FINANCE AND STRATEGIC MANAGEMENT

ASSIGNMENT 1

A CRITICAL ANALYSIS OF PAN AFRICAN RESOURCES PLC’S

FINANCIAL PERFOMANCE: AN INVESTOR’S VIEW.

ROWLAND MOYO

R1901D7432377

UU-MBA-710-MW

26th April 26, 2020

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Contents
1.0 INTRODUCTION...............................................................................................................................3
2.0 BUSINESS BACKGROUND................................................................................................................3
2.1 Establishment....................................................................................................................................3
2.2 Products.............................................................................................................................................3
2.3 Strategy.......................................................................................................................................4
2.4 Subsidiaries..................................................................................................................................4
2.5 Rationale and Assignment Background.......................................................................................4
2.6 Corporate Governance................................................................................................................4
2.7 Board of Directors and Management..........................................................................................5
3.0 SOURCES OF FINANCE.....................................................................................................................6
4.0 THE COMPANY’S CAPITAL INVESTMENT........................................................................................7
4.1 Investment appraisal and capital budgeting................................................................................8
4.2 The Elikhulu Project.....................................................................................................................8
4.3 Barberton mines sub vertical shaft Project..................................................................................9
4.4 The Pay Channel Project..............................................................................................................9
5.0 FINANCIAL CONDITION PLUS PERFOMANCE..................................................................................9
5.1 Earnings per share.......................................................................................................................9
5.2 Price Profits Ratio......................................................................................................................10
5.3 Dividend Cover..........................................................................................................................10
6.0 CONCLUSION.................................................................................................................................11
7.0 REFERENCES..................................................................................................................................12
8.0 APPENDICES..................................................................................................................................13

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 1.0 INTRODUCTION
The overlaying task or in other words the main goal for the undertaking of this report is to
construct an idea or opinion on the fiscal position of African Resources PLC, from an investors
point of view or perspective. In order for this to be a definite success it will be done by taking in
to account the company’s capital composition or structure, getting a hold of corporate
governance, present as well as probable financial endeavors along with management of debt as
well as liquidity.

The estimation is to be up to date basing on the company’s financials as well as profiles in print
on the London Stock Exchange (LSE), such vital information can be accessed through the
company’s website along with the business publications particularly the Creamers Weekly
Media. The period we will focus on is that one in particular ending on 30 th April, 2018 business
performance with a preference towards investors ratios, clarification on the share enactment in
the stock exchange as well as recommendations founded upon the verdicts of this report.

2.0 BUSINESS BACKGROUND

2.1 Establishment
Since it was first founded in the year 2000, the Pan African Resources PLC is a mining company
incorporated as well as registered in England and wales falling under thhr companies Act of
1985. The company is a gold producer operating in Johannesburg, South Africa. Pan African
Resources has changed or what you would refer to as switching hemispheres. The firm currently
outlooks for gold as well as other valuable metals in South Africa (the Phoenix project as well as
the Barberton project) along with Mozambique (the Manica Project). Previously when the
company was recognized as White Knight Investments, it mainly set its sights on the private
technology firms, mainly the Scandinavian Internet Companies.

Additionally, the approach of Pan African Resources Plc is outlined by four tower of Strengths ly
preferably known as profitability, sustainability, stakeholders as well as growth.

2.2 Products
The company focuses on the exploration of platinum group elements, coals as well as gold ores.
Its essential undertakings are at Barberton gold Project which mainly consists of three mines and
these are; New Consort, Fairview along with sheba positioned at Mpulamanga province as well
as Evander Mine which is stationed in Evander, South Africa (Pan African Resourses, n.d.).

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 2.3 Strategy
The Pan African Resources Plc’s stratagem is basically executed via taking advantage of the
chances that mainly contribute to value of the shareholder’s prosperity which is typically through
acquisitions as well as mergers. This is also taking into account the latest acquirement of
Evander Gold Mine. By attaining or acquiring the value chain in the industry sector this enables
the Pan African to improve its mineral reserve along with resource base, earning, production as
well as cash flows.

2.4 Subsidiaries
In Addition, the company basically functions via subsidiaries in order to aid its operations. These
are Barberton Mine Limited, Phoenix Gold Mining Limited, PAR Gold Proprietary Limited, as
well as Evander Gold Mine. All these are integrated or incorporated in South Africa along with
their total production summing up in the excess of 200,000oz.

2.5 Rationale and Assignment Background

According to Johnson, et al (2009), he states that the owners of the stake in the company are the
shareholders, the author further states that these shareholders need to be treated with due respect
in that their wealth ought to be maximized. If investors are unsatisfied they are likely take their
business elsewhere profitable, as well as potential investors may in the end renounce their
investment in the company.

It is therefore quite fulfilling to importantly calculate the financial performance of Pan African
Resources so as to have a clear picture on the point of the investors as much as the financial
operation of the company is concerned. The outcome of this assignment will help company
managers and investors when it comes to decision making, and investors as much as charming
investors along with devoting in Pan African Resources is concerned.

2.6 Corporate Governance

Before talking about corporate governance we must first understand what it means, according to
Abe (2011) Cadbury Report basically defines corporate governance as;

“the system by which companies are directed and controlled”

In order to thrive it is the responsibility of the directors of the company to put it in to effect or in
other terms enforce it.

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Corporate governance mainly focuses on dealing with a set of laws or regulations that a firm
abides by when carrying out business; these laws are put in to account in order to identify the
individual or individuals who is responsible making major financial judgements (Besley &
Brigham, 2011). Governments by as well as large promotes appropriate as well as systematic
judgement making process in the interior of an organization along with dishing out the task of
protecting stakeholders interest. Keeping this in mind we shall further examine how Pan African
Resources Limited are Governed by making an assessment of the board as well as its governance
form, along with the delivering of an assessment of risk level alongside an investor

2.7 Board of Directors and Management

A glimpse peek at the Directors at Pan African Resources Plc exposes or reveals a stable
presence of executive as well as non-executive directors, who both independently as well as
collectively, consist of immense experience in addition knowledge in the industry which
interprets to rich and robust deliberations at that stage. Pan African Resources Plc possess a
unitary board that compromises of up to six (6) directors, made up of independent directors as
well as chairman, the chief executive officer along with the chairman have a lack of conflicts in
assigned, responsibilities, authority as well as duties are well separated thus creating some sort of
independence amongst them.

According to the Pan African’s Annual Report (2017) it entails that first and foremost on the
directors and board, it is detailed that the one leads as well as controls the company is the
effective board. The chairperson of the Board is Keith Spencer whereas Cobust Loots seats in the
position of Chief Executive officer. With the Leadership relating to the tactful direction of the
company is taken. Thus the signing off of audited financial statements along with accompanying
notes is tasked with them.

However, there is a vague division of duties that is at the head of the company more specifically
at the remuneration committee which consists of Thabo Mosololi as well as Phuti Mahanyele. It
has been noted to be difficult for Thabo Mosololi to make her trade demands of the two
committees oddly where the two request conflict, since she also belongs to the audit committee.

Furthermore, there is the presence of a very elevated vitality within the company to abide by to
very high principles or standards of supremacy as demonstrated by a revelation in their financial
report for the year that ended 30 June, 2017, this basically entails that mutually the King IV as

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well as UK Code better exercise (international as well as local) have stood to be the
Benchmarking touchstone in other words yardstick in as much as governance affairs are
concerned. For that reason, it is safe to assume that when it comes to issues pertaining to board
composition as well as governance structure.

At the end of the financial year end 30 June 2017, the company has no known violations,
however one of the predicted results of better governance is the ability of identifying a risk
beforehand as well as management. The three loses come into contact with at Barberton as well
as Evander Mines which were accredited to hoary working tools as well as a time lag in the
execution of efficient safety as well as health measures, this indicates the flaws that are present
in the department of governance.

In addition, one other element of good corporate governance is more precisely visibility
wherever Corporate Social Responsibility is concerned. Basically the independence of the board
is safeguarded throughout the robust implementation of an assessment criteria which inspects or
analyzes character along with commitments that could reveal it. A policy is put in place which
guarantees that the directors are not in their seats for a period that does not go beyond or go over
nine years is also in a location as an independency check.

3.0 SOURCES OF FINANCE

The sources of finance vary from one company on to the next in addition they largely
unwavering that is by the existing company model, recommending on how to start capital,
withstand as well as grow the company is sourced. In general capital has proven to be an
essential factor whereby shareholder value is preserved as well as created.

According to Abe (2011) he states that there are is a wide substantial number of spources of
finance that is from both the external as well as internal even though they differ depending on the
kind of business they are indulged in. it is an obligation that companies should own equity as one
of the key forms of finance while under UK Company Law, debt capital is also seen as an
essential foundation of business finance.

It is visibly problematic to predict the earnings with any sureness, this is normally why various
large companies more specifically the ones with a steady cash flow that are in unwavering
industries lean towards making better utilization of debt, whilst the less established companies or

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either those that are in risky fields may not stumble upon the equity to be much more less risky,
not only that but also cheaper as well as easier to attain. As a result, Pan African Resources Plc
make considerable utilization of debt in contrast to equity as a means of financing the business
operations. Below is a diagram on debt/equity

Series 1
100%

90%

80%

70%

60%

50% -2.28% 2.00% 1.15% 2.85% -2.45%

40%

30%

20%

10%

0%
2013 2014 2015 2016 2017

Debt ratio

Provided that the price or in other words the cost of debt is in actual fact finite, once it is paid off
a company has no commitments or responsibilities for this reason it will generally be much more
cheaper compared to equity for companies that look ahead or anticipate to perform well (ACCA,
2015). In other terms, the more anticipate the profit, the priciest forfeiting equity will be as well
as the more advantageous it will definitely be to easily retain the profits to oneself as well as pay
interest on a loan. So basically the company due to the debts is able to take pleasure in enjoying
various benefits for instance preserving the ownership of the company seeing as its liability to
the lender expires upon the full payment of the debt that is.

4.0 THE COMPANY’S CAPITAL INVESTMENT

Capital Investments basically consists of determining either if an institution’s long term
investments for instance machinery, the replacement of the machinery, new products, new plants

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as well as research projects are worth the funding of cash via recapitalization of the firm or
company with the purpose of the enhancement of its business goals (Dyson, 2010).

4.1 Investment appraisal and capital budgeting

According to Dyson (2010) he states that, it ought to be kept in mind that resources of a business
cannot be positioned in all preferred projects at once seeing as these are in limited obtainability.
in view of that, there is the need to weigh them as well as invest in only the kind of projects that
are immensely retaining in the end. When it comes to identifying the investment viability, non-
cash expenditure, the cash inflows as well as cash outflows it is the senior managers that are
assigned with this role. Furthermore, it is of paramount importance to fleetingly the strategy
evaluation with regard to Elikhulu Project in order to be grateful for how efficient as well as
effective company managers are in accurately assigning shareholders’ funds in rewarding
business enterprise.

4.2 The Elikhulu Project

This is a recent capital investment of the Pan African Resources Plc, it is one of the biggest
developments voted for or in other terms carried out by the firm, it is quiet estimated to be
completed by the final quarter of its fiscal year in 2020, with the first taking out of gold within
the equivalent interval. Initially the company capitalized about one hundred and seventy-four
billion Rand in wealth expenditures, which basically comprises of the inclusion of procuremrnt
of carbon tanks, tower cranes as well as other long term items, well as well as other civil
engineering works, the preliminary investment total was estimated as one hundred and seventy-
four billion Rand in April 2019. Manufacturing from Elikhulu once commissioned is anticipated
to average 56,000oz of gold apiece annum in the preliminary eight years of the project life as
well as 45,000oz per annum aimed at the six years remaining.

This project is of important value in the sense that it is the single largest capital investment
carried out by this company. The creation of Elikhulu tailings retreatment project began or you
could say it first came to light in August, 2017 with a preliminary or an initial capital injection of
about US $130 Million as well as the plant is anticipated to produce 50, 000 ounces of gold
annually.

In general, the project calls for a total of R1.75 billion capital injection whereby R1 billion will
be sponsored via debt equity as well as what is left from the equity raised.

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 4.3 Barberton mines sub vertical shaft Project
In this project the company formulated a shaft for the sole purpose of gathering together or in
other words the shaft was made by the company with the goal of assembling staffs, materials as
well as operational tools to construction site as well as mining areas to welcome a rise in the
manufacture capacity from the site, with the aid of DRA endeavors south Africa Proprietary
limited bring to a close a study of feasibility of a raise board structure, a sub vertical shaft of 42
level to 64 level from Fairview. The scheme or project was gone through by DRA to back up the
commercial as well as the technical necessities essential in order to get a positive outcome, it is
anticipated that within a time of 2 years capital overhead of the project to be sustained as well as
unforeseen events would amount one hundred and five million Rand {R105,000,000}, in contrast
to its anticipated output returns to boost the inflow of money is 7000oz of gold each year, as well
as it being believed to escalate to 10000oz per year as the period goes on.

4.4 The Pay Channel Project

This project is paramount importance in the sense that it tries to find and make use of
opportunities linked up to an already existing vertical shaft at Evander mines. The pay channel of
2010 is a wealth investment of the company; this endeavor was point towards significantly
refining the production of gold at Evander underground mines at a cheap cost. So generally
speaking the study is done for the project is anticipated to be finalized throughout the first 3
months of its fiscal year in the year 2020. The project is right about a 3km vastness from seven
shafts basing from the location where the metallurgical plant is position at the Evander mines.

5.0 FINANCIAL CONDITION PLUS PERFOMANCE

Below are some of the investor ratios that have been intentionally picked over efficiency,
profitability, financial as well as liquidity ratios due to the partiality of the report regarding to an
investors point of view.

5.1 Earnings per share

According to Russell (2017) he states that Portion of a company’s wealth given to each share of
equity stock is what is referred to as Earnings Per Share (EPS). The EPS of PAR has dropped to
1.15% in 2018 from 1.42% as to 30 June 2017. Below is a figure showing a descending trend in
the EPS from 2.64% in 2014. This is the outcome of a decline in productivity over the years.

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 EPS in relation to share capital along with
operating revenues
7 7
6 6
5 5
4 4
3 3
2 2
1 1
0 0
1-Jan-14 1-Jan-15 1-Jan-16 1-Jan-17 1-Jan-18

Operating income share capital/wealth EPS

It ought to be taken into account that the company has boarded on investments endeavors for
instance the Elikhulu Project with a life span of 13years. This will lead to an increase in
productivity The company is taking part in projects to replace and renovate ancient machinery
thus improving the efficiency of operations at the mine.

5.2 Price Profits Ratio

Generally speaking, the ratio estimates how abundant an investor can pay for a share based on its
present remuneration (Stephen et al 2008). As stated above, EPS has been a descending
vogue/trend due to profitability diminishing. There has been deteriorating in the financial
execution thus this will not positively impact the share price of the business. The competent
companies for instance the LSE are adept to merge such data and other qualitative data capable
to disturb the share price e.g. the disturbances to processes in the first half of the monetary yearly
strife in the public. The price earnings are therefore anticipated to be dejected

5.3 Dividend Cover

This ratio signifies business earnings per share to the dividend per and aids to show how
justifiable a company’s dividend is.

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 Trend in Dividend cover as well as PE ration
4

3.5

2.5

1.5

0.5

0
30/06/2014 30-Jun-15 30-Jun-16 30-Jun-17 30-Jun-18

PE Ratio Dividend cover

Dividend yield informs investors what fraction return a business pays out in the outline of
dividend. Thus the investor is able to know how much money flows they are acquiring for every
dollar capitalized in a business. The dividend increased yield amplified to 6.4% as at 30 June
2018 from 2.79%. Although the business recording a drop in the dividend cover.

6.0 CONCLUSION
To sum it all up this assignment discussed about corporate governance, capital investments,
sources of finance along with share performance in the viewpoint of Pan African Resources Plc,
with detailed content provided it has been illustrated that managers are unwavering on how to
build up the performance of the business.

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7.0 REFERENCES
1. Abe.n (2011). Corporate finance. London: Association of Business Executives

2. ACCA, (2015). Financial management: Paper F9. London: BPP Learning Media Ltd.

3. Dyson, J.R. (2010). Accounting for non-accounting students. 8th Ed. London

4. Johnson et al. (2008). Exploring corporate strategy: Text and cases. 7th Ed. Londpn
Prentice Hall

5. Pan African Resources (n.d.). Corporate governance. Retrieved from:

https://www.panafricanresources.com/investors/corporate-governance/

6. Rusell, (2017). Pan African Resources Plc Ord 1p, London Strock Exchange.
Retrieved from:
http://www.londonstockexchange.com/exchange/prices/stocks/summary/fundamentals.ht
ml?fourWayKey=GB0004300496G BGBXAMSM

7. Stephen, et al. (2008). Fundamentals of corporate finance (8th ed). New York: Tata
Mcgraw Hill.

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 8.0 APPENDICES
Appendix 1: Organizational Structure of Pan African Resources Plc, 2018

Source: https://www.panafricanresources.com/about/strategy/company-structure/

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Appendix 2:Pan African Resources Plc, financial data for the 5 financial years ending 30 June

Income 30 Jun 14 30 Jun 15 30 Jun 16 30 Jun 17 30 Jun 18

Statement $ $ $ $ $
Revenue 134.31 155.20 141.39 169.40 167.76

Operating 55.25 35.32 19.18 35.74 19.92

Profit
Net Interest 2.20 -1.19 -3.11 -1.02 -2.52

Profit before 55.86 35.11 16.93 34.74 34.01

Tax
Profit After 43.73 27.96 11.80 25.50 23.76
tax
Discontinued
procedures
Profit after n/a n/a n/a n/a n/a
tax
Profit for the 45.61 29.79 13.67 25.52 19.97
Period

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