(Alliance News) - Pan African Resources PLC on Friday revised down its annual gold production guidance, citing the electricity crisis in South Africa, but analysts remained hopeful as debt fell.
The Rosebank-headquartered gold producer cut its production estimate to around 175,000 ounces for the financial year ending June 30, from the previous guidance of between 195,000 ounces and 205,000 ounces. In 2022, output was at 205,459 ounces.
The group estimates that a production loss of about 10,000 ounces was attributed to electricity loadshedding in South Africa, which hit all its operations.
The state-owned power utility Eskom Holding SOC Ltd last week warned that it might escalate loadshedding to stage eight for the first time since the power crisis started in 2007 to cope with breakdowns.
Slower than anticipated ramp-up of continuous operations at Barberton Mines also contributed to the production downgrade, the company said.
The gold producer also said Evander Mines' underground operations had underperformed as a result of geological challenges due to faulting of the Kimberley Reef at the tail end of the 8 Shaft Pillar mining area, and a slower than anticipated transition to full production from 24 Level.
Pan African Resources Chief Executive Cobus Loots said the group was "disappointed" with the production performance of its underground operations.
"Despite lower than expected production, the group is positioned to deliver a robust financial performance for the current financial year as a result of the excellent rand gold prices being received and also disciplined operational cost control," said Loots.
Pan African Resources said it expects Mintails plant construction to start next month.
The group acquired Mogale Gold Pty Ltd and Mintails' SA Soweto Cluster Pty Ltd from Mintails Mining SA Pty Ltd in October last year. Mintails Mining SA, which owns two mines, was placed in provisional liquidation in 2018.
For the financial year ending June 30, 2024, the group production guidance was between 178,000 ounces and 190,000 ounces, following the Mintails project's commissioning during the first half of this financial year.
The company also said that its balance sheet looks to improve. Management expects net debt at June 30 to be between USD25 million and USD35 million, versus the USD50 million at December 31. It also better than Peel Hunt's expected USD58 million debt.
Berenberg analyst Rochard Hatch said "this is encouraging."
"The far stronger balance sheet than we and consensus expected is, we think a function of the better than expected gold prices and far weaker than expected Rand over recent months. This rising portion of self-generated solar power feeding into the Pan African sites will also, over time, limit the impact of Eskom's unreliability," said Peel Hunt's Peter Mallin-Jones & Alex Groman.
Looking ahead to financial 2024, Peel Hunt expects gold prices to cut earnings before interest, tax, depreciation and amortisation of USD200 million by about 15% to USD170 million.
Mallin-Jones & Groman continued: "We believe this update shows the necessity of the changes underway at Barberton and the benefits of further surface ounces such as Mintails. Improvements are coming through at Barberton and we believe it is this improvement, allied to the current strong gold prices that allows management to indicate it intends to sustain dividend payments."
Berenberg's Hatch said: "We adjust our model for the revised guidance, which has a negative impact on our estimates – we would expect consensus to follow suit. Our price target, based on 1x NAV and 5x Ebitda, moves to GBP27 per share, offering 60% upside.
"It has been a challenging H2 for Pan African, but – with a weak rand and improving operations, alongside growing production – we remain constructive and see an opportunity to add on weakness."
Peel Hunt rates Pan African at 'buy', with a target price of 24.0p.
By Sophie Rose, Alliance News reporter
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Pan African (PAF)