Pan African Resources: A Second Glance At The First Half
Edison | Apr 23, 2018 07:17AM ET
Pan African Resources Plc (SG:PAFR)'s shares have fallen by 41% since its operational update on 1 February, which revealed a 6.9% decline in gold production vs H117. This was reflected in a 78% decline in pre-tax profitability when interim results were announced in February. Notwithstanding the year-on-year comparison however, H118 results were, in fact, better than H217, with the exception of a large effective tax credit in the prior period (see overleaf). While PAF’s share price therefore reflects the difficulties being experienced at Evander Gold Mines (EGM) (pro-rata to production), it takes little or no account of likely recovery in H218, the start of production at Elikhulu in H119 or any of PAF’s three other immediate growth projects.
Share price reaction to Evander overdone
Despite its recovery in H118 vs H217, operations at Evander remain under pressure, primarily on account of the strength of the rand (see Exhibit 2). While we believe it is conceivable that EGM can return to profitability, it is possible that, in the absence of any tangible change by the end of FY18, management may decide to close 8 Shaft. While regrettable, from a financial perspective we estimate that the existing EGM underground accounts for only 2.54p (or 13.0%) of our valuation of PAF (below) and that any resulting production shortfall will be rapidly made up for by Elikhulu, Egoli and Royal Sheba.
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