Pan African Resources: A Mid-Tier Gold Essay Company In Africa.

You need to prepare a report based upon the information related with Pan African Resources PLC’; real data from a public company listed in London Stock Exchange. In the report you should approach the case from an investor’s point of view. You need to enclose information regarding this company’s:

Corporate governance status and challenges
Company’s capital investments; existing or projected
Company’s sources of finance used until the end of the year

Important Note: financial year ends at 30th of June

Use company’s financial information and measure business performance. The ratios to be used lies upon your discretion.
Comment upon company’s share performance in the stock exchange from an investor’s point of view.
 

Overview of Pan African Resources

Pan African Resources is a Mid-Tier gold producing company focused in the Africa having a production capacity of about 170,000 Oz amount of gold produced annually by the company. The company is listed in the London and Johannesburg and is having majority of its operation in the Southern African. The strategy applied by the company for conducting the operations of the company is mining and exploring high yielding ore, which are relatively cheaper to produce and gives high yield return to the company. The company presents its corporate governance report, which covers the policies and the regulations of the company (Neingo & Tholana, 2016). The financial performance of the company was analysed by conducting ratio analysis for the company in the trend period 2017-18 and the financial analysis of the company was done thereby analysing the financial performance of the company. The important ratio’s that were analysed in the report were the profitability ratio, liquidity ratio, activity ratio and gearing ratio for the company. The share price movement of the company was also analysed for the five-year trend period were monthly data of the share price of the company was taken down and the relevant analysis in the context of movement of the share price was analysed (Krzemie? et al. 2016). The company has planned various strategic reforms and ideas that enables the company in better planning and managing the resources of the company. Profitability and return generated ion the capital employed are some of the crucial aspects that should be taken into analysis for the long-term growth of the company. The share price performance for the company was assessed for the trend period of five year where monthly data of the Pan African Resources Plc was taken into account for the analysis of the movement in the share price of the company.  The four strategic pillars identified on which the operations of the company is based is the growth, profitability, sustainability and stakeholders of the company (Onyango, 2018). The business risk and the macroeconomic environment under which the operations of the company is assessed to be volatile for company, which would be affecting the day-to-day workings of the company.

The Board of Pan African Resources Plc. has its well-defined corporate governance policies and regulations that helps the management of the company in the operations of the company and guiding the company in the day-to-day workings of the company. The principles of the corporate governance encompasses all the principles of responsibility of the management of the company. The policies of the corporate governance of the company helps the company in guiding the company in well ethical lines and operations of the company (Annual Report, 2018).

Corporate Governance Policies and Regulations

The corporate governance policies defined by the Pan African Resources Plc. is such that will help the stakeholders of the company in getting confidence over the management of the company and provide better transparency in the decision process of the company (Doni, Gasperini & Pavone, 2016). The board of the company meets quarterly for assessing the various policies and regulations of the company band for reviewing the performance of the company (Corporate Governance (AIM – Rule 26) | Pan African Resources, 2018). The board of the company looks after the corporate governance structure of the company and is having four sub committees. The responsibilities of the chairman and the chief executive officer of the company is well defined in the corporate governance policy of the company. The board of the company is responsible and accountable for the measurement of the performance and the affairs of the company (Dimopoulos & Wagner, 2016). The activities of the board of the company is well defined in the annual report of the company where the focus area of the company is the strategy and operational execution, risk management, governance and stakeholder’s engagement of the company (Tricker, 2015).

The board member of the Pan African Resources Company faces certain challenges in the field of changing political environment and the economic environment under which the operations of the company operates. The labour relations and agreement expired in the current financial year for which the company now need to review the same and review the policies. The rising production cost in South Africa and the operational management issues in the company has been the key issues of the company (McCahery et al. 2016). The operations of the company is well spread in many diversified area where the need for adherence to the policies and regulations of the company needs to review carefully.

The audit committee of the company, remuneration committee, SHEQC committee and the social & ethics committee of the company are some of the key committee of the companies. 

• Audit Committee: The audit committee of the company monitors the internal audit programme of the company and approves the group integrated annual and interim report for the company. The audit committees of the company reviews the inherent risk associated with the company and the risk tolerance level of the company(Yermack, 2017).
• Remuneration Committee:The remuneration committee of the company ensures that the company has an effective process for the cessation of large-scale mining at Evander Mine. The committee regularly reviews, monitors and ensures that the management of the company is in well compliance with the management of the company.
• SHEQC Committee:The committee monitors the safety programme challenges and improvement of operations of the company at various levels. The committee monitors the environmental management and the health indicators at various level of the company.
• Social and Ethics Committee:Reviews the training and development of the employees of the company and ensures that the employees activities are well adhered with the policies and code of conduct of the company. 

The Capital Investment done by the company is in the form of investment in various projects that is done by the company. The near to medium term, projects that is done by the company are:

• Elikhulu Project: Thecapital investment project done by the company is based on Elikhulu, which is the lowest cost ounce producer in the South African gold mining industry. The project is crucial for the company, as the same will be helping the company and Evander Mines’ return to profitability and strategic repositioning of the company. The improvement in the capacity of the plant will be helping the company in increasing the production capacity of the project to around 1.2 million tonnes annually. The capital expenditure done by the company on the project was around R1, 256.1 million till 30^th June 2018 (Pan African Resources PLC, PAF:LSE profile - FT.com, 2018).
• Barberton Mines’ Royal Sheba Project: TheRoyal Sheba Project undertaken by the company has the potential of delivering approximately 30,000 Oz per annum, which is at a very low cost relatively. The capital investment project was done by the company based on the expected synergy of the project, which has been identified at the Barberton Mining Complex (Pan African Resources Plc – Value Analysis (LONDON:PAF) : February 8, 2017 – CapitalCube, 2018).
• Evander Mines:The Evander Mines Egoli Project undertaken by the Pan African Resources Ltd Company is adjacent to the seven Shaft Infrastructure Project. The average life of the mine is expected to be around 11 years where the project will be producing around 23,500 ounces per annum during the initial four-development stage of the project. The feasibility of the project was assessed in the current financial year for assessing the production capacity and the return the project would be generating for the shareholders of the company. The internal rate of return from the project is expected to be around 34% with a payback period of around six years including the four years of development phase of the project (Whiterow, 2018). The assumed gold price under which the gold would be sold is taken at around R547, 000/KG.
• Barberton Mines’ Sub-Vertical Shaft Project at Fairview:The Shareholder of the company were informed by the Pan African Resources Company that the Fairview Mining Operation for the No 3 Decline which restricts the operations of the project below the 42 Level. The Fairview Mining operation have started building a sub-vertical shaft which will allow the company to carry on operations effectively and increase production capacity buy additional 7000-10000 Oz of gold annually.    

Pan African Resources finances the operations of the company primarily with the equity and debt spruces of the company. The available capital sources of the finance for the company shows the available resources in financing the investment and operations of the company. Application of debt and equity share capital has been the common sources of financing for the company. The sources of finance availed by the company in the form of debt borrowings for the company were revolving credit facilities, gold loans, and long-term bonds (Temple, 2017). The equity share capital was the common source in the equity base of the company. The reason for a low level of debt in the year 2017 and 2016 was that the company repaid a significant amount in the form of repayment of credit facilities borrowed by the company (Annual Report, 2017). 

Strategic Reforms and Ideas for Long-Term Growth

The financial performance of the company could be assessed with the help of return given by the company in the trend period forecasted. Profitability, Return generated and sustainable performance of the company in the terms of growth and development of the company are some of the common aspect which are crucial for the long-term of the company (Appendix 1). The application of ratio analysis was done for the Pan African Resources Plc. for quantitatively assessing the financial performance of the company (Proactive Investors Limited - Leading source of Financial News, Investor Forums, CEO Interviews, Financial Columnists, Stock Information – Companies, 2019).

Profitability Ratio: The profitability ratio shows the return generated by the company on the capital employed by the company on the net assets deployed by the company. The profitability ratio is a key measurement for assessing the financial performance of the company. Rising operational cost, higher level of debt and falling revenue of the company were the key reason for the falling profitability of the company (Uechi et al. 2015).

Return on Capital Employed: The return on capital employed is calculated by dividing the net income generated by the company on the total equity share capital of the company. The return on capital employed for the company was around 17% in the year 2016, 8% in the year 2017 and -81% in the year 2018. The sharp fall in the profitability could be attributed to the higher operational risk and worsening business conditions of the company (Williams & Dobelman, 2017).

Net Profit Margin: The net profit margin for the company was calculated by dividing the net profit of the company from the total sales of the company. The net profit margin for the company was around 15.81% in the year 2016, 14.362% in 2017 and -85.96% in the year 2018 (Appendix 1). Rising production cost, operating cost and degrading operational efficiency of the company were some of the key reason for the falling revenue of the company (Robinson et al. 2015).  

Liquidity Ratio: The liquidity ratio shows the company ability in meeting the current obligations of the company. The liquidity ratio for the company was assessed to see whether the company is having a sufficient amount of current assets for paying off the current liabilities of the company. The liquidity ratio for the company was assessed for the trend period for assessing the financial performance of the company and whether the company is able to pay off the liabilities of the company. It is important that the companies pay off with the liabilities of the company so that the operations of the company are uninterrupted (Boyas & Teeter, 2017).

Capital Investment and Financing

Current Ratio: The current ratio for the company was calculated by dividing the current assets from the current liabilities of the company. The current ratio for the company was around 0.68 times in the year 2016, 0.94 times in the year 2017 and 0.60 times in the year 2018. The current assets of the company is not sufficient which may affect the operations of the company. It is necessary that the company should have a sufficient amount of current assets for the company.

Quick Ratio: The quick ratio for the company was calculated by taking the company net liquidity position of the company and key current assets of the company such as the cash and cash equivalents, trade receivables and short-term investments done by the company. The quick ratio for the company was around 0.52 times in the year 2016, 0.74 times in the year 2017 and 0.46 times in the year 2018.

Gearing Ratio: The gearing ratio for the company shows the level of debt in the company with comparison to the equity level of the company. The debt to equity ratio for the company shows the level of the debt in the company with respect to the equity level of the company. The debt to equity ratio for the company in the year 2016 was around 12.23%, 5.67% in 2017 and 74.77% in 2018.

Activity Ratio: The activity ratio for the company was calculated by taking the accounts receivable of the company and the amount of accounts receivable due in respect to the total sales of the company. The accounts receivable ratio for the company has been falling for the company signifying that the accounts receivable due with the company in contrast to the sales has been rising for the company. The accounts receivable turnover ratio for the company in the year 2016 was around 11.489 times in the year 2016, 9.11 times in the year 2017, 7.31 times in the year 2018. 

The share price performance for the company was assessed for the trend period of five year where monthly data of the Pan African Resources Plc was taken into account for the analysis of the movement in the share price of the company. The share price performance for the company has been volatile because of the volatile business conditions and the financial performance of the company. The rising operational cost for the company and the changing political condition for the company has been the key reason for the falling and worsening financial condition of the company. In the year 2018, the company faced several issues in the context of high business risk and operational cost for the company, which lead to the volatile performance of the company. In the five-year of trend period for the company the company has given a negative return to the shareholders of the company. The monthly data was collected from the year 2014-2019 and the relevant analysis for the company was done (Pan African Share Price, 2019). Changing business conditions, political scenarios and legal environment under which the operations of the company is based needs to be incorporated and well assessed by the company.

Financial Performance Analysis

Conclusion

The financial analysis of the company was conducted by assessing the financial performance of the company from the year 2016-18. The operations of the company and the financial performance of the company was analysed by conducting ratio analysis for the company in the trend period 2017-18 and the financial analysis of the company was done thereby analysing the financial performance of the company. Business factors for the company has been volatile for the company that affected the overall operations and the financial performance of the company. The financial performance of the company was analysed by conducting ratio analysis for the company in the trend period 2017-18 and the financial analysis of the company was done thereby analysing the financial performance of the company. The various projects undertaken by the company was taken into account for the purpose of the analysis of the company long-term capital investment projects. The share price performance for the company was assessed for the trend period of five year and the relevant analysis for the company based on the movement of the share price was taken into analysis for the company. 

Business conditions, political factors and macro-environmental issues under which the operations of the company is based needs to be carefully reviewed by the company. Sustainable long-term growth and overall development of the company with the operational efficiency in the operational part of the company and assessing & incorporating the same into the business model of the company. The company has a diversified capital investment project and is a major player in the South Africa with various ongoing capital projects of the company. Diversification in the line of business services and products of the company is seen by assessing the operational condition of the company. Rising operational cost, higher level of debt and falling revenue of the company were the key reason for the falling profitability of the company. The financial performance of the company has not been well in the trend period analysed for the company. The share price performance of the company has also been volatile which was affected due to the changing business conditions and the operational risk associated with the company. The share price performance for the company has been volatile because of the volatile business conditions and the financial performance of the company. Thus, on an overall basis it is important for the company to reduce the level of debt in the company to reduce the financial risk associated with the company and incorporate and asses the various business conditions under which the operations of the company is linked. 

References

Annual Report 2017. (2017). Retrieved from https://www.panafricanresources.com/wp-content/uploads/Pan-African-Resources-integrated-annual-report-2017.pdf

Annual Report 2018. (2018). Retrieved from https://www.panafricanresources.com/wp-content/uploads/Pan-African-Resources-integrated-annual-report-2018.pdf

Boyas, E., & Teeter, R. (2017). Teaching Financial Ratio Analysis using XBRL. In Developments in Business Simulation and Experiential Learning: Proceedings of the Annual ABSEL conference (Vol. 44, No. 1).

Corporate Governance (AIM – Rule 26) | Pan African Resources. (2018). Retrieved from https://www.panafricanresources.com/investors/corporate-governance/

Dimopoulos, T., & Wagner, H. F. (2016). Corporate Governance and CEO Turnover Decisions.

Doni, F., Gasperini, A., & Pavone, P. (2016). Early adopters of integrated reporting: The case of the mining industry in South Africa. African Journal of Business Management, 10(9), 187-208.

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McCahery, J. A., Sautner, Z., & Starks, L. T. (2016). Behind the scenes: The corporate governance preferences of institutional investors. The Journal of Finance, 71(6), 2905-2932.

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Onyango, R. (2018). Information resources and technology transfer management in developing countries. Routledge.

Pan African Resources Plc – Value Analysis (LONDON:PAF) : February 8, 2017 – CapitalCube. (2018). Retrieved from https://www.capitalcube.com/blog/index.php/pan-african-resources-plc-value-analysis-londonpaf-february-8-2017/

Pan African Resources PLC, PAF:LSE profile - FT.com. (2018). Retrieved from https://markets.ft.com/data/equities/tearsheet/profile?s=PAF:LSE

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