REG-Pan African Resources Plc: Interim Results for the 6 months ended 31 Dec 2017 <Origin Href="QuoteRef">PAFR.L</Origin>
13/02/2018 07:26
Pan African Resources PLC
(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
(“Pan African Resources” or the “company” or the “group”)
Unaudited interim results for the six months ended 31 December 2017
Key features reported in South African Rand (“ZAR” or “R”) and Pound
Sterling (“GBP”)
Overview
The six months ended 31 December 2017 (“current reporting period”) saw the
group further implement its strategy to provide not only a platform of
stability at our operations at Barberton Mines and Evander Mines, but also one
of improved and sustainable cash flows and production for the second half of
this year and beyond. The measures taken have seen substantial changes at all
of our underground operations, with the restructuring at Evander Mines and the
increased investment in development at Barberton Mines.
The Elikhulu tailings retreatment plant (“Elikhulu”) project remains on
track to commence commercial production a number of weeks ahead of schedule,
whilst the operational challenges at Barberton tailings retreatment plant
(“BTRP”) and the lower than anticipated recoveries are expected to be
resolved following the installation of a regrind mill to assist with the
processing of the coarser material encountered. The commissioning of Elikhulu
will significantly advance Pan African’s strategy of sourcing a substantial
portion of its annual gold production from long-life, low-cost surface
tailings operations. These surface tailings operations ensure sustainability
in the challenging South African operating environment.
The delivery of 85,282oz for the half year, down 6.9% (2016: 91,613oz) is a
credible performance in the light of the substantial challenges faced during
the current reporting period. The group remained profitable despite the
currency volatility, the lost production days from industrial disputes, and
the technical challenges at the BTRP. The group today is positioned for a
stronger second half with the results of our investment in the BTRP regrind
mill and improved grades from Barberton Mines set to deliver strong production
growth and lower costs over the next 12 months. The group’s production
guidance for the full financial year is now approximately 177,000oz-181,000oz.
Operational key features
- The group’s gold production for the current reporting period reduced by
6,331oz to 85,282oz (2016: 91,613oz), primarily as a result of operational
challenges encountered at Barberton Mines. Barberton Mines is positioned for
an improved performance in the second half of the financial year.
- Improved overall operational and financial performance from Evander Mines.
- The Elikhulu Project is on track for commissioning early in the 2019
financial year, ahead of schedule and below budget.
- Improved safety performance from both Barberton Mines and Evander Mines.
- Barberton Mines’ Royal Sheba Project’s feasibility study will be
completed in the 2018 financial year, with this project having the potential
of increasing Barberton Mines’ production by approximately 30,000oz per
annum.
- Evander Mines’ Egoli Project (previously 2010 Pay Channel project)
mining feasibility study has been completed, with a pre-taxation internal rate
of return of 46% and net present value of R1.74 billion.
- Reduced production from Barberton Mines as a result of:
o processing challenges at the BTRP, which produced 6,289oz less
compared to the prior reporting period; and
o underground production impacted by delays in developing into
Fairview’s high-grade 272 and 358 platforms, as well as 11 production days
lost (equivalent to 3,000oz) due to industrial action by employees and
protests directed by community pressure groups.
- 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/.
Financial key features
- The group’s earnings before interest taxation, depreciation and
amortisation (“EBITDA”) decreased to R185.6 million (2016: R476.5
million), while in GBP terms it decreased to GBP10.5 million (2016: GBP26.6
million). The EBITDA in the prior reporting period included a mark-to-market
fair value gain on financial derivatives of R94.7 million compared to R19.4
million in the current reporting period.
- The group’s profit after taxation in ZAR terms decreased to R58.2
million (2016: R249.8 million), while in GBP terms, the group’s profit after
taxation decreased to GBP3.3 million (2016: GBP14.0 million).
- Earnings per share (“EPS”) decreased to 3.23 cents per share (2016:
16.58 cents per share), while in GBP terms, EPS decreased to 0.18 pence per
share (2016: 0.93 pence per share).
- Group revenue from continuing operations decreased to R1,462.9 million
(2016: R1,610.8 million) and, in GBP terms, group revenue decreased to GBP82.9
million (2016: GBP90.1 million) as a result of a decrease in the ZAR gold
price received and gold ounces sold.
- Effective ZAR gold price received decreased by 2.4% to R551,506/kg (2016:
R565,298/kg) and, in USD terms, it increased by 1.9% to USD1,281/oz (2016:
USD1,257/oz).
- Due to the lower gold production, cash cost per kilogramme increased in
ZAR terms to R473,187/kg (2016: R418,764/kg) and, in USD terms, the cash cost
per ounce increased to USD1,099/oz (2016: USD931/oz).
- All-in sustaining cost per kilogramme increased in ZAR terms to
R545,908/kg (2016: R487,765/kg) and, in USD terms, the all-in sustaining cost
per ounce increased to USD1,268/oz (2016: USD1,084/oz).
- The group paid a final dividend of R185 million or GBP10.0 million (2016:
R300 million or GBP17.1 million) on 21 December 2017, relating to the 2017
financial year. This dividend equated to R0.08279 per share or 0.44561 pence
per share (2016: R0.1544 per share or 0.87668 pence per share).
- The sale of Phoenix Platinum Mining Proprietary Limited (“Phoenix”) to
Sylvania Platinum Limited for R89 million was concluded on 7 November 2017.
- Net debt remained well contained at R653 million (2016: R497 million).
Movement For the six months ended 31 December 2017 For the six months ended 31 December 2016 Metric Salient features Metric For the six months ended 31 December 2016 For the six months ended 31 December 2017 Movement
(6.9%) 2,653 2,849 (Kilogrammes) Gold sold (Oz) 91,613 85,282 (6.9%)
(9.2%) 1,462.9 1,610.8 (R millions) Revenue – continuing operations (GBP millions) 90.1 82.9 (8.0%)
(2.4%) 551,506 565,298 (R/kg) Average gold price received (USD/oz) 1,257 1,281 1.9%
13.0% 473,187 418,764 (R/kg) Cash costs (USD/oz) 931 1,099 18.1%
11.9% 545,908 487,765 (R/kg) All-in sustaining costs ( note 1) (USD/oz) 1,084 1,268 17.0%
8.8% 554,890 509,909 (R/kg) All-in costs ( note 1) (USD/oz) 1,134 1,289 13.7%
(61.1%) 185.6 476.5 (R millions) Adjusted EBITDA (note 2) (GBP millions) 26.6 10.5 (60.5%)
(76.7%) 58.2 249.8 (R millions) Attributable earnings (GBP millions) 14.0 3.3 (76.4%)
(74.4%) 63.0 246.0 (R millions) Headline earnings (GBP millions) 13.8 3.6 (73.9%)
(80.5%) 3.23 16.58 (cents) EPS (pence) 0.93 0.18 (80.6%)
(78.5%) 3.51 16.32 (cents) Headline earnings per share (“HEPS”) (pence) 0.91 0.20 (78.0%)
31.4% 653.0 497.0 (R millions) Net debt (GBP millions) 29.4 39.2 33.3%
10.5% 155.2 140.5 (R millions) Total sustaining capital expenditure (GBP millions) 7.9 8.8 11.3%
242.5% 697.0 203.5 (R millions) Total capital expenditure (GBP millions) 11.5 39.5 243.5%
1.4% 194.3 191.7 (cents) Net asset value per share (pence) 11.5 11.7 1.7%
19.3% 1,798.3 1,506.8 (millions) Weighted average number of shares in issue (millions) 1,506.8 1,798.3 19.3%
(4.3%) 13.39 13.99 (R/USD) Average exchange rate (R/GBP) 17.88 17.65 (1.3%)
(9.8%) 12.36 13.70 (R/USD) Closing exchange rate (R/GBP) 16.90 16.67 (1.4%)
Note 1: The all-in sustaining cost per kilogram and all-in cost per kilogram
excludes the Elikhulu capital expenditure as well as derivative fair value
mark-to-market gains / expenses and relates directly to the current gold
mining operations.
Note 2: Adjusted EBITDA is represented by earnings before interest, taxation,
depreciation and amortisation, profit/(loss) on asset held for sale and
profit/(loss) on disposal of investments.
CEO STATEMENT
Pan African Resources CEO Cobus Loots commented:
“Our group is positioned to deliver into our objective of mining relatively
low-cost, high-margin and sustainable gold ounces. The past 12 months has been
a watershed period during which we reassessed the sustainability of all our
operations and dealt with issues causing operational disruptions. We expect
improved production and cost savings in the next reporting period.
We look forward to commissioning the Elikhulu Project below budget and ahead
of schedule in the coming months. In terms of medium- to long-term gold
production growth, the feasibility study for the Evander Mines’ Egoli
Project (previously called the 2010 Pay Channel) and the work completed to
date on the Royal Sheba Project at Barberton Mines, demonstrate robust
economic returns in a relatively low-risk mining environment.
In light of the prevailing low ZAR gold price environment, to ensure the
sustainable profitability of the group, we are reviewing our higher cost
mining operations.”
Group safety
We are pleased to report an improved group safety performance across all
operations, with no fatalities in the current or prior reporting periods. The
reportable injury frequency rate improved significantly to 0.62 (2016: 1.61)
and the lost-time injury frequency rate increased marginally to 4.05 (2016:
3.96). The group’s total recordable injury frequency rate reduced to 14.42
(2016: 14.81).
A notable achievement is the group-wide reduction in the number of Department
of Mineral Resources (“DMR”) safety stoppages (“Section 54 regulatory
notices”) during the current reporting period, evidencing the management
team’s focus on addressing previously highlighted risks and the constructive
relationship with the DMR.
Evander Mines and ETRP
Evander Mines’ return to profitability is encouraging and resulted from the
remedial action taken to address the critical shaft infrastructure and the
cost base of this operation. The 5.4% increase in gold production, and the
lower cost base, were the primary contributors to an improved operational
performance.
Evander Mines’ underground gold operations delivered an improved
performance, with gold sold increasing to 32,734oz (2016: 26,477oz) due to
tonnages milled from underground mining increasing by 7.6% to 174,233t (2016:
161,872t), with the head grade also increasing by 13.0% to 6.1g/t (2016:
5.4g/t).
The existing 8 Shaft pump column experienced a number of water bursts, which
contributed to lost production. This pump column will be fully reliable once
the refurbishment programme is completed in April 2018. As a result of the
2017 refurbishment programme, 7 Shaft pumping and other infrastructure
performed well in the current reporting period.
Development of the new high-grade “D raise” is being accelerated with the
intent of it being available for mining in March 2018. This raise will
contribute to increased mining flexibility and access to higher-grade areas of
the 8 Shaft orebody.
Gold production at the Evander Tailings Retreatment Plant (“ETRP”) reduced
to 11,937oz (2016: 15,924oz). In the prior reporting period the ETRP treated
more surface feedstock tonnages with additional milling capacity allocated for
surface material due to the 7 Shaft infrastructure repairs during October 2016
and the resultant reduced production from underground. The ETRP’s current
all-in sustaining cost is R316,208/kg (2016: R245,569/kg) or USD735/oz (2016:
USD546/oz). The Elikhulu Project’s all-sustaining costs are forecast to be
lower than the ETRP due to the economy of scale benefit. As a comparative to
the ETRP all-in sustaining costs, the Elikhulu Project’s feasibility study
real all-in sustaining cost of R243,816/kg or USD523/oz at a ZAR:USD exchange
rate of R14.5:1, which equates to USD631/oz at the prevailing ZAR:USD exchange
rate of R12:1.
Barberton Mines and BTRP
Barberton Mines’ gold production reduced by 8,601oz to 40,611oz (2016:
49,212oz), predominantly due to the following, with mitigating actions
addressed separately:
- BTRP gold production reduced to 8,452oz (2016: 14,741oz) due to the
re-mining operation moving to the lower-grade Harper dump following depletion
of the Bramber dump, and the head grade reducing from 2.2g/t to 1.4g/t. The
Harper dump material has a larger coarse fraction, which resulted in
processing problems and a reduction in plant recoveries to 41% (2016: 55%). A
regrind mill is being installed to reduce the Harper dumps coarse fraction
material which will improve material handling and recoveries. Barberton
Mines’ underground mining production reduced to 32,159oz (2016: 34,471oz)
due to a lack of grade flexibility in the Fairview MRC orebody, which
curtailed the mineable tonnes at the targeted head grade. The underground
tonnes milled increased to 124,969t (2016: 123,168t), while the head grade
reduced to 8.7g/t (2016: 9.4g/t).
- Gold production was adversely impacted by disruptions from pressure
groups, community unrest and protected and unprotected strike action at
Barberton Mines, which resulted in 11 lost production days, equivalent to
approximately 3,000oz of gold. The source of the frustration from these
stakeholders is driven by issues unrelated to the mine and is symptomatic of
the general dissatisfaction with service delivery, inter-union conflict, and
unemployment issues that currently characterise the South African mining and
other sectors.
A summary of the status of remedial actions taken by management at Barberton
Mines is as follows:
Segment Challenge Remedial action Status
BTRP Unexpected coarse fraction material encountered, resulting in reduced throughput, gold recoveries and gold production from the BTRP. Installation of a regrind mill to assist with material handling and improved recoveries from treating the Harper dump coarse The regrind mill will be commissioned by April 2018.
fraction material.
Fairview underground mining flexibility Limited grade flexibility within the Fairview MRC orebody, with development into new platforms delayed. Two high-grade platforms are however now available. In addition, a portion of the high-grade 101 platform was sterilised as a result of an unanticipated geological roll. Initial production make-up strategy was to mine pillars in previously mined high-grade platforms (116 and 195 platforms). The 358 and 272 high-grade mining platforms are available to mine in the second half of the financial year. These platforms will be available for the next two to three years, allowing sufficient time to ensure development into new mining areas is on schedule.
Unfortunately gold production from these platforms was less than anticipated. Development of two high-grade mining platforms in
the MRC orebody to improve grade flexibility. This development is now complete.
Fairview mining operation is restricted by the hoisting capacity of its No 3 Decline, which is also used by employees to access workings below 42 Level and its high-grade 11-block of the MRC. The Fairview sub-vertical shaft project will improve ore handling efficiencies and significantly reduce the time taken by The R105 million project is scheduled for completion over the next 24 months.
employees to access high-grade mining platforms. The sub-vertical shaft project is estimated to improve production by
approximately 7,000oz-10,000oz per annum.
Barberton Mines Community unrest and protected and unprotected strikes, resulting in lost production shifts. Barberton Mines obtained court interdicts: - To halt the communities from blocking road access to the mining operations. - To - We continue to engage with all stakeholders to limit disruptions of this nature in the future.
halt the union’s unprotected strikes - National Union of Mineworkers formally put on terms, in terms of allowing unprotected and
illegal strike action. - Section 189 process in terms of the Labour Relations Act has commenced at Barberton Mines. Management
is concerned that in the current difficult operating environment, further disruptions to operations may lead to material loss in
employment.
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, are
summarised as follows:
- Gold reserves of 11.2Moz (2016: 10.0Moz)
* Gold resources of 34.4Moz (2016: 34.9Moz)
In determining our reserves and resources, 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.
There have been no material changes to the group’s mineral reserves and
resources statement for the year ended
30 June 2017.
Near- to medium-term growth projects
Elikhulu Project
The project is on track for commissioning early in the 2019 financial year,
which is ahead of schedule and below budget. Capital expenditure of R671.4
million (excluding capitalised borrowing costs) has been incurred on the
Elikhulu Project to date.
Although the Elikhulu Project experienced community protests during the
current reporting period, the project remains ahead of plan and all capital
has been contracted, which materially reduces the risk of cost overruns due to
price escalations.
The re-mining contract for the project was awarded to Fraser Alexander
(“Fraser”). The contract incentivises Fraser to deliver more than
one-million tonnes per month.
Barberton Mines’ Royal Sheba Project
The group believes that Royal Sheba has the potential to deliver approximately
30,000oz per annum at a relatively low cost. The Royal Sheba orebody forms
part of the Barberton Mine complex and was historically mined on a small scale
(approximately 2,000 tonnes per month) to a depth of 340 metres below surface.
Due to poor economic returns resulting from the low tonnage mining profile,
and the prevailing low gold price at that time, it was closed during 1996.
In the 2010 financial year, a concept study was completed with the aim of
re-opening the mine as a larger, mechanised, standalone operation. The study
found it was a viable proposition, but required a significant amount of
capital expenditure for a new shaft system to be sunk from surface and the
construction of a new gold plant.
Since the prior Royal Sheba study was completed, several synergies have been
identified at the Barberton Mines complex, which indicates that the Royal
Sheba orebody could be a viable economic proposition with materially lower
capital investment than previously envisaged. These synergies include:
Proposed new mining method
The orebody is conducive to sub-level open stoping, a massive mechanised
mining method, which can be used to extract the entire orebody at lower grades
but with significantly more volumes and better efficiencies. Using this mining
method, production volumes of approximately 30,000-40,000 tonnes per month can
be mined.
Underground access
A development drive is currently being developed from the Sheba Mine on 23
Level (600 metres underground) towards the Royal Sheba orebody, which obviates
the need for the new shaft system required by the 2010 study. A further 800
meters of development is required to access the orebody and multi-blasting is
being investigated to reduce the development period from 36 months to
approximately 18 months.
BTRP processing
The Royal Sheba ore is free milling and does not require Biox© processing,
therefore the existing BTRP plant can be expanded at minimal cost to treat
Royal Sheba’s ore, resulting in a substantial capital saving.
These infrastructure synergies should contribute to progressing the Royal
Sheba Project as an attractive prospect. It presents the group with an
opportunity to increase its production in the medium term by an estimated
30,000oz per annum at a low capital cost.
To improve confidence in the Royal Sheba Project, a development strategy is
being pursued, which entails a drilling programme of 14 surface holes
totalling 12,000m, and a feasibility study, which is expected to be completed
by the end of this financial year.
Mineral resources of Royal Sheba as at 30 June 2017
Royal Sheba Resource
Category Tonnes g/t kg (Au) Oz
Measured 385,450 4.15 1,599 51,421
Indicated 1,354,240 4.35 5,891 189,398
Inferred 856,470 4.40 3,726 119,782
Total Resource 2,596,160 4.32 11,216 360,601
Evander Egoli Project (previously 2010 Pay Channel project) – Results from
mining feasibility study
The Egoli Project is adjacent to the No 7 Shaft infrastructure and extends
from the boundary of Taung Gold International Limited’s No 6 Shaft mining
right.
Shareholders were informed on 20 September 2017 that the group had initiated a
mining feasibility study, conducted by DRA Global, into the viability of the
Egoli Project.
The available resource of the Egoli Project orebody has increased materially
(as reported on 1 February 2018) and this, together with the study’s
findings, are summarised as follows:
Updated resource statement Egoli Project Previous resource statement Egoli Project
Category Tonnes Grade Contained gold Tonnes Grade Contained gold
Million g/t Moz Million g/t Moz
Measured 0.36 8.97 0.10 0.45 8.94 0.13
Indicated 2.92 9.87 0.93 0.70 7.11 0.16
Inferred 6.12 9.74 1.92 4.13 8.93 1.19
Total 9.40 9.75 2.95 5.28 8.69 1.48
Mineral resources are reported in accordance with the South African Code for
the Reporting of Exploration Results, Mineral Resources and Mineral Reserves
guidelines. Cut-off values are reported applying a gold price of R600,000/kg
(USD1,370/oz and ZAR:USD 13.62:1). Mineral resources are reported inclusive of
mineral reserves. All mineral resources reported exclude geological
structures, regional pillars, middling pillars, safety pillars and shaft
pillars. Mineral resources are reported as in-situ tonnes. Any discrepancies
in totals are due to rounding. Mr HP Pretorius, of an independent Geological
Consultant (Shango Solutions Pty Ltd), and registered with the South African
Council of Natural Scientific Professionals (400051/11) was appointed as the
Competent Person for the mineral resource report. Mr HP Pretorius has reviewed
and approved the scientific and technical disclosures contained in this
announcement.
The Egoli Project has more than one-million ounces of contained gold in
measured and indicated categories. The mining feasibility highlights for the
Egoli Project are:
§ Initial de-watering of the declines is expected to commence during 2018.
§ The mining operation will be planned to ensure waste and reef are hoisted
separately.
§ The life-of-mine is expected to be 14 years.
§ Average recoverable gold of approximately 13,000 ounces per annum during
the initial four-year development phase, and an average of approximately
65,000 ounces per annum for the remaining ten years thereafter is forecast.
§ Existing available plant and shaft capacity will be used to treat mined
ore.
§ Peak funding requirement is forecast at approximately R572 million.
§ An internal rate of return (real, pre-taxation) of 46%, with a payback
period of two years following the initial four-year development period is
forecast. This projection is based on an assumed gold price of USD1,287/oz and
exchange rate ZAR:USD 12.50:1, equating to R517,194/kg.
§ Project, pre-taxation, net present value is R1.74 billion (USD139.4
million) at a 10% real discount rate.
§ An incremental all-in sustaining cost per kilogramme of approximately
R275,000/kg, or USD684/oz, on average, over the life of the mine.
§ An average gold recovery rate of 95% and a mine call factor of 85%.
Barberton Mines’ sub-vertical shaft project at Fairview
Shareholders were previously advised that the Fairview mining operation is
restricted by the hoisting capacity of its No 3 Decline, which is used to
access workings below 42 Level and the high-grade 11-block of the MRC. During
the period under review, Fairview started constructing a new sub-vertical
shaft at a cost of approximately R105 million over a two-year period.
Following the commissioning of this shaft, it is expected that productivity
improvements will yield an additional 7,000oz - 10,000oz of gold per annum.
Outlook
In the 2018 financial year, the remaining key focus areas for the group, from
an operational perspective, include:
* continuing with our safety and regulatory compliance improvement projects
across all operations;
* ensuring construction of the Elikhulu Project progresses ahead of schedule
and below budget;
* ensuring an improved sustainable and optimal operating performance at our
gold mining operations;
* further improving stakeholder engagement to minimise operational stoppages;
* operational review of higher cost operations in the group; and
* production guidance is now approximately 177,000oz-181,000oz.
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 period. Their commitment and
perseverance has enabled Pan African Resources to continue operating
successfully. We also thank our fellow directors and shareholders for their
support.
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 United Kingdom (“UK”) and South Africa.
During the period under review the average ZAR:GBP exchange rate was R17.65:1
(2016: R17.88:1) and the closing ZAR:GBP exchange rate was R16.67:1 (2016:
R16.90:1). The period-on-period change in the average and closing exchange
rates of 1.3% and 1.4%, 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
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 4.3% stronger at R13.39:1 (2016:
R13.99:1).
The commentary below analyses the current and prior reporting 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 operations, period-on-period,
decreased in ZAR terms by 9.2% to R1,462.9 million (2016: R1,610.8 million)
and in GBP terms decreased by 8.0% to GBP82.9 million
(2016: GBP90.1 million).
Group revenue was mainly impacted by:
1. The average ZAR gold price received decreasing by 2.4% to R551,506/kg
(2016: R565,298/kg), as a result of the average ZAR:USD exchange rate
strengthening by 4.3% to R13.39:1 (2016: R13.99:1) and the USD gold price
received increasing by 1.9% to USD1,281/oz (2016: USD1,257/oz).
2. Gold ounces sold decreased by 6.9% to 85,282oz (2016: 91,613oz).
Cost of production
Pan African Resources’ cost of production inflation was well contained, with
the cost of production increasing by 5.4% to R1,228.0 million (2016: R1,165.6
million).
The main cost contributors that impacted the period-on-period cost increase
during the current reporting period are summarised as follows:
* Group gold operations’ salaries and wages (represents 43.2% of the gold
cost of production) increased by 2.9% to R530.4 million (2016: R515.6
million). Salaries and wages increased in line with the gold labour agreements
signed at the respective operation, but this was off-set by the reduction in
labour costs at Evander Mines due to the retrenchment of employees.
* The group’s electricity costs (represents 15.6% of the gold cost of
production) increased by 4.6% to R191.5 million (2016: R183.0 million). The
increase is higher than the National Energy Regulator of South Africa’s
approved average national increase of 2.2% from 1 April 2017, as a result of
increased tonnages mined by the respective underground mining operations.
* The group’s mining and processing costs (represents 25.6% of gold cost of
production) increased by 3.9% to R314.4 million (2016: R302.6 million).
* The group’s engineering and technical costs (represents 8.3% of gold cost
of production) increased by 11.3% to R101.4 million (2016: R91.1 million). The
above-inflation increase is predominantly due to the additional maintenance
work on Evander Mines, specifically the repairs associated with Evander Mines
8 Shaft’s 10 stage pump column repairs.
The group’s cost of gold production per kilogramme increased by 13.0% to
R473,187/kg (2016: R418,764/kg).
The increase is mainly attributed due to the group’s sold gold decreasing by
6.9% to 85,282oz (2016: 91,613oz) and the 5.4% increase in cost of production.
The group’s all-in sustaining cost of gold production per kilogramme
(including direct cost of production, royalties, associated corporate costs
and overheads, and sustaining capital expenditure, excluding cost-collar
mark-to-market expenses) increased by 11.9% to R545,908/kg (2016:
R487,765/kg). In USD terms the all-in sustaining cost per ounce increased to
USD1,268/oz (2016: USD1,084/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 8.8% to R554,890/kg (2016: R509,909/kg). The groups once-off
capital period-on-period decreased by 62.6% to R23.5 million (2016: R62.9
million), due to the completion of the BTRP cyanide detoxification plant and
Fairview’s ventilation refrigeration and infrastructure.
Realisations costs
The group’s realisation costs decreased marginally to R27.1 million (2016:
R27.7 million). The realisation costs relate predominantly to refining charges
rendered by refiners.
Depreciation costs
Depreciation from continuing operations increased by 3.3% to R104.8 million
(2016: R101.5 million). The depreciation charge is based on the available
units of production over the life of the operations.
Other expenditure and income
Other expenditure reduced to R13.3 million (2016: R34.9 million other income).
In the current reporting period, the group recorded lower mark-to-market
fair-value gains of R19.4 million (2016: R94.7 million) on financial
derivatives.
Finance costs decreased to R14.3 million (2016: R19.0 million), predominantly
due to the group’s average debt in the reporting period declining relative
to the prior reporting period. Interest incurred on the Elikhulu Project is
capitalised, which further contributed to a reduced finance cost.
Discontinued operation
The group’s discontinued operations represent Phoenix in the current
reporting period and both Phoenix and Uitkomst Colliery Pty Ltd
(“Uitkomst”) in the prior reporting period as both of these operations
have been disposed of.
The group’s discontinued operations recorded a loss of R6.8 million in the
current reporting period represented by Phoenix’s loss for the period 1 July
– 7 November 2017. This loss comprised of R1.9 million in operational losses
and a R4.9 million loss on asset held for sale. In the prior reporting period
Phoenix and Uitkomst collectively contributed R19.3 million to the group.
Taxation
The group’s total taxation charge decreased to R17.6 million (2016: R90.4
million) as result of a decrease in the group’s profit before taxation.
The taxation charge comprised of:
- a decrease in the current taxation charge by 96.8% to R1.8 million
(2016: R56.8 million); and
- a decrease in the deferred taxation to R15.8 million (2016: R33.6
million), mainly due to the 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 80.5% to 3.23 cents (2016: 16.58 cents).
The group’s HEPS in ZAR decreased by 78.5% to 3.51 cents (2016: 16.32
cents). The difference between the EPS and HEPS is 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 increased by 19.3% to
1,798.3 million shares (2016: 1,506.8 million shares). The increase in shares
was attributed to the additional 291.5 million shares issued in the equity
raise concluded on 12 April 2017 for the equity tranche of the Elikhulu
Project.
The weighted average number of shares period-on-period in issue for
calculating earnings per share is reconciled below:
31 December 2017 31 December 2016
Shares in issue at beginning of the calendar year 1,506.8 1,943.2
Elimination of shares held by PAR Gold - (436.4)
Issue of shares – vendor placement (date 12 April 2017) 291.5 -
Weighted average shares in issue at end of six months period 1,798.3 1,506.8
Total headline earnings per share is calculated as follows:
31 December 2017 31 December 2016 31 December 2017 31 December 2016
GBP million GBP million ZAR million ZAR million
Basic earnings all operations 3.3 14.0 58.2 249.8
Adjustments:
Profit on disposal of investment - (0.2) - (4.6)
Taxation on profit realised on disposal of investment - - - 1.0
Profit on disposal of property plant and equipment - - - (0.3)
Taxation on profit realised on property plant and equipment sale - - - 0.1
Loss on asset held for sale 0.3 - 4.9 -
Headline earnings 3.6 13.8 63.1 246.0
Headline earnings per share 0.20 0.91 3.51 16.32
Diluted headline earnings per share 0.20 0.91 3.50 16.31
Continuing operations headline earnings per share is calculated as follows:
31 December 2017 31 December 2016 31 December 2017 31 December 2016
GBP million GBP million ZAR million ZAR million
Basic earnings continuing operations 3.7 12.9 65.0 230.5
Adjustments:
Profit on disposal of investment - (0.2) - (4.6)
Taxation on profit realised on disposal of investment - - - 1.0
Profit on disposal of property plant and equipment - - - (0.3)
Taxation on profit realised on property plant and equipment sale - - - 0.1
Headline earnings 3.7 12.7 65.0 226.7
Headline earnings per share 0.21 0.84 3.61 15.05
Diluted headline earnings per share 0.21 0.84 3.61 15.04
Net debt
The group net debt increased to R653.0 million (2016: R497.0 million). This
comprised of total debt facilities utilised at 31 December 2017 of R771.7
million (2016: R565.4 million), and cash holdings of R118.7 million (2016:
R68.4 million).
The increase in net debt was largely due to R511.7 million of capital
expenditure being incurred on the Elikhulu Project in the current reporting
period.
Summary of the long-term debt liabilities:
Revolving credit facility Evander Mines gold loan Elikhulu term facility Total
31 December 2017 31 December 2016 31 December 2017 31 December 2016 31 December 2017 31 December 2016 31 December 2017 31 December 2016
ZAR (millions) ZAR (millions) ZAR (millions) ZAR (millions) ZAR (millions) ZAR (millions) ZAR (millions) ZAR (millions)
Non-current portion 610.5 458.7 - - 95.1 - 705.6 458.7
Current portion 66.1 52.8 - 53.9 - - 66.1 106.7
Total 676.6 511.5 - 53.9 95.1 - 771.7 565.4
The group’s performance against the revolving credit facility debt covenant
limits are summarised below:
Measurement December 2017 December 2016
Net-debt-to-equity ratio Must be less than 1:1 0.19 0.17:1
Net-debt-to-adjusted EBITDA ratio Must be less than 2.5:1 2.25 0.48:1
Interest cover ratio Must be greater than 4 times 4.62 21.99
Debt service cover ratio Must be greater than 1.3 times 1.85 -
Capital expenditure
Group capital expenditure for the current reporting period has been summarised
per operation in the table below:
Continuing Operations Discontinued Operations Group Total
Barberton Mines Evander Mines Elikhulu Corporate Phoenix
ZAR million ZAR million ZAR million ZAR million ZAR million ZAR million
Development capital 35.2 30.4 - - - 65.6
Maintenance capital 17.5 72.1 - 0.6 6.0 96.2
Sustaining capital total 52.7 102.5 - 0.6 6.0 161.8
Expansion capital 18.7 4.8 511.7 - - 535.2
Total capital expenditure 71.4 107.3 511.7 0.6 6.0 697.0
Cash flow summary
Cash generated by operations (after dividends) decreased by R14.6 million to
R29.1 million (2016: R43.7 million), due to the lower gold production and
operating cash costs increasing by 13.0% to R473,187/kg (2016: R418,764/kg).
The 2017 financial year dividend payment of R185.0 million (2016: R300.0
million) was made on 21 December 2017.
The cash outflows from investing activities increased to R634.2 million (2016:
R173.1 million), largely due to:
* capital expenditure incurred on Elikhulu of R511.7 million (2016: R17.8
million);
* capital expenditure incurred on operations of R185.3 million (2016: R185.7
million);
* contributions into the rehabilitation trust of R26.2 million (2016: nil);
and
* cash received from the sale of Phoenix of R89.0 million (2016: R30.4 million
proceeds from the sale of a listed investment and property plant and
equipment).
Net cash inflows from financing activities increased to R563.6 million (2016:
R145.2 million), largely due to the utilisation of the debt facilities to fund
operational and project capital expenditure.
COMMITMENTS REPORTED IN ZAR AND GBP
The group identified no material contingent liabilities in the current or
prior reporting period.
The group had contracted outstanding open orders at period end of R1.1 billion
(2016: R106.3 million), or GBP64.3 million (2016: GBP6.3 million). Outstanding
orders in the current reporting period related primarily to the Elikhulu
Project.
Authorised commitments for the remainder of the 2018 financial period, not yet
contracted for, totalled R170.4 million (2016: R169.9 million) or GBP10.2
million (2016: GBP10.1 million).
At 31 December 2017, the group had guarantees in place of R24.6 million (2016:
R24.6 million) or GBP1.5 million
(2016: GBP1.4 million) in favour of Eskom Holdings SOC Limited, and R14.0
million (2016: R33.5 million) or
GBP0.8 million (2016: GBP2 million) in favour of the DMR.
Operating lease commitments, which fall due within the next financial year,
amounted to R1.8 million
(2016: R3.7 million) or GBP0.1 million (2016: GBP0.2 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, which 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 holds 13,064,381 shares in MC Mining Ltd (Previously
known as Coal of Africa Ltd). The investment was fair valued at R91.5 million
or GBP5.5 million (2016: nil), at the reporting date. 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 R357.5 million (2016:
R319.5 million) or GBP21.4 million (2016: GBP18.9 million), which comprise
investments in guaranteed equity-linked notes and interest-bearing call
accounts.
Level 2 financial instruments:
During the current and prior reporting period, the group had exposure to
financial derivatives comprising a cost-collar hedge. The mark-to-market value
of this cost collar asset at 31 December 2017 was R5.8 million or GBP0.3
million (2016: R20.2 million liability or GBP1.2 million liability)
The group’s cash settled share option liability, which is valued on a
mark-to-market basis according to the company’s quoted share price, amounted
to R46.3 million or GBP 2.8 million (2016: R57.8 million or GBP3.4 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 or GBP0.1 million (2016: R5.6 million or GBP0.3 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
2017.
The financial information set out in this announcement does not constitute the
company’s statutory accounts for the period ended 31 December 2017.
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 2017 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:
- On 29 September 2017, Mr JAJ Loots entered into a contract for
difference derivative (“CFDs”) for 200,000 shares at average of GBP12.747p
per share. Mr JAJ Loots had 688,765 shares at period end, representing 0.03%
of total issued shares.
- On 29 September 2017, Mr GP Louw purchased 45,000 shares at an average
price of R2.35 per share. Mr GP Louw had 182,450 shares outstanding at period
end, representing 0.01% of total issued shares.
- On 6 October 2017, Mr T Mosololi purchased 20,000 shares at R2.30. Mr T
Mosololi had 50,000 shares outstanding at period end, representing 0.01% of
total issued shares.
SHARES ISSUED
No additional issuance of
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