Pan African Resources Evander purchase update

PUBLISHED: 03 Dec 2012 @ 15:18 | Comments (1) | More info about Tom Winnifrith

AIM-listed, South Africa-focussed precious metals miner Pan African Resources (LSE:PAF) has today updated investors on the ongoing process for its prospective Rand1.5 billion (circa. £110 million) acquisition of Evander Gold Mines Ltd. At a current 20.75p share price, capitalising the company at just over £300 million (£378 million adjusting for a prospective rights issue), Pan African remains a big winner from my time at t1ps – the website I founded but departed in September – where I first recommended the shares in November 2005 at a share price of 2.6875p. Surely even barking mad Bulletin Board loon Bob Burnard accepts that was a good share tip? The following reviews the current position here…

Pan has announced that its 30th November General Meeting saw it gain the necessary shareholder approvals and that a Rand703 million (circa. £50 million) rights issue of 25.5 new shares for every 100 shares held at a subscription price of Rand1.90 (14p) per share to help it fund the prospective acquisition is resultantly now unconditional.

The company noted that: “Favourable market conditions and strong operational performance have resulted in both Pan African and Evander generating substantial cash reserves since the commencement of the transaction. As a result and because all the profits of Evander have accrued for Pan African’s benefit since 1 April 2012, the company has secured a favourable funding position. Cash balances currently held at Evander and Pan African amount to approximately Rand268 million and Rand319 million, respectively.”

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Additionally, an existing Rand300 million credit facility is expected to be replaced by a new Rand600 million facility as the transaction closes. Pan African thus looks set to be well funded to complete the Evander deal and I continue to believe the cash flows the combined entity will throw off will see debt cleared and chunky dividend payments resumed rapidly.

I continue to believe that a 25p plus share price is realistic as I explain in detail HERE

That target is based on a 5x free cashflow multiple so I would rate the shares as a “hold”. However, this remains not a share for the risk-averse – South Africa still concerns me and the Evander deal remains subject to ministerial consent and Evander entering into a new supply agreement, acceptable to Pan African, with electricity producer Eskom. Arguably there are better gold plays elsewhere notable the trio below:

Top of the pops
Silver Medal
Still a great gold buy

Libertarian investment writer Tom Winnifrith writes extensively for a number of US and UK financial websites. All of that material appears on his own blog, which also carries his extensive original non financial material, at TomWinnifrith.com – for alerts on all Tom’s writings follow him on twitter at @tomwinnifrith

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