Pan African Resources. A Members View.

Finding an AIM listed, successful, well run, profitable, expanding, dividend paying Miner is like finding Hens teeth – well – let me tell you about one toothy little clucker that is out there and at a great price.

It’s the share I look at when I need to calm down, nice, stable, well run. Could double in price in the next 6 – 12 months whilst paying out more than the bank does in Dividends. So as well as getting a Dividend, you might actually also get a doubling of their current SP!  – And that’s not a fluffy blah blah promise that you get from every Mining/Oily Jnr. It’s got a great chance of happening as most of the parts are already in place. The near term news flow is an increase in Gold production by 50%, with an addition of PGM (Platinum group metals) production by 12,000 oz pa and a listing in the next 3 months.

Pan-African resources are a South African Gold and Platinum producer that are producing great profits, has dividend cover of 2-3 times, and are committed to paying a proportion of profits as Dividend with great expansion plans.

Newsflow:

Over the coming year starting from March 2012 – The news flow here should increase interest; April 2012 Gold Production is close to 100,000 oz pa – Gold: will produce equiv’ 150,000 oz pa (acquired Evander Mine)

April 2012 – Listing Manica (2.56moz Gold) spin-off on International Exchange.

May 2012 – PGM: production ramp up to +12,000 oz pa in May 2012 (already commissioned)

June 2012 – Financials due.

November 2012 – Dividends payable – probably 1p (ish) – 6/7% yield on today’s price of 16.25p.

August 2013 – Gold Production increase by 25,000+oz pa with new Barberton Tailings project.

Now view the numbers below with the news flow factored in. Revenue up by 75% on this year. P/E of 3.7? I think not. Even if we assume a P/E that matches the existing 6.9, then we have a share price of 31p, an 85% uplift on todays prices. 6.9 is  low; it should be at least 9, pricing this share at 40p.

Numbers with recent news factored in:

*Note. I’ve upped the Yield by just 40% from this year to reflect the debt that needs to paid off at Evander. **Note.Work these out dependant on what the sp is. Current Share Price: 16./16.25p

Share in Issue: 1,444.96m

Market Cap: £238m P/E (forecast) for y/e 2012: 6.9 at todays prices.

Expected Div/Yield (FY 2012) 1p/5.9% 6 months end 31 Dec 2011:

Revenue £51.23 Million EPS: 1.00 (86% up) Earnings EBITDA: £24.17m Attrib Profit: £14.4m Cash on hand: £4.9m

The Details:

Pan-African has a targeted 100,000 oz per annum Gold production target from it’s underground mines in Barberton, SA. In addition to this it has, literally just, brought online the Phoenix Tailings project which has given it access to 469,000 Oz of PGMs running at: 56.5% Platinum, 27% Palladium, 16% Rhodium and 0.5% Gold. This is already running and targeted by May 2012 to produce 1000,oz of concentrate a month. It came in early and on budget.

Pan African are acquiring a 50% stake in Harmoney’s Evander mine, in partnership with Wits Gold. This comes online in April and should bump up the production figures attributable to Pan-African by another 50,000oz pa by April 2012, costing £139m which can be financed from existing debt and debt against Evander itself.

The CEO has stated this will not hit dividends. The Barberton Gold Tailings Retreatment project – definitive feasibility study on the final design is ongoing, could (assume it will – no licenses required) increase production of Gold by 25,000oz pa from August 2013 for approx 6 years. This is a 654,000 oz – 13.7 Million Tons resource  at 1.38g/t with reserves of 248,000 oz -13.7 Million Tons at 0.56g/t, these reserves will extend the project life from 6 years to 12 years.

Manica – Mozambique, is 100% owned by Pan-African which is SAMREC compliant to the tune of 2,56 Million oz Gold (South African Code for the Reporting of Mineral Resources and Mineral Reserves). There is a Pre- Feasibility Study underway and they will be listing Manica as a separate entity on an International Exchange in April 2012.

Phoenix: Capital Expend was £5m 174,000oz of ‘proved’ and ‘probable’ reserves out of its total resource of 470,000oz at its Phoenix project. Costs are low – about $400 per oz with a 20 year life-time. (First concentrate produced 29 Nov 2011 – 2 months ahead of schedule) Full production build up from May 2012.

Summary.

Pan-African Resources are a well run South African focused Gold and PGM Miner, producing about 100,000 ounces of gold per annum. Add to this the great management team who have consistently delivered on time and on budget and you have a company worth looking at.

Risks: – Price of Gold, Mining Costs, South African Politics. The Politics seems to have gone to bed now, the POG – well – your guess is as good as mine, the costs are always an issue but they impact all miners so should not be onerous moving forward.

There’s potential upside in the next 12-18 months. Pan-African are far more special, as an AIM listed company and undervalue.  Five points worth looking at;

1. They pay a dividend, and have committed to maintain it at 2-3 times cover. At today’s Share price this is yielding at 6%. (Beats any Bank.)

2. There’s a potential 50% uplift in Gold output to 150,000 ounces per annum within 1 month. Pan-African are in the process of acquiring 50% of an established and modernised Gold mine – (Evander). It’s a Joint Venture with Wits Gold. This isn’t reflected or priced into the SP.

3. PGM’s – They have brought a tailings processing project online at Phoenix – it came in on budget and early! This is now commissioned and will produce an extra 1,000 ounces of PGM’s per month for 20 years. At a cost of about $4-500 ounce. (There’s another tailings coming on in 2013)

4. Manica – Pan-African own 100% of a >2m Ounce gold project in Mozambique. This does not fit with PAF Strategy so they are floating it onto an International Exchange in the next month or so. – this will be worth $$$$$ moving forward as an asset and ultimately a share of production.

5. Share Price – this could leap once the projects above come online in the next 2-3 months. Why wouldn’t it?

Without a doubt Pan-African represent further research. None of the above is priced into the SP at the moment. Within 2 months they could have upped production from 97,000 ounces of gold per annum to 150,000 ounces and added 12,000 ounces of PGM’s and a large chunk of a listed company. Production could jump by over 50% possibly reflecting a Dividend increase – you could be yielding at a 10% mark on today’s prices in the next 12-18months.  That represents apotential bargain.

The P/E ratios are around 6-7 at the moment – in two months this should drop to 3-4%. Potential SP upside is 80-100% in the next 12 months. So – Great company, great management, great prospects, great news flow, great yield, great upside to SP.

Definitely worth further research.

Affe