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Pan African Resources plc

Pan African Resources reports “robust” first half as profits more than double

The gold miner reported that after-tax profit for the six months ended 31 December 2018 had risen 127% to £7.5mln

Gold pieces
In the six months, gold production from operations rose 54.2% to 81,014 ounces

Pan African Resources plc (LON:PAF) has reported an increase in profit of over 100% as it reflected on a “robust” performance in its first half.

The gold miner reported that after-tax profit for the six months ended 31 December 2018 had risen 127% to £7.5mln, while in South African rand the figure was up 137% at R137.8mln.

WATCH: Pan African Resources reports sharp increase in gold production in first half

Revenues from continuing operations in the period had also surged 47% to £75.3mln, or up 52.8% to R1.38bn, thanks to an increase in gold ounces from underground operations at the company’s Barberton Mine.

Earnings per share, meanwhile, were up 116.7% at 0.39p per share.

Gold production surges

In the six months, gold production from operations rose 54.2% to 81,014 ounces (oz), with the company's Barberton complex increasing “significantly” by 24.5% to 50,556oz.

“The group is now positioned as a low cost and long-life gold producer, in line with our stated strategy and our shareholders’ expectations” said chief executive Cobus Loots, adding that the firm’s combined underground and tailing operations were “some of the lowest-cost gold producers in South Africa and also internationally competitive, from an all-in sustaining cost perspective”.

During the first half, the all-in sustaining cost per kilogram dropped 18.5% in rand terms to R444,946/kg, while in dollar terms the cost per ounce fell 23.1% to US$975/oz.

Due to financing the construction of its flagship Elikhulu tailings retreatment facility at the Evander mines, net debt in the period rose to £102.7mln from £39.2mln a year ago.

170,000oz target for full year “on track”

In its outlook for the rest of the year, Pan African said it was on track to achieve its gold production guidance of about 170,000oz, while also strengthening its financial position by reducing net debt to allow for “improved funding flexibility and increased capacity”.

Loots added that the firm had “an attractive pipeline of near- to medium-term growth projects” including the potential to access “low-cost, near-surface ounces” at its Royal Sheba project, where a definitive feasibility study is ongoing.

House broker expects more “significant cost savings” as net debt comes in below estimates

In a note to clients, analysts at Pan African’s house broker Peel Hunt said the company’s net debt had come in lower than their own estimates of £107mln and that there were “further significant cost savings to come at the Barberton operation as management looks to streamline the logistics of moving men and ore to and from the working faces to the surface”.

The broker added that it was “not surprised” that revenues had been in line with its estimates of £75mln, as the company had already reported gold production of 81,014oz in January.

“Overall operating costs were slightly higher than we expected (EBITDA was £18.7mln vs our £21.1mln estimate) but lower interest costs and effective tax rate meant our EPS of 0.39p was in line.”

Peel Hunt rates Pan African with a ‘Buy’ rating and 15.5p target price, with shares on the day down 1.9% at 10.5p.

Quick facts: Pan African Resources plc

Price: £0.12

Market: AIM
Market Cap: £225.61 m
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