Get 40% Off
🤯 This Tech Portfolio is up 29% YTD! Join Now to Get April’s Top PicksGet The Picks – Just 99 USD

Pan African Resources: 40 US Cents Per Share Absolute

Published 03/12/2014, 12:30 AM
Updated 07/09/2023, 06:31 AM

BTRP success; ETRP poised on the blocks
Pan African Resources Plc's, (PAFR) H1 results to end-December were its first with Evander fully consolidated for the entire period. Despite a lower gold price, frequent power interruptions and the febrile environment in the South African mining industry generally, PAF recorded an 11.8% increase in EPS in sterling terms compared to the previous year period. In total, the company produced 96,507oz of gold (193koz annualised) at a cash cost of US$834/oz. It has a target of producing at an annualised rate of 250koz within 12 months (ie Q1 calendar 2015).

Pan

One down; one to go
PAF’s target of a 250koz annualised production rate will be achieved by a return to a higher-grade mining cycle at Evander (99koz in FY16), continuing steady-state production at Barberton (96koz), 26koz from the Barberton Tailings Retreatment Project (BTRP) plus production from the Evander Tailings Retreatment Project (ETRP). A feasibility study for the ETRP was concluded in November and is currently being reviewed by the Pan African board ahead of a production decision expected later this month. Given the infrastructure already in place at Evander – eg tanks, electric power, pumping equipment, security fence etc – and the fact that it will require only minimal incremental opex to effect (eg an additional 10 employees only), we regard it as highly likely that a positive production decision will be forthcoming. Early indications are that the ETRP will require capex of c US$16m for an operation treating 12Mtpa to produce 49koz gold per annum (ie adding approximately 25% to current production).

Valuation: 40 US cents per share absolute
In our last note, we calculated a value for Pan African of 45c, based on the maximum potential dividend stream payable to investors from its four assets until 2039, using a 10% discount rate and a long-term gold price of US$1,676/oz. Since then, we have adjusted our gold forecasts lower (see Exhibits 6 and 7 on page 8). While this has inevitably reduced our EPS forecasts, they nevertheless range between 1.9p and 3.2p over the next 12 years (ie up to 67% higher than our current year forecast). In the meantime, our absolute valuation has reduced only marginally, to 40c/share. Of arguably more significance, Pan African trades at a 42% Year 2 EV/EBITDA discount relative to its South African-listed peers (see Exhibit 9 on page 9) and an 86% Year 2 P/E multiple discount. By contrast, its dividend yield is between three and five times higher and offers investors an income return in excess of 5% before capital appreciation.

To Read the Entire Report Please Click on the pdf File Below

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.