Assignment 1: You need to prepare a report based upon the information related with

Pan African Resources PLC; real data from a public company listed in London Stock
Exchange. In the report you should approach the case from investor’s point of view. You
need to enclose information regarding this company’s:

R2003D10581013
Strategic Development UU-MBA-710-ZM-20526
Ali Malik
1 November 2020

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Table of Contents
1.0 INTRODUCTION...............................................................................................................................3
2.0 Background and Structure..............................................................................................................3
2.1 Background..................................................................................................................................3
2.2 Corporate Governance................................................................................................................3
2.3 Challenges....................................................................................................................................5
3.0 Capital Investments.........................................................................................................................5
3.1 Elikhulu Project............................................................................................................................5
3.2 2010 Pay Channel Project at Evander Mines...............................................................................6
3.3. Barberton mines sub-vertical shaft project at Fairview..............................................................6
3.4 Other Capital Investments...........................................................................................................6
3.4.1 Financial capital....................................................................................................................6
3.4.2 Manufactured Capital...........................................................................................................6
3.4.3 Human Capital......................................................................................................................6
3.4.4 Intellectual Capital................................................................................................................6
3.4.5 Social and Relationship Capital.............................................................................................7
3.4.6 Natural Capital......................................................................................................................7
4.0 Sources of Finance...........................................................................................................................7
4.1 Revolving credit facility................................................................................................................7
4.2 Share Issue...................................................................................................................................7
4.3 Uitkomst Colliery disposal...........................................................................................................7
4.4 Shareholder equity......................................................................................................................7
5.0 Business Performance.....................................................................................................................7
5.1 Quick Ratio...................................................................................................................................7
5.2 Operating Profit Margin...............................................................................................................8
5.3 Return on Equity (ROE)................................................................................................................8
5.4 Dividend Per Share.....................................................................................................................8
5.5 Price Earnings Ratio....................................................................................................................8
5.6 Return on Capital Employed........................................................................................................9
5.7 Net gearing ratio..........................................................................................................................9
6.0 SHARE PERFORMANCE....................................................................................................................9
References...........................................................................................................................................10

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1.0 INTRODUCTION
This paper analyzes the financial performance of Pan Africa Resources PLC. The report has
been prepared with a of view looking into the company’s corporate governance status,
capital investments, challenges faced and sources of finance used during the financial year
ended 30 June 2017. The analysis also looks at the company’s corporate social responsibility
and sustainability. The report is available for use by the investors of Pan Africa Resources
PLC. The report examines the financial performance of the company during the financial
year using financial ratios as well as looking into the share performance in the stock market.
The analysis is meant to inform prospective investors if the busines is currently a
worthwhile investment.

2.0 Background and Structure

2.1 Background
Pan African Resources Plc is a gold mining company that was incorporated and registered in
England and Wales under Companies Act 1985 with registered number 3937466 on 25
February 2000. The company operates in South Africa and is listed on the London Stock AIM
Market as well as the Johannesburg Stock Exchange (JSE). The company’s assets for the
financial year ended 30 June 2017 are Barberton Mines, Evander Mines and Phoenix
Platinum.

2.2 Corporate Governance

The company has a corporate governance framework that is uses to improve its existence,
reputation, and compliance with regulations ad standards. For each of the strategic key
focus areas, the company identified key issues discussed and actioned and the resultant

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strategic outcome. The listed outcomes have all been positive. The strategy of Pan African
Resources Plc is separated into Short term focus, medium term focus and long term focus.
The strategic focus areas are Financial Capital, Natural Capital, Manufactured Capital,
Intellectual Capital, Social and Relationship Capital, Human Capital. The strategy key
enablers for the strategy are its people, action and results. The company has four strategic
pillars i.e growth, profitable, sustainable ad stakeholders.

The company has a board of directors whose duty is to oversee the strategic management
of the company. They are responsible for strategic planning as well as making the strategic
decisions for the company. The board of directors are the drivers of corporate governance
management of the company ensuring its implementation as well as making sure that the
operations of the company do not have a negative impact on society and the environment.
The board is responsible for building an ethical culture within the company, ensuring fair
remuneration for the staff members, maintaining stakeholder relationships and
engagement, providing a safe working environment etc. Pan African Resources Plc has a
unitary board which is made up of six directors: three non-executive who include the
chairman and three executive directors i.e the CEO and the Financial Director. These
directors possess varied qualifications and vast experience and also belong to different
committees within the company which are audit, remuneration and SHEQC. Below the
board of directors is the executive committee which comprises the CEO, Financial director as
well as the Chief Operating Officer.

As indicated in the company’s financial report for the year ended 30 June 2017 both the
local (King IV) and international (UK Code) best practice were adopted in its strategy to
uphold high standards of governance and corporate governance practices. There were no
known cases of violation of stipulated regulations during the financial year ended 30 June
2017. The company’s end of life approach is “At the end of the life-of-mine, we responsibly
and safely manage the closure of our mines to ensure minimal disruption to the natural
resources post mine closure. The Group’s rehabilitation liabilities are fully funded.”

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 2.3 Challenges
The use of old equipment as well as the lack of health and safety measures at Evander
Mines and Barberton Mines resulted in the death of three employees during the year. The
company developed a SHEQC policy which was approved by the board as a way of creating a
safe environment free of harm for the employees. Mining activities would be managed in a
way that eliminates accidents and reduces health and safety risks. The SHEQC policy is
aligned with the Mine Health and Safety Act. It is the duty of the SHEQC sub-committee to
inform the board on SHEQC compliance, discipline issues as well as accident response action
plans. Employees from the two mentioned mines by health and safety representative
committees. The company has not experienced fatalities in 2019 and 2020.

Evander Mines’ underground mining operations were suspended for 55 days whilst
renovations of shaft infrastructure were undertaken during March and April 2017. The
renovations completed on timeously and within budget. However, the was a restructuring
exercise which was carried out at the mine resulting in 628 employees and 147 contractors
losing their jobs.

Community unrest at Barberton caused by poor governmental service in surrounding

villages affected the mining operations in the first half of the financial year. Unstable
commodity price and exchange rates, were the other factors that affected the business
through the past year. Gold production reduced in the current year. There was also
uncertainty which arose due to the proposed South African Mining Charter.

3.0 Capital Investments

3.1 Elikhulu Project

This is a high value project in which R1.74 billion was invested. The project is expected to
have an annual output of 56 000 oz of gold during its expected productive life of 13 years.
According to Pan African CEO Cobus Loots, South Africa’s economic environment is not
conducive to long-term large capital investments. He noted that the project is exceptional
in terms of the all-in sustaining costs of about $500/oz. The shared operations costs
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between Evander ad Elikhulu will result in lower production costs for the former. Loots
mentions that there is potential to extend the project by a further two years. This will occur
if the gold mineralisation extends below top surfaces. The financing of the project
encompasses R1-billion in debt under- written by Rand Merchant Bank and an
oversubscribed equity of R700-million. Elikhulu will provide employment for more than 500
people during construction and about 245 jobs at the plant when operating fully.

3.2 2010 Pay Channel Project at Evander Mines

This project was regarded as a high value exploration project for the company. The intention
of starting the project was to improve the production of gold at Evander underground mines
at a lowered cost.

3.3. Barberton mines sub-vertical shaft project at Fairview

The mine incurred increased capital expenditure during the financial year due to Fairview’s
ventilation refrigeration expenses among others. A sub vertical shaft was developed as a
way of increasing access to the 11-block high-grade orebody.

3.4 Other Capital Investments

3.4.1 Financial capital comprising of Shareholder Equity – Pan African Resources has
Shareholder equity amounting to ZAR3,620.5 million, ZAR339 million operational cashflows
generated within the company, Debt facilities of more than ZAR2.1 billion financing
different capital projects and other expenses.
3.4.2 Manufactured Capital – comprising of gold resources amounting to 34.4Moz, the
mine also invested in Property, plant and equipment and mineral rights valued at
ZAR3,810.7 million
3.4.3 Human Capital – The company has invested in 3,932 employees as well as a skilled
and experienced board that provides strategic direction to the company.
3.4.4 Intellectual Capital – these are mining and prospecting licences owned by the
company, Key personnel for managing the BIOX® process, Management and board’s
combined expertise which is necessary for running the busines profitably and responsibly,
Networks and relationships and Leadership, planning and control.

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3.4.5 Social and Relationship Capital - Investing in our communities as part of
corporate social responsibility and maintaining good stakeholder relations with unions,
regulators and communities in which they operate.
3.4.6 Natural Capital - comprising on energy and water resources.

4.0 Sources of Finance

4.1 Revolving credit facility
The company borrowed ZAR1,000,000,000 from Rand Merchant Bank Absa Limited, and
Nedbank Limited. The term of the loan is five years beginning 17 June 2015 up to 17 June
2020.
4.2 Share Issue – “On 19 April 2017, 291,480,983 ordinary shares were issued in terms of
an accelerated book build at 14 pence per share”.

4.3 Uitkomst Colliery disposal

The company disposed of a subsidiary company whose provided proceeds amounted to one
hundred and twenty five million Rand (R125,000,000).
4.4 Shareholder equity amounting to ZAR3,620.5 million, Internally generated
operational cashflows before dividend amounting to ZAR339 million, Debt facilities of
ZAR1.0 billion term
debt facility for the Elikhulu Project ZAR100.0 million in general banking facilities (GBF)
formed the financial capital of the company

5.0 Business Performance

Mining companies require huge capital expenditures for exploration, set up and of
operations. After set up has been completed, the operating costs tend to stabilize. Financial
ratios provide shareholders with an understanding into what is happening within their
company. The ratios provide more information about the performance of the business that
is not visible on viewing the financial statements. Ratios can assist to identify areas of
improvement. The following are my chosen ratios:

5.1 Quick Ratio – also known as the Acid Test Ratio

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This is a financial ratio that is used to measure Pan Africa Resources’ ability to meet its
short-term financial obligations. It indicates a company’s financial health status. For this to
be possible, the company must be able to pay using cash or possess assets that can be
quickly converted into cash and service the obligation due. The quick ratio is important for
assessing mining companies because they incur substantial capital expenditures and
financing to sustain the mining operations. Quick ratio values higher than 1 indicate a
financially healthy status. The Quick ratio is computed by dividing the total current assets
less inventory by the total short-term obligations. The quick ratio for the year 2017 is 0.78
which means that current assets of the firms cannot be quickly converted into cash to
service liabilities.

5.2 Operating Profit Margin

The operating profit margin is a primary profitability ratio used to measure how effectively a
company manages its costs. This is vital in the mining industry since mining companies often
have to adjust production levels, resulting in fluctuations in their total operational costs. The
operating profit margin is calculated by dividing total revenues by total company expenses,
excluding taxes and interest. This ratio is a strong indicator of potential growth and revenue.
The operating Profit Margin for the company is 11.90% which is a decline from previous
years

5.3 Return on Equity (ROE)

Return-on-equity is a key financial indicator that shows the level of profit a company can
make from equity and return to stockholders. The average ROEs in the mining sector ranges
between 5% and 9%, whilst the best-performing companies have ROEs of about 15% or
more. The ratio is calculated by dividing net income by stockholders' equity. The ROE for
2017 is 10.5% again a decline when compared to prior years.

5.4 Dividend Per Share

This ratio indicates the amount that a company pays out in dividends to the shareholder.
This is the sum of declared dividends issued for every ordinary share outstanding. There was
a increase in the dividend per share from 0.53 to 0.88 per share as at 30 June 2017. This
means that the shareholder is earning more on their investment.

5.5 Price Earnings Ratio

This ratio shows what the market is willing to pay for a stock. A high EP ratio could indicate a
high stock price vis-à-vis earnings. It should be noted that a high price earnings ratio does
not necessarily mean that the investment is better as it can indicate overvalued stock. The
ratio for 2017 financial year is 12.06 compared to 13.48 for the year ended 30 June 2016.
The trend over the past years is favourable
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 5.6 Return on Capital Employed
This is a financial ratio used to assess profitability and capital efficiency. This aids in
assessing if the capital employed by the company is generating profits. The return on capital
employed decreased from 22.34% in 2016 to 10.52% in 2017 . This could be attributed to
the reduction of the net debt from ZAR339.6 million in 2016 to ZAR67.6 million in 2017 as
indicated in the statement of financial position as well as the sale of unnecessary assets.

5.7 Net gearing ratio

This financial ratio shows the amount of equity required to offset al outstanding debt. There
was a decrease in this ratio from 2.86%in 2016 to -2.45% in 2017. This means the Pan
African Resources’ debt has decreased when compared to equity.

6.0 SHARE PERFORMANCE

The share performance of Pan African Resources has been on a downward trend. The share
price as at 30 June 2017 fell to 13.75 down from 19.00 as at 30 June 2016. As revealed by
the financial ratios for the year ended 30 June 2017, Pan African resources plc not a
profitable investment at the moment.

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References
FTSC, Russell. (2017). Pan African Resources Plc Ord 1p, London Stock
Exchange. Retrieved from
https://www.londonstockexchange.com/stock/PAF/pan-african-resources-
plc/fundamentals

Intergrated annual report for the year ended 30 June 2017. Retrieved from
https://www.panafricanresources.com/wp-content/uploads/Pan-African-
Resources-integrated-annual-report-2017.pdf

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