Pan African Resorces interims

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 announced their interim results yesterday that were affected by not just the gold price, but internal production issues.

Gold sold decreased by 13.5% to 86,675oz due to oil contamination within the BIOX® plant and by a Section 54 safety stoppage as reported during November 2014 at Barberton and the expected low grade mining cycle and a Section 54 safety stoppage during November at Evander.  

In addition to the production issues mentioned, the gold price declined by 6.1% to $1,231 in the period resulting in a revenue decline of 20% to £67.8m.  EBIT fell 65.4% to £8.0m and EPS was 67.4% lower at 0.31p.

Currently the gold price is $1,217 and as you can see from the chart, this is a price that creates some challenges for PAF.  The important costs are "all-in sustaining cash costs" (which is essentially the operating cash costs plus maintenace capital expenditure) and "all-in costs" are total operating costs including overheads, interest costs and tax.  So the gold price less "all-in sustaining cash costs" should equate to free cash flow and the gold price less  "all-in costs" should equate to earnings

Click on chart to enlarge

Before the acquisition of Evander during 2012, PAF was one of the lowest (below $1,000) cost producers in the industry.  Management state that there has been an improvement in the grade being mined, which should improve the cost base in the second half, but any substantial improvement in results will not occur until the gold price moves above $1,400 an oz.

Free cash flow was £5.6m compared to £22.3m last year after capital expenditure of £12m compared to £10.1m last year.

PAF is a high yielding stock (almost 7%), where management have said "...We will also maintain ourfocus on generating cash flows from our asset base to ensure the continuation of future dividend payments..." and offer an exposure to the gold price.