroondal tailings facility,
while in the comparable period re-mining occurred at Samancor’s
Buffelsfontein tailings facility.
- PGE production increased by 1.8% to 4,574oz (2015: 4,493oz).
- Recoveries increased to 57% from 39% following the installation of high
energy agitation cells in the plant.
- Revenue increased by 8.4% to R42.5 million (2015: R39.2 million) due to a
marginal increase in production and an increase in the effective PGE net
revenue price received of 6.5% to R9,284/oz (2015: R8,716/oz).
- The average PGE net revenue price received increased by 6.5% to R9,284/oz
(2015: R8,716/oz) and, in USD terms, the average PGE net revenue per ounce
increased to USD664/oz (2015: USD641/oz).
- Cost per tonne increased by 15.0% to R337/t (2015: R293/t), mainly due to
the higher cost of production associated with transporting the
Elandskraal/Kroondal tailings to the plant and high refinery charges incurred
during the period under review.
- Cost per ounce of production increased by 17.5% to R8,991/oz (2015:
R7,653/oz) and, in USD terms, the cost per ounce increased to USD643/oz (2015:
USD563/oz).
- Adjusted EBITDA decreased to R2.8 million (2015: R2.9 million).
- Capital expenditure incurred was R2.9 million (2015: R0.8 million).
- Effective from 1 July 2016 the life-of-operation decreased to nine years
(2015 financial year: 28 years) as a result of the cessation of mining
operations at Lesedi Mine following the International Ferro Metals business
rescue plan. In the event the Lesedi mining operation is reopened, the
life-of-operation will be reassessed and adjusted as the right to the PGE’s
in the Lesedi resource remains contractually secured by Phoenix Platinum.
Review of Uitkomst Colliery
Pan African Resources completed the acquisition of the Uitkomst Colliery from
Oakleaf Investments Holding 109 Proprietary Limited and Shanduka Resources
Proprietary Limited for a cash consideration of R148 million on 31 March 2016.
Safety
- The operation reported no fatalities.
- LTIFR per 200,000 man hours was 2.15 (2015: 2.65).
- RIFR per 200,000 man hours was 2.15 (2015: 1.06).
- TRIFR per 200,000 man hours was 4.73 (2015: 7.42).
Operational performance
- Profit after taxation for the period was R21.3 million.
- The operation produced and sold 327,202 tonnes of coal, of which 127,605
tonnes was from the underground mining operations and 199,597 tonnes was
acquired from third parties for blending and processing.
- Revenue amounted to R225.0 million.
- Cost of production of R189.0 million.
- The average revenue per tonne received was R688/t or USD49/t, of which
R881/t or USD63/t was related to the underground mined coal and R552/t or
USD39/t related to the coal acquired for blending and processing.
- Cost per tonne averaged at R578/t or USD41/t.
- All-in sustaining costs and all-in costs per tonnes were R587/t or
USD42/t. The all-in sustaining costs and all-in costs were marginally lower
than the direct cost per tonne as a result of other income earned by the
logistics department.
- Adjusted EBITDA was R38.0 million.
- Capital expenditure incurred was R5.0 million.
- Effective from 1 July 2016 the life-of-operation was 22 years for a
run-of-mine coal production profile of 600,000t per annum.
COMMITMENTS REPORTED IN RAND 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 R106.3
million (2015: R48.3 million) or GBP6.3 million (2015: GBP2.1 million).
Authorised commitments for the new financial period, not yet contracted for,
totalled R169.9 million (2015: R162.5 million) or GBP10.1 million (2015:
GBP7.1 million).
At 31 December 2016, the group had guarantees in place of R24.6 million (2015:
R24.6 million) or GBP1.4 million (2015: GBP1.1 million) in favour of Eskom,
R33.5 million (2014: R14.0 million) or GBP2.0 million (2015: GBP0.6 million)
in favour of the DMR, and R6.6 million (2015: Nil) or GBP0.4 million (2015:
Nil) in favour of Transnet SOC Limited.
Operating lease commitments, which fall due within the next year, amounted to
R3.7 million (2015: R2.3 million) or GBP0.2 million (2015: GBP0.1 million).
FAIR VALUE INSTRUMENTS
Financial instruments that are 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; and
Level 3 - fair value is determined on inputs not based on observable market
data.
Level 1 financial instruments:
The group’s rehabilitation trust funds are valued at R319.5 million (2015:
R321.9 million) or GBP18.9 million (2015: GBP14.0 million), which comprise
investments in guaranteed equity-linked notes, government bonds and equities,
according to quoted prices in an active market.
Level 2 financial instruments:
At the end of the period under review the cost collar, referred to earlier,
was not settled, therefore resulting in a financial exposure to be fair value
on a mark-to-market basis. The financial instrument was valued according to
quoted prices in an active market resulting in a cost collar mark-to-market
liability of R20.2 million (30 June 2016: R117.6 million and 31 December 2015:
R40.6 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 R57.8 million (2015: R21.8 million).
Level 3 financial instruments:
The group’s ESOP liability is accounted on a cash settled share option basis
and valued on a mark-to-market on the net present value of the discounted
future cash flows applicable to the beneficiaries of the schemes. The ESOP
liability was R5.6 million (2015: R2.7 million).
BASIS OF PREPARATION OF THE FINANCIAL STATEMENTS AND ACCOUNTING POLICIES
The accounting policies applied in compiling the interim results are in terms
of International Financial Reporting Standards (‘IFRS’) adopted by the
European Union and South Africa, which are consistent with those applied in
preparing the group’s annual financial statements for the year ended 30 June
2016.
The financial information set out in this announcement does not constitute the
company’s statutory accounts for the period ended 31 December 2016.
The interim results have been prepared and presented in accordance with, and
containing the information required by IAS 34: Interim Financial Reporting, as
well as the SAICA Financial Reporting Guides as issued by the Accounting
Practices Committee and Financial Pronouncements as issued by Financial
Reporting Standards Council.
The interim results have not been reviewed or reported on by the company’s
external auditors.
JSE LIMITED LISTING
The company has a dual primary listing on the main board of the JSE Limited
(‘JSE’) and the Alternative Investment Market (‘AIM’) of the London
Stock Exchange.
The preliminary announcement has been prepared in accordance with the
framework concepts and the measurement and recognition requirements of IFRS,
the AC 500 standards as issued by the Accounting Practices Board and the
information as required by IAS 34: Interim Financial Reporting.
AIM LISTING
The financial information for the period ended 31 December 2016 does not
constitute statutory accounts as defined in sections 435 (1) and (2) of the
Companies Act 2006.
The group’s announcement has been prepared in accordance with IFRS and
International Financial Reporting Interpretation Committee interpretations
adopted for use by the European Union, with those parts of the Companies Act
2006 applicable to companies reporting under IFRS.
DIRECTORSHIP CHANGES AND DEALINGS
No directorship changes took place during the period under review. However,
the following director dealings in securities took place:
During the period under review Mr JAJ Loots participated in the following
company shares transactions:
* On 27 September 2016, purchased 20,000 shares and 200,000 shares at R3.57
per share and R3.58 per share, respectively.
* On 28 September 2016, purchased 28,609 shares at R3.48 per share.
* On 29 September 2016, purchased 491 shares at R3.59 per share.
* On 30 September 2016, purchased 25,000 shares at R3.70 per share.
* On 3 October 2016, purchased 25,000 shares at R3.78 per share.
* On 5 October 2016, purchased 30,000 shares at R3.55 per share.
Mr JAJ Loots had 560,675 shares outstanding at period end, representing 0.03%
of total issued shares.
During the year under review Mr GP Louw participated in the following company
shares transactions.
On 27 September 2016, purchased the following shares:
* 4,300 shares at R3.57 per share.
* 3,150 shares at R3.58 per share.
* 35,000 shares at R3.62 per share.
* 40,000 shares at R3.64 per share.
* 12,836 shares at R3.66 per share.
* 42,164 shares at R3.67 per share.
Mr GP Louw had 137,450 shares outstanding at period end, representing 0.01% of
total issued shares.
SHARES ISSUED
No shares were issued during the current or comparable period under review.
GOING CONCERN
The board confirms that the business is a going concern and that it has
reviewed the group’s working capital requirements in conjunction with its
future funding capabilities for at least the next twelve months and has found
them to be adequate. The group has a R800 million revolving credit facility
from a consortium of South African banks (and an accordion option, subject to
the RCF consortium’s approval, for an additional R300-million facility), as
well as access to general banking facilities of R146.5 million. At 31 December
2016, the group had borrowing capacity on the revolving credit facility of
R290 million (GBP20.1 million) to assist in funding working capital
requirements. On 1 July 2016 the group finalised the general banking facility
of R85 million (GBP4.3 million) for Uitkomst Colliery. Management is not
aware of any material uncertainties which may cast significant doubt on the
group’s ability to continue as a going concern. Should the need arise, the
group can cease discretionary exploration and certain capital expenditure
activities to conserve cash on the short to medium term.
EVENTS AFTER THE REPORTING PERIOD
Fatality
It is with deep regret that Pan African Resources reports that a mining
accident occurred at the Evander Mines 7 shaft complex on 15 February 2017. Mr
Velile Chaplin Kapa (54), an Engineering Assistant employed by the operation,
sustained a fatal head injury when a section of the main shaft pump column
failed whilst he was working in the shaft bottom area. Pan African’s
management and board express their sincere condolences to the family, friends
and colleagues of Mr Kapa.
Shaft Refurbishment Programme
In conjunction with the 7A shaft refurbishment programme, Evander’s
management initiated a number of independent and internal engineering studies
to assess the condition of Evander’s underground mining infrastructure (both
Evander Mines 7 and 8 shafts). These studies identified critical
infrastructure issues requiring remedial action, to ensure safe and
sustainable operation of these shafts.
The nature of these refurbishments require a suspension of Evander Mines
underground mining operations for a period of up to 55 days, effective from 20
February 2017, during which critical infrastructure issues will be addressed.
Evander Mines tailings and surface operations will be unaffected by the
underground mining suspension.
The cost of the shaft refurbishment programmes is expected to be approximately
R40 million, which will be funded from the group’s existing banking
facilities.
SEGMENT REPORTING
A segment is a distinguishable component of the group engaged in providing
products or services in a particular business sector or segment, which is
subject to risks and rewards different from those of other segments. The
group's business activities were conducted through six business segments:
- Barberton Mines (including BTRP), located in Barberton, South Africa;
- Evander Mines (including ETRP), located in Evander, South Africa;
- Uitkomst Colliery, located in Newcastle, South Africa;
- Phoenix Platinum, located near Rustenburg, South Africa;
- Corporate and growth projects; and
- Pan African Resources Funding Company Proprietary Limited (‘Funding
Company’).
The executive committee reviews the operations in accordance with the
disclosures presented above.
Cobus Loots Deon Louw
Chief Executive Officer Financial Director
22 February 2017
Financial statements: Condensed financial information
Consolidated Statement of Financial Position as at 31 December 2016
31 December 2016 30 June 2016 31 December 2015
(Unaudited) (Audited) (Unaudited)
GBP GBP GBP
ASSETS
Non-current assets
Property, plant and equipment and mineral rights 228,033,741 190,725,199 153,180,433
Other intangible assets 119,331 123,235 197,598
Deferred taxation 1,601,335 1,117,092 118,419
Long term inventory 218,689 186,861 -
Goodwill 21,000,714 21,000,714 21,000,714
Investments - 1,269,228 678,909
Rehabilitation trust fund 18,906,056 16,253,708 14,002,928
269,879,866 230,676,037 189,179,001
Current assets
Inventories 6,123,723 4,398,813 4,062,142
Current tax asset 884,153 848,946 657,849
Trade and other receivables 16,379,366 14,042,357 7,085,421
Cash and cash equivalents 4,047,271 2,658,947 -
27,544,513 21,949,063 11,805,412
Non-current assets held for sale 78,264 66,873 -
TOTAL ASSETS 297,502,643 252,691,973 200,984,413
EQUITY AND LIABILITIES
Capital and reserves
Share capital 19,432,065 19,432,065 18,314,947
Share premium 108,936,082 108,936,082 94,846,046
Translation reserve (36,208,761) (58,583,848) (77,093,671)
Share option reserve 1,214,859 1,035,888 1,035,888
Retained earnings
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