SUMMATIVE ASSIGNMENT 1

Name : Mary Nambao

Student ID Number: R2002D10464027
Course name: UU-MBA710
Tutor: Ali Malik
Date: 27th November 2020

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 Contents
1.0 INTRODUCTION ............................................................................................................. 2
1.1 Business Background ..................................................................................................... 2
1.2 Assignment Rationale .................................................................................................... 2
2.0 CORPORATE GOVERNANCE......................................................................................... 3
2.1 The Board of Directors ................................................................................................... 3
2.2 Executive Committee ..................................................................................................... 4
2.3 Committees of the board................................................................................................. 4
3.0 CAPITAL INVESTMENTS-EXISTING AND PROJECTED PROJECTS ............................ 4
4.0 PAN AFRICAN RESOURCES SOURCES OF FINANCE .................................................. 5
4.1 Financial Capital............................................................................................................ 5
4.2 Manufactured Capital ..................................................................................................... 5
4.3 Intellectual Capital ......................................................................................................... 5
4.4 Human Capital............................................................................................................... 6
4.5 Social and relationship Capital ........................................................................................ 6
4.6 Natural Capital .............................................................................................................. 6
5.0 AN ANALYSIS OF FINANCIAL PERFORMANCE .......................................................... 6
5.1 Profitability ................................................................................................................... 6
5.1.1 Return on Equity (ROE): ...................................................................................... 6
5.2 Liquidity ....................................................................................................................... 7
5.2.1 Quick Acid Ratio ..................................................................................................... 7
5.3 Leverage (Gearing) ........................................................................................................ 8
5.3.1 Debt to equity......................................................................................................... 8
5.3.2 Interest cover ratio ................................................................................................. 9
5.4 Investor’s Ratios: ......................................................................................................... 10
5.4.1 Earnings Per Share (EPS) ...................................................................................... 10
6.0 PAN AFRICAN RESOURCES SHARE PERFORMANCE ............................................... 13
7.0 CONCLUSION ............................................................................................................... 14
8.0 RECOMMENDATIONS ................................................................................................. 15
9.0 APPENDIX 1 : INCOME STATEMENT ......................................................................... 16
10.0 APPENDIX 2 BALANCE SHEET .................................................................................. 17
11.0 APPENDIX 3: CALCULATIONS OF RATIOS .............................................................. 18
12.0 REFERENCES................................................................................................................ 19

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1
1.0 INTRODUCTION

1.1 Business Background

Pan African Resources PLC is a mid-tier African-focused gold producer which owns and
operates a portfolio of operations and projects, located in South Africa with a production
capacity of approximately 200,000oz of gold per annum. With the company’s purpose, “To
safely extract gold from mineral deposits in a manner that creates sustainable value for our
stakeholders” (Pan African Resources , 2020), Pan African Resources PLC operates through
six segments. These are the Barberton Mines, Evander Mines, Phoenix Platinum, Uitkomst
Colliery, Corporate office and growth projects, PAR Gold Proprietary Limited and Funding
Company, which provides treasury function activities. The 3 major producing precious metals
assets are Barberton , Barberton Tailings Retreatment Project and Elikhulu, now incorporating
Evander Tailings Retreatment Project . The company is on the on the London Stock Exchange
(LSE) and the Main Board of the Johannesburg Stock Exchange (JSE).
1.2 Assignment Rationale
Investors are interested in both horizontal (Time-trend analysis) and vertical (Peer-group
analysis) financial statements analysis. The horizontal analysis gives them information on how
the firm has performed over a period whereas vertical analysis can inform them on how the
firm is performing at a time and in comparison to other firms in the industry. The financial
statements analysis provides information about a company's revenue, expenses, profitability,
debt load, and the ability to meet its short-term and long-term financial obligations (Ross, S.,
Westerfield , R . & Jordan, R.,2017). Potential Investors use this information to decide whether
to invest in the company or not, whereas existing shareholders use it to decide whether to
continue with the business or sell their shares.
This paper aims at producing a report based on the Financial statements for Pan African
Resources PLC from 2016 to 2020. It will look at the corporate governance, capital
investments, company’s sources of financing, financial ratios and company’s share
performance. The company’s websites will be used to access annual reports and financial
information. Financial ratios will be compared with firms in a similar industry and the
necessary ratios not provided will be calculated using the available information .

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2.0 CORPORATE GOVERNANCE

Corporate governance implies an internal system - with policies, processes and people - which
guide and monitor management activities. It is mainly dependent on the board of directors but
shareholders and management are also players in the corporate governance. The outside
investors protect their investment by having this board culture that watches out for
mismanagement by the insiders. ( Ahmed, Alam, Jafar, & Zaman, 2008; Portaa, Silanes ,
Shleifera, & Vishnyc, 2000).

2.1 The Board of Directors

A board of directors give strategic guidance to management to align the interests of
shareholders with those of management. They are accountable to the shareholders but need to
manage the relationship with stakeholders through the firm’s management team. Pan African
Resources PCL’ s board has 7 members ;5 independent non-executive directors and 2
executive directors. The two executive directors are the financial Director and the Chief
Executive officer (CEO). Scholars have argued that having board members in the executive
committee compromises the board but this is usually true when the Board chair is the CEO,
which is not the case for Pan African Resource Pcl (Rashid, A. (2011). The 5 board members
who are non-executive directors are Yvonne Themba, Charles Needham, Thabo Mosololi
,Hester Hickey and Keith Spencer who is also the board Chairman. The board members who
are executive directors are Cobus Loots , a CEO and Deon Louw a Finance Director. The skill
set found in these board members is suitable to give strategic direction to management and
challenge it where necessary. Keith the board chair is a qualified mining engineer with 48 years
mining experience. Heister is an experienced auditor and Thabo a qualified accountant with
26 years experience. Charles brings his experience in Mining taxation whereas Yvonne has a
strength in Business Administration. Both Deon and Cobus have their wealth of experience in
financing. “The number of directors, diversity and experience, skills and knowledge and the
director’s ability to independently challenge the management and provide strategic advice on
the direction of the company are all elements that shape the board’s effectiveness”
(International Financing Corporation, 2009). Pan African Resources has done well in picking
its board members. In the 2020 Integrated Annual Report it is stated that Yvonne and Charles
were added during the last financial year. The Nomination Committee has achieved the
following as it adds members to the board; diversity of experience, diversity of tenure and

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diversity of age with independent non-executive directors standing at 71% (Pan African
resources, 2020). Ethics are central to the corporate governance of the firm and they follow
King IV code which has prioritized Ethics as one of its major pillars (Pan African resources,
2020; University of Glassgow,2018)

2.2 Executive Committee

An Executive is a smaller group of people who can act on behalf of the full board. Having an
Executive Committee in place result in efficient decision-making processes as these members
meet more often than the full board. In representing the full board, they oversee the company’s
policies to ensure maintenance of good governance practices by the board (Nicholas J. P.
(2018). Pan African Resource has 3 members in the Executive committee and the CEO Cobus
Loots is one of them. The other two are Deon Louw a Finance director and Andre Van Den
Bergh the Chief Operating Officer (Coo). The 2020 Integrated Annual report defines the Pan
African Resources Executive committee’s responsibilities to include monitoring of the
company’s performance to ensure it is aligned to the set objectives (Pan African resources,
2020).

2.3 Committees of the board

Board meetings do not have enough time for all subjects to be analysed in details, therefore
there is need for smaller groups to do this in other forums. This has necessitated formation of
committees which are chaired by board members. The firm has 5 committees namely: Audit
and Risk, Remuneration, Safety, Health, Environment And Quality ( SHEQC), Nomination
and Social and Ethics. The chairs for these Committees are; Heister for Audit and Risk, Yvonne
for Renumeration ,Keith for SHEQC and Thabo for Social and Ethics .

3.0 CAPITAL INVESTMENTS-EXISTING AND PROJECTED PROJECTS

Pan African Resources has the following manufactured capital:

• Underground mining and surface infrastructure at Barbertone Mines and Evander mines
• Two surface taillings treatment plants (Elikhulu and BTRP)
• Biological Oxidation plant at Barbertone.

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The company invested R1.7-billion Elikhulu tailings retreatment plant (TRP) project at its
Evander gold mine, in Mpumalanga. The expected yield is 689 000 oz of gold at an all-in
sustaining cost (AISC) just above the $500/oz mark. This financing is made up of R1-billion
in debt and an equity part of R700-million. With all these investments, the company has
performed well with relatively good Return on Capital Employed ratios.
The return on capital employed (ROCE) ratio shows how efficiently the firm uses its capital
employed. Pan African resource has shown an upward trend this ratio in the past 2 years with
ratios of 20% and 22% in 2019 and 2020 respectively. Pan African resources in 2020 made
22cents for every dollar it had invested in capital employed. This is higher than the mining
Industry average which was 13% in 2019 and one of the firm’s top competitor Kenmare
Resources PLC which has a return on capital employed of 5.9% (Simply Wall St., 2019).
The calculations done to arrive at the ROCE are shown in the Appendix 3.

4.0 PAN AFRICAN RESOURCES SOURCES OF FINANCE

The firm uses 6 modes as sources of finance namely Financial capital, Manufactured capital,
Intellectual capital, Human capital, Social and relationship capital and Natural capital.
4.1 Financial Capital
Pan African Resources’ financial capital has US$183.6 million shareholder equity and
US$53.8 million cash by generating activities. Debt financing provides US$ 43.3 million
revolving credit facility and US$ 46.2 million Elikhulu term loan facility. There is also US $ 1
million general banking facility.
4.2 Manufactured Capital
The manufactured capital include underground and surface infrastructure at Barberton Mines
and Evander Mines. There are also two surface tailings retreatment operations at Elikhulu and
BTRP. The investment in infrastructure is US$34.6 million and the mines have 37.61Moz gold
resources and 10.87Moz reserves.
4.3 Intellectual Capital
Pan African Resources has 130 years of mining experience on the Berberton greenstore belt
orebodies. The continuous training of the workers has resulted into key personnel with
technical know-how on how to manage the essential processes. The Board and management
have a mix of relevant expertise and their able leadership contributes to the smooth running of
the company.

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4.4 Human Capital
Recruitment of the right personnel is key to the firm and in 2020 it had 2,126 employees.
Skill development, adult education and training of the mineworkers ensure continuous human
development.

4.5 Social and relationship Capital

The company has a social license to operate and maintains a relationship with all stakeholders
including the community. It invests in the community through bursaries and human resource
development.
4.6 Natural Capital
All applicable environment legislation and regulations are abided to. Extraction of the mineral
resources is done through responsible mining techniques whilst mitigating the environmental
impacts of mining through rehabilitation.

5.0 AN ANALYSIS OF FINANCIAL PERFORMANCE

5.1 Profitability
5.1.1 Return on Equity (ROE) :The ROE compares the annual net income of a business to its
shareholders' equity. Kijewska, A (2016) explains that this indicator demonstrates how
efficient management is at using equity financing to fund operations and increase profit
generation. This ratio is calculated as follows:

Return on equity ratio = Net income / Shareholder’s equity

Pan African Resources has done well with this ratio for the past 5 years, keeping it
above the Industry average of 9% (Maverick , J., B. (2020). It was 17% in 2016 and
dropped in 2017 and 18 but went back up in 2019 and has continued rising in 2020
standing at 24% as illustrated in Fig 5.1 below. The firm has a relatively low debt-to-
ratio of 1.01 therefore this ROE is a positive factor to encourage an investor as it is not
being camouflaged by a high debt.

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 Fig. 5.1

5.2 Liquidity
5.2.1 Quick Acid Ratio
The acid-test ratio (Quick Ratio) measures a company’s ability to pay off short-term liabilities
with either cash or other quick assets. One of the ways it can be calculated is as follows:

Quick Ratio = (Current Assets – Inventories)/Current Liabilities

Pan African resources has had a Quick ratio of lower than 1 for the past 5 years as shown in
Fig 5.2 below. This is a concern for an investor as the preferred minimum for the mining
company is 1. In 2020 the firm had a quick ratio of 0.58 which means the business liquidity is
short and only covers 0.58 of the existing liability.

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 Fig 5.2

5.3 Leverage (Gearing)

5.3.1 Debt to equity
This ratio measures the proportion of a company’s equity and debt. A higher ratio implies that
the business is being financed more from borrowed money than from owner’s funds.
The formula is as follows:

Debt to Equity = Total Debt/Total Equity

Pan African Resources has done very well for the past 5 years in keeping the debt to equity
ratio below 2 as illustrated in Fig 5.3 below. In 2016 and 2017 the stockholder’s financed the
business more than borrowed funds but 2018 and 2019 this was reversed. In 2020 the debt
funded 50% of the business and the stockholders funded the remaining 50%. This current
situation is safe for an investor in that the business is not heavily indebted. It would have been
better if the ratio stayed below 1 but for this industry any Debt to equity ratio less than 2 is fine
for investment.

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 Fig 5.3

5.3.2 Interest cover ratio

The interest coverage ratio shows how easily a company can pay its interest expenses in a
timely manner. A company is said to be doing well if its interest coverage ratio is at least 2.
The formula for calculating the interest coverage ratio is as follows:
Interest coverage ratio = Operating income / Interest expenses
The interest coverage for Pan African resources has stayed above 4 in the past 5 years as shown
in Fig 5.3.2 below. It was 26 in 2016, declined in 2017 and got worse in 2018 and 2019 when
it was 4.6 and 4.1 respectively but in 2020 in had gone up to 10.1. This is good for investors
because it implies the firm makes ten times more earnings than its current interest payments.

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 Fig. 5.3.2

5.4 Investor’s Ratios:

5.4.1 Earnings Per Share (EPS)

Earnings per share (EPS) ratio measures how many dollars of net income are available for
distribution to common shareholders during a certain time period.
EPS ratio is computed by the following formula:

EPS= Net income-preferred dividends/weight average outstanding shares

The EPS is an indicator of a company’s profitability and it is preferred that it keeps rising over
the years. Pan African Resources has not done well with this ratio over the five years. They
made a loss of 86.03 cents (ZAR) per share in 2018 but the following year it went to 27.89
cents and now it is at 36.00 in 2020. The PE ratio which had a similar decline in 2018 has also
been going up in the last two years as illustrated in Fig. 5.4 below. With a PRICE/EARNINGS
GROWTH RATIO (PEG) of 0.57 in 2020, it implies that Pan African Resources is
undervalued. Investing now might be helpful because it will be cheaper and yet it is worth

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much more than the shares will cost now. It would have not been a good idea to buy stocks in
2018 when the PE ratio was negative as this indicated a company which was making losses.

Fig 5.4

Dividend per share (DPS) calculates the amount of money paid by a company to its
shareholders. The formula is as follows:

Dividends paid within a period (or year)/Outstanding shares for the year

Pan African resources has not been consistent in paying the dividends over the past five years.
In 2018 in reduced from 15.44 cents to 8.28 cents and then in 2019 no dividends were given.
This can be explained by the loss made in 2018 where the EPS was – 86.03 cents. In 2020 the
DPS was 2.4 cents as shown in Fig 5.4 above. In 2019 the firm’s Dividend yield was zero and
this went up in 2020 to 0.9 as shown in Fig 5.4.1 below. This is much lower than the preferred

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4% in the Industry and it means Shareholders were paid dividends that represent only 0.9% of
the Market share value.

Fig. 5.4.1

Pan African Resources has a good dividend cover ratio in 2020 but looking at the previous
years, it does not make an investor comfortable. In 2017 it was below 1.5 and in 2018 it was
negative 10.39 as illustrated below in Fig 5.4.2 below. This can be explained by the Dividends
which were paid out in 2018 despite having a loss of 86.03 cents per share.

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 Fig. 5.4.2

6.0 PAN AFRICAN RESOURCES SHARE PERFORMANCE

The Pan African Resource PE ratio in 2020 which is 10.3 is lower than the Mining Industry’s
which stands at 13.2. This is a good indication for an investor especially that it is also lower
than one of its closest competitor Kenmore resources PLC whose PE ratio is 12.4 as illustrated
in Fig 6.1. Although the Pan African Resource’s PE is higher than one of its competitor’s
Golden Star, Pan African Resources is still a better option. This is because Golden Star’s PE is
at zero which implies that the company in 2020 is not making profit. As an investor it would
be prudent to understand why there share performance was poor in 2018 when Pan African
resources made losses from having high PE ratios in 2016 and 2017. The current market value
of this firm is equal to 10.3 times its annual earnings.

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 Fig 6.1

7.0 CONCLUSION

Pan African Resources PLC has a strong corporate governance with a board which has been
put together considering diversity in experience, skills and knowledge. The sources of finance
are Financial capital, Manufactured capital, Intellectual capital, Human capital, Social and
relationship capital and Natural capital. With the investment the company does from these
sources of finance it has been a profitable business as evidenced by the high return on equity.
The other strength is that Pan African Resources is not heavily indebted and has managed to
make more earnings than it pays in interest costs at any time.

Of concern is the low Dividend yield which has persisted over the five years as shareholders
are paid dividends that are low compared to the Market share value. The other ratio not
performing well is the quick ratio which implies that the business liquidity only covers 0.58
of the existing liability. Despite these concerns the firm has a lower PE ratio than the mining
industry average and even its top competitors. With a Price/Earnings Growth Rati (PEG) of
0.57 in 2020 this company is a more viable business than it is being valued.

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8.0 RECOMMENDATIONS

As an investor Pan African Resources is a good company to invest in and would take care of
most investors’ concerns if the following was done:
1. The firm should pay out as much current liabilities as possible to have a healthy quick
ratio
2. There should be no dividends paid out when the company has made losses to avoid
negative divided cover.
3. To strengthen the corporate governance even further, there should be an increase in
the ratio of women to men in management or even on the board.

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9.0 APPENDIX 1 : INCOME STATEMENT

Date 30.06.16 30.06.17 30.06.1 30.06.19 30.06.20

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Total Revenue 168.4 167.76 106.5 217.68 274.11
Cost of Revenue - - - - -
Gross Profit - - - - -
Operating Expenses - - - - -
Depreciation & Amortization - - - - -
Other Operating expenses - - - - -
Operating profit/ EBIT 34.74 19.92 11.01 48.47 65.08
Net interest -1.01 -2.52 -1.65 -12.2 -12.88
Other non operating - - - - -
income/expense
Pre tax profits (from 33.74 23.01 9.35 46.22 52.2
continued & discontinued)
Taxes - - - - -
After tax profits (from 25.5 22.76 11.46 38.04 44.29
continued & discontinued)
Below line adjustments - - - - -
Net profit (from continued & 25.5 17.91 -93.27 38.04 44.29
discontinued)
Non-controlling Interests - - - - -
Equity Holders of parent 25.5 17.91 -93.27 38.04 44.29
company
Continued EPS - Basic 1.41p 1.14p 0.63p 1.97p 2.30¢
Continued & Discontinued 1.41p 1.14p -5.15p 1.97p 2.30¢
EPS - Basic
Dividend per share 0.53p 0.88p 0.45p 0.13p 15.00¢

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10.0 APPENDIX 2 BALANCE SHEET

Dates 30.06.16 30.06.17 30.06.18 30.06.19 30.06.20

Total Assets 252.69 311.09 265.34 393.13 368.62
Non-current assets 230.74 281.78 245.23 363.17 314.97
Current assets 21.95 29.31 20.11 29.96 53.65
Total liabilities 101.72 94.51 149.64 209.55 185
Non-current 69.51 62.89 115.97 145.69 106.28
liabilities
Current liabilities 32.21 31.25 33.67 63.85 78.72
Net assets 150.98 216.58 115.7 183.58 183.62
Total Equity 150.98 216.58 115.7 183.58 183.62
Shareholders Funds 150.98 216.58 115.7 183.58 183.62
Non-controlling - - - - -
Interests

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 11.0 APPENDIX 3: CALCULATIONS OF RATIOS

Column1 formula 2016 2017 2018 2019 2020 Industry

Earnings per share Net income-preffered 30.20 19.80 -86.03 27.89 36.00
dividends/weight average
outstanding shares
Stock Price 375 236 135 186 370
P/E RATIO Stock price/Earnings per share 12.4 11.9 -1.6 6.7 10.3 36.92
DEBT-TO- Total debt liabilities (Short term 0.67 0.44 1.29 1.14 1.01 2
EQUITY RATIO and long term)/Total equity
PRICE/EARNINGS P/E ratio / earnings growth ratio 0.11 -0.64 - - 0.57
GROWTH RATIO
(PEG)
RETURN ON Profit available for distributionto 17% 11% 10% 21% 24% 9%
EQUITY Equity shares/ Equity Shareholders'
funds
INTEREST Earnings before Interest & taxes 26 10 4.6 4.1 10.1 2
COVERAGE (EBIT)/Interest expense
RATIO
ASSET Net revenue/ Average total assets 67% 60% 37% 66% 72%
TURNOVER
RATIO
DIVIDEND PER Dividends paid within a period (or 11.47 15.44 8.28 0 2.4
SHARE year)/Outstanding shares for the
year
DIVIDEND Earnings per share/Dividend per 2.63 1.28 -10.39 0.00 15.00
COVER share
DIVIDEND YIELD Annual Dividends Per Share / 5.10% 5.00% 4.20% 0.00% 0.90%
Market Price Per Share.
Return on Capital EBIT/Capital Employed 22% 11% 6% 20% 22%
Employed
Current Ratio Current Liabilities/Current Assets 0.68 0.94 0.6 0.47 0.68
Quick Acid Ratio Cash+Cash Equivalents+ Short 0.55 0.77 0.52 0.38 0.58
term investments + Accounts
Receivable/current liabilities or
current assets-inventories/current
liabilities
Return on Capital EBIT/Capital Employed 0.22
Employed
EBIT earnings before interest and taxes
65,079,000.00
noncurrent
liabilities 106,275,600.00
owners' equity
183,619,500.00
Capital employed noncurrent liabilities +
owners' equity - 289,895,100.00

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annual-report-2020-1.pdf

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for the year ended 30 June 2020. Retrieved from

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