Pan African Resources finals

A small South African based precious mining group that produces gold and platinum from high grade ore bodies at a low cash cost.  I have a holding in my growth portfolio (epic code: PAF).

Pan African Resources issued their preliminary results today and rewarded patient shareholders who have seen the transformational acquisition of Evander Goldmine and the company lose it CEO at the same time.  The market became cautious about the company's ability to manage the post acquisition process and deal with the management upheaval.  The company chose continuity of management in their CEO replacement as described here and their performance at the full year underlines the strength in depth they have in managing the business during a difficult period.

The Group's gold sold increased by 38.2% to 130,493oz and gross revenue increased by 32.0% to £133.5m. Headline earnings increased by 20.1% to £35.2m and headline EPS increased by 6.9% to 2.17p with diluted EPS increasing by 30.3% to 2.62p.  This is a good outcome for the year beating market expectations and, in addition to this, they have returned to the dividend list with a proposed dividend of ZAR 0.1314 which is estimated at 0.83p (to be confirmed at the AGM).

Free cash flow was strong at £20.7m compared to £12.6m last year, although due to the partial use of debt in the acquisition of Evander, net debt was £6.2m (3.6% gearing) compared to net cash of £19.8m at the end of last year.

All-in sustaining cash cost for the group was $992 per oz. and has been consistent over the past couple of years.  The increase in the all-in costs (which includes one-off capex) to $1,212 per oz. from $1066 was due to high capital expenditure incurred on the construction of the Barberton Tailings Retreatment Plant and Evander shaft deepening project.

Click on chart to enlarge

PAF have a target of 250,000 ozs. of gold production pa. through their existing infrastructure.  This would equate to an approximate £210m sales of gold at the current price of $1,300 per oz.  To this would be added about £8m pa of platinum sales once Phoenix is in full production. 

Even at this depressed level for the gold price we could see a 15% increase in the 2014 headline EPS.  So with a 5.5% yield on today's 15p SP and a prospective P/E of around 6, the shares look good value for a highly cash generative gold mine with reasonably long life assets from 12-20 years.