Pan African Resources - Back to where it belongs

On 10 July, Pan African Resources (PAF) released an operational update for the year to end June 2020 detailing production of 179,575oz gold in the year to June 2020. While production in H220 was (inevitably) lower than in H120 (see Exhibit 1) owing to the coronavirus, full-year production was nevertheless 4.1% higher than in FY19, 2.0% higher than guidance and 2.1% higher than our forecast (see Exhibit 2). In addition, PAF announced that net debt had declined from US$123.7m in December 2019 to US$62.5m in June 2020 (cf May guidance of US$70.0m – company calculation) – a reduction of US$61.2m or 49.5% within the space of six months. Self-evidently, continued debt reductions at this rate could see PAF net debt free within the next 12 months. This note updates our earnings forecasts and also our valuation for now known production in FY20, as well as changes in the macro-environment and the increase to our long-term estimated gold price (see A golden future, published on 11 June 2020).