Dineo Faku
JUNIOR gold mining company Pan African Resources warned on Friday of an earnings slide for the year to June and “disappointed” the market when it announced it might pay out a reduced dividend to holders of its AIM-listed shares in the UK.
While the news of the sterling dividend payout surprised the market, the slide in earnings of more than 20 percent was expected as the company had previously flagged lower grades at its Evander mine. It had previously warned that the rand depreciation against the pound would also dent earnings significantly.
Pan African said its earnings were hit by the 22 percent depreciation in the average rand/pound exchange rate and the 19.4 percent decline in the sterling gold price to £799 an ounce compared with £991 in the previous year.
The stock declined by as much as 9 percent on the JSE in early trade on Friday amid concerns over the dividend payment. The shares closed 4.20 percent lower at R2.51.
“Pan African has disappointed the market. If you are holding the share in pound sterling then it means you may have a smaller dividend,” Martin Potts, a mining analyst with Finncap, said.
In its statement Pan African said the board could commit to shareholders that it would not propose a final dividend that would be lower than the rand dividend paid last year.
Last year it awarded shareholder with a R240.3 million dividend, or £14.7m, which amounted to 13.14c a share or 0.8033p a share.
Using current exchange rates the minimum rand dividend for this year would translate to around 0.744p a share.
The company said earnings a share both in the rand and pound sterling would be lower.
Evander, which was acquired from Harmony Gold in 2012, was experiencing a low grade cycle, a major contributor to the earnings slide.
The company had previously warned that the low head grade was expected to continue until February next year, meaning that the first half of the next financial year would also be adversely effected.
In its statement Pan African listed mitigation measures inclusive of the construction of the Evander tailings retreatment plant that was expected to yield 10 000 ounces of gold a year with a life of mine of 17 years. The company also said surface source throughput at the Evander plant had increased to 30 000 tons from 18 000 tons a month, and an investigation into improving the tonnages was under way.
Pan African posted losses on the sale of Phoenix Platinum and Auroch Minerals in the year under review.
The company said earnings a share denominated in pound sterling would be between 42 percent and 47 percent lower in the year to June than the 2.63p a share in the previous year. Earnings a share in rand terms, using the average rand/ pound rate of R16.88 in the year, would be between 26 percent and 31 percent lower.
Headline earnings a share in pound terms would be between 30 percent and 35 percent lower.