Pan African Resources FY12 Results: In Line

Pan African Resources' (PAF.L) FY12 results were closely in line with Edison’s expectations. On-mine revenue increased by 27.6% in GBP terms (aided by a 24% increase in the gold price in US$), while costs of production rose by only 1.7% to result in a 70.3% increase in profit after tax to £29.2m (vs Edison’s expectation of £29.0m).

Total cash costs per oz down to US$776/oz
Total cash costs declined to US$776/oz (cf US$781/oz in 2011 and US$786/oz in H1), after increases in electricity (+27% y-o-y), engineering and technical services (+22%) and labour (+19%) in rand terms were offset by a decline in the ZAR/£ exchange rate and declines in security (-13%) and processing (-5%) costs.

H2 vs H1
Overall, results in H2 were very similar to H1, with the exception of ‘other’ costs relating to corporate activity (eg EGM and Manica), which increased 135% and the tax charge, which fell 45% after the gold mining income tax formula was reduced on the introduction of a dividend withholding tax to replace the secondary tax on companies.

Other operations – Phoenix and Bramber (BTRP)
After hot commissioning in April and completion of its ramp up in July, Phoenix is now reported to have reached ‘steady state’ production of 800-1,000oz per month. In the meantime, construction at Bramber has started and commissioning is scheduled for July 2012, followed by a period of production build up.

Valuation: EGM acquisition earnings accretive
Edison’s estimate of EPS for FY13 remains substantially unchanged at 3.73p/share, principally as a result of the anticipated contribution from Evander. This is in line with EGM’s reported net profit of £21.9m in the six months to December 2011, which equates to an annualised net profit of £43.8m, or 2.4p per PAF share (post rights). On the basis of current mine plans, Edison calculates that EGM will add an average of over 1.0p per share to PAF’s EPS until FY22, which is significant when compared with reported FY12 headline earnings of 2.03p/share. On the basis of our current estimates (including Bramber and Phoenix), Pan African’s P/E ratio declines from 7.3x diluted normalised EPS in FY12 to 4.9x in FY13 – materially cheap compared to other multi-asset South African based producers such as Anglogold Ashanti (c 7x consensus earnings in FY13) and Gold Fields (c 6.5x).

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