Pan African Regulatory News (PAF)

PAN AFRICAN RESOURCES PLC - Interim Results for the six months ended 31 Dec 2015

PR Newswire

London, February 22

Pan African Resources PLC

('Pan African Resources' or the 'company' or the 'group')

(Incorporated and registered on 25 February 2000 in England and Wales under the Companies Act 1985, registration number 3937466)

Share code on AIM: PAF

Share code on JSE: PAN

ISIN: GB0004300496

Interim unaudited results for the six months ended 31 December 2015

Key features reported in South African Rand (‘ZAR’) and Pound Sterling (‘GBP’)

- Group earnings in ZAR terms increased by 129.4% to ZAR227.6 million (2014: ZAR99.2 million). In GBP terms, group earnings increased by 98.2% to GBP10.9 million (2014: GBP5.5 million)(note 1).

- Group revenue increased by 29.4% to ZAR1,575.4 million (2014: ZAR1,217.4 million).

- Group gold sales increased by 17.4% to 101,797oz (2014: 86,675oz).

- Effective ZAR gold price received increased by 11.7% to ZAR485,215/kg (2014: ZAR434,403/kg).

- All-in cost per kilogramme decreased to ZAR397,692/kg or USD910/oz (2014: ZAR453,068/kg or USD1,283/oz), due to improved gold production and lower expansionary capital.

- All-in sustaining cost per kilogramme decreased to ZAR396,819/kg or USD908/oz (2014: ZAR411,384/kg or USD1,165/oz).

- For the 2015 financial year, the group paid a dividend of ZAR210 million or GBP9.7 million (2014: ZAR258 million or GBP14.9 million), equating to ZAR0.1147 per share or 0.53p per share (2014: ZAR0.1410 per share or 0.82p per share). This payment was made on 24 December 2015.

- Substantial improvement in the group net debt to ZAR345.8 million (GBP15.0 million) from the ZAR458.6 million (GBP25.4 million) in December 2014.

- The group is pleased to report no fatalities in the reporting period (2014: no fatalities).

- The group is well positioned to sustain attractive final dividend payments.

Cobus Loots, CEO of Pan African Resources commented: “We are delighted to announce a much improved operating and financial performance, underpinned by the stronger prevailing ZAR gold price environment. We delivered important operational improvements at Evander Mines, with gold sales and revenue increasing significantly. The Evander Mines Tailing Retreatment Plant has assisted our production growth and continued focus on low-cost, high-margin gold ounces. The performance in this period is a testament to our quality assets and dedicated workforce and management. The group is well positioned to produce approximately 200,000oz and 9,000oz of gold and PGEs respectively, over the full year period.

Cash generation increased greatly during the period and is a key benchmark of our success, allowing us to substantially reduce our net debt position and improve our overall finances. As a result, the company remains well positioned to maintain its sector-leading dividend pay-out and take advantage of future growth opportunities.”

Operational

Barberton Mines Proprietary Limited (‘Barberton Mines’) (note 5)

- The operation reported no fatalities (2014: no fatalities).

- Average underground head grade of 10.9g/t (2014: 11.6g/t).

- Gold sold increased by 6.6% to 56,447oz (2014: 52,942oz).

- Revenue increased by 19.6% to ZAR854.3 million (2014: ZAR714.3 million), as a result of the improved gold sales and the higher effective ZAR gold price.

- Cash cost per kilogramme decreased by 4.5% to ZAR266,690/kg (2014: ZAR279,150/kg), due to improved gold ounce production.

- All-in sustaining cost per kilogramme increased by 5.7% to ZAR349,218/kg (2014: ZAR330,340/kg). The increase was mainly as a result of an unrealised derivative cost collar mark to market fair value adjustment of ZAR40.6 million, which was revalued at 31 December 2015 following the depreciation of the ZAR/USD exchange rate.

- All-in cost per kilogramme increased by 3.5% to ZAR349,739/kg (2014: ZAR337,814/kg).

- Adjusted EBITDA increased by 31.7% to ZAR310.1 million (2014: ZAR235.5 million)(note 3).

- Capital expenditure was unchanged at ZAR55.9 million (2014: ZAR55.9 million).

- Effective from 1 July 2015, the life of mine was increased to 20 years (2014: 19 years) due to the down dip extension of the high grade 11 Block of the main reef complex ore body by a further 170 metres. This has resulted in an annual increase in Barberton Mines’ mineral reserves by 236,162oz.

Evander Gold Mining Proprietary Limited (‘Evander Mines’) (note 5)

- The operation reported no fatalities (2014: no fatalities).

- Underground head grade improved to 5.8g/t (2014: 4.3g/t), principally due to mining at 8 Shaft’s newly established 25 level.

- Gold sold increased substantially by 34.4% to 45,350oz (2014: 33,733oz), due to the underground mining operations increasing production to 36,370oz(2014: 26,024oz), while the Evander Mines Tailing Retreatment Plant (‘ETRP’) provided an additional 3,708oz (2014: Nil) from tailings sources. Surface sources and surface feedstock material produced 5,272oz (2014: 7,831oz), following a reduction in the available surface tonnages to process.

- Revenue increased by 49.3% to ZAR682.0 million (2014: ZAR456.8 million) as result of improved gold production and an increase in the effective ZAR gold price.

- The ETRP produced 3,708oz of gold at 0.3g/t from tailing sources at a higher than expected recovery of 49% (forecasted recovery of 42%).

- Cash costs per kilogramme decreased by 15.1% to ZAR394,730/kg (2014: ZAR464,955/kg), due to improved gold production from the ETRP and higher grades mined at 8 Shaft.

- All-in sustaining cost per kilogramme decreased by 15.3% to ZAR456,070/kg (2014: ZAR538,584/kg), in line with the decrease in cash costs per kilogramme.

- All-in cost per kilogramme decreased by 27.9% to ZAR457,380/kg (2014: ZAR633,960/kg), due to once-off ETRP expansionary capital of ZAR88.3 million during the prior reporting period.

- Adjusted EBITDA increased to ZAR124.2 million (2014: ZAR6.2 million) (note 3).

- Capital expenditure incurred was ZAR71.9 million (2014: ZAR157.6 million).

- Effective from 1 July 2015, the life of mine was 16 years (2014: 17 years).

Phoenix Platinum Mining Proprietary Limited (‘Phoenix Platinum’)

- Phoenix Platinum’s profitability and cash generation decreased during the reporting period due to a curtailment in current arisings from International Ferro Metals (SA) Proprietary Limited’s (‘IFMSA’) Lesedi mine, following the initiation of business rescue proceedings by IFMSA. Tonnages processed were also adversely impacted by the drought and associated water shortages affecting re-mining and processing. The lower platinum group elements (‘PGE’) price environment further affected the operation’s profitability.

- Phoenix Platinum’s earnings decreased to ZAR0.1 million (2014: ZAR7.3 million).

- PGE production decreased by 4.6% to 4,493oz (2014: 4,711oz) (note 2).

- Revenue decreased by 15.2% to ZAR39.2 million (2014: ZAR46.2 million) due to lower tonnages processed as result of the operational challenges highlighted above and the lower effective PGE net revenue price received of ZAR8,716/oz (2014: ZAR9,815/oz).

- The average PGE net revenue price received decreased by 11.2% to ZAR8,716/oz (2014: ZAR9,815/oz) (note 4).

- Cost per tonne increased by 24.2% to ZAR293/t (2014: ZAR236/t), mainly due to tonnages processed decreasing by 13.6% to 117,461t (2014: 135,963t).

- Cost per ounce of production increased by 12.3% to ZAR7,653/oz (2014: ZAR6,817/oz).

- Adjusted EBITDA decreased to ZAR2.9 million (2014: ZAR13.5 million) (note 3).

- Capital expenditure incurred was ZAR0.8 million (2014: ZAR0.1 million).

- Effective from 1 July 2015, the life of operation was 28 years (2014: 28 years).

Notes:

Nature of business

Pan African Resources is a mid-tier African-focused precious metals producer with a production capacity in excess of 200,000oz gold and 12,000oz of PGEs per annum. The group’s operating assets include:

Pan African Resources’ growth strategy is aimed at identifying and exploiting mining opportunities at margins that create stakeholder value by driving growth in its earnings, cash flows, production and in its mineral reserve and resource base, and by capturing the full precious metals mining value chain.

The group is profitable and cash generative at prevailing gold prices, with the ability to fund all on-mine sustaining capital expenditure internally and also meet its other funding and growth commitments.

Financial performance

Key external drivers of the group's results

Exchange rates and their impact on results

All of the group’s subsidiaries are incorporated in South Africa and their functional currency is ZAR. The group’s business is conducted in ZAR and the accounting records are maintained in this same currency, with the exception of precious metal product sales, which are conducted in USD prior to conversion into ZAR. The ongoing review of the results of operations conducted by executive management and the board is also performed in ZAR.

The group’s presentation currency is GBP due to its ultimate holding company, Pan African Resources, being incorporated in England and Wales and being dual-listed in the UK and South Africa.

In the period under review the average ZAR/GBP exchange rate was ZAR20.83:1 (2014: ZAR17.87:1) and the closing ZAR/GBP exchange rate was ZAR22.99:1(2014: ZAR18.03:1). The period-on-period change in the average and closing exchange rates of 16.6% and 27.5%, respectively, must be taken into account for the purposes of translating and comparing period-on-period results.

The group records its revenue from precious metals sales in ZAR, and the deterioration in the value of the ZAR/USD exchange rate during the period had a compensating effect on the weaker USD metals revenue received. The average ZAR/USD exchange rate was 23.9% weaker at ZAR13.60:1 (2014: ZAR10.98:1).

The commentary below analyses the current and prior period’s results. Key aspects of the group’s ZAR results appear in the body of this commentary and have been used as the basis against which its financial performance is measured. The gross GBP equivalent figures can be calculated by applying the exchange rates as detailed above.

Commodity prices

During the period, the average USD gold and PGE basket prices achieved were substantially lower than the previous period.

The group realised an average gold price of USD1,110/oz, a decrease of 9.8% from the average USD1,231/oz achieved in the prior period.

The market PGE basket price (applying the Phoenix Platinum prill split) during the period decreased by 20.4% to USD859/oz (2014: USD1,079/oz). Phoenix Platinum’s average PGE net basket price received decreased to USD641/oz (2014: US894/oz), after taking into account the terms of its off-take agreement with Western Platinum Limited, a subsidiary of Lonmin Plc.

Despite the lower USD gold price, the average ZAR gold price received by the group increased by 11.7% to ZAR485,215/kg (2014: ZAR434,403/kg), as a result of the weakening of the ZAR/USD exchange rate.

The average ZAR PGE net basket price received by the group decreased by 11.2% to ZAR8,716/oz (2014: ZAR9,815/oz), mainly as result of the lower USD PGE basket prices received, set-off to some extent by the weakening of the ZAR/USD exchange rate during the period.

Statement of profit or loss and other comprehensive income

Analysing the group’s financial performance

Revenue, costs, profitability and dividends

Statement of financial position

The increase in non-current assets was mainly attributable to capital expenditure during the period, amounting to ZAR128.9 million (2014: ZAR214.6 million) less depreciation of ZAR109.9 million (2014: ZAR83.6 million). The capital expenditure is detailed by operation below:

Included in non-current assets is the rehabilitation trust fund balance of ZAR321.9 million (30 June 2015: ZAR312.3 million), which increased by ZAR9.5 million as a result of growth in the underlying investment portfolio. The rehabilitation trust fund’s investment portfolio comprises investments in guaranteed equity linked notes, government bonds and equities.

Current assets decreased as a result of inter-alia:

The group remains liquid with a net debt position of ZAR345.8 million (30 June 2015: ZAR321.1 million), comprising the revolving credit facility balance of ZAR225.2 million (30 June 2015: ZAR245.7 million), the Evander Mines’ gold loan of ZAR110.4 million (30 June 2015: ZAR139.6 million) and a general banking facility of ZAR10.2 million (30 June 2015: Cash on hand of ZAR64.2 million). The group is profitable and cash flow generative, which has resulted in the group’s net debt being reduced from ZAR458.6 million at 31 December 2014 to ZAR345.8 million at 31 December 2015.

The decrease in non-current liabilities is largely attributable to the decrease in the Evander Mines’ gold loan of ZAR53.9 million (30 June 2015: ZAR78.3 million) and the non-current portion of the revolving credit facility reducing to ZAR204.3 million (30 June 2015: ZAR221.6 million).

Summary of long term debt facilities:

Current liabilities remained relatively constant, with an increase in taxation payable to the South African Revenue Service at ZAR28.6 million(30 June 2015: ZAR9.7 million) and an increase in the general banking facility balance to ZAR10.2 million (30 June 2015: nil), set-off by a decrease in accounts payable to ZAR299.2 million (30 June 2015: ZAR324.2 million).

The group’s equity increased largely due to the group generating earnings of ZAR227.6 million (2014: ZAR99.2 million) less a dividend of ZAR210 million (2014:ZAR258 million) paid during the reporting period.

Operational performance

Review of group gold operations production summary

Review of Barberton Mines

Safety

Barberton Mines’ total recordable injury frequency rate (‘TRIFR’) increased to 14.81 (2014: 12.93) per 1,000,000 man hours worked, and the lost time injury frequency rate (‘LTIFR’) increased to 2.47 (2014: 1.50) per 1,000,000 man hours worked. The reportable injury frequency rate (‘RIFR’) increased to 0.62(2014: Nil) per 1,000,000 man-hours worked. The group is actively pursuing measures to reduce injury frequency rates. No fatalities were reported in the current period (2014: no fatalities).

Operating performance

Barberton Mines’ (including BTRP) gold sold increased by 6.6% to 56,447oz (2014: 52,942oz). The increased production resulted in the total combined ZAR cash cost per kilogramme, decreasing by 4.5% to ZAR266,690/kg (2014: ZAR279,150/kg). The Barberton Mines’ combined USD cash costs per ounce reduced by 22.9% to USD610/oz (2014: USD791/oz).

Barberton Mines’ (excluding BTRP) gold sold increased by 5.8% to 43,617oz (2014: 41,232oz). Tonnes milled from mining operations was 10.0% higher at 139,430t (2014: 126,713t), due to the underground mining operations tonnes increasing to 133,890t (2014: 124,185t) and surface tonnes milled increasing to 5,540t (2014: 2,528t). The underground head grade reduced to 10.9g/t (2014: 11.6g/t). The increase in gold sold from underground and surface mining operations was largely attributable to the increase in tonnes milled.

Gold sold from the BTRP increased by 9.6% to 12,830oz (2014: 11,710oz). Tonnes processed decreased by 4.2% to 464,179t (2014: 484,315t) at a lower head grade of 1.3g/t (2014: 1.5g/t) which was set-off by an increase in plant recoveries to 64% (2014: 51%).

Barberton Mines’ (excluding BTRP) ZAR cash costs per kilogramme decreased by 4.7% to ZAR297,877kg (2014: ZAR312,502/kg) and the USD cash costs per ounce decreased by 23.1% to USD681/oz (2014: USD885/oz). This was mainly due to an increase in gold sold by 5.8% to 43,617oz (2014: 41,232oz) and a reduction in cost of production following a gold inventory credit adjustment amounting to ZAR23.5 million (2014: ZAR14.4 million debit adjustment) as a result of 58 kilogrammes of unsold gold inventory concentrates held in the Fairview BIOX plant. Excluding these gold inventory adjustments Barberton Mines’ (excluding BTRP) ZAR cash costs per kilogramme increased by 4.6% to ZAR315,213/kg (2014: ZAR301,238/kg).

The BTRP’s ZAR cash costs decreased by 0.9% to ZAR160,665/kg (2014: ZAR162,203/kg) and USD cash costs per ounce decreased to USD367/oz (2014: USD459/oz). Total cost of production increased by 8.5% to ZAR64.1 million (2014: ZAR59.1 million), while the BTRP gold sold increased by 9.6% to 12,830oz (2014: 11,710oz).

The total cost of production (including realisation costs and gold inventory adjustments) increased by 1.8% to ZAR468.2 million (2014: ZAR459.7 million). Excluding gold inventory adjustments, the total cost of production increased by 10.4% to ZAR491.7 million (2014: ZAR445.3 million). The main period-on-period cost contributors were the following:

Barberton Mines’ ZAR combined all-in cash cost per kilogramme increased by 3.5% to ZAR349,739/kg (2014: ZAR337,814/kg). The total combined USD all-in cash cost per ounce decreased by 16.4% to USD800/oz (2014: USD957/oz). This increase in all-in cash costs was mainly as a result of the following:

Capital expenditure

Total capital expenditure at Barberton Mines was ZAR55.9 million (2014: ZAR55.9 million). Maintenance capital expenditure of ZAR30.0 million(2014: ZAR20.1 million) and development capital expenditure of ZAR25.0 million (2014: ZAR25.5 million) was incurred.

Expansion capital of ZAR0.9 million (2014: ZAR10.3 million) was spent on the development of the Fairview ventilation raise borehole project to improve operating ambient temperatures.

Looking ahead

Barberton aims to maintain and increase levels of production by focussing on improving its tonnages throughput, while delivering on underground head grade in excess of 10g/t. Cost containment to avoid margin erosion is a constant focus of the management team and will continue to be a priority. The management team remains committed to improving their safety performance.

Review of Evander Mines

Safety

Evander Mines’ TRIFR increased to 14.61 (2014: 7.55) per 1,000,000 man hours worked. In the current period, Evander Mines implemented new systems and controls to ensure the reporting of all incidents and accidents. The LTIFR increased to 5.44 (2014: 2.86) and RIFR increased to 3.44 (2014: 1.82) per 1,000,000 man hours worked respectively. The group is actively pursuing measures to reduce injury frequency rates. No fatalities were reported in the current period (2014: no fatalities).

Operating performance

For the period under review Evander Mines’ (including ETRP) gold sold increased by 34.4% to 45,350oz (2014: 33,733oz). Gold sold increased due to the underground mining operations increasing production to 36,370oz (2014: 26,024oz), while the ETRP provided an additional 3,708oz (2014: Nil) from tailings sources. Surface sources and surface feedstock material produced 5,272oz (2014: 7,831oz), following a reduction in the available surface tonnages to process.

Tonnes milled from underground sources, increased by 1.5% to 200,942t (2014: 197,879t). Tonnage treated by the ETRP amounted to 890,175t, which comprised of 729,085t (2014: Nil) from tailings sources and 161,090t of surface feedstock (2014: 198,578t of surface sources which is now reported under the ETRP).

The total cost of production (including realisation costs and gold inventory adjustments) increased by 14.1% to ZAR556.8 million (2014: ZAR487.8 million). The cost of production includes additional costs in relation to the new ETRP plant. The cost of production, excluding the additional ETRP costs, increased by 8.0% to ZAR526.6 million (2014: ZAR487.8 million).

The combined ZAR cash costs per kilogramme decreased by 15.1% to ZAR394,730/kg (2014: ZAR464,955/kg), following from the improved production which led to gold sales increasing by 34.4% to 45,350oz (2014: 33,733oz). USD cash costs per ounce decreased by 31.4% to USD903/oz (2014: USD1,317/oz), supported by the depreciating ZAR/USD exchange rate and improved gold production.

The main period-on-period cost contributors were the following:

Evander Mines’ ZAR combined all-in cash cost per kilogramme decreased by 27.9% to ZAR457,380/kg (2014: ZAR633,960/kg). The total combined USD all-in cash cost per ounce decreased by 41.8% to USD1,046/oz (2014: USD1,796/oz). This increase in all-in cash costs was mainly as a result of the following:

Capital expenditure

Total capital expenditure at Evander Mines was ZAR71.9 million (2014: ZAR157.6 million). Maintenance capital expenditure was ZAR30.6 million(2014: ZAR25.0 million) and development capital expenditure was ZAR39.4 million (2014: ZAR44.3 million). Expansion capital was ZAR1.9 million(2014: ZAR88.3 million), spent on the development of 26 level in the current period and the ETRP construction in the prior year.

Evander Mines employee share ownership programme

On 1 July 2015, Evander Mines implemented an employee share ownership programme which is similar to the scheme implemented at Barberton Mines in June 2015. A newly established employee trust acquired 5% of the issued share capital of Evander Mines.

Looking ahead

Evander Mines will invest in development capital expenditure to ensure that improved flexibility is achieved to mitigate the low grade mining cycles experienced in the prior year. The operational team will further focus on improving tonnages processed by the ETRP to reach its name plate capacity of 200,000t per month from tailings and surface feedstock material.

Evander Mines continues to investigate the Elikhulu tailings retreatment project, which is anticipated to treat slimes of approximately 12 million tonnes per annum at a headgrade of 0.28g/t, with a specific focus on reducing the overall project capital. The management team will also continue to source toll-treatment material with a higher head grade than our ETRP tailings sources as long as it is economically viable, relative to treating our own tailings. The team is also revisiting previous projects such as Evander South and the Evander 2010 Pay Channel, with the objective of identifying viable options for the monetisation of these projects, in light of the prevailing gold price.

Review of platinum tailings operations

Review of Phoenix Platinum

Safety

Phoenix Platinum maintained its excellent safety record, with no injuries recorded.

Operating performance

Phoenix Platinum PGE’s ounces produced decreased by 4.6% to 4,493oz (2014: 4,711oz). The main contributing factor for the lower PGE ounces produced was a reduction in tonnages processed of 13.6% to 117,461t (2014: 135,963t). This was as a result of the drought constraining water resources to support re-mining activities at the Buffelsfontein and Elandskraal tailings resource. The resultant effect was a loss of three weeks of production. The decrease in the PGE ounces produced was also affected by IFMSA shutting down its underground Lesedi operations, following the initiation of business rescue proceedings.

Phoenix Platinum is situated adjacent to the IFMSA property and a portion of the feedstock (previously 20%) for the Phoenix Platinum’s operation was obtained from tailings arising from IFMSA's chrome processing and mining activities. IFMSA is currently in business rescue proceedings and its processing and mining activities have been suspended. Phoenix Platinum is not solely reliant on material from IFMSA and has alternative tailing sources. However, Phoenix Platinum sources electricity, water and certain other services from IFMSA and is in discussions with IFMSA regarding the continued provision of these services.

The CTRP achieved a 39% (2014: 34%) overall recovery on a blend of material from the Buffelsfontein and Elandskraal tailings resources.

The effective average ZAR PGE basket price received decreased by 11.2% to ZAR8,716/oz (2014: ZAR9,815/oz). Cost per ounce of production increased by 12.3% to ZAR7,653/oz (2014: ZAR6,817/oz). In USD terms the PGE basket price received decreased by 28.3% to USD641/oz (2014: USD894/oz). The USD cash costs per ounce decreased by 9.3% to USD563/oz (2014: USD621/oz).

The total cost of production increased by 7.2% to ZAR34.4 million (2014: ZAR32.1 million). The main period-on-period cost contributors were the following:

The group is monitoring the outcome of the IFMSA business rescue proceedings closely. In the event that the business rescue proceedings are finalised, and the Lesedi mine is put on care and maintenance indefinitely and the current PGE market conditions persist, there is a risk of an impairment of Phoenix Platinum’s carry value at financial year end.

Capital expenditure

Total capital expenditure at Phoenix Platinum increased to ZAR0.8 million (2014: ZAR0.1 million).

Looking ahead

Phoenix Platinum aims to optimise resources from Elandskraal and Kroondal to maintain production and cash flows.

Group expansion/growth projects

Elikhulu Tailing Retreatment Plant (‘Elikhulu’)

In light of the positive results of the ETRP and the improved ZAR gold price, Pan African Resources is completing a definitive feasibility-study to assess the merits of commencing construction of the Elikhulu project. Elikhulu can potentially treat slimes at a processing capacity of up to 12 million tonnes per annum and at a headgrade of 0.28g/t from the Winkelhaak, Leslie and Kinross tailings storage facilities. The total mineral resource for Elikhulu is 165 million tonnes at 0.28g/t (1.5Moz) with a life of mine of 14 years. The project is estimated to yield approximately 50,000oz of gold per annum in the initial 8 years of production while treating the Kinross and Leslie tailings storage facility and then approximately 38,000oz upon processing the Winkelhaak tailings storage facility.

Evander South

Significant work has been performed on evaluating the Evander South Project, and progressing it to a preliminary economic assessment level. The project team is assessing the capital costs associated with the various mine designs that would provide the most efficient and cost effective manner of accessing the ore-body. The Evander South Project is a potentially attractive mining opportunity, whereby the Kimberley reef could be exploited at shallow depths, commencing at 300 metres below surface. Evander South has an estimated mineral resource of 4.9Moz (20.1Mt @ 7.7g/t).

Acquisition of Uitkomst Colliery (‘Colliery’)

In executing our strategy of creating shareholder value by identifying and acquiring attractive, cash generative operating mining assets, the group entered into agreements to acquire the Colliery during June 2015. The Colliery, located close to the town of Utrecht in KwaZulu Natal, South Africa, is a high grade thermal export quality coal deposit with metallurgical applications. On the acquisition agreement becoming effective, the Colliery will be acquired from Oakleaf Investments Holding 109 Proprietary Limited (‘Oakleaf’) and Shanduka Resources Proprietary Limited (‘Shanduka’) for a cash consideration of approximatelyZAR200 million. The Colliery is an existing operational mine and the acquisition is expected to be earnings and cash flow accretive to Pan African Resources. It contains a coal resource of 25.7 million tonnes, of which 22.1 million tonnes can be classed as measured or indicated, in accordance with the SAMREC code. The area also has additional exploration potential. Current operations at the Colliery demonstrate that it can readily produce yields of high grade coal suitable for export or local, thermal and metallurgical markets. The Colliery currently sells approximately 400,000 tonnes of coal per annum to local and international customers.

The acquisition will be funded from an existing revolving credit facility and internally generated cash flows. The group has also received credit committee approval by Nedbank Limited for a ZAR85 million general banking facility for the Colliery’s working capital purposes. The acquisition still remains subject to approval by the Department of Mineral Resources (‘DMR’) in terms of section 11 of the Mineral and Petroleum Resources Development Act (‘MPRDA’). The group’s exposure to coal, through this acquisition, also provides a natural hedge against an anticipated increase in rising energy prices in South Africa. The Colliery acquisition is not a divergence from the group’s strategy and precious metals focus, but rather an opportunity to add to the group’s cash flow and earnings base.

The Colliery salient features are:

Auroch Mineral NL (‘Auroch’)

In the prior year’s corresponding reporting period, on 17 November 2014, the group announced the completion of the disposal of its interest in Auroch for a total amount of ZAR8.1 million (AUD0.85 million) in full and final settlement of all amounts owing.

Even though the total settlement was less than the AUD2 million settlement previously agreed upon, the transaction allowed for earlier payment and provided completion certainty for the group, enabling it to maintain its focus on the core asset portfolio.

During the prior year’s corresponding reporting period, the group consolidated ZAR2.3 million of Auroch’s exploration and corporate costs, which is disclosed in the statement of profit or loss and other comprehensive income under ‘Loss in Associate’. In derecognising the 42% investment in Auroch, the group further recognised an impairment of ZAR1.0 million and a loss on disposal of investment of ZAR2.4 million in the statement of profit or loss and other comprehensive income.

Commitments reported in ZAR and GBP

The group had identified no contingent liabilities in the current or prior financial period.

The group had outstanding open orders contracted for the period end of ZAR48.3 million (2014: ZAR32.4 million) or GBP2.1 million (2014: GBP1.8 million).

Authorised commitments for the new financial period not yet contracted for totalled ZAR162.5 million (2014: ZAR133.2 million) or GBP7.1 million(2014: GBP7.4 million).

The group had guarantees in place of ZAR24.6 million (2014: ZAR24.6 million) or GBP1.1 million (2014: GBP1.4 million) in favour of Eskom and ZAR14.0 million (2014: ZAR14.0 million) or GBP0.6 million (2014: GBP0.8 million) in favour of the DMR.

Operating lease commitments, which fall due within the next year, amounted to ZAR2.3 million (2014: ZAR2.9 million) or GBP0.1 million (2014: GBP0.2 million).

The group has committed ZAR200 million (GBP8.7 million) in the financial year to Oakleaf and Shanduka, for the acquisition of the Colliery.

Fair value investments

Financial instruments that are measured at fair value grouped into levels 1 to 3 based on the extent to which fair value is observable.

The levels are classified as follows:

Level 1 - fair value is based on quoted prices in active markets for identical financial assets or liabilities;

Level 2 - fair value is determined using inputs other than quoted prices included within level 1 that are observable for the asset or liability; and

Level 3 - fair value is determined on inputs not based on observable market data.

The group values its ZAR321.9 million (2014: ZAR292.1 million) or GBP14.0 million (2014:GBP16.2 million) rehabilitation trust funds which comprise of investments in guaranteed equity linked notes, government bonds and equities according to level 1 quoted prices in an active market.

During the prior financial year, the company purchased 1,750,850 shares for ZAR18.9 million (GBP1 million) in a listed available-for-sale investment. The investment is valued according to level 1 quoted prices in an active market.

During the financial period, the company entered into a cost collar derivative with a financial institution. At period end the financial instrument was not closed out and settled, therefore resulting in a financial exposure to be evaluated. The financial instrument was valued according to level 1 quoted prices in an active market resulting in a unrealised mark to market fair value adjustment of ZAR40.6 million (2014: realised gain of ZAR44.8 million).

Basis of preparation of the financial statements and accounting policies

The accounting policies applied in compiling the interim results are in terms of International Financial Reporting Standards (‘IFRS’) adopted by the European Union and South Africa, which are consistent with those applied in preparing the group’s annual financial statements for the year ended 30 June 2015.

The financial information set out in this announcement does not constitute the company’s statutory accounts for the half-year ended 31 December 2015.

The interim results have been prepared and presented in accordance with, and containing the information required by IFRS on Interim Financial Reporting, International Accounting Standards (‘IAS’) 34. The financial information included in the interim results has been prepared in accordance with the recognition and measurement criteria of IFRS. This announcement does not itself contain sufficient disclosure information to comply fully with IFRS.

The interim results have not been reviewed or reported on by the company’s external auditors.

JSE Limited listing

The company has a dual primary listing on the main board of the JSE Limited (‘JSE’) and the Alternative Investment Market (‘AIM’) of the London Stock Exchange.

The preliminary announcement has been prepared in accordance with the framework concepts and the measurement and recognition requirements of IFRS, the AC 500 standards as issued by the Accounting Practices Board and the information as required by IAS 34: Interim Financial Reporting.

AIM listing

The financial information for the period ended 31 December 2015 does not constitute statutory accounts as defined in sections 435 (1) and (2) of the Companies Act 2006.

The group’s announcement has been prepared in accordance with IFRS and International Financial Reporting Interpretation Committee interpretations adopted for use by the European Union, with those parts of the Companies Act 2006 applicable to companies reporting under IFRS.

Directorship changes

No changes took place during the period under review while the following changes took place during the prior year’s corresponding period:

- Mr R Smith was appointed as an independent non-executive director, with effect from 8 September 2014.

- Mr RG Still resigned as a non-executive director, with effect from 1 July 2014.

Shares issued

No shares were issued during the current or prior period under review. In the latter half of the prior financial year, share options were exercised, resulting in an increase of 0.1% to 1,831.5 million shares (2014:1,830.0 million shares).

Directors' dealings

There were no director dealings in securities during the period under review.

Dividend

The group paid a final dividend of ZAR210.0 million or GBP9.7 million (2014: ZAR258.0 million or GBP14.9 million) on 24 December 2015, relating to the 2015 financial year, equating to ZAR0.1147 or 0.53p per share (2014: ZAR0.1410 or 0.82p per share).

Going concern

The board confirms that the business is a going concern and that it has reviewed the business' working capital requirements in conjunction with its future funding capabilities for at least the next 12 months and has found them to be adequate. The group has a ZAR800 million revolving credit facility from a consortium of South African banks (and a two year accordion option subject to the bank’s credit committee approval for an additional ZAR300 million facility), and access to general banking facilities of ZAR100 million. At 31 December 2015 the group had capacity on the revolving credit facility and general banking facilities of ZAR575.0 million and ZAR58.0 million, respectively, to assist in funding working capital requirements. Management is not aware of any material uncertainties which may cast significant doubt on the group’s ability to continue as a going concern. Should the need arise the group can cease most exploration and capital expenditure activities to conserve cash.

Events after the reporting period

As previously noted, the acquisition of the Colliery, remains subject to approval by the DMR in terms of the MPRDA section 11 mining rights transfer to Pan African Resources.

Segment reporting

A segment is a distinguishable component of the group that is engaged in providing products or services in a particular business sector or segment, which is subject to risk and rewards that are different from those of other segments. The group's business activities were conducted through five business segments:

- Barberton Mines (including BTRP), located in Barberton South Africa;

- Evander Mines (including ETRP), located in Evander South Africa;

- Phoenix Platinum, located near Rustenburg South Africa;

- Corporate and growth projects; and

- Pan African Resources Funding Company Proprietary Limited (‘Funding company’).

The Executive committee reviews the operations in accordance with the disclosures presented above.

Pan African Resources’ outlook

Pan African Resources’ pleasing operational and financial performance over the last period was underpinned by improved gold production and the current ZAR gold price environment. The group is well positioned to produce approximately 200,000oz and 9,000oz of gold and PGE respectively, over the full year period.

The group remains committed to ensuring that a safe and productive environment is maintained and continuous improvement in safety performances remain critical. The group was able to settle all wage demands at operational level with agreements ranging between 2-3 years providing the group and stakeholders with a level of certainty in this regard over the medium term.

The ETRP is a success with the project commissioned on time and within budget during February 2015 and has provided organic growth of approximately 10,000oz of additional gold production per annum at Evander Mines.

The ZAR gold price has recently increased to ZAR600,000/kg, and the group is positioned to capitalise on the improved cash flow margins. These factors should enable the group to maintain an attractive dividend going forward.

The Colliery transaction remains subject to ministerial approval, following which the team will prioritise the integration of the mine into the group. The Colliery is profitable and cash generative and the opportunistic acquisition provides a coal asset with a 28 year life of mine.

Pan African Resources’ strategy is to continue growing both organically and through acquisitions, which are value accretive to our shareholders, whilst maximising margins from current operations. With strong cash flows and improved funding capacity of up to ZAR1.1 billion, the group is well positioned to take advantage of such growth opportunities.

Our appreciation is extended to the staff of Pan African Resources, for their daily commitment and contributions that continue to drive our success.

23 February 2016

Note 1: The ZAR figures have been included for illustrative purposes only.

Note 1: The ZAR figures have been included for illustrative purposes only.

Note 1: The ZAR figures have been included for illustrative purposes only.

Consolidated GBP Segment Report for the period ended 31 December 2015

Consolidated ZAR Segment Report for the period ended 31 December 2015 (note 3

CONTACT INFORMATION

Corporate Office

The Firs Office Building1st Floor, Office 101Cnr. Cradock and Biermann AvenuesRosebank, JohannesburgSouth AfricaOffice: +27 (0) 11 243 2900Facsimile: +27 (0) 11 880 1240

Registered Office

Suite 31Second Floor107 CheapsideLondonEC2V 6DNUnited Kingdom

Office: +44 (0) 20 7796 8644Facsimile: +44 (0) 20 7796 8645

www.panafricanresources.com