Pan African Resources PLC Annual Report 2010

Plain-text annual report

Annual Report 2010 The diﬀ erence • Dividend paying gold company • Unhedged and debt free • Gold production: shallow, low cost & high grade • Consistent year-on-year improvement in productivity • Low cost & high grade platinum production from surface due in 2011 • Management team with a proven track record of delivery Platinum - tipped gold – with a yield Pan African Resources PLC Annual Report 2010 1 Nature of our Business Pan African Resources Plc (“Pan African”, “Pan African Resources”, “the Company” or “the Group”) is an African focused mining group that produces approximately 100,000oz of gold per year, with production of platinum group metals forecast to begin by September of 2011. Its focus is on low cost, high margin production and acquiring near production projects. The Group is debt free, unhedged and is able to fund its current on-mine capital expenditure from internal cash ﬂ ows. • Production and growth focus driven by: • Low cost base; • High margins; • Signiﬁ cant potential for long-term growth in reserve base; and • Creating an enabling environment to allow optimum performance. Resilient ﬁ nancial performance • Revenue from gold sales increased by 29.25% to £68.5 million (2009: £53.0 million) • Headline earnings per share (“HEPS”) increased by 25.88% to 1.07p (2009: 0.85p) • Earnings per share (“EPS”) increased by 160.00% to 1.04p (2009: 0.40p) • Earnings before interest, tax, depreciation, amortisation and impairment (“EBITDA”) increased by 9.17% to £25.0 million (2009: £22.9 million) • Final dividend of 0.3723p per share (2009: dividend of 0.2555p per share) proposed • Cash and cash equivalents increased by 435.56% to £12.80 million (2009: £2.39 million) Continued production improvement from the Barberton Mines (Proprietary) Limited (“Barberton Mines”) mining operations • Underground gold production increased by 2.71% to 97,483oz (2009: 94,909oz) • Headgrade improved by 2.81% to 10.61g/t (2009: 10.32g/t) • Measured and indicated resource base increased by 30.22% to 1,814,000oz (2009: 1,393,000oz) • Barberton Mines old order mining rights converted to new order mining rights Major progress made at Phoenix Platinum Mining (Proprietary) Limited (“Phoenix Platinum”) • Exclusive terms signed with International Ferro Metals (SA) (Proprietary) Limited (“IFM”) in terms of the site location for a Chrome Tailings Retreatment Plant (“CTRP”) • Resource upgraded by 15.80% to 469,000oz (previously 405,000oz) • Production expected to commence in the second half of 2011 • Forecast cash cost of less than US$400/oz Established management team with a proven track record of unlocking potential • Shanduka Gold (Proprietary) Limited (“Shanduka”) acquired a 26% shareholding in Pan African • Cyril Ramaphosa appointed as the Non-Executive Chairman Pan African Resources PLC (hereinaft er referred to as “Pan African”, “Pan African Resources”, “the Company” or “the Group”) (Incorporated in England & Wales under the Companies Act 1985 with registration number 3937466 on 25 February 2000) Share code on AIM: PAF Share code on the JSE: PAN ISIN: GB0005300496 2 Looking forward , management is excited , passionate and driven to not only meet but exceed expectations “Pan African’s proﬁ tability and dividend payments cert ainly distinguish the Company from its peer group” 2 Nature of our business 4 Salient features 5 Share statistics and shareholding 6 Geographic location 6 Company structure 7 Chairman’s report 9 Chief executive ofﬁ cer’s review Over the past year we have explored extensive business opport unities that will help Pan African Resources grow its port folio 18 Mining operation: Barberton Mines 24 Near-term production: Phoenix Platinum Mining 26 Growth project: Manica gold project (“Manica”) 28 New business Over the last year Pan African Resources has streamlined various aspects of its business, in part icular Mineral Resource Management, and appointed the best teams to meet the challenges of the sustainable business that lie ahead 30 Group Mineral Resource Management Strategy 33 Mineral Resource Statement 39 Reporting code and standards 42 Board of directors 48 Executive management – Pan African Resources 48 Executive management – Barberton Mines 49 Corporate governance 56 Directors’ report 59 Statement of directors’ responsibilities 60 UK Independent auditors’ report 62 Independent auditors’ report 63 Certiﬁ cate of the Company Secretary 64 Consolidated and Company statement of comprehensive income 65 Consolidated and Company statement of ﬁ nancial position 67 Consolidated and Company statement of changes in equity 68 Notes to the ﬁ nancial statements 100 Notice of Annual General Meeting 104 Glossary of Terms and Abbreviations Inserted Form of Proxy Pan African Resources PLC Annual Report 2010 t s r i F s g n i h T t s r i F k l a T t h g i a r t S k c a r T r u O d r o c e R d l o G of s e r o t S ) m u n i t a l P d n a ( r e d r O & w a L e M w o h S y e n o M e h T . . . y l t s a L d n A 3 Salient Features Year ended Year ended 30 June 2009 30 June 2010 % Change Statement of Comprehensive Income Proﬁ t after taxation Headline earnings (see Note 14 on page 81) Gold sales Mining proﬁ t Cost of production Impairment costs (£) 14,499,875 8,091,286 79.20 (£) 14,612,633 9,428,998 (£) 68,506,394 53,000,352 (£) 24,664,624 21,994,689 (£) (40,553,886) (28,504,686) (5,025,463) (£) (335,401) Statement of Financial Position Non-current assets Current assets (including cash) Total equity Non-current liabilities Current liabilities Operating Performance Tons milled Headgrade Gold sold Spot price received Total cash costs Capital expenditure (£) 74,324,150 (£) 17,677,295 (£) 73,486,877 (£) 11,430,530 7,084,038 (£) 67,197,831 4,948,877 56,360,402 9,685,537 6,100,769 (t) (g/t) (oz) (US$/oz) (US$/oz) (£) 313,167 10.61 98,091 1,098 650 5,935,346 313,952 10.32 97,353 867 469 4,318,425 54.98 29.26 12.14 42.27 (93.33) 10.60 257.20 30.39 18.02 16.12 (0.25) 2.81 0.76 26.64 38.59 37.44 (cid:3) (cid:73) (cid:71) (cid:82) (cid:73) (cid:52) 1.2 1 0.8 0.6 0.4 0.2 0.0 -0.2 -0.4 (cid:44)(cid:73)(cid:69)(cid:72)(cid:80)(cid:77)(cid:82)(cid:73)(cid:3)(cid:73)(cid:69)(cid:86)(cid:82)(cid:77)(cid:82)(cid:75)(cid:87)(cid:3)(cid:84)(cid:73)(cid:82)(cid:71)(cid:73)(cid:3)(cid:84)(cid:73)(cid:86)(cid:3)(cid:87)(cid:76)(cid:69)(cid:86)(cid:73) (cid:37)(cid:71)(cid:85)(cid:89)(cid:77)(cid:87)(cid:77)(cid:88)(cid:77)(cid:83)(cid:82)(cid:3)(cid:83)(cid:74)(cid:3) (cid:38)(cid:69)(cid:86)(cid:70)(cid:73)(cid:86)(cid:88)(cid:83)(cid:82)(cid:3)(cid:49)(cid:77)(cid:82)(cid:73)(cid:87) (cid:21)(cid:28)(cid:3)(cid:81)(cid:83)(cid:82)(cid:88)(cid:76)(cid:87)(cid:3) (cid:73)(cid:82)(cid:72)(cid:73)(cid:72)(cid:3) (cid:23)(cid:21)(cid:3)(cid:49)(cid:69)(cid:86)(cid:71)(cid:76)(cid:3) (cid:22)(cid:20)(cid:20)(cid:26) (cid:21)(cid:25)(cid:3)(cid:81)(cid:83)(cid:82)(cid:88)(cid:76)(cid:87)(cid:3) (cid:73)(cid:82)(cid:72)(cid:73)(cid:72)(cid:3) (cid:23)(cid:20)(cid:3)(cid:46)(cid:89)(cid:82)(cid:73)(cid:3) (cid:22)(cid:20)(cid:20)(cid:27) (cid:61)(cid:73)(cid:69)(cid:86)(cid:3) (cid:73)(cid:82)(cid:72)(cid:73)(cid:72)(cid:3) (cid:23)(cid:20)(cid:3)(cid:46)(cid:89)(cid:82)(cid:73)(cid:3) (cid:22)(cid:20)(cid:20)(cid:28) (cid:61)(cid:73)(cid:69)(cid:86)(cid:3) (cid:73)(cid:82)(cid:72)(cid:73)(cid:72)(cid:3) (cid:23)(cid:20)(cid:3)(cid:46)(cid:89)(cid:82)(cid:73)(cid:3) (cid:22)(cid:20)(cid:20)(cid:29) (cid:61)(cid:73)(cid:69)(cid:86) (cid:73)(cid:82)(cid:72)(cid:73)(cid:72)(cid:3) (cid:23)(cid:20)(cid:3)(cid:46)(cid:89)(cid:82)(cid:73)(cid:3) (cid:22)(cid:20)(cid:21)(cid:20) 16 000, 000 14 000, 000 12 000, 000 10, 000, 000 (cid:3) (cid:134) 8, 000, 000 6, 000, 000 4, 000, 000 2, 000, 000 0.0 (2, 000, 000) (cid:37)(cid:88)(cid:88)(cid:86)(cid:77)(cid:70)(cid:89)(cid:88)(cid:69)(cid:70)(cid:80)(cid:73)(cid:3)(cid:84)(cid:86)(cid:83)(cid:74)(cid:77)(cid:88)(cid:19)(cid:12)(cid:80)(cid:83)(cid:87)(cid:87)(cid:13)(cid:3)(cid:88)(cid:83)(cid:3)(cid:88)(cid:76)(cid:73)(cid:3) (cid:83)(cid:91)(cid:82)(cid:73)(cid:86)(cid:87)(cid:3)(cid:83)(cid:74)(cid:3)(cid:88)(cid:76)(cid:73)(cid:3)(cid:84)(cid:69)(cid:86)(cid:73)(cid:82)(cid:88) (cid:37)(cid:71)(cid:85)(cid:89)(cid:77)(cid:87)(cid:77)(cid:88)(cid:77)(cid:83)(cid:82)(cid:3)(cid:83)(cid:74)(cid:3) (cid:38)(cid:69)(cid:86)(cid:70)(cid:73)(cid:86)(cid:88)(cid:83)(cid:82)(cid:3)(cid:49)(cid:77)(cid:82)(cid:73)(cid:87) (cid:45)(cid:81)(cid:84)(cid:69)(cid:77)(cid:86)(cid:81)(cid:73)(cid:82)(cid:88) (cid:37)(cid:88)(cid:88)(cid:86)(cid:77)(cid:70)(cid:89)(cid:88)(cid:69)(cid:70)(cid:80)(cid:73)(cid:3) (cid:84)(cid:86)(cid:83)(cid:74)(cid:77)(cid:88)(cid:19)(cid:12)(cid:80)(cid:83)(cid:87)(cid:87)(cid:13) (cid:21)(cid:25)(cid:3)(cid:81)(cid:83)(cid:82)(cid:88)(cid:76)(cid:87)(cid:3) (cid:73)(cid:82)(cid:72)(cid:73)(cid:72)(cid:3) (cid:23)(cid:20)(cid:3)(cid:46)(cid:89)(cid:82)(cid:73)(cid:3) (cid:22)(cid:20)(cid:20)(cid:27) (cid:61)(cid:73)(cid:69)(cid:86)(cid:3) (cid:73)(cid:82)(cid:72)(cid:73)(cid:72)(cid:3) (cid:23)(cid:20)(cid:3)(cid:46)(cid:89)(cid:82)(cid:73)(cid:3) (cid:22)(cid:20)(cid:20)(cid:28) (cid:61)(cid:73)(cid:69)(cid:86)(cid:3) (cid:73)(cid:82)(cid:72)(cid:73)(cid:72)(cid:3) (cid:23)(cid:20)(cid:3)(cid:46)(cid:89)(cid:82)(cid:73)(cid:3) (cid:22)(cid:20)(cid:20)(cid:29) (cid:61)(cid:73)(cid:69)(cid:86)(cid:3) (cid:73)(cid:82)(cid:72)(cid:73)(cid:72)(cid:3) (cid:23)(cid:20)(cid:3)(cid:46)(cid:89)(cid:82)(cid:73)(cid:3) (cid:22)(cid:20)(cid:21)(cid:20) 4 Share Statistics and Shareholding Year ended 30 June 2010 Year ended 30 June 2009 % Change Number of shares in issue at end of year Weighted average number of shares in issue Weighted average diluted number of shares in issue 1,409,540,711 1,112,589,162 26.69 1,366,268,709 1,104,367,219 23.72 1,379,880,423 1,107,248,663 24.62 Major shareholdings As at 25 June 2010, the substantial shareholdings of the Company were: Shares in issue: 1,409,540,711 Name Shanduka Coronation Fund Managers Investec Asset Management Allan Gray Investment Council JP Morgan Asset Management Number of shares 366,168,585 221,821,092 149,898,928 76,294,036 58,955,000 % held 25.98 15,74 10,63 5.41 4.18 t s r i F s g n i h T t s r i F (cid:54)(cid:73)(cid:90)(cid:73)(cid:82)(cid:89)(cid:73) (cid:37)(cid:71)(cid:85)(cid:89)(cid:77)(cid:87)(cid:77)(cid:88)(cid:77)(cid:83)(cid:82)(cid:3)(cid:83)(cid:74)(cid:3) (cid:38)(cid:69)(cid:86)(cid:70)(cid:73)(cid:86)(cid:88)(cid:83)(cid:82)(cid:3)(cid:49)(cid:77)(cid:82)(cid:73)(cid:87) (cid:13) (cid:20) (cid:20) (cid:20) (cid:12) (cid:3) (cid:134) 80 000, 000 70 000, 000 60 000, 000 50, 000, 000 40, 000, 000 30, 000, 000 20, 000, 000 10, 000, 000 0.0 Gold produced Acquisition of Barberton Mines d e c u d o r p l d o g f o z o 160 000 140 000 120 000 100, 000 80, 000 60, 000, 40, 000 20, 000 0.0 (cid:21)(cid:25)(cid:3)(cid:81)(cid:83)(cid:82)(cid:88)(cid:76)(cid:87)(cid:3) (cid:73)(cid:82)(cid:72)(cid:73)(cid:72)(cid:3) (cid:23)(cid:20)(cid:3)(cid:46)(cid:89)(cid:82)(cid:73)(cid:3) (cid:22)(cid:20)(cid:20)(cid:27) (cid:61)(cid:73)(cid:69)(cid:86) (cid:73)(cid:82)(cid:72)(cid:73)(cid:72)(cid:3) (cid:23)(cid:20)(cid:3)(cid:46)(cid:89)(cid:82)(cid:73)(cid:3) (cid:22)(cid:20)(cid:20)(cid:28) (cid:61)(cid:73)(cid:69)(cid:86) (cid:73)(cid:82)(cid:72)(cid:73)(cid:72)(cid:3) (cid:23)(cid:20)(cid:3)(cid:46)(cid:89)(cid:82)(cid:73)(cid:3) (cid:22)(cid:20)(cid:20)(cid:29) (cid:61)(cid:73)(cid:69)(cid:86) (cid:73)(cid:82)(cid:72)(cid:73)(cid:72)(cid:3) (cid:23)(cid:20)(cid:3)(cid:46)(cid:89)(cid:82)(cid:73)(cid:3) (cid:22)(cid:20)(cid:21)(cid:20) Year ended 30 June 2006 Year ended 30 June 2007 Year ended 30 June 2008 Year ended 30 June 2009 Year ended 30 June 2010 Pan African Resources PLC Annual Report 2010 5 Geographic Location Equator Indian Ocean Mozambique Manica Project Phoenix Platinum Amira, Eagles Nest and Thomas Victory-Hill Projects Atlantic Ocean South Africa 0 1,000km (cid:37)arbe(cid:1323)on Mines - (cid:41)air(cid:89)ie(cid:90), Sheba and (cid:38)onso(cid:1323) Legend: Mining operations Near-term production Growth projects Company Structure Pan African Resources PLC (Incorporated & Registered in England and Wales under the Companies Act 1985 with registration number 3937466 on 25 February 2000) 100% 100% 2% 100% 100% Barberton Mines (Pty) Limited South Africa (Registered in South Africa) Barberton Mining Operations (“Barberton Mines”) Phoenix Platinum Mining (Pty) Limited South Africa (Registered in South Africa) Phoenix Platinum Chrome Tailings Retreatment Project South Africa (“Phoenix Platinum”) 100% Mistral Resource Development Corporation (British Virgin Isles) 98% Explorator Limitada Manica, Mozambique (Registered in South Africa) Platinum Sands (Pty) Ltd (Registered in South Africa) Manica Gold Project Mozambique Brampton Capital Overseas Capital (British Virgin Isles) Dormant 6 Chairman’s Statement t s r i F s g n i h T t s r i F Cyril Ramaphosa (58) Chairman The origins of the quotation “May you live in interesting times” are unclear, but one could be forgiven for suggesting that the phrase was coined to describe our world today. Markets and commodity prices have generally recovered from the crash of 2008 and 2009, but market volatility and a lack of direction are clear indicators of the uncertainty that faces the investor in 2010. Pan African has made the conscious decision to focus on those factors that we can control, to ensure we deliver the performance that our shareholders and other stakeholders expect and that management has the ability and experience to deliver. Cost control, increased geological conﬁ dence and a sustained drive to increase productivity are key areas for continuous improvement. These and other areas of focus will ensure the long-term sustainability of Barberton Mines, despite general and also mining speciﬁ c inﬂ ationary pressures. The Group continues to produce pleasing operational and ﬁ nancial results, and looking forward, management is motivated to maintain and improve on this past success. Our hearts and thoughts are with the family, friends and co-workers of Mr Mngobe Joseph Ndlovu, who was fatally injured during a fall of ground accident at Barberton Mines’ Fairview mine on 9 March 2010. The safety of our employees remains of paramount importance to the management and board of Pan African, as evidenced by the various health and safety initiatives and strategies implemented by the Group. A further loss to the Group and to the board came with the passing of Mr John Hopwood, non-executive director of Pan African, on 19 March 2010. John’s industry experience and wise counsel made him a great asset to our board. He is sorely missed. Pan African Resources PLC Annual Report 2010 7 Chairman’s Statement cont. “Pan African’s proﬁ tability and dividend payments cert ainly distinguishes the Company from its peer group” Gold continues to perform well in US$ terms, with current investment demand underpinning a US$ gold price of US$1,100/oz and above. Despite a strong Rand, Pan African’s margins from our Barberton Mines operation remain attractive. Barberton Mines continues to be key to Pan African’s future strategy, providing both ongoing cash ﬂ ows and a further growth opportunity to the Group. The recent resource update for Phoenix re-afﬁ rmed the potential of the project. Management continues to progress Phoenix, and I am looking forward to regular market updates in the next ﬁ nancial year, as the project progresses towards production. In addition to diversifying our asset base, a producing Phoenix will provide immediate cash ﬂ ows, and therefore a further platform for growth. From a corporate perspective, Pan African welcomed both new shareholders and board members early in the 2010 ﬁ nancial year. The Company moved its JSE Limited (“JSE”) listing from the Alternative Exchange to the JSE Main Board. It now has a dual primary listing on the JSE Main Board and London’s AIM market. I would like to speciﬁ cally thank my predecessor, Keith Spencer, for his work and direction to the Group during his time as Chairman. Keith continues his contributions to the board as deputy chairman. The board has made a decision to propose Pan African’s second dividend. We believe that the principle of a dividend, together with the size of the payment, demonstrates the Group’s commitment to creating shareholder value. Pan African’s proﬁ tability and dividend payments certainly distinguishes the Company from many of the other companies in our sector. The Group is not set on growth at all costs, we believe in sustainable and well-considered expansion, whilst also providing a cash return to shareholders when the opportunity arises. I wish to extend my sincere gratitude to the staff and management of Pan African and our Group companies for their tireless efforts in ensuring the success of the Group over the past year. I also wish to thank the shareholders of Pan African, for your loyal support and belief in the Company and its management. CM Ramaphosa Chairman 30 August 2010 8 CEO’s Review Jan Nelson (40) Chief Executive Ofﬁ cer “The Board is once again recommending the payment of a dividend” k l a T t h g i a r t S Highlights 2010 • Increase in gold production from underground operations • Group continues to show that current in-situ gold grades are sustainable • Barbert on Mines’ life of mine (“LOM”) extended • Phoenix is on schedule to supplement Group earnings • Strong cash ﬂ ows enables the recommendation of a dividend Introduction This year the Group continued to deliver a strong operational and ﬁ nancial performance as a result of increased gold sales and a stronger gold price. This performance clearly demonstrates our ability not only to successfully operate Barberton Mines (since its acquisition in July 2007), but also to improve its year-on-year performance. We believe that our strategy of pursuing proﬁ table growth opportunities which deliver cash ﬂ ow in the near term, is yielding results. It has strengthened our Statement of Financial Position to the extent that the board will once again recommend the payment of a ﬁ nal dividend of 0.3723p per share (2009: dividend of 0.2555p per share paid). We have now laid the foundations in terms of technical ability and ﬁ nancial muscle and are well-positioned to grow the Company via our strategic alliance with Shanduka Resources (our largest shareholder through its subsidiary Shanduka Gold (Pty) Limited). Pan African Resources PLC Annual Report 2010 9 CEO’s Review cont. “Cost control remains a key focus for our operational teams” Despite pleasing results, the impact of signiﬁ cant cost increases at Barberton Mines, mainly in the area of security, electricity and corporate expenditure, reduced the Group’s EBITDA in ZAR terms. The Group’s attributable proﬁ t increased as a result of 100% of Barberton Mines’ earnings ﬂ owing through to a Group level from 21 August 2009 (as a result of the Shanduka ﬂ ip-up: refer to page 16). We will need to be more vigilant in terms of cost control. Consequently key focus areas from executive management’s perspective will be to: (a) increase productivity, (b) reduce security costs signiﬁ cantly, (c) use power more efﬁ ciently at Barberton Mines and (d) reduce overhead costs. Cost reduction action plans have been formulated and the effect of these will be reported to shareholders at future results presentations. The advancement of the Phoenix Platinum project is on schedule and the main focus will be to realise cash ﬂ ow from this project by the second half of 2011. Health and safety The safety performance of the Barberton mining operations (comprising the Fairview, Sheba and New Consort sections) showed an improvement year-on-year with lost time injury frequency rate (“LTIFR”) at 4.2 (2009: 6.4) and serious injury frequency rate (“SIFR”) at 1.1 (2009: 1.7). The number of shifts lost decreased, however the lost day severity rate increased marginally, which indicates an increase in the severity of injuries experienced. It is with great regret and sadness that the Company reports the tragic death of Mr Mngobe Joseph Ndlovu, who lost his life after a fall of ground incident at the Fairview section in March 2010. The Fairview section, prior to this accident, achieved two million fatality free shifts in February 2010. Barberton Mines has designed and is in the process of implementing a safety, health, environment and communities (“SHEC”) management system that will enable us to improve health and safety and environmental management to industry leading levels. The full implementation of the SHEC management system will be completed by the second half of the 2011 ﬁ nancial year. The training of our employees is done through the South African Mining Qualiﬁ cations Authority accredited training facility at the mine, which utilises approved training programmes to maintain the competence levels of employees. Accident rates (per million man hours) 9.6 7.9 6.8 8.0 Acquisition of Barberton Mines 6.4 4.8 2.6 3.7 3.3 2.8 3.1 4.2 2004 2005 2006 2007 2008 1.7 2009 1.1 2010 Lost time injury rate Serious injury rate Lost day severity rate 14.8 14.6 14.5 Acquisition of Barberton Mines 12.4 11.0 6.2 6.9 2004 2005 2006 2007 2008 2009 2010 10 s r u o h n o i l l i m r e p e t a R 8 6 4 2 0 15.0 12.0 e t a r y t i r e v e S 9.0 6.0 3.0 0.0 10 The Mine Health and Safety Council targets set by the industry, in conjunction with the South African Department of Mineral Resources (“DMR”), endeavour to align the health and safety performance of the South African mining industry with international norms by 2013. The targets are based on rate improvements for fatalities, noise induced hearing losses and silicosis. The Group has committed itself to these targets. Financial performance Pan African is incorporated in England and Wales, and its reporting currency is pounds sterling (£). Barberton Mines is a South African company, and its ﬁ nancial statements are prepared in South African Rand (“ZAR” or “Rand”). When Barberton Mines’ ﬁ nancial statements are translated into pounds sterling for the purposes of Group consolidation and reporting, the annual average and year-end closing ZAR:£ exchange rates affect the Group consolidated ﬁ nancial results. In the current ﬁ nancial year, the average prevailing ZAR:£ exchange rate was 11.93:1 (2009: 14.39:1), and the closing ZAR:£ exchange rate was 11.53:1 (2009: 12.66:1). The year-on-year change in the average and closing exchange rates of 17.10% and 8.93%, respectively, should be taken into account for the purposes of comparing year-on-year results. Gross revenue from gold sales increased by 29.25% to £68.5 million (2009: £53.0 million). The increase in revenue was mainly attributed to a 26.64% increase in the average gold spot price received to US$1,098/oz (2009: US$867/oz), and the depreciation of the GBP against the ZAR. The average US$:ZAR exchange rate was 15.95% stronger at ZAR7.59 (2009: ZAR9.03), which negatively impacted revenue received in ZAR. The effective ZAR gold price was 6.41% higher at ZAR267,876/kg (2009: ZAR251,740/kg). Mining proﬁ t at Barberton Mines grew by 12.27% to £24.7 million (2009: £22.0 million). Cost of production increased by 42.46% to £40.6 million (2009: £28.5 million). In Rand terms, cost of production increased by 17.97% to ZAR483.8 million (2009: ZAR410.1 million). This increase is mainly attributable to a 42.86% increase in electricity costs to ZAR42.0 million (2009: ZAR29.4 million), security costs increasing by 176.92% to ZAR32.4 million (2009: ZAR11.7 million) and salary, wages and other staff expenses increasing by 18.41% to ZAR215.5 million (2009: ZAR182.0 million). Barberton Mines commenced payment of the new South African mining royalty tax upon its implementation in March 2010. This royalty charge for the year amounted to £0.84 million. EBITDA for the year under review, excluding impairment charges, was £25.0 million (2009: £22.9 million), an increase of 9.17%. Other expenses increased 31.29% to £1.93 million (2009: £1.47 million), largely due to cancellation of the Metorex Limited (“Metorex”) management agreement for Barberton Mines on 1 July 2009, for a consideration of £0.34 million. The Company incurred an exploration expenditure impairment charge of £0.35 million (2009: £5.0 million) during the year. This was the ﬁ nal impairment charge related to the Company’s investment in the Central African Republic. Year ended Year ended 30 June 2010 30 June 2009 Cash cost breakdown (excluding Capex) Year ended 30 June 2009 3 5% % 7% 9% 16% 16% 44% Salaries Mining Processing Engineering Electricity Security Other R410,096,314 £28,504,686 US$/oz 469 ZAR/Kg 136,178 k l a T t h g i a r t S Cash cost breakdown (excluding Capex) Year ended 30 June 2010 6% 7% 9% 7% 13% 14% 44% Salaries Mining Processing Engineering Electricity Security Other R483,807,857 £40,553,886 US$/oz 650 ZAR/Kg 158,711 Gold sales EBITDA (excluding impairment) Attributable proﬁ t – Owners of the parent EPS (see Note 14) HEPS (see Note 14) Weighted average number of shares in issue (£) (£) (£) (pence) (pence) 68,506,394 25,022,552 14,277,232 1.04 1.07 53,000,352 22,889,784 4,403,535 0.40 0.85 1,366,268,709 1,104,367,219 Pan African Resources PLC Annual Report 2010 11 CEO’s Review cont. Group income tax decreased by 6.10% to £7.7 million (2009: £8.2 million), due to a lower tax rate percentage calculated in accordance with the South African gold mining tax formula. This tax formula calculates an income tax rate, based on the ratio of revenues to mining costs and capital expenditure. The effective tax rate decreased from 50.39% to 34.55% in the current year. In the prior year the proﬁ t after taxation included an impairment charge of £5.0 million, which resulted in the effective Group tax rate being signiﬁ cantly higher than normal, as the impairment charge was not deductible for tax purposes. 1200 1000 z o / $ S U 800 600 400 200 0 350, 000 300, 000 250, 000 200, 000 150, 000 d e l l i m s n o T 100, 000 50, 000 0.0 ) 0 0 0 ( £ 7, 000, 000 6, 000, 000 5, 000, 000 4, 000, 000 3, 000, 000 2, 000, 000 1, 000, 000 0.0 Company cash cost vs average gold price Acquisition of Barberton Mines Nominal cash cost/oz Adjusted PPI cash cost/oz (Base 30 June 2006) Average gold price received $/oz 2006 2007 2008 2009 2010 Production statistics Acquisition of Barberton Mines 2006 2007 2008 2009 2010 Capital expenditure Acquisition of Barberton Mines 2006 2007 2008 2009 2010 Vamping tons Consort Sheba Fairview Development capital Maintenance capital Operating performance Barberton Mines sold 98,091oz of gold during the year, an increase of 0.76% from the previous year (2009: 97,353oz). Although marginal, the increase is signiﬁ cant in light of the fact that mining was stopped for a period of two weeks in December 2009 due to illegal mining activity. Of further signiﬁ cance is that all gold production was attributable from underground mining operations, which increased by 2.71% to 97,483oz (2009: 94,909oz). As mentioned 12 “The Group continues to achieve its targeted milestones in bringing the Phoenix Platinum Project into production” k l a T t h g i a r t S in the previous reporting period, production is expected to continue to increase as a result of increased capital investment and implementation of an integrated Mineral Resource Management (“MRM”) programme, which is expected to increase mining ﬂ exibility. The decrease of 0.25% in the volume of underground mining tons to 313,167t (2009: 313,952t) was negligible and was offset by a 2.81% increase in headgrade to 10.61g/t (2009: 10.32g/t). Total cash costs increased by 38.59% to US$650/oz (2009: US$469/oz). In Rand terms, total cash costs increased by 16.55% to ZAR158,711/kg (2009: ZAR136,178/kg). Total capital expenditure at the mine increased by 47.50% to £5.9 million or 20.71% to ZAR70.4 million (2009: £4 million or ZAR58.32 million). Maintenance capital expenditure of £2.9 million (2009: £1.9 million) and development capital expenditure of £3.0 million (2009: £2.1 million) was incurred. Phoenix Platinum Mining (Pty) Limited Since the previous reporting period signiﬁ cant milestones have been achieved on the Phoenix Platinum project. The ﬁ rst of these was the signing of an exclusive terms of site agreement on 18 February 2010 with IFM. This agreement sets out the framework for concluding a formal plant site agreement. Negotiations in this regard are currently being ﬁ nalised. In addition the following major technical milestones have been achieved: • the completion of a metallurgical competent person’s report; • the compilation of a SAMREC compliant resource estimate resulting in the PGM 4E’s metal content increasing by 15.80% from 405,000oz to 469,000oz and the average grade by 2.60% from 3.07g/t PGM 4Es to 3.15g/t PGM 4Es; and • detailed process ﬂ ow and engineering design was completed in June 2010. This will lead to the ﬁ nal capital cost estimate for the supply, construction and commissioning of the Phoenix plant in accordance with the process design criteria being completed in the third quarter of 2010. Pan African Resources PLC Annual Report 2010 13 CEO’s Review cont. “Our unique approach to Mineral Resource Management remains one of our competitive strengths” Plant construction should commence during the second half of 2010 with commercial production forecast to start in the second half of 2011. Mining rights conversion In terms of the South African Mineral and Petroleum Resources Development Act, 2002 (“MPRDA”), all mining licenses issued prior to the MPRDA that came into effect on 1 April 2004 are described as Old Order Mining Rights (“OOMR”). Holders of such rights were required to have applied to the DMR for the conversion of these OOMR into New Order Mining Rights (“NOMR”) within ﬁ ve years of the MPRDA coming into effect. Barberton Mines converted all its OOMR during the 2010 ﬁ nancial year. Barberton Mines NOMR relate to the mining licences in respect of Fairview Mine (old order mining licence 28/2003), New Consort Mine (old order mining licence 30/2003) and Sheba Mine (old order mining licence 29/2003). These licences combined comprise the Barberton mining operations. Mineral Resource Management Gold inventory The total resource inventory for the Group increased, when measured in terms of gold content, by 1.16% to 4.635Moz (41.85Mt @ 3.45g/t), compared to 4.582Moz (41.52Mt @ 3.44g/t) in 2009. The increase resulted from additional drilling and underground development (at Barberton Mines), which led to a re-deﬁ nition of geological envelopes and geostatistical re-evaluation. During the year under review, the Group’s reserve in gold content that is attributable to Barberton Mines increased by 6.79% to 661,000oz (2.318Mt @ 8.87g/t), compared to 619,000oz (2.38Mt @ 8.01g/t) in 2009. Further, the increase in the Mineral Reserve grade of 10.74% to 8.87g/t (2009: 8.01g/t) is extremely encouraging. A professional mining engineer with 15 years of relevant experience was appointed on a full-time basis at Barberton Mines as MRM Manager, and the net result of the MRM initiative at Barberton Mines is not only an extension in the LOM, but also an expectation that the LOM will be further increased in the near future despite current depletion rates. By applying an 85% conversion rate to the Combined Measured and Indicated Resource inventory, Barberton Mines currently indicates an improved LOM from 10 years (2009) to 15 years. Focus has also shifted to the identiﬁ cation of shallow, low cost mineral resources, which can be brought to account in the near term. This approach will not only see the production proﬁ le grow, but should also impact positively on the cost structure at Barberton Mines. Our Group Consulting Geologist, Martin Bevelander, is turning his attention to accelerating the exploration activities in the prospecting permit area at Barberton Mines. A regional airborne geophysical survey was completed over the permit area and a series of potentially near-surface targets have already been identiﬁ ed. The Company will focus on drilling these targets in the coming year, as some of the anomalies identiﬁ ed are equal in size to the current footprint of the Fairview mine. Platinum inventory The Company is also pleased to report a South African Code for Reporting of Exploration Results, Mineral Resources and Mineral Reserves (“SAMREC”) compliant Platinum Group 14 k l a T t h g i a r t S Elements (“PGE”) (4E: platinum, palladium, rhodium and gold) Mineral Resource for the Phoenix Platinum project of 469,000 4E oz (4.64Mt @3.15g/t). Previously the Group reported the Mineral Resource inventory as tailing feedstock volumes, which at the time was estimated at 4.3Mt grading at between 1.1g/t and 4.18g/t, yielding a total of 360Koz 4E. Subsequently, the Company geostatistically remodelled all resources at Phoenix Platinum. “We continue to look at growth opport unities that will signiﬁ cantly strengthen our Financial Position” Of the total Mineral Resource 33.0% is located as surface sources (935Kt @ 2.45g/t) and 67.00% (1,277 Kt @ 3.66g/t) as current arisings. Current feasibility work indicates a LOM of 17 years, producing an estimated 12,222oz 4E per annum. Group MRM strategy The MRM initiative will continue to be a key strategic corporate focus for the Group enabling management to ensure: (a) that the economic value of mineral assets is optimally managed and extracted; (b) integration of technical and associated functional disciplines along the business value chain; (c) increased levels of corporate governance through continued audit and quality control; and (d) the creation of shareholder value. New business For ty three projects were reviewed during the year. None fulﬁ lled our investment criteria. Although we remain committed to growing our asset base, such growth will come only from projects that ﬁ t the Group’s investment criteria. This is a strategy that has set us apar t from our peer group and will continue to do so in the future. Pan African Resources PLC Annual Report 2010 15 CEO’s Review cont. Corporate developments On 19 June 2009, the Company announced that it had concluded an agreement with Shanduka whereby Pan African would acquire Shanduka’s 26% shareholding in Barberton Mines in exchange for the issue of 295,751,549 new Pan African ordinary shares to Shanduka. This share exchange transaction with Shanduka became effective on 21 August 2009. The board considered it prudent to simplify the Pan African Group structure by acquiring the entire issued share capital of Barberton Mines, and in doing so: • signiﬁ cantly increasing the attributable gold ounces to Pan African to approximately 100,000 oz per year; and • terminating the shareholders’ agreement that existed at Barberton Mines level. On 26 June 2009, Metorex announced that it had engaged in a sale of shares exercise to dispose of its 53.37% shareholding in Pan African. In addition to its 21% shareholding in Pan African issued via the share exchange transaction detailed above, Shanduka purchased an additional 5% of the enlarged share capital of Pan African through the sale of shares exercise. As a result, Shanduka increased its shareholding in Pan African to 26%. The balance of the shares sold by Metorex was taken up by institutional investors. On 1 July 2009, the Company announced that Barberton Mines had cancelled the Metorex management agreement for a consideration of £0.34 million. The outstanding consideration of £954,759 to acquire 100% of Phoenix Platinum was paid to Metorex on 30 September 2009. Illegal mining activity We are pleased to report that the pro-active approach to the illegal mining problem at Barberton Mines has signiﬁ cantly reduced illegal mining activity in terms of both intensity and severity. By appointing a dedicated executive, reporting directly to the CEO on this issue, an enabling environment has been created, which has resulted in a signiﬁ cant increase in gold production at the mine. Signiﬁ cant progress has also been made in engaging all stakeholders in the surrounding community (including Government) to combat this problem. Despite our success, we need to remain vigilant. Our security effort has come at signiﬁ cant cost. Security costs for the ﬁ nancial year have increased by 237.50% to £2.7 million (2009: £0.8 million). Our focus in the coming ﬁ nancial year will therefore be to not compromise our current position, whilst at the same time reducing security expenditure by 25.93% to £2.0 million. This will be achieved through: (a) making use of new advances in security technology, (b) increasing perimeter controls, (c) a new approach to security management with special reference to contractors and (d) seeking the co-operation of all stakeholders. The future We believe that the bedrock of a storm proof house is a strong foundation. We further believe that the building of such a house is a process and not an event, and that the process requires a systematic approach. Building a mining house is no different and, therefore, let us reﬂ ect on our foundation as it currently stands: • Strong operational management team that continues to deliver strong operational performance; • Experienced project development team; • Experienced board that ensures the requisite technical and ﬁ nancial controls are in place; • High quality assets with low-cost base and signiﬁ cant upside potential; • Strong Statement of Financial Position that allows a platform for further growth; and • Strategic alignment to Shanduka in terms of sustainable growth. 16 “We have laid the foundation to build Pan African into a signiﬁ cant mining house” k l a T t h g i a r t S How has our approach translated into shareholder value? Allow the numbers to speak for themselves: • Increase in proﬁ t after tax over three years of 91.32%; • Increase in HEPS over three years of 109.80%; • Increase in underground gold production over three years of 18.25%; • Decrease in serious accident rate over three years of 64.52%; • Increase in capital expenditure over three years of 103.95%; • Increase in measured and indicated resource over three years of 58.00%; • Acquisition of Barberton Mines for less than US$200/oz at current prevailing gold price of US$1,200/oz; • Acquisition of near term CTRP business for less than US$140/oz at current prevailing 4 PGM basket price of US$1,350/oz; and • Cash in bank growing by 435.56% and no debt. Our turnaround, from loss-making explorer to a proﬁ table gold producer (which soon will also yield platinum production) has taken only three years, against the backdrop of a challenging global environment. Getting the basics right, ﬁ nding a better way, facing adversity with guts and courage and our drive to shape the future of mining is our recipe for success. Our focus on high margins, good returns and value accretive growth is what sets us apart from our peers and will enable us to continue to pay dividends. Our success is the result of a team effort and the continued support and patience from our shareholders. The foundation is solid and we are now able to take advantage of major growth opportunities to build Pan African into a signiﬁ cant mining house. As reﬂ ected by our chairman, the interesting times in which we live have forced us to push harder and perform better. I am proud to lead a team that has shown that it excels in such circumstances. Thank you again to our shareholders for your support, trust and patience. JP Nelson Chief Executive Ofﬁ cer 30 August 2010 Pan African Resources PLC Annual Report 2010 17 Mining Operations: Barbert on Mines Nelspruit (cid:48)(cid:68)lel(cid:68)(cid:81)e (cid:46)(cid:68)(cid:68)pmui(cid:71)e(cid:81) Ne(cid:90) (cid:38)(cid:82)(cid:81)s(cid:82)(cid:1323) (cid:48)i(cid:81)e N(cid:82)(cid:82)r(cid:71)e(cid:78)(cid:68)(cid:68)p (cid:54)(cid:75)eb(cid:68) (cid:48)i(cid:81)e (cid:37)(cid:68)(cid:85)(cid:69)(cid:72)(cid:1323)(cid:82)(cid:81) (cid:41)(cid:68)ir(cid:89)ie(cid:90) (cid:48)i(cid:81)e 16% 16% Bulembu Piggs Pe(cid:68)(cid:78) 0 (cid:21)0(cid:78)m (cid:41)(cid:82)r(cid:69)es (cid:53)ee(cid:73) (cid:44)(cid:81)ter (cid:81) (cid:68)ti(cid:82) (cid:81) (cid:68)l b (cid:82)r (cid:71) er Legend: Mining Licence Prospecting Right National Road Regional Road Railway Barberton Greenstone Belt Name Location Status Barbert on Mines Mpumalanga province (South Africa) Gold producer Holding company Pan African (100% stake) Controlling company Pan African Geological sett ing Sediments and metavolcanics within the Barbert on greenstone belt Products mined Gold Actual production • Tons per annum: 315Kt • Grade (head grade): 10g/t • Content per annum: 100Koz Ongoing capex £5.9 million per annum Extraction method BIOX®/CIL LOM 15 years Key management Executive: Mining: Mario Gericke General Manager: Casper Strydom Sustainability and Diversity: Thandeka Ncube Safety, health and environment The number of lost time injuries and serious injuries reduced during the year compared to 2009 and resulted in improved accident rates of 4.20 and 1.10, respectively (2009: 6.4 and 1.7). However, the lost day severity rate showed an increase for the year, which is an indication of the increase of the severity of injuries experienced. In March 2010 one employee lost his life as a result of a fall of ground incident at the Fairview section. The Company deeply regrets the fatality and remains committed to the zero accidents philosophy that has been integral to safety management at the mine. 18 The Company remains committed to: • the improvement of health and safety performance through the setting and achievement of goals, taking into account stakeholder expectations and industry leading practices; • the implementation of systems to provide a working environment that is conducive to good health and safety; and • the management of risks in the workplace and ensuring that employees have the relevant skills to perform work-related tasks in a safe manner. Production summary 2010* 2009* 2008* 2007** 2006** Tons milled Headgrade Overall recovery Production: underground Production: calcine dump Gold sold (t) 313,167 313,952 315,305 330,367 313,779 (g/t) (%) (oz) (oz) (oz) 10.61 10.32 91 91 8.90 91 9.20 10.70 92 92 97,483 94,909 82,436 90,022 99,281 – 3,955 13,513 – – 98,091 97,353 99,078 89,572 99,924 Average price: spot (R/kg) 267,876 251,740 193,159 148,151 108,644 Average price: hedge (R/kg) – – 105,850 96,067 90,125 Average price: spot (US$/oz) 1,098 Average price: hedge US$/oz) Total cash cost US$/oz sold (US$/oz) – 650 867 – 469 823 451 476 640 415 465 528 438 429 Total cash cost R/kg sold (R/kg) 158,711 136,178 111,272 107,656 88,177 Total cost per ton Total mining cost per ton (R/t) (R/t) 1,537 1,486 1,313 1,256 1,088 1,045 908 858 873 833 Capital expenditure (£) 5,918,271 4,052,665 2,901,792 1,637,359 1,091,965 Exchange rate – average (ZAR/£) Exchange rate – closing (ZAR/£) Exchange rate – average (ZAR/US$) Exchange rate – closing (ZAR/US$) 11.93 11.53 7.59 7.65 14.39 12.66 9.03 7.72 14.68 15.56 7.30 7.80 13.95 14.18 7.20 7.00 n/a n/a 6.40 7.20 * Post-reverse acquisition of Barberton Mines ** Pre-reverse acquisition of Barberton Mines k c a r T r u O d r o c e R Pan African Resources PLC Annual Report 2010 19 Mining Operations: Barbert on Mines cont. Capital expenditure Organic growth projects Key Project I II Sheba – 35 ZK decline Sheba – Edwin Bray, Thomas and Joe’s Luck area Fairview – 60/62 level development III IV Fairview – 3 shaft deepening V Consort – 40 level exploration drive VI Consort – 50 level decline west VII Consort – 37 Inter-level exploration drive slipping) 29 (station break-away out of shaft) 100 97 Year ended Year ended 30 Jun 10 (m) 30 Jun 09 (m) Potential resource target (oz) 140 69 5,000 1,056 642 36 740 817 Equipping (equivalent and cleaning complete – 15,000 203,000 350,000 10,000 224 – 30,000 – I) Sheba – 35 ZK decline Shaft sinking has been completed up to 36 level and horizontal development has commenced. The hanging wall contact was intersected and development on this contact towards the cross-fractures is underway. II) Sheba – Edwin Bray, Thomas and Joe’s Luck area Good development rates were achieved during the ﬁ nancial year with the haulage development reaching its destination. The return airway must still be completed. Exploration drilling will re-commence to delineate the full extent of the Thomas fracture. III) Fairview – 60/62 level development This capital project has been completed with most employees being moved to the 3 shaft capital project. Normal stoping operations have now started in this area. IV) Fairview – 3 Shaft deepening The cleaning of the shaft up to 64 level has been completed and widening of the shaft between 62 and 64 level progressed well. At the end of the ﬁ nancial year approximately 15m of widening remained. Thereafter solid bottom sinking will commence. V) Consort – 40 level exploration drive 40 Level station was developed off PC Shaft. Equipping of this level will commence in the new ﬁ nancial year followed by the development of an exploration drive. VI) Consort – 50 level decline west Sinking progressed to within a few metres from establishing the second station landing. The focus for the new ﬁ nancial year will be to complete the decline down to the third and ﬁ nal level, where after horizontal development will commence on all three levels. 20 k c a r T r u O d r o c e R Pan African Resources PLC Annual Report 2010 21 Mining Operations: Barbert on Mines cont. VII) Consort – 37 inter-level exploration drive Excellent progress was made with the development on 37 inter-level and planned advances were achieved. Exploration drilling has commenced. Maintenance capital The capital expenditure on maintenance of the processing plants at Barberton Mines amounted to £190,813 for the year, as a result of the upgrade to the plant ﬂ otation section and installation of new Jameson cells at the Sheba section. Work commenced on the extension of the tailings dam at the Fairview section of Barberton Mines and this work is planned to be completed over a two-year period. This expenditure for the year under review amounted to £440,550. The installation cost for a water treatment plant at Consort, for the treatment of excess water from the process plant and tailing dams, amounted to £110,719 for the year. The capital expenditure in the BIOX® plant situated at Fairview included the refurbishment of a number of the secondary tank reactors, the procurement of critical spares for the plant and the installation of a new BIOX® water treatment circuit. The expenditure on the BIOX® plant amounted to £214,050 for the year under review. The capital expenditure on the maintenance of the engineering equipment and infrastructure totalled £985,478 for the year. The re-building of the load haul dump units (“LHDs”) was a key focus area, to upgrade the mining equipment ﬂ eet, and £261,504 was spent on this activity during the year. The rehabilitation of shafts and headgears at the mine amounted to £110,244. The replacement of skips, cages and bridles, together with the upgrading of shaft safety devices and the installation of hydraulic shaft loading facilities, amounted to £217,795. At Sheba the conversion of four battery locos and the procurement of an all-terrain forklift and maintenance vehicle amounted to £79,066. Expenditure at all three sections of the mine on power factor correction and solar heating amounted to £120,170. The replacement of obsolete compressors with modern, more efﬁ cient units and the upgrade of pumping and reticulation systems amounted to £128,045 for the year. The installation of a new 250kW booster fan and further upgrades to improve the ventilation ﬂ ows at Fairview and Sheba required £155,228 in capital expenditure. The procurement of additional self-contained self-rescuers, required for Barberton Mines to comply with current legal requirements, resulted in £104,225 expenditure. The combined expenditure on maintenance totalled £2.9 million for Barberton Mines for the year. Barbert on Mines Mineral Resource inventory as at 30 June 2010 Mineral Reserves classiﬁ cation(kt) Mineral Resources classiﬁ cation Grade Contained (g/t) gold (kg) Tons (kt) Grade Contained (g/t) gold (kg) (koz) Tons 315 Measured 315 346 346 Total measured Indicated Total indicated Inferred Total inferred Total mineral resource 5,280 5,280 4,159 4,159 2,331 2,331 5.91 5.91 6.09 5.91 7.50 5.91 31,181 31,181 25,331 25,331 17,489 17,489 (koz) 1,003 1,003 814 814 562 562 11,770 6.29 74,001 2,379 Proven Total proven Probable Total probable 1,418 1,418 900 900 6.91 6.91 11.97 11.97 9,795 9,795 10,777 10,777 Total proven and probable 2,318 8.87 20,572 661 22 Barbert on Mines – Key focus areas 1. SHEC – Complete the implementation of the integrated safety, health and environment management system, custom built for the operation to ensure continuous improvement in the areas of safety, health and environment management and continue playing a leading role in community and social development in the Barberton area. 2. Volume, value and quality – Focus on safe and steady state production that strives towards the achievement of the planned ore tonnages, development advances, grades, recoveries and cost control measures. 3. Productivity – Benchmark the operation to similar operations in the industry and identify and implement means of improving productivity at the mine. 4. MRM – Continue the implementation of the integrated MRM system aimed at improving ﬂ exibility in terms of grade management and increasing the LOM of Barberton to 20 years. 5. Transformation – Implementing a plan to achieve the required empowerment targets set out by Government, whilst enhancing our skills base and continuing improvements in productivity. k c a r T r u O d r o c e R Pan African Resources PLC Annual Report 2010 23 Near Term Production: Phoenix Platinum (cid:53)(cid:88)(cid:86)(cid:87)(cid:72)(cid:81)(cid:69)(cid:88)(cid:85)(cid:74) terkstroom S M a r e t l w a n e Brits R 5 6 6 R 511 R 24 ’ 5 4 ° 5 2 R 30 AQPSA Samancor Millsell Mine Xstrata Kroondal Mine Middelkraal Dam Elandskraal dumps and pits N4 Kroondal dump (cid:44)(cid:41)(cid:48)(cid:3)(cid:80)(cid:76)(cid:81)(cid:76)(cid:81)(cid:74)(cid:3)(cid:68)(cid:85)(cid:72)(cid:68) (cid:37)(cid:88)(cid:1361)(cid:72)(cid:79)(cid:86)(cid:73)(cid:82)(cid:81)(cid:87)(cid:72)(cid:76)(cid:81)(cid:3)(cid:39)(cid:68)(cid:80)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:38)(cid:88)(cid:85)(cid:85)(cid:72)(cid:81)(cid:87)(cid:3)(cid:36)(cid:85)(cid:76)(cid:86)(cid:76)(cid:81)(cid:74)(cid:86) (cid:37)(cid:68)(cid:83)(cid:82)(cid:81)(cid:74) N4 2 1 5 R IFM N4 IFM surface area Mooinooi Planned Phoenix CTRP location Hartebeespoort Dam Olifantsnek Dam Buffelspoort Dam 0 5km 2 1 5 R Legend: Rivers Dams Towns Roads Railway Powerlines Protected Natural Environment Active Mines Other Tailings Re-treatment Facilities Project Boundaries 27°15’ 27°30’ 27°45’ Name Location Status The Phoenix Platinum processing project Nort h-West province (South Africa) Final feasibility Holding company Phoenix Platinum Controlling company Pan African (100% ownership) Geological sett ing Chrome tailings discards from chrome seam mining in Products mined Platinum (56.5%), Palladium (27%), Rhodium (16%) the Bushveld Igneous Complex Forecast production • Tons per annum: 240,000t and Gold (0.5%) • Grade**: 3.52g/t • Content per annum: 12,222oz (PGM 4Es) @ 45% recovery Project capex £8.5 million Extraction method CTRP: Concentrator/ﬂ ot ation plant LOM 17 years Key management Operations Manager: Ron Holding Metallurgical Consultant: Karishma Sewpersad * Metal split indicated from metallurgical test work. ** Production Headgrade differs to the Average Resource grade due to the effect of selective mining and screening-off of coarse low grade material during the processing of tailings. Project summary Production per year Tons (kt) Headgrade (g/t) Ounces Working costs (US$/oz) (koz) Life of mine (years) PGMs (4Es)* 240 3.52* 12.2 400** 17 * Production Headgrade differs to the Average Resource grade due to the effect of selective mining and screening-off of coarse low grade material during the processing of tailings. ** The ZAR:US$ exchange rate used to calculated the US$/oz working cost is 7.59. Phoenix schedule milestones achievements for the period under consideration Key event Achievement Completion date Engineering design Resource statement CTRP site negotiation Metallurgical test work Process ﬂ ow design Detail engineering design Initial resource veriﬁ cation Upgrading to resource CPR Exclusivity and agreed terms Metallurgical CPR and process design criteria May 2010 Jun 2010 Dec 2010 May 2010 Feb 2010 Jan 2010 24 Phoenix schedule milestones objectives for 2010/11 Target date Key event Objective Comments CTRP site negotiation Final capital expenditure Project review Commence construction Production start up Conclude CTRP site negotiations Detail engineering design Capital estimate Conclude execution agreement Independent overall review of the Phoenix Project Site establishment Commissioning of the CTRP Sep 2010 July 2010 Aug 2010 Sep 2010 Sep 2010 2nd half 2010 2nd half 2011 Formal agreement with IFM Site dependent Site dependent Final negotiations Venmyn Rand (Pty) Limited to complete Earth works and civil engineering * The above indicated project timeline is subject to management’s ability to conclude the preferred plant location agreement with IFM. An alternative site is available but would however lead to a delay of 18 months in the production timeline. Phoenix Platinum resource estimation The Company is also pleased to report a South African Code for Reporting of Exploration Results, Mineral Resources and Mineral Reserves (“SAMREC”) compliant Platinum Group Elements (“PGE”) (4E: platinum, palladium, rhodium and gold) Mineral Resource for the Phoenix Platinum project of 469,000 4Eoz (4.64Mt @3.15g/t). Previously the Group reported the Mineral Resource inventory as tailing feedstock volumes, which at the time was estimated at 4.3Mt grading at between 1.1g/t and 4.18g/t, yielding a total of 360Koz 4E. Subsequently, the Company geostatistically remodelled all resources at Phoenix Platinum. Of the total Mineral Resource 33.00% is located as surface sources (935Kt @ 2.45g/t) and 67.00% (1,277 Kt @ 3.66g/t) as current arisings. Current feasibility work indicates a LOM of 17 years, producing an estimate of 12,222oz 4E per annum. The total resource is summarised below: Phoenix Platinum summary tot al resource (100% att ributable to Pan African) Area Category Volume (m³) Tons Grade (4E) (g/t) Kilos Ounces (4E) (4E) All All All Total Measured Indicated Inferred 1,535,000 3,224,000 618,000 804,000 2,211,000 4,646,000 294,000 382,000 3.09 3.20 3.33 3.15 9,975 1,977 2,672 14,624 321,000 63,000 85,000 469,000 The resource statement has been compiled in accordance with SAMREC. The veriﬁ cation and validation of the data and the information contained in this announcement was managed by Martin Bevelander, Group Consulting Geologist for Pan African, who is accredited with the South African Council for Natural Scientiﬁ c Professions (“SACNASP”). The services of the following independent consultants and experts were secured to assist and support this process: • Sampling and Drilling: Plat-Tau Mining Services (Pty) Limited, Gold Mine Sand and Slime Dams Drillers CC and Dump and Dune (Pty) Limited; • Assaying, mineralogy and metallurgical test work: Mintek and SGS Lakeﬁ eld Resources Africa (Pty) Limited; • Geological modelling and data conversion for the resources: Geologix MRC (Pty) Limited, a South African resources and geological consultancy. Deon van den Heever is accredited with SACNASP; and • Metallicon Process Consulting (Pty) Limited: Michael Valenta is a Professional Engineer registered with the Engineering Council of South Africa (ECSA) and on the International Register of Professional Engineers as speciﬁ ed under the Washington Accord. k c a r T r u O d r o c e R Pan African Resources PLC Annual Report 2010 25 Growth Project: Manica Tanzania Lake Malawi Zambia Malawi Lake Cahora Bassa Tete Zam bezi Manica Project Quelimane Harare Mutare we Chimolo Beira Inhambane a Xai-Xai Maputo Legend: Rivers Lakes Cities Roads Railway Swaziland 0 600km Name Location Status The Manica gold project Manica province (Mozambique) Pre-feasibility Holding company Explorator Limitada Pemba Controlling company Pan African (100% ownership) Geological sett ing Sediments and metavolcanics within the Odzi-Mutare-Manica greenstone belt Products mined Gold Forecast production • Tons per annum 410,000t (only oxide material) • Grade 2,36g/t • Content per annum 30,000oz Estimated capital cost £48.58 million per annum Extraction method BIOX®/CIL LOM (includes Pre-feasibility design indicates sulphide material) 11 years at 80,000oz gold per annum (heap-leach and underground mining option) Key management Project Manager: Mario Gericke Metallurgical Consultant: Karishma Sewpersad Project summary Key events 2010 Date completed Mineral Resource modelling Metallurgical test work Feb 2010 June 2010 Cost £33,849 £27,875 Strategic review The Company’s objective of deﬁ ning a Mineral Resource greater than 2 million oz contained gold was achieved during the ﬁ nal geological modelling completed in February 2010 where a total in situ Mineral Resource of 2.57 million oz contained gold was achieved. The viability of the project is presently being investigated by applying a phased approach in which the oxide mining potential will be the ﬁ rst phase followed by a mining option focusing on the sulphide bearing portion of the Fairbride project. This prefeasibility level study will be complete in October 2010, after which its viability will be assessed prior to continuing to full deﬁ nitive feasibility level study. Metallurgical work to date indicated that a heap leach philosophy was technically unviable and conﬁ rmed that recoveries of gold in the oxide part of the Fairbride orebody is satisfactory to warrant classical carbon in leach technology. Metallurgical test work continues while mine, engineering and plant design is investigated and costed. The outcome of the pre-feasibility study for this oxide mining option will be available in December 2010. 26 Project schedule Key events Completion date Cost estimate Metallurgical test work Mine design Plant design Engineering design Environmental impact assessment Completion of pre-feasibility October 2010 November 2010 November 2010 November 2010 June 2011 December 2010 £33,185 £33,185 £53,096 £53,096 £26,548 £46,459 Current risks identiﬁ ed are as follows: Risk Capital cost of the oxide-focused initiative, associated ﬁ nancial modelling results and size of available oxide resource to support the initiative. The prospecting licence expires on 20 October 2010 and Government has been approached to convert the current prospecting licence into a mining licence. The response from the Mozambique Government has been extremely positive and management would be presenting their plans during September 2010 and would expect conversion by 20 October 2010. Probability Medium to high if more oxide material is identiﬁ ed. Effect of inability to manage this risk Should ﬁ nancial viability prove negative it would require an additional exploration programme to deﬁ ne more oxide resources at Manica or enter into a joint venture with other gold players in the region to consolidate a sufﬁ ciently large resource base to ensure economic viability. Management’s current approach to remediate Optimally apply all technical expertise to designing a technical and capital cost-effective design to the mining option. In the backdrop of engineering, design and costing conduct investigations with respect to other resources in the Manica valley, investigating possible synergies. k c a r T r u O d r o c e R Pan African Resources PLC Annual Report 2010 27 New Business Strategy As part of its growth strategy, Pan African’s focus is on identifying and evaluating gold and platinum projects in Africa that are at an advanced exploration stage (JORC/SAMREC Resource declared, ready for Pre-Feasibility Study) or further advanced (at Bankable Feasibility Study, Mine Development and Construction, or Production stage). See Time-Value Curve on page 29. Main target areas are the known Wits/Archean/Birimian-type gold belts of west and southern Africa, with further focus on projects with a robust resource/reserve base that can be developed and mined at low cost, yielding high margins and with signiﬁ cant opportunity for long-term growth. Speciﬁ c countries are indicated on the New Business Target Areas map on the next page. Process Targets are identiﬁ ed on the basis of grade, audited ounces in the ground, size and type of orebody, and mineability. Other ﬁ lters applied include economic and political risk as well as level of services and infrastructure. Once a project has passed through the strategic ﬁ lters, a desktop study is carried out, culminating in a ﬁ nancial model indicating the project worth (NPV, IRR, Pay-back, etc). A business case is then presented to the Pan African board, before a full due diligence is undertaken. Target (Project, Company, mine) Filter 1* Desktop study (Initial ﬁ nancial model) Filter 2** Detailed review (technical and ﬁ nancial) Recommendation Filter 1*: Type/size/grade of orebody; economic/political risk; infrastructure/services. Filter 2**: NPV; IRR; other ﬁ nancial parameters. Project summary The focus during the 2010 ﬁ nancial year was gold and platinum group metal projects in Southern Africa and within South African borders. The following table summarises the number of projects reviewed in 2010, listed per country: Country Projects reviewed Desktop study completed Further action Burkina Faso Cote d’Ivoire Ghana Senegal Zambia Mozambique South Africa Tanzania Zimbabwe Other Total 2 1 2 1 1 1 21 1 12 1 43 – – – – – – 9 1 – – 10 – – – – – – 8 – – – 8 28 Map showing countries that the Group is reviewing for furt her growth opport unities a c i r f A t s e W Mauritania Senegal Mali Niger Gambia Guinea Bissau Guinea Sierra Leone Liberia Burkina Faso Benin Togo Ivory Coast Ghana Equator Atlantic Ocean a c i r f A n r e h u o S t 0 1,000km Time value curve Tanzania Mozambique Zambia Namibia B(cid:1318)swana k c a r T r u O d r o c e R Zimbabwe South Africa Indian Ocean Grassroot exploration Advanced exploration Scoping study Production Target group e u l a V e c n a s s i a n n o c e R n o i t a r e n e g t e g r a T s t e g r a t l l i r D g n i l l i r d n o i t i n ﬁ e D y t i l i b i s a e f - e r P S F B n o i t c u r t s n o C Time i g n n M i Pan African Resources PLC Annual Report 2010 29 Store of Gold and Platinum Within Pan African there resides a committed philosophy that a detailed understanding of the geology undoubtedly contributes to the optimal extraction of our mineral resource. From this standpoint it is clear that “the economic graded mineral envelope dictates” how and what we mine. During the 2010 ﬁ nancial year Pan African embarked on an aggressive MRM (“Mineral Resource Management”) initiative, which focused on an integrated MRM framework. The initiative is designed to integrate and focus the Geological, Survey and Mine planning functions on the operations toward maximising the value of the residing orebodies. This is done by ensuring consistency and integrity in reporting, to continue to pursue value add through exploration, and sustain delivery through organic growth from within the operations. Strategy The key operational focus is to integrate all intellectual capital and technical data in order to enhance the Mineral Resource conﬁ dence and volume, which results in an improved LOM to the operations. The MRM framework developed and implemented hinges on integrated areas of responsibility, necessitating a common approach and leading to a team-based interaction. Previously independent technical departments made way for an integrated, commonly focused MRM function, led by the newly appointed Mineral Resource Manager, a Mining Engineer with 15 years’ diverse experience in production, project development as well as MRM. Further to the above framework having been implemented, the Group rolled out a Mineral Resource Optimiser system. This system is a computer-based tool developed to analyse and subsequently assist in optimising the mining of the resource in such a way that long-term ﬁ nancial returns are maximised. The optimiser utilises alternative methodology to the existing pay limit methodology and offers a number of advantages: • The unique statistical properties of the speciﬁ c orebody are taken into account; • It eliminates the need for adjustments and unpay mining; • It allows for a scientiﬁ c basis to determine the grade to operate at and maximise operational returns; • It provides a tool to manage the mining mix and prevents high grading or sterilisation of resource blocks – optimising resource extractions and LOM; and • It further allows for better planning with respect to development of mineral resource blocks. Pan African will during the 2011 ﬁ nancial year continue its drive towards MRM excellence through improving geological understanding, data recording quality and to focus on ensuring sustainability through appropriately focused exploration targets. During the 2010 ﬁ nancial year the MRM department completed the investigation of all mineral resource blocks lying in historically mined out areas. From this study certain areas of priority have been identiﬁ ed, which will be targeted for opening up. Figures 1 and 2 on pages 31 and 32 are vertical projections of the operations outlining these results. All Mineral Resource blocks on the mine were classiﬁ ed based on availability, assisting in scheduling and prioritising blocks for mining and preparation for mining. In summary, the changes made to the MRM approach at Barberton Mines resulted in the following: • Implementation of a new MRM framework; • Integration of MRM technical team; • Re-focused on-mine exploration towards upgrading Mineral Resources to Measured Resource category; • Appointment of a Mineral Resource Manager; and • Completion of Airborne Geophysical survey over prospecting permit area – interpretation initiated. As a result of the above the Barberton Mines Mineral Resource inventory posted the following improvements for 2010: • Increased Barberton Mines Mineral Reserve by 42, 000oz contained gold; • Increased Barberton Mines Measured Mineral Resource by 187, 000oz contained gold; • Increased Barberton Mines Indicated Mineral Resource by 237, 000oz contained gold; and • Increased Barberton Mines Inferred Mineral Resource by 59, 000oz contained gold. 30 H ? ? i t n e r r u C g n p o t S t f a h S l a c i t r e V - b u S 9 4 l e v e L 0 5 1 2 e n i l c n I - b u S 2 2 e n i l c n I - b u S t n e m p o e v e D l d e s o p o r P e r u t u F n o i l l u B d n e r T t n e m p o e v e D l l a t i p a C : l e v e L 7 3 t n e m p o e v e D l l a t i p a C : l e v e L 0 4 l e v e L 0 4 t n e m p o e v e D l l a t i p a C : l e v e L 5 4 l e v e L 5 4 i t n e r r u C g n p o t S PC Shaft C S h aft P a ys h o P o t l e v e L 7 3 t n e m p o e v e D l t n e r r u C i t n e r r u C g n p o t S i t n e r r u C g n p o t S t n e r r u C g n i l l i r D n o i t a r o p x E l e v i t c e p s o r P s d n e r t y a P i t n e r r u C g n p o t S R M M l e v e L 2 2 l n o i t a r o p x E R M M l l a W o t n i g n i l l i r D MR Incline Shaft M 7 B S h a f t P a y s h o o t 7A Shaft Payshoot t f a h S e n i l c n i - b u S 7 3 i t n e r r u C g n p o t S ot o h s y a aft P B S h 3 t o o h s y a P t f a h S 3 l e v e L 0 1 t n e r r u C i g n p o t S t n e r r u C i g n p o t S t i d A C P t o o h s y a P R M M t f a h S 3 t f a h S 7 G / B e n M i t r o s n o C h g u o r h t h t r o N g n k o o L n o i t c e o r P i j l a c i t r e V A e c a f r u S L S M A m 0 0 5 - m 0 0 0 1 - I J K n o i t a s i l a r e n M i l a i t n e t o P f o l e p o e v n E s a e r A t u O d e n M i : d n e g e L s e t i t a m g e P s t f a h S 2 6 4 9 5 , 8 5 7 1 3 , 5 5 7 5 6 1 , 0 5 8 1 , 8 8 9 6 5 1 5 , 5 6 . 9 8 . . 7 3 1 ) u A ( z O ) u A ( g K t / g 3 6 1 6 8 2 , 0 4 4 1 1 1 , 4 8 3 6 7 3 , s n o T P V I J K n o i t c e S l e v e L 2 2 e v o b A l e v e L 7 3 o t 2 2 l e v e l 7 3 w o e B l t r o s n o C w e N t r o s n o C w e N t r o s n o C w e N e n M i y r a m m u S e c r u o s e R l a r e n M i m 0 0 5 : e l a c S 0 d l o G of s e r o t S ) m u n i t a l P d n a ( Pan African Resources PLC Annual Report 2010 31 a b e h S l a y o R t f a h S i e n M a z n a n o B F G H k c u L s ’ e o J d n a s a m o h T t n e m p o e v e D l t f a h S K Z a b e h S ZK Orebody bi Orebody m Into ) u A ( z O ) u A ( g K 5 6 9 9 4 , 8 3 9 6 8 , 9 8 8 8 7 , 6 0 8 3 4 1 , 8 5 2 0 2 6 , 9 9 3 6 4 , 9 9 1 4 3 , 5 2 3 8 9 1 , 4 5 5 1 , 4 0 7 2 , 4 5 4 2 , 3 7 4 4 , 3 9 2 9 1 , . 3 1 2 3 4 4 1 , 4 6 0 1 , 9 6 1 6 , . . 1 5 1 0 1 . 0 0 1 9 5 5 6 7 6 0 8 . . . . t / g y r a m m u S e c r u o s e R l a r e n M i s n o T 0 0 3 7 3 2 , 6 6 7 4 9 3 , 0 0 3 6 2 3 , 7 2 3 6 5 5 , 6 6 5 7 0 9 , 0 3 8 4 8 2 , 6 8 9 4 0 1 , 5 7 2 5 1 6 , A B C D E F G H P V w o e b l d n a l e v e l 0 6 l e v e l 0 6 e v o b a t f a h S t f a h S t f a h S t f a h S 1 2 3 3 n o i t c e S l e v e L 1 1 e v o b A r a l l o C K Z e v o b A l e v e L 3 2 e v o b A l e v e L 3 2 w o e B l w e i v r i a F w e i v r i a F w e i v r i a F w e i v r i a F w e i v r i a F e n M i a b e h S a b e h S a b e h S n o i t a s i l a r e n M i l a i t n e t o P f o l e p o e v n E s a e r A t u O d e n M i : d n e g e L s e k y D s t f a h S s l e n n u T d e s o p o r P e r u t u F t n e m p o e v e D l l t n e m p o e v e D e v i t c e p s o r P : t f a h S e n i l c e D K Z K Z y d o b e r O e v i r D n o i t a r o p x E l : l e v e L 0 6 l t n e m p o e v e D K Z : l e v e L 8 5 aft h e S clin -In b u 7 S 2 e g a l u a H 3 2 MRC Orebody s n o i t c e s r e t n I l l a w t o o F g n i l l i r D p u - w o l l o F C R M r e w o L w 3 Incline Fairvie i n e I n c l F a i r v i e w 1 e clin n I 2 y d o b re w vie air F T O R M : t f a h S 2 r e p p U g n i l l i r D d a o R n o g a W y d o b e r O e c a f r u S t i d A l e v e L 1 1 m 0 0 5 + & t n e m p u q E t n e m p o e v e D i l : l e v e L 4 5 g n i l l i r D n o i t a r o p x E l m 0 0 5 - Commitment Orebody r e t i s s o R L S M A m c 1 1 9 - m c 2 8 2 m c 4 9 3 : g n i l l i r D t / g 6 3 1 4 , - - t / g 4 5 3 t / g 3 4 1 , , m c 4 0 2 - t / g 4 5 1 . : l e v e L 2 6 - 0 6 i g n n M i g n C R M & x u o R e L i l l i r D n o i t a r o p x E l : l e v e L 8 6 - 4 6 H o p e O r e b o d y p n o i t a r o p x e l i g n n e p e e D d n a : t f a h S 3 m 0 0 5 : e l a c S e a c S l : 0 m 0 0 0 1 - A B C D E N i e n M a b e h S l a y o R a e r A g n n M i i M L l s d e i f l d o G - e g a t n a V i e n M a b e h S i e n M w e i v r i a F i s e n M a b e h S d n a w e i v r i a F e h t h g u o r h t h t r o N g n k o o L n o i t c e o r P i j l a c i t r e V K t n e m e t a t S e c r u o s e R l a r e n i M p u o r G 32 Barbert on Mines Mineral Resources and Ore Reserves 2010 – general As at 30 March 2010, Barberton Mines reported a Mineral Reserve of 661,000oz and Mineral Resource of 2,379,000oz contained gold. The Measured and Indicated Mineral Resources are inclusive of those Resources modiﬁ ed to produce the Mineral Reserves. Reserves are reported as mill delivered tonnes at the grade recovered having duly considered all modifying factors. Commodity prices used A gold price of US$1, 036.78/oz was used for the conversion of Mineral Resources to ore reserves at an exchange rate of ZAR7.5/US$ resulting in a gold price of ZAR250, 000/kg. Barbert on Mines mineral inventory – 30 June 2010 Grade Contained Mineral reserves (g/t) gold (kg) classiﬁ cation Mineral resources classiﬁ cation Tons (kt) (koz) Proven Total proven Probable Total probable 1,418 1,418 900 900 6.91 6.91 11.97 11.97 9,795 9,795 10,777 10,777 Total proven and probable 2,318 8.87 20,572 661 315 Measured 315 346 346 Total measured Indicated Total indicated Inferred Total inferred Total mineral resource Tons (kt) Grade Contained (g/t) gold (kg) 5,280 5,280 4,159 4,159 2,331 2,331 5.91 5.91 6.09 5.91 7.50 5.91 31,181 31,181 25,331 25,331 17,489 17,489 (koz) 1,003 1,003 814 814 562 562 11,770 6.29 74,001 2,379 d l o G of s e r o t S ) m u n i t a l P d n a ( Mineral Resources for Pan African are signed off by Martin Bevelander, the Group Consulting Geologist. He is SACNASP accredited and is responsible for validating all Mineral Resource estimation procedures within the Group. The reported Mineral Resource Statements are SAMREC compliant and the Resource numbers in the Mineral Resource and Mineral Reserve tables have been rounded to reﬂ ect the appropriate level of conﬁ dence. Gold and platinum inventories are reported separately. Mineral Reserves are reported as subsets of Mineral Resources. Barbert on Mines Mineral Resource reconciliation: 2009 to 2010 Summary comment on Mineral Resource movement Year-on-year, Barberton Mines Mineral Resources had a positive variance of 364,000oz contained gold. This was mainly as a result of recent exploration drilling and development intersections conﬁ rming depth extensions on the Fairview lower levels. Further to the increase in inventory, residue dumps previously not in inventory have been brought in. Lastly, the Royal Sheba section was geologically remodelled, enhancing the 2009 inventory by a further 148,000oz contained gold to 508,000oz contained gold. Summary comment on Mineral Reserve movement There was a year-on-year positive variance of 43,000oz with respect to the Mineral Reserves. As indicated in the table below, Barberton Mines’ ore reserves as at 30 June 2010 reﬂ ected a year-on-year depletion of 96,000 oz. Mineral Resource reconciliation: 2009 to 2010 Gold (kg) Gold (koz) Balance as at March 2009 Mined during 2010 Addition 62,672 2,259 13,589 74,002 Balance as at March 2010 11,330 Variance * This ﬁ gure does not include other sources of ore such as ramping and/or pillar mining. 2,015 73* 437 2,379 364 Pan African Resources PLC Annual Report 2010 33 Group Mineral Resource Statement cont. Mineral Reserve reconciliation: 2009 to 2010 Balance as at March 2009 Mined during 2010 Addition Balance as at March 2010 Variance Gold (kg) Gold (koz) 19,214 2,986 4,343 20,572 1,357 618 96 140 661 44 Mineral Reserve sensitivity The graph below illustrates ore reserve sensitivities to a changing gold price below and above ZAR275 000/kg: (cid:51)(cid:86)(cid:73)(cid:3)(cid:86)(cid:73)(cid:87)(cid:73)(cid:86)(cid:90)(cid:73)(cid:3)(cid:87)(cid:73)(cid:82)(cid:87)(cid:77)(cid:88)(cid:77)(cid:90)(cid:77)(cid:88)(cid:77)(cid:73)(cid:87) Tonnage grade curve (face values) - Fairview Mine 700 680 660 640 620 600 580 560 540 2, 500, 000 2, 000, 000 1, 500, 000 e g a n n o T 1, 000, 000 500, 000 0 12 10 8 6 4 2 0 (cid:83)(cid:94)(cid:3)(cid:12)(cid:20)(cid:20)(cid:20)(cid:13) (cid:14) (cid:62)(cid:37)(cid:54)(cid:22)(cid:20)(cid:20)(cid:16)(cid:20)(cid:20)(cid:20) (cid:62)(cid:37)(cid:54)(cid:22)(cid:22)(cid:25)(cid:16)(cid:20)(cid:20)(cid:20) (cid:62)(cid:37)(cid:54)(cid:22)(cid:25)(cid:20)(cid:16)(cid:20)(cid:20)(cid:20) (cid:62)(cid:37)(cid:54)(cid:22)(cid:27)(cid:25)(cid:16)(cid:20)(cid:20)(cid:20) (cid:62)(cid:37)(cid:54)(cid:23)(cid:20)(cid:20)(cid:16)(cid:20)(cid:20)(cid:20) (cid:62)(cid:37)(cid:54)(cid:23)(cid:22)(cid:25)(cid:16)(cid:20)(cid:20)(cid:20) (cid:75)(cid:19)(cid:88) (cid:75)(cid:83)(cid:80)(cid:72)(cid:3)(cid:83)(cid:94)(cid:3)(cid:12)(cid:20)(cid:20)(cid:20)(cid:13) (cid:25)(cid:29)(cid:27) (cid:75)(cid:19)(cid:88) (cid:21)(cid:20)(cid:18)(cid:21)(cid:23) (cid:26)(cid:23)(cid:22) (cid:29)(cid:18)(cid:23)(cid:29) (cid:26)(cid:26)(cid:21) (cid:28)(cid:18)(cid:28)(cid:27) (cid:26)(cid:27)(cid:23) (cid:28)(cid:18)(cid:26)(cid:22) (cid:26)(cid:29)(cid:21) (cid:28)(cid:18)(cid:23)(cid:26) (cid:26)(cid:29)(cid:22) (cid:28)(cid:18)(cid:23)(cid:21) (cid:14)(cid:3)(cid:54)(cid:73)(cid:74)(cid:80)(cid:73)(cid:71)(cid:88)(cid:3)(cid:88)(cid:76)(cid:73)(cid:3)(cid:75)(cid:83)(cid:80)(cid:72)(cid:3)(cid:84)(cid:86)(cid:77)(cid:71)(cid:73)(cid:3)(cid:77)(cid:82)(cid:3)(cid:62)(cid:37)(cid:54)(cid:19)(cid:79)(cid:75) 70.00 60.00 50.00 40.00 30.00 e d a r G 20.00 10.00 10.00 20.00 30.00 40.00 50.00 60.00 70.00 Grade cut-off Cum face tons Cum face grades Tonnage grade curve (face values) - Sheba Mine Tonnage grade curve (face values) - Consort Mine 70.00 60.00 50.00 40.00 30.00 e d a r G e g a n n o T 20.00 10.00 450, 000 400, 000 350, 000 300, 000 250, 000 200, 000 150, 000 100, 000 50, 000 0 40.00 35.00 30.00 25.00 20.00 15.00 10.00 5.00 e d a r G 10.00 20.00 Cum face tons Cum face grades 30.00 40.00 Grade cut-off 50.00 60.00 70.00 5.00 10.00 15.00 20.00 25.00 30.00 35.00 40.00 Grade cut-off Cum face tons Cum face grades 700, 000 600, 000 500, 000 400, 000 e g a n n o T 300, 000 200, 000 100, 000 0 34 Reserves metal ﬁ gures are fully inclusive of all mining dilutions and gold losses, and are reported as mill delivered tonnes and head grades. Metallurgical recovery factors have not been applied to the reserve ﬁ gures. Barbert on Mines cut-of f and average grades 2010 – 2011 business plan The in-house developed Mineral Resource optimiser tool was developed and applied to the mineral resource inventory. Functionally it is based on the concept of cut-off grade calculation in order to guide the mine planning process. An optimal cut-off is determined, which calculates the lowest grade at which the orebody can be mined, such that the total proﬁ ts, under a speciﬁ ed set of mining parameters, are maximised. This calculation was performed for each major mining area. Cut-off grades are determined using the optimiser programme which requires the following as inputs: • The database inventory of all Mineral Resource blocks; • An assumed gold price – ZAR275,000/kg; • Planned production rates for each; • Mine Call Factor (“MCF”); • Plant Recovery Factor (“PRF”); and • Planned cash operating costs and other efﬁ ciency factors are calculated using historical achievements as a baseline. Optimiser cut-off and average grades currently used are tabled below: Fairview Sheba Consort Total Barberton Mines Optimal cut-offs Marginal cut-offs AMG (face)* AMG (head)* Marginal tons MCF PRF Au price AMG (face)* AMG (head)* Paylimits @ ZAR275/g Reserve grade 2010 – Planning outputs AMG (face)* AMG (head)* Head grade * AMG = Average Mining Grade 5.20 3.00 14.64 12.44 29.2% 85.0% 90.2% ZAR275/g 11.31 9.61 6.52g/t 8.5g/t – 9g/t 5.17 3.68 12.87 11.59 33.7% 90.0% 92.0% ZAR275/g 11.31 9.61 7.23g/t 5.98 3.22 13.36 11.74 30.3% 88.1% 90.7% ZAR275/g 10.66 9.18 6,80g/t 7g/t – 8.5g/t 5.5g/t – 8.2g/t 7.5g/t – 8.5g/t 6.24 3.00 11.62 10.62 27.7% 91.4% 90.0% ZAR275/g 8.50 7.76 6.73g/t 11.14 9.04 10.10 11.77 9.58 11.55 8.50 7.01 8.00 10.46 8.72 10.05 d l o G of s e r o t S ) m u n i t a l P d n a ( Barbert on Mines pay-limit calculation For the purpose of accurate and optimal pay-limit calculations the mine is broken up into mining districts based on geographical location and common infrastructural considerations. The reason for this is that mining costs in each district differ based on location and infrastructure. A regional pay-limit calculation is in place at all operations at Barberton Mines. Regional pay-limits for the different mining districts for the 2011 ﬁ nancial business plan are as follows: Pan African Resources PLC Annual Report 2010 35 Group Mineral Resource Statement cont. Consort section 3# PC# MMR section Consort Total Pay-limit 6.34g/t 7.93 g/t 6.11 g/t 7.31 g/t Sheba section Pay-limit 6.30 g/t 8.03 g/t 7.92 g/t Above adit level MRC & ZK Shafts Sheba Total Fairview section 1# 3# Fairview Total Pay-limit 6.08 g/t 7.27 g/t 7.17 g/t Mineral Resource to Reserve modifying factors Historical achievements with regard to modifying factors to convert Mineral Resources to Mineral Reserves are recorded over time and the table below reﬂ ects historical achievements for Mineral Reserve Block Factor (“BF”), Overall Plant Recovery Factor and Mine Call Factor. These historical achievements are then averaged and applied in converting Resources to Reserves. Resource to Reserve modifying factors applied Consort Efﬁ ciencies and factors Current 10/11 Plan 00/01 01/02 02/03 03/04 04/05 05/06 06/07 07/08 08/09 09/10 BF Overall Recovery Mine Call Factor 100.0 90.0 91.4 90.2 92.6 96.3 85.2 91.7 86.2 100.2 89.3 91.7 66.3 90.3 85.9 84.5 93.0 86.2 97.3 93.5 107.8 69.9 92.4 99.8 97.5 91.9 86.1 122.2 91.6 83.4 125.0 89.7 89.3 Fairview Efﬁ ciencies and factors Current 10/11 Plan 00/01 01/02 02/03 03/04 04/05 05/06 06/07 07/08 08/09 09/10 BF Overall Recovery Mine Call Factor 100.0 90.2 85.0 80.0 89.1 82.3 91.9 90.4 98.7 88.7 89.2 90.6 95.0 88.3 79.4 110.8 90.3 85.7 114.3 90.3 82.5 90.4 90.9 82.1 117.5 90.5 84.0 101.6 90.8 80.1 120.5 90.9 90.0 Sheba Efﬁ ciencies and factors Current 10/11 Plan 00/01 01/02 02/03 03/04 04/05 05/06 06/07 07/08 08/09 09/10 BF Overall Recovery Mine Call Factor 100.0 92.0 90.0 89.6 91.8 97.9 123.2 91.3 98.0 104.0 92.3 99.7 100.5 92.8 111.8 94.8 93.7 99.9 109.9 93.0 92.3 110.9 92.6 86.1 112.4 92.7 90.1 107.6 92.8 109.8 86.9 91.7 126.3 36 Barbert on Mines – the way forward with MRM MRM and initiatives introduced during 2009 and 2010 are adding signiﬁ cant value to the Group. Focus for 2011 ﬁ nancial year will be the following: 1. Improving methodologies on understanding historically mined out areas and remnant resource block associated with these mining areas. 2. Focus exploration on continuing to deﬁ ne short-term mining blocks and converting these Indicated and Inferred Mineral Resources to the higher conﬁ dence Measured category. 3. Continue a longer-term focus on extending and exploring the extensions of orebodies on all mines. 4. Focus near mine exploration on target generation and testing targets deﬁ ned by the recently ﬂ own airborne geophysical survey: (a) Focus areas will be the southern prospecting area; and (b) The eastern strike extension of the Zwartkopie Formation target situated between Sheba mine and Royal Sheba. The above initiatives will add to the Mineral Resource base and assist the mine in improving mining ﬂ exibility, assisting in grade management and ensuring production sustainability. Manica Mineral Resource During February 2009 the Fairbride prospect Mineral Resource was remodelled and an updated resource inventory published. Exploration work is completed and the Mineral Resource is detailed below: Mineral Resources classiﬁ cation Measured Fairbride Dots Luck Guy Fawkes Boa Esperanza Total measured Indicated Fairbride Dots Luck Guy Fawkes Boa Esperanza Total indicated Inferred Fairbride Dots Luck Guy Fawkes Boa Esperanza Total inferred Total mineral resource Tons kt Grade g/t Contained kg Gold koz 8,342 2.39 20,000 642 8,342 2.39 20,000 642 6,540 2,200 2.38 2.44 15,500 5,200 500 168 8,740 2.38 20,700 668 15,200 500 600 300 16,600 33,682 2.28 3.35 2.80 2.96 2.34 2.36 34,700 1,500 1,700 1,000 38,900 79,600 1,114 50 56 31 1,251 2,562 d l o G of s e r o t S ) m u n i t a l P d n a ( Pan African Resources PLC Annual Report 2010 37 Group Mineral Resource Statement cont. Phoenix Mineral Resource During February 2010 the Mineral Resource for the Phoenix Tailing retreatment project was independently veriﬁ ed by Geologix (Pty) Limited. Tabled below is the current inventory held: Mineral Reserves classiﬁ cation Tons (kt) Grade Contained (g/t) PGMs (kg) Mineral Resources classiﬁ cation (koz) Tons (kt) Grade Contained (g/t) PGMs (kg) (koz) Proved Total Proved Probable Total Probable Total Proven and Probable Measured Total Measured Indicated Total Indicated Inferred Total Inferred Total Mineral Resource – – – – 3,224 3,224 618 618 804 804 3.09 3.09 3.20 3.20 3.33 3.33 9,975 9,975 1,977 1,977 2,672 2,672 4,646 3.15 14,624 321 321 63 63 85 85 469 Mineral Resource content is report ed as 4E (Platinum, Palladium, Rhodium and Gold) A full project progress report is published under the operational section of the report. Pan African combined Mineral Resource inventory (Gold operations and Manica projects – Mozambique) Mineral Reserves classiﬁ cation Tons (kt) Grade Contained (g/t) gold (kg) Mineral Resources classiﬁ cation (koz) Tons (kt) Grade Contained (g/t) gold (kg) Proved Total Proved Probable Total Probable 1,418 1,418 900 900 6.91 6.91 11.97 11.97 9,795 9,795 10,777 10,777 – – – 315 Measured 315 Total Measured Indicated 346 346 Total Indicated Inferred Total inferred Total Mineral – 13,622 13,622 10,699 10,699 17,531 17,531 3.76 3.76 3.82 3.82 2.98 2.98 51,181 51,181 40,831 40,831 52,189 52,189 (koz) 1,645 1,645 1,314 1,314 1,676 1,676 2,318 8.87 20,572 661 Resource 41,852 3.45 144,201 4,635 Total Proven and Probable 38 Mineral Report ing Code Pan African deﬁ nes its Mineral Resources/Reserves in line with the SAMREC Code and its deﬁ nitions. Mineral Resource classiﬁ cation structure applied by the Group is outlined below: Exploration results Mineral resources Reported as in situ mineralisation estimates Modifying factors Ore reserves Reported as mineable production estimates Increasing level of geoscientiﬁ c knowledge and conﬁ dence Inferred Indicated Measured Probable Proved Consideration of mining, metallurgical, economic, marketing, legal, environmental. social and governmental factors (the “modifying factors”) d l o G of s e r o t S ) m u n i t a l P d n a ( Pan African Resources PLC Annual Report 2010 39 Group Mineral Resource Statement cont. “Pan African ensures that international acceptable standards are adhered to in its Mineral Resource report ing process” Mineral Resources deﬁ nitions (according to SAMREC code) An “Inferred Mineral Resource” is part of a Mineral Resource for which tonnage, grade and mineral content can be estimated with a low level of conﬁ dence. It is inferred from geological evidence and sampling, and assumed but not veriﬁ ed geologically and/or through analysis of grade continuity. It is based on information gathered through appropriate techniques from locations such as outcrops, trenches, pits, workings and drill holes that may be limited or even of uncertain quality and reliability. An “Indicated Mineral Resource” is that part of a Mineral Resource for which tonnage, densities, shape, physical characteristics, grade and mineral content can be estimated with reasonable level of conﬁ dence. It is based on exploration, sampling and the testing of information gathered through appropriate techniques from locations such as outcrops, trenches, pits, workings and drill holes. The locations are too widely or inappropriately spaced to conﬁ rm geological and/or grade continuity but are spaced closely enough for continuity to be assumed. A “Measured Mineral Resource” is that part of a Mineral Resource for which tonnage, densities, shape, physical characteristics, grade and mineral content can be estimated with a high level of conﬁ dence. It is based on detailed and reliable exploration, sampling and testing information gathered through appropriate techniques from locations such as outcrops, trenches, pits, workings and drill holes. The locations are spaced closely enough to conﬁ rm geological and grade continuity. Mineral Reserve deﬁ nitions (according to SAMREC code) An ore reserve is the economically mineable material derived from a Measured and/or Indicated Resource. It includes diluting and contaminating materials and allows for losses that are expected to occur when the material is mined. Appropriate assessments to a minimum of a pre-feasibility study for a project, or a life of mine plan for an operation, must have been carried out, including consideration of and modiﬁ cation by, realistically assumed mining, metallurgical, economic, marketing, legal, environmental, social and governmental factors (the modifying factors). Such modifying factors must be disclosed. A “Probable ore reserve” is the economically mineable material derived from a Measured and/or Indicated Mineral Resource. It is estimated with a lower level of conﬁ dence than a proved ore reserve. It includes diluting and contaminating materials and allows for losses that are expected to occur when the material is mined. Appropriate assessments to a minimum of a pre-feasibility study for a project, or a life of mine plan for an operation, must have been carried out, including consideration of, and modiﬁ cation by, realistically assumed mining, metallurgical, economic, marketing, legal, environmental, social and governmental factors. Such modifying factors must be disclosed. A “Proven ore reserve” is the economically mineable material derived from a Measured Resource. It is estimated with a high level of conﬁ dence. It includes diluting and contaminating materials and allows for losses that are expected to occur when the material is mined. Appropriate assessments to a minimum of a pre-feasibility study for a project, or a life of mine plan for an operation, must have been carried out, including consideration of, and modiﬁ cation by, realistically assumed mining, metallurgical, economic, marketing, legal, environmental, social and governmental factors. Such modifying factors must be disclosed. 40 The speciﬁ c gravity used during Mineral Resource modelling is as follows: Barberton Mines • Fairview mines – 2.83t/m3 • Sheba Mine – 2.73 t/m (ZK orebody) and 2.93 t/m (MRC orebody) • New Consort mine – 2.88 t/m3 Manica – 2.7 t/m3 Pan African utilises various external consultants in modelling, auditing and thereby ensures that internationally acceptable standards are maintained in its Mineral Resource reporting. Mineral Resource modelling for the Manica Project uses 3D geological and geostatistical modelling done within the Datamine environment. Models generated are signed off by both in-house and external competent persons all afﬁ liated with the South African Council of Natural Scientists (“SACNAS”). Martin Bevelander is SACNAS accredited. See his qualiﬁ cations on page 48. Barberton Mines utilises classical evaluation techniques in its Mineral Resource modelling. The mine has identiﬁ ed certain areas where geological continuity and physical geological character of the orebody allows for geostatistical modelling and these methods are applied in these instances. Martin Bevelander Group Consulting Geologist 30 August 2010 d l o G of s e r o t S ) m u n i t a l P d n a ( Pan African Resources PLC Annual Report 2010 41 Board of Directors Executive directors Jan Nelson (40) Chief Executive Ofﬁ cer Appointment date: 1 September 2005 Qualiﬁ cations: BSc (Hons) Committees: SHEC After obtaining his honours degree in Geology, Jan embarked on a career in gold exploration and mining in South Africa, Zimbabwe and Tanzania. He has over 15 years’ experience and, within this period, held positions in mine management and operations with Harmony Gold Mining Company Limited, Hunter Dickenson and Gold Fields Limited. Jan was CEO when the Company transformed from an exploration company to a gold mining company. He was involved in the acquisition of Barberton Mines and was also instrumental in acquiring Phoenix Platinum, which will add further revenue to the Company. He has built up a competent mining team that is well-positioned to build the Company to a mid-tier gold producer. Cobus Loots (32) Financial Director Appointment date: 26 August 2009 Qualiﬁ cations: CA(SA), CFA® Charterholder Cobus Loots is a principal with Shanduka Resources (Pty) Limited. He is a qualiﬁ ed Chartered Accountant (SA) and a CFA® Charterholder. He served articles with Deloitte & Touche, and was an audit manager with the ﬁ rm prior to leaving in order to pursue a career in ﬁ nance. Cobus’ experience includes mining speciﬁ c acquisitions and ﬁ nance, as well as management of both exploration and producing mineral assets. Non-executive directors Cyril Ramaphosa (58) Non-executive Chairman Appointment date: 17 September 2009 Qualiﬁ cations: BProc Committees: Nominations (Chairman) Cyril Ramaphosa joined the board of South African Breweries Limited in 1997 and was appointed to the board of SABMiller PLC upon its listing on the London Stock Exchange in 1999. He is Executive Chairman of the Shanduka Group, non-executive Chairman of the MTN Group Limited, Joint non-executive Chairman of Mondi plc and Mondi Limited and holds directorships in Macsteel Global B.V., The Bidvest Group, Standard Bank and Alexander Forbes. He also serves on the board of the Commonwealth Business Council. 42 Keith Spencer (60) Lead independent, Non-executive Deputy Chairman Appointment date: 8 October 2007 Qualiﬁ cations: BSc Eng (Mining) Committees: SHEC (Chairman), Audit, Nominations Keith is a qualiﬁ ed mining engineer with 35 years of practical mining experience. In 1984, Keith was appointed as General Manager of Greenside Colliery and in 1986 moved to Kloof Gold Mine as General Manager. In 1989, he was appointed as Consulting Engineer for Gold Fields of South Africa to the following mines: Doornfontein Gold Mine, Driefontein Consolidated Gold Mine, Greenside Colliery and Tsumeb Base Metals mine. He also served as Managing Director of Driefontein Consolidated, Chairman and Managing Director of Deelkraal Gold Mine, and as a board member of all gold mines belonging to Gold Fields of South Africa. In 1999, Keith joined Metorex Limited, ﬁ rst as a private consultant and after two years as a permanent member of the executive managing the Wakeﬁ eld Coal operations, O’okiep Copper Company, Barberton Gold Mines, and Metmin Manganese Mine. In 2001, Keith became the Operations Director for Metorex Limited. Keith has managed some of the largest gold mines in the world. Rob Still (55) Non-executive Director Appointment date: 9 September 2004 Qualiﬁ cations: BCom (Hons), CTA Committees: Audit (Acting Chairman), Remuneration, Nominations Rob has vast experience in mining, specialising in mining ﬁ nance. He started his career as a Char tered Accountant, becoming a par tner at Ernst & Whinney before leaving in 1986 to co-found Rhombus Exploration Limited. Since then he has been involved in the mining industry world-wide and has held executive and non-executive directorships in companies listed in South Africa, Australia, Canada and the UK. He has participated in the evaluation and development of several new mining projects including: Rhovan, Ticor Titanium, Pangea Gold Fields Limited, Southern Mining Corporation Limited (Corridor Sands), Great Basin Gold Limited (Burnstone) and Zimbabwe Platinum Mines Limited. Rowan Smith (45) Non-executive Director Appointment date: 17 September 2009 Qualiﬁ cations: BSc (Hons), BCom (Hons) Committees: Remuneration (Chairman) Rowan is currently the Managing Director of Shanduka Resources and has almost two decades of collective experience in the minerals and merchant banking industries. His experience includes geological valuation work for Rand Mines, seven years with Societe Generale de Surveillance in both Geneva and South Africa as a manager, and four years as a director of Investec’s Resource Finance Division. Rowan’s passion for business development, coupled with his technical and merchant banking expertise, have provided him with the skills to originate, structure and implement a host of investments across the various resource based sectors. r e d r O & w a L John Hopwood Independent Non-Executive Appointment date: 2 June 2008 Deceased: 19 March 2010 Qualiﬁ cations: BCom, CA(SA) Committees: Audit, Remuneration, Nominations Pan African Resources PLC Annual Report 2010 43 Board of Directors cont. Board purpose and function The board’s purpose is to ensure corporate governance, risk, strategy and shareholder interests are priorities at all times. According to the Articles of Association the board may consist of not less than four and not more than eight members. At the end of the ﬁ nancial year under review, the board consisted of six members, following the untimely death of Mr John Hopwood. Except for as disclosed, Pan African is not aware of any director, or of the families of any directors, having any interest, direct or indirect, in any transaction during the last ﬁ nancial year or in any proposed transaction with any company in the Pan African Group which has affected or will materially affect Pan African or its investment interest or subsidiaries. Board changes It is with deep regret that the board of Pan African reports the untimely death of Mr John Hopwood on 19 March 2010. John brought a great deal of wisdom and experience to the board of Pan African and will be sorely missed. Resignation Maritz Smith Financial Director 26 August 2009 Appointments Cyril Ramaphosa Non-executive Chairman Rowan Smith Cobus Loots Non-executive Financial Director 17 September 2009 17 September 2009 26 August 2009 Succession plan The Nominations Committee, which functions as a sub-committee of the board, is tasked with ensuring succession planning for both executive and non-executive board positions. Board meetings During the year under review, the board of Pan African held a board meeting per quarter as required by the Articles of Association. Meeting dates and attendance are set out below: Name Cyril Ramaphosa Keith Spencer Jan Nelson Cobus Loots Rowan Smith Rob Still John Hopwood 17 September 20 November 2009 2009 19 March 2010 18 June 2010 √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ • √ √ √ √ √ √ • √ Attended • Mr John Hopwood passed away on 19 March 2010. Chairman and CEO roles The roles of Chairman and Chief Executive Ofﬁ cer are held by two different people and are separate and distinct. Although the Chairman, Cyril Ramaphosa, is not independent, the beneﬁ t of his experience and expertise is deemed by the board to outweigh any potential conﬂ ict related to his position. In addition, the board has nominated Mr Keith Spencer as lead independent director, as required by the JSE. 44 Board induction and training All board members have vast experience and therefore no additional formal training or induction is considered necessary. The existing board members are available at all times to ensure the smooth induction of any new board member. Where board members require additional training, the Company makes resources available. Access to management and independent advice The board members have access to the executive management of the Company at all times. All board members are entitled to seek independent third party expert advice, when considered necessary. From time to time members of executive management are requested to attend board meetings in order to present projects or updates. Delegation of authority The board has formed various committees in order to allow directors to excel in areas where their experience lies and, in doing so, the board as a whole has delegated authority in certain areas to the relevant sub-committees and directors, who report back to the board on a regular basis. Despite this delegation of authority, the entire board remains responsible for the performance of its duties. Board self-ass essment The board performs a self-assessment on an annual basis, to ensure it has the requisite skills and experience to fulﬁ l its duties. Any weaknesses or inadequacies are addressed in a timely manner. Executive directors The executive directors all have employee contracts with the Company and are remunerated by the Company for services performed. Non-executive directors In accordance with the Company’s Articles of Association, non-executive directors are entitled to directors’ fees (please refer to note 32). These fees are paid quarterly. Rot ation of directors In accordance with the Company’s Articles of Association, one-third of the board retire by rotation annually, and any directors appointed between AGMs need to be re-elected. This year, Rob Still and Jan Nelson retire by rotation and will seek re-election at the forthcoming AGM. Board committ ees The board has instituted the committees listed below to allow the directors best suited in terms of skills and experience to manage various divisions of responsibility. The formation of these committees does not in any way absolve the board of its overall responsibility to the shareholders and the Company and, as such, each committee is required to report back to the board at each board meeting. r e d r O & w a L Pan African Resources PLC Annual Report 2010 45 Board of Directors cont. 46 Committee Directors Appointed Resigned Meetings attended Responsibilities Audit John Hopwood 18 August 2008 Deceased Rob Still (Acting Chairman) 18 August 2008 25 August 2009 17 September 2009 1 February 2010 25 August 2009 17 September 2009 position and prospects of the 1 February 2010 Ensuring the ﬁ nancial performance, Group are properly monitored, controlled and reported. Meeting the auditors and reviewing their reports relating to accounts and internal controls. Reviewing the expertise and Keith Spencer 17 September 2009 Remuneration John Hopwood 2 June 2008 Deceased Rob Still 9 September 2004 Rowan Smith (Chairman) 20 October 2009 17 September 2009 experience of the Financial Director 1 February 2010 on an annual basis. Reviewing the use of external auditors for non-audit purposes. 6 August 2009 2 December 2009 6 August 2009 2 December 2009 19 March 2010 6 August 2009 2 December 2009 19 March 2010 Reviewing the performance of the executive directors, employees and executive management. Determining remuneration and the basis of the service agreements with due regard to the interests of shareholders. Determining the payment of any bonuses to executive directors and the granting of options to employees, including executive directors, under the Company’s share option scheme. Nominations Cyril Ramaphosa 20 October 2009 (Chairman) 20 November 2009 Determining the slate of director 18 June 2010 John Hopwood 20 October 2009 Deceased 20 November 2009 Keith Spencer 20 October 2009 20 November 2009 Reviewing, evaluating and 18 June 2010 Rob Still 19 March 2010 18 June 2010 nominees for election to the board. Identifying and recommending candidates to ﬁ ll vacancies occurring between shareholder meetings. recommending changes to the Company’s corporate governance guidelines. Reviewing the Company’s policies and programme that relate to matters of corporate citizenship, including public issues of signiﬁ cance to the Company and its stakeholders. r e d r O & w a L SHEC Keith Spencer (Chairman) 12 October 2009 Jan Nelson† 12 October 2009 Mario Gericke† 12 October 2009 12 October 2009 17 June 2010 12 October 2009 17 June 2010 12 October 2009 17 June 2010 Establishing a Safety, Health, Environment and Community policy framework for the Company. Strategically reviewing the safety performance of all operations compared to the policy framework. Implementing corrective measures when necessary to achieve the objectives of the policy framework. Ron Holding† 12 October 2009 12 October 2009 Karishma Sewpersad‡ 12 October 2009 12 October 2009 17 June 2010 † Executive management of Pan African ‡ Shanduka external consultant Pan African Resources PLC Annual Report 2010 47 Board of Directors cont. The executive directors and senior management review both the mining operations and the exploration projects on a formal basis each month. This includes a detailed review of the technical and ﬁ nancial parameters, as well as capital requirements and expenditure. All parameters are measured against the strategic plans and any variations are discussed and action plans are put in place to rectify such deviations. The investment and technical decisions form part of the board’s responsibilities. Executive management – Pan African The Executive Committee (“Exco”) of Pan African consists of the following members: Name Age Qualiﬁ cation Jan Nelson Cobus Loots Mario Gericke 40 32 43 Festus van Rooyen 46 Pieter Wiese Ron Holding 47 58 Martin Bevelander 48 BSc (Hons) CA(SA), CFA® Charterholder BEng (Mining), PrEng (Mining Engineering), Mine Managers Certiﬁ cate of Competency (Metalliferous), Certiﬁ cate in Strata Control National Diploma Police Administration BSc (Hons) NDT Mining Metalliferous (Wits) AMM (SA) MDP (UCT) BSc (Hons) Geology Areas of responsibility Chief Executive Ofﬁ cer Chief Financial Ofﬁ cer Executive: Mining Operations Executive: Security Executive: New Business Operations Manager: Phoenix Platinum Group Consulting Geologist Executive management – Barbert on Mines Name Age Qualiﬁ cation Areas of responsibility Manager Mining General Manager National Higher Diploma Metalliferous Mining Mine Managers Certiﬁ cate Mine Managers Certiﬁ cate of Competency National Technical Diploma (Mech) Manager Engineering Manager Finance and BCom (Hons), CA(SA) Administration Manager Human Resources Metallurgical Manager Diploma in HR Management Diploma in LR Management National Higher Diploma Extractive Metallurgy BSc Engineering (Hons) Mining Manager Mineral Resources Casper Strydom 52 Pierre Human 49 Dario Negri Neal Reynolds André van den Bergh Jonathan Irons 49 27 54 44 Brian Chirove 42 48 Corporate Governance Nominated Adviser and Broker RBC Capital Markets is the Company’s Nominated Adviser (“NOMAD”) and Broker. The duty of the NOMAD and Broker is to advise the Group on compliance concerning the AIM Rules and continuing obligations as an AIM quoted company. Sponsor Macquarie First South Advisers (Pty) Limited is, in accordance with the Listings Requirements of the JSE, the Company’s appointed Sponsor. Macquarie is therefore responsible to ensure that the Company is at all times guided and advised as to the application of the Listings Requirements of the JSE. Sustainability includes: Data measurement techniques and the basis of calculations including assumptions and techniques for underlying estimations applied to the compilation of the indicators and other information in the report as well as explaining any decisions not to apply or to substantially diverge from, the governance protocols. Pan African is committed to creating long-term shareholder value by embracing opportunities, optimising its operations and minimising risk. We recognise that the sustainability of our operations is dependent on the ability to earn and maintain the goodwill of the communities around our mining operations. Pan African engages with its immediate communities in order to identify social needs and institute hands-on projects to address these needs. The Group recognises its responsibility for the broader impact of our activities on stakeholders, the environment and the health and safety of our employees. Pan African embraces sustainable development as one of its duties as a responsible corporate citizen and a responsible operating company. A detailed sustainability report is available on the Group’s website. Stakeholder communication Pan African has an ‘open door’ policy regarding communication between the Company and the various stakeholders. The executive directors are available for correspondence and respond to email, letters or faxes received in a timely manner. Deﬁ nition of stakeholders • Shareholders: institutions, natural persons and employees holding shares in the Company. • Stakeholders: person, group, organisation, or system which affects or can be affected by an organisation’s actions; • Employees: any person employed on a full-time basis by the Company; • Unions: National Union of Mineworkers (“NUM”) and the United Association of South Africa (“UASA”); and • Suppliers: providers of goods and services. Broad-Based Black Economic Empowerment (“BBBEE”) Pan African is committed to the principles and objectives of BBBEE and reports on its achievements based on the BBBEE pillars below: Ownership In August 2009 Shanduka exchanged its shareholding of 26% in Barberton Mines for a 21% shareholding in Pan African and in addition bought 5% from Metorex, resulting in 26% of Pan African being owned by the Black-owned and controlled Shanduka. The board of the Company has been restructured to include representation from Shanduka. “The Group recognises its responsibility for the broader impact of our activities on stakeholders” r e d r O & w a L Pan African Resources PLC Annual Report 2010 49 Corporate Governance cont. Human resources development and employment equity The Company complies with the Employment Equity Act and the Skills Development Act and is on track to meet the Mining Charter scorecard of 40% Historically Disadvantaged South African representation at senior and top management at Barberton Mines. Procurement and enterprise development Pan African supports the development of small and medium enterprises that are Black owned. At Barberton Mines level during the past year 34% of the procurement budget was spent with Black enterprises. Community development and corporate social investment In the year under review a number of initiatives were embarked on at Barberton Mines: Name Description Total monetary contribution Verulam Life Skills Centre Sinqobile Vegetable Project Verulam Soup Kitchen St John’s Care Centre Umjindi Jewellery Project A centre that will focus on the development of life skills in the community such as brickmaking, welding, cooking, etc. The centre will be run in collaboration with the local community and Government. , A community-run vegetable initiative. The project will be advanced in a phased manner to full co-operative status. Supplies Thandanani Drop-Inn Centre in Emjindini with food supplies on a weekly basis. The facility focuses mainly on the care of Aids patients and orphans that are terminally ill. Monthly payments of R5,000 (£347). A jewellery training facility in Barberton, which runs learnership Monthly payments of R20,000 programmes with the support of the Mining Qualiﬁ cations Authority. (£1,390). Other Welfare Assistance given on an ad hoc basis. 50 Safety, Health , Environment and Community (“SHEC”) Safety, health , environment and community development policy Pan African is unashamedly committed to protect the environment and prevent pollution while taking care of the health and safety of those who work at or visit our sites in a manner that is respectful of international standards and local laws, as well as the well-being of the communities in which we operate. The most important legacy we want to leave is a contented community, well-equipped and positioned for the future. Our guiding principles are: • Identify the hazards and risks that may have a negative impact on the health and safety of our people and those visiting our sites, the environment in which we operate, and anything that may be to the detriment of the communities in which we operate; • Develop SHEC management systems ensuring the implementation and maintenance of processes and other controls required to achieve our goal of zero incidents, injuries and illnesses; and • Encourage employees to adopt and embrace a lifestyle that is healthy, safe and conscious of the importance of the environment. In support of this, we will: • Provide our leaders with the means to improve our SHEC performance continuously while holding them accountable for the outcomes; • Facilitate leadership to understand the SHEC responsibilities and accountabilities and demonstrate their commitment visibly through their actions in the quest for zero incidents, injuries and illnesses; • Treat legal requirements as minimum standards and, in the absence thereof, apply leading practice; • Ensure compliance with adopted SHEC standards and management systems by means of regular audits and performance review; • Encourage employee and stakeholder involvement and buy-in through training, communication and regular meetings; • Reduce our environmental footprint by: • Improving energy efﬁ ciency and natural resource consumption; • Improving the use, re-use and recycling of materials; and • Protecting and restoring natural biodiversity while reducing greenhouse gas emissions; • Understand the needs of our communities while developing support programmes to ensure their upliftment and well-being; • Assist communities in which we operate with health safeguarding programmes and sustainable wealth creating initiatives; and • Insist that suppliers and contractors provide us with products and services in support of our goals and objectives. r e d r O & w a L Pan African Resources PLC Annual Report 2010 51 Corporate Governance cont. Safety and health Safety performance frequency rates Frequency rates Non lost time injury frequency rate (“NLTFR”) Lost time injury frequency rate (“LTIFR”) Total recordable injury frequency rate (“TRIFR”) Reportable injury frequency rate (“RIFR”) Serious injury frequency rate (“SIFR”) Lost day severity rate (“LDSR”) Fatal injury frequency rate (“FFR”) 2010 2009 28 4.2 33.3 1.1 1.1 6.9 0.18 29.8 6.4 36.2 1.7 1.7 6.2 0 Barberton Mines completed the 2010 ﬁ nancial year with an overall improvement in accident statistics of 188 total accidents (2009: 202 accidents). There was no signiﬁ cant decrease in the number of dressing station cases. However the more serious lost time accidents improved by 32% and the reportable accidents improved by 33%. An updated Safety and Health management system is being designed and implemented on the mine. This should be completed during 2011. The Company’s medical surveillance code of practice regulates measures to eliminate, control and minimise health risks to which employees are or may be exposed. Environment All mining and exploration activities are conducted with the highest level of environmental awareness achievable for a company of this nature. The Environmental Monitoring Programmes (“EMP”) for all three mines were updated during the year and submitted to the DMR at the end of August 2010. The water and air monitoring programmes are compliant with the regulations and requirements of the Department of Water Affairs and Forestry as well as the Department of Environmental Affairs and Tourism. During the year under review, a water retreatment programme was initiated. Environmental performance Number of incidents Level 1 Level 2 Level 3 Level 4 Level 5 2010 2009 1 8 5 – – 6 9 1 – – Deﬁ nitions: Level 1: Level 2: Level 3: Level 4: Level 5: Incident that involves minor non-conformances that result in no or negligible adverse environmental impact. Incident that involves miner non-conformances that result in short-term, limited and non-ongoing adverse environmental impacts. Incident that contains limited non-conformances or non-compliances. These non- compliances are those that result in ongoing, but limited environmental impact. Incident that contains signiﬁ cant non-conformances or non-compliances. These non-compliances are those that result in medium-term environmental impact. Incident that contains major non-conformances or non-compliances. These non- compliances are those that result in long-term environmental impact. The water use licence application has been submitted to the Department of Water Affairs. The Environmental Impact Assessment (“EIA”) for the Fairview tailings dam extension was completed and submitted. 52 Progress made during the year on the environmental programme: • 247 tons of AsO3 has been removed to ZINCOR; • The waste rock dump at Fairview has been removed and re-vegetation of the footprint will commence; and • The sulphur stockpile remains but it is not a signiﬁ cant environmental threat. Company secretary St James’s Corporate Services Limited was appointed company secretary on 8 July 2008. All directors have access to the advice and services of the Company secretary who is responsible to the board for ensuring compliance procedures and regulations of a statutory nature are met. Furthermore, all directors are entitled to seek independent professional advice concerning the affairs of the Group at the Company’s expense, should they believe that course of action would be in the best interest of the Group. The Company secretary, in conjunction with the Company’s legal advisors, is responsible for drawing the attention of the directors to their legal duties and in collaboration with the Company’s NOMAD, is responsible for ensuring that new directors are effectively informed in terms of their duties and responsibilities. r e d r O & w a L Pan African Resources PLC Annual Report 2010 53 Corporate Governance cont. Further, the Company secretary, together with the Company’s investor relations representatives, provides a direct communication link with investors and liaises with the Company’s share registrars on all issues affecting shareholders. The Company secretary maintains the statutory books of the Company and also provides mandatory information required by various regulatory bodies and stock exchanges on which the Company is listed. Code of ethics On 1 November 2009, Pan African committed to the following code of ethics: “As leaders and employees of Pan African, we hereby commit ourselves to the highest ethical conduct and agree to: • Respect the laws of the Republic of South Africa and of any other country in which we may operate or visit; • Live the principle of integrity in all our activities and refrain from any behaviour, overt and otherwise, that may damage the organisation’s image and/or performance of whatever nature; • Treat our employees and any other person with dignity, respect and in a just manner irrespective of race, religion, gender, disability, age, or nationality or any other characteristic; • Be honest in all our dealings and undertake to distance ourselves from any activity that has the potential of being regarded as incoherent with what is expected of a responsible company and individual; • Avoid any potential conﬂ ict of interest and when it may exist, disclose it to affected parties without any delay; • Reject any form of bribery and act upon any non-compliance as strongly as possible; • Accept the full responsibility and ultimate accountability when we make decisions that may impact on the health and safety of our employees and the communities in which we operate, and take full responsibility for the environment and the well-being of the communities; and • Assist in developing our colleagues and teams to become worthy team players and responsible South African citizens.” Restrictions on share dealings All directors and employees are prohibited from dealing in shares during any period in which price sensitive information is available. The CEO distributes memoranda, informing the affected parties of these periods. Should a senior employee or director wish to trade Pan African shares, written permission must be granted from either the CEO or CFO. Risk management During the year under review, a formal Risk Assessment Process was initiated for the Group. The aim of this process is to minimise harm to people, production and environment. A separate Risk Committee is not considered necessary as the board reviews the risk process on a quarterly basis as part of the board meetings. 54 Sector Risk Description Management of risk Criminal mining Safety of employees The direct impact of criminal mining on the safety and health of employees. Gold theft The theft of visible gold by criminal miners. Costs/proﬁ ts Volatility of gold price Price ﬂ uctuation caused by market conditions. Electricity Volatility of ZAR/US$ The Company’s costs are mainly exchange rate Increasing electricity costs ZAR based. Increases implemented and proposed by Eskom – South African power supplier. Legal Mining Charter Laws governing mineral rights. Mining Licences – old order/new order rights Process to convert the older order mining rights to new order mining rights. The Company has embarked on a comprehensive programme to address criminal mining. Productivity and cost controls and a rigorous approach to investment evaluation. Productivity and cost controls. Power optimisation initiatives and programmes. Monitoring and management using the Mining Charter Score Card. Complied with the application requirements and application submitted. Human resources Dependence on key personnel Skills exodus Increasing cost of labour HIV/Aids Labour/skills Specialised skills required for types of operations. Increased focus on skills development and training. South African labour/skills drain. Cost of living-related cost and effect of organised labour on labour cost. Incentive and retention programmes. Drive on cost control and increased efﬁ ciencies. Responsibility towards employees/ negative effect on labour/ skills turnover and reduced efﬁ ciencies. The Company runs recognised HIV/Aids programmes. r e d r O & w a L Pan African Resources PLC Annual Report 2010 55 Directors’ Report The directors present their annual report and the audited ﬁ nancial statements for the year ended 30 June 2010. Principal activities The Group’s principal activity during the year was gold mining and exploration activities. A full review of the activities of the business and of future prospects is contained in the Chief Executive Ofﬁ cer’s Report which accompanies these ﬁ nancial statements, with ﬁ nancial and non-ﬁ nancial key performance indicators (“KPIs”) shown below. Key performance indicators The Group produces management reports on a monthly basis that highlight several KPIs from a corporate, operational and management perspective to assess the ﬁ nancial position and performance of the Group. These are highlighted on page 58. Results and dividends The results for the year are disclosed in the Consolidated Statement of Comprehensive Income on page 64. The salient features of these results can be found on page 4. The board of directors recommends a ﬁ nal dividend for the year ended 30 June 2010 of 0.3723p per share (2009: dividend paid of 0.2555p per share), to be approved by shareholders at the forthcoming annual general meeting of the Company. Policy for payment of creditors It is the Company’s policy to settle all agreed transactions within the terms established with suppliers. The Company’s credit days are a maximum of 60 days. Risk management The key business risks to which the Company is exposed have been considered and addressed on pages 54 to 55. Internal control The board is responsible for maintaining a sound system of internal controls to safeguard shareholders’ investment and Group assets. The directors monitor the operation of internal controls. The objective of the system is to safeguard Group assets, ensure proper accounting records are maintained and that the ﬁ nancial information used within the business and for publication is reliable. Any such system of internal control can only provide reasonable but not absolute assurance against material misstatement or loss. Internal ﬁ nancial control procedures undertaken by the board include: • Review of monthly ﬁ nancial reports and monitoring performance; • Review of internal audit reports and follow-up action of weaknesses identiﬁ ed by these reports; • Review of competency and experience of senior management staff; • Prior approval of all signiﬁ cant expenditure including all major investment decisions; and • Review and debate of treasury and other policies. The board has reviewed the operation and effectiveness of the Company’s system of internal control for the ﬁ nancial year and the period up to the date of approval of the ﬁ nancial statements. Going concern The board conﬁ rms that the business is a going concern and has reviewed its 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 is debt free and has a proﬁ t margin of approximately 27% after capital expenditure and depreciation at Barberton Mines. Should the need arise the Group can cease most exploration and capital activities and in doing so conserve cash. 56 Events aft er the report ing period Subsequent to the year end, an additional 4,000,000 ordinary shares were issued for cash at 4.0p per share on 23 August 2010, in relation to share options exercised. Directors The following were directors during the year under review: Mr K C Spencer* Mr J P Nelson Mr R G Still* Mr C M Ramaphosa (appointed 17 September 2009) Mr R M Smith Mr J A J Loots Mr M Smith (appointed 17 September 2009) (appointed 26 August 2009) (resigned 26 August 2009) Mr J G Hopwood* (deceased 19 March 2010) * Independent Auditors Deloitte LLP have been appointed as Group auditors until the conclusion of the next Annual General Meeting. Each of the persons who is a director at the date of approval of this annual report conﬁ rms that: • So far as the director is aware, there is no relevant information of which the Company’s auditors are unaware; and • The director has taken all the steps that he ought to have taken as a director in order to make himself aware of any relevant audit information and to establish that the Company’s auditors are aware of that information. This conﬁ rmation is given and should be interpreted in accordance with S418 of the UK Companies Act 2006. Deloitte LLP have expressed their willingness to continue in ofﬁ ce as auditors and a resolution to reappoint them will be proposed at the forthcoming Annual General Meeting. By order of the board, Jan Nelson Chief Executive Ofﬁ cer 30 August 2010 e M w o h S y e n o M e h T Pan African Resources PLC Annual Report 2010 57 Directors’ Report cont. Key Performance Indicators (KPIs) Level KPI Measurable US$/oz Costs 2010 650 2009 % change Achievement Comment 469 38.59% Moderate Gold sold Revenue 98,091oz 97,353oz 0.76% Moderate Corporate Capital expenditure Tax Growth £5.9 million £4.3 million 37.21% Good Effective tax rate 34.55% 50.39% 31.43% Moderate Tons Volume 313Kt 313Kt 0% Good g/t Quality 10.61g/t 10.32g/t 2.81% Good Mining % total recovery BEE Fatal accidents Gold sales Mining title Safety 91% 26% 1 91% 26% 0% Good 0 (100%) Poor 0% Moderate No signiﬁ cant change. Increased largely due to strong ZAR and increases in the cost of electricity, labour and security. Increase in underground mining productivity, prior year there was surface tailings sales. Strong focus on investment in development and maintenance of the mine. Prior effective rate was high due to the impairment charge, which was not tax deductible. Sustainable production achieved. Focus on increasing resources and sustainable head grades. The Group complies with relevant legislation. Safety still remains the Group’s top priority and focus area. Group resource base increased due to the MRM initiatives. Growth Resource base Sustainability 4,635Moz 4,582Moz 1.16% Good 58 Statement of Directors’ Responsibilities The directors are responsible for preparing the Annual Report and the ﬁ nancial statements in accordance with applicable laws and regulations. Company law requires the directors to prepare ﬁ nancial statements for each ﬁ nancial year. The directors are required by the International Accounting Standard (“IAS”) Regulation to prepare the Group ﬁ nancial statements under International Financial Reporting Standards (“IFRSs”) as adopted by the European Union and have also elected to prepare the parent company ﬁ nancial statements in accordance with IFRSs as adopted by the European Union. The ﬁ nancial statements are also required by law to be properly prepared in accordance with the Companies Act 2006. International Accounting Standard 1 requires that ﬁ nancial statements present fairly for each ﬁ nancial year the Company’s ﬁ nancial position, ﬁ nancial performance and cash ﬂ ows. This requires the faithful representation of the effects of transactions, other events and conditions in accordance with the deﬁ nitions and recognition criteria for assets, liabilities, income and expenses set out in the International Accounting Standards Board’s ‘Framework for the preparation and presentation of ﬁ nancial statements’. In virtually all circumstances, a fair presentation will be achieved by compliance with all applicable IFRSs. However, directors are also required to: • Properly select and apply accounting policies; • Present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information; and • Provide additional disclosures when compliance with the speciﬁ c requirements in IFRSs are insufﬁ cient to enable users to understand the impact of particular transactions, other events and conditions on the entity’s ﬁ nancial position and ﬁ nancial performance. The directors are responsible for keeping proper accounting records that disclose with reasonable accuracy at any time the ﬁ nancial position of the Company and enable them to ensure that the ﬁ nancial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. By order of the board. Jan Nelson Chief Executive Ofﬁ cer Jacobus Loots Financial Director e M w o h S y e n o M e h T Pan African Resources PLC Annual Report 2010 59 UK Independent Auditors’ Report To the members of Pan African We have audited the ﬁ nancial statements of Pan African for the year ended 30 June 2010 which comprise the Group and Parent Company Statement of Comprehensive Income, the Group and Parent Company Statement of Financial Position, the Group and Parent Company Cash Flow Statement, the Group and Parent Company Statement of Changes in Equity and the related notes 1 to 36. The ﬁ nancial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (“IFRSs”) as adopted by the European Union. The ﬁ nancial reporting framework that has been applied in the preparation of the parent company ﬁ nancial statements is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice). This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the UK Companies Act 2006. Our audit work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an auditors’ report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s members as a body, for our audit work, for this report, or for the opinions we have formed. Respective responsibilities of directors and auditors As explained more fully in the Statement of Directors’ Responsibilities, the directors are responsible for the preparation of the ﬁ nancial statements and for being satisﬁ ed that they give a true and fair view. Our responsibility is to audit the ﬁ nancial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s (“APB’s”) Ethical Standards for Auditors. Scope of the audit of the ﬁ nancial statements An audit involves obtaining evidence about the amounts and disclosures in the ﬁ nancial statements sufﬁ cient to give reasonable assurance that the ﬁ nancial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the Group’s and the parent company’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of signiﬁ cant accounting estimates made by the directors; and the overall presentation of the ﬁ nancial statements. Opinion on ﬁ nancial statements In our opinion: • The ﬁ nancial statements give a true and fair view of the state of the Group’s and of the parent company’s affairs as at 30 June 2010 and of the Group’s and the parent company’s proﬁ t for the year then ended; • The ﬁ nancial statements have been properly prepared in accordance with IFRSs as adopted by the European Union; and • The ﬁ nancial statements have been prepared in accordance with the requirements of the UK Companies Act 2006. Separate opinion in relation to IFRSs as issued by the IASB As explained in note 1 to the ﬁ nancial statements, the Group in addition to complying with its legal obligation to apply IFRSs as adopted by the European Union, has also applied IFRSs as issued by the International Accounting Standards Board (“IASB”). In our opinion the Group ﬁ nancial statements comply with IFRSs as issued by the IASB. Opinion on ot her matt ers prescribed by the UK Companies Act 2006 In our opinion: • The information given in the Directors’ Report for the ﬁ nancial year for which the ﬁ nancial statements are prepared is consistent with the ﬁ nancial statements. 60 Matt ers on which we are required to report by exception We have nothing to report in respect of the following: Under the UK Companies Act 2006 we are required to report to you if, in our opinion: • Adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or • The parent company ﬁ nancial statements and the part of the Directors’ Remuneration Report to be audited are not in agreement with the accounting records and returns; or • Certain disclosures of directors’ remuneration speciﬁ ed by law are not made; or • We have not received all the information and explanations we require for our audit. Deborah Thomas (Senior Statutory Auditor) for and on behalf of Deloitte LLP Chartered Accountants and Statutory Auditors London, UK 30 August 2010 e M w o h S y e n o M e h T Pan African Resources PLC Annual Report 2010 61 Independent Auditors’ Report To the members of Pan African Resources PLC We have audited the Group annual ﬁ nancial statements and annual ﬁ nancial statements of Pan African Resources Plc, which comprise the consolidated and separate statements of ﬁ nancial position as at 30 June 2010, and the consolidated and separate statements of comprehensive income, changes in equity and cash ﬂ ows for the ﬁ nancial year then ended, a summary of signiﬁ cant accounting policies and other explanatory notes, as set out on pages 68 to 77. Directors’ responsibility for the ﬁ nancial statements The Company’s directors are responsible for the preparation and fair presentation of these ﬁ nancial statements in accordance with International Financial Reporting Standards. This responsibility includes designing, implementing and maintaining internal control relevant to the preparation and fair presentation of ﬁ nancial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. Auditor ’s responsibility Our responsibility is to express an opinion on these ﬁ nancial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the ﬁ nancial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the ﬁ nancial statements. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the ﬁ nancial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the ﬁ nancial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting principles used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall ﬁ nancial statement presentation. We believe that the audit evidence we have obtained is sufﬁ cient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the ﬁ nancial statements present fairly, in all material respects, the consolidated and separate ﬁ nancial position of Pan African Resources Plc as at 30 June 2010, and its consolidated and separate ﬁ nancial performance and its consolidated and separate cash ﬂ ows for the year then ended in accordance with International Financial Reporting Standards. Deloitte & Touche Per IT Marshall Partner 30 August 2010 Deloitte & Touche – Registered Auditors Buildings 1 and 2, Deloitte Place The Woodlands, 20 Woodlands Drive, Woodmead, Sandton, 2196 Johannesburg, South Africa National executive: GG Gelink Chief Executive AE Swiegers Chief Operating Ofﬁ cer GM Pinnock Audit DL Kennedy Tax & Legal and Risk Advisory L Geeringh Consulting L Bam Corporate Finance CR Beukman Finance TJ Brown Clients & Markets NT Mtoba Chairman of the Board MJ Comber Deputy Chairman of the Board A full list of partners and directors is available on request. 62 Cert iﬁ cate of the Company Secretary I hereby certify that Pan African has lodged with the Registrar of Companies all such returns as are required of a public company in terms of the Companies Act 2006. All such returns are true, correct and up to date. St James’s Corporate Services Limited 30 August 2010 e M w o h S y e n o M e h T Pan African Resources PLC Annual Report 2010 63 Consolidated and Company Statement of Comprehensive Income for the year ended 30 June 2010 Notes 4 5 16 Revenue Gold sales Realisation costs On-mine revenue Cost of production Depreciation Mining proﬁ t Other (expenses)/income Impairment costs Royalty costs Net income before ﬁ nance income and ﬁ nance costs Finance income Finance costs Proﬁ t before taxation Taxation Proﬁ t after taxation Other comprehensive income: Foreign currency translation differences 4, 9 9 10 13 Group Company 30 June 2010 £ 30 June 2009 £ 30 June 2010 £ 30 June 2009 £ – – – – – – – – – – – 8,165,247 (335,401) – 7,829,846 468,490 (79) 8,298,257 – – 9,764,359 (5,056,290) – 4,708,069 113,205 (689) 4,820,585 – 68,506,394 (162,791) 53,000,352 (140,546) 68,343,603 (40,553,886) (3,125,093) 24,664,624 (1,929,787) (335,401) (837,378) 21,562,058 661,645 (67,915) 52,859,806 (28,504,686) (2,360,431) 21,994,689 (1,465,336) (5,025,463) – 15,503,890 816,754 (9,933) 22,155,788 (7,655,913) 16,310,711 (8,219,425) 14,499,875 8,091,286 8,298,257 4,820,585 2,379,762 3,649,901 – – Total comprehensive income for the year 16,879,637 11,741,187 8,298,257 4,820,585 Proﬁ t attributable to: Owners of the parent Non-controlling interest Total comprehensive income attributable to: Owners of the parent Non-controlling interest From continuing operations: Basic earnings per share (pence) Diluted earnings per share (pence) 14,277,232 222,643 4,403,535 3,687,751 8,298,257 – 4,820,585 – 14,499,875 8,091,286 8,298,257 4,820,585 14 14 16,809,093 70,544 7,485,801 4,255,386 8,298,257 – 4,820,585 – 16,879,637 11,741,187 8,298,257 4,820,585 1.04 1.03 0.40 0.40 – – – – 64 Consolidated and Company Statement of Financial Position at 30 June 2010 Group Company 30 June 2010 £ 30 June 2009 £ 30 June 2010 £ 30 June 2009 £ Notes Ass ets Non-current assets Property, plant and equipment and mineral rights Other intangible assets Goodwill Investments Rehabilitation trust fund Current assets Inventories Receivables from subsidiaries Trade and other receivables Cash and cash equivalents TOTAL ASSETS Equity and liabilities Capital and reserves Share capital Share premium Translation reserve Share option reserve Retained income Realisation of equity reserve Merger reserve Equity attributable to owners of the parent Non-controlling interest Total equity Non-current liabilities Long term provisions Deferred taxation Current liabilities Trade and other payables Short term liabilities – Interest bearing Short term provisions Payable to other group companies Current tax liability 16 17 18 19 20 21 34 22 23 25 27 28 26 26 27 34 37,495,010 13,087,880 21,000,714 – 2,740,546 31,801,235 12,038,616 21,000,714 – 2,357,266 27,642 – – 53,259,921 – 20,547 – – 38,499,708 – 74,324,150 67,197,831 53,287,563 38,520,255 1,126,374 – 3,794,659 12,756,262 358,363 – 2,201,213 2,389,301 – 10,984,384 162,337 14,240,891 – 10,341,443 23,286 1,507,134 17,677,295 4,948,877 25,387,612 11,871,863 92,001,445 72,146,708 78,675,175 50,392,118 14,095,406 49,732,830 4,495,865 754,394 25,814,783 (10,701,093) (10,705,308) 11,125,891 37,899,997 1,964,004 549,690 11,537,551 – (10,705,308) 73,486,877 – 52,371,825 3,988,577 14,095,406 49,732,830 – 739,519 6,233,564 – 1,560,000 72,361,319 11,125,891 37,899,997 – 626,003 (2,064,693) – 1,560,000 49,147,198 – 73,486,877 56,360,402 72,361,319 49,147,198 3,338,198 8,092,332 2,933,105 6,752,432 11,430,530 9,685,537 – – – – – – 5,041,754 – 1,465,299 – 576,985 3,719,787 20,669 1,151,895 954,759 253,659 534,427 – 41,411 5,738,018 – 253,101 – 37,060 954,759 – 7,084,038 6,100,769 6,313,856 1,244,920 e M w o h S y e n o M e h T TOTAL EQUITY AND LIABILITIES 92,001,445 72,146,708 78,675,175 50,392,118 Pan African Resources PLC Annual Report 2010 65 Consolidated and Company Cash Flow Statements for the year ended 30 June 2010 NET CASH FROM/(USED IN) OPERATING ACTIVITIES INVESTING ACTIVITIES Dividends received Additions to property, plant and equipment, mineral rights Additions to intangibles Loans to subsidiaries Funding of rehabilitation trust fund Cash outﬂ ow on acquisition of subsidiary Group Company 30 June 2010 £ 30 June 2009 £ 30 June 2010 £ 30 June 2009 £ Notes 36 18,325,307 8,567,361 (128,716) (3,527,515) – – 9,032,496 11,275,545 (5,935,346) (976,373) – 147,458 – (4,318,425) (1,580,349) – 193,347 (4,205,144) (17,075) – (642,941) – – (7,396) – (4,316,065) – (4,205,144) NET (CASH USED IN)/FROM INVESTING ACTIVITIES (6,764,261) (9,910,571) 8,372,480 2,746,940 FINANCING ACTIVITIES Borrowings raised Borrowings repaid Loans from subsidiaries Shares issued Share issue costs – (954,759) – 48,000 (5,866) 1,145,710 (190,952) – – – – (954,759) 5,738,018 – (5,866) 1,145,710 (190,952) – – – 25 NET CASH FROM FINANCING ACTIVITIES (912,625) 954,758 4,777,393 954,758 NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS Cash and cash equivalents at the beginning of the year Effect of foreign exchange rate changes CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR 10,648,421 2,389,301 (281,460) (388,452) 5,419,489 (2,641,736) 13,021,157 1,507,134 (287,400) 174,183 1,455,587 (122,636) 23 12,756,262 2,389,301 14,240,891 1,507,134 66 Consolidated and Company Statement of Changes in Equity for the year ended 30 June 2010 Share capital £ Share premium Translation Share option Realisation Non- Retained of equity Merger controlling account reserve reserve earnings reserve reserve interest £ £ £ £ £ £ £ Total £ GROUP Balance at 30 June 2008 Issue of shares Current year movement Proﬁ t for the year Dividend issue Share based payment – Charge for the year Balance at 30 June 2009 Issue of shares Share issue costs Current year movement Proﬁ t for the year Share Based payment – Charge for the year Balance at 30 June 2010 COMPANY Balance at 30 June 2008 Issue of shares Proﬁ t for the year Dividend issue Charge for the year Balance at 30 June 2009 Issue of shares Share issue costs Current year movement Proﬁ t for the year Dividend issue Charge for the year Balance at 30 June 2010 10,998,664 37,267,475 (1,118,262) – 127,227 632,522 285,312 – 9,946,021 – – (10,705,308) – – 3,694,869 50,368,771 759,749 – – – – – – – – – 3,082,266 – – – – – – 4,403,535 (2,812,005) – 264,378 – – – – – – – – – 3,649,901 567,635 3,687,751 8,091,286 (3,961,678) (6,773,683) – 264,378 11,125,891 37,899,997 1,964,004 549,690 11,537,551 – (10,705,308) 3,988,577 56,360,402 2,969,515 11,838,699 (5,866) – – – – – – (10,701,093) – – – – – – – – 2,531,861 – – – 14,277,232 – 204,704 – – – – – – – – – (4,059,121) – 48,000 (5,866) (152,099) 2,379,762 222,643 14,499,875 – 204,704 14,095,406 49,732,830 4,495,865 754,394 25,814,783 (10,701,093) (10,705,308) – 73,486,877 10,998,664 37,267,475 632,522 – – – 127,227 – – – 11,125,891 37,899,997 2,969,515 11,838,699 (5,866) – – – – – – – – – – – – – – – – – – – – – 491,320 (4,073,273) – 4,820,585 (2,812,005) – – – – 134,683 626,003 (2,064,693) – – – – – – – 113,516 – 8,298,257 – – – – – – – – – – – – – – 1,560,000 – – – – – 46,244,186 759,749 – 4,820,585 – (2,812,005) – 134,683 – 1,560,000 – 49,147,198 – – – – – – – 14,808,214 (5,866) – – – – – – 8,298,257 – 113,516 e M w o h S y e n o M e h T 14,095,406 49,732,830 – 739,519 6,233,564 – 1,560,000 – 72,361,319 Pan African Resources PLC Annual Report 2010 67 Not es to the Financial Statements for the year ended 30 June 2010 1. General information Pan African is a company incorporated in England and Wales under the Companies Act 1985. The Company has a dual primary listing on the AIM Market (“AIM”) of the London Stock Exchange and the JSE Limited (“JSE”). The move to the JSE main board occurred on 1 December 2009, resulting in the Company’s dual primary listing. The Company previously had a secondary listing on AltX, a division of the JSE. The nature of the Group’s operations and its principal activities was of gold mining and exploration activities. The ﬁ nancial statements are presented in Pounds Sterling. Foreign operations are included in accordance with the policies set out below. The individual ﬁ nancial statements of each Group Company are maintained in their functional currencies, which is determined by reference to the primary economic environment in which it operates. For the purpose of the consolidated ﬁ nancial statements, the results and ﬁ nancial position of each Group Company is expressed in Pounds Sterling. The ﬁ nancial statements have been prepared on the going concern basis. The ﬁ nancial statements have also been prepared in accordance with the International Financial Reporting Standards (“IFRS”) adopted by the European Union and the Republic of South Africa. 2. Accounting policies Basis of preparation and general information The annual ﬁ nancial statements have been prepared under the historical cost basis, except for certain ﬁ nancial instruments which are stated at fair value. The principal accounting policies are set out below and are consistent in all material respects with those applied in the previous year, except where otherwise indicated. Historic reverse acquisition On 31 July 2007 the Company acquired 74% of Barberton Mines (Pty) Limited (“Barberton”) in a share-for-share transaction. IFRS3 Business Combinations deﬁ nes the acquirer in a business combination as the entity that obtains control. Accordingly, the combination was accounted for as a reverse acquisition. Going concern The ﬁ nancial position of the Group, its cash ﬂ ows and liquidity position are described in note 29. In addition, note 29 to the ﬁ nancial statements includes the Group’s objectives, policies and processes for managing its capital; its ﬁ nancial risk management objectives; details of its ﬁ nancial instruments and its exposure to credit risk. The Group has, during the current and previous ﬁ nancial years, beneﬁ ted from high gold prices and increased underground mining production. The Group is largely debt free and currently generates sufﬁ cient cash through its operations to fund future capital on its operations. Future growth projects will be funded by internally generated cashﬂ ows, third party funding, or by a combination of both. The directors ensure that funding requirements for future growth projects do not compromise the ability of the Group to continue as a going concern. The Group is currently forecasting positive cash ﬂ ows for the foreseeable future. Management is not aware of any material uncertainties which may cast signiﬁ cant doubt on the Group’s ability to continue as a going concern. Based on the current status of the Group’s ﬁ nances, the directors have formed a judgement, at the time of approving the Financial Statements, that there is a reasonable expectation that the Group has, or will have, adequate resources to enable the Group to continue to meet its ﬁ nancial commitments for the foreseeable future. Accordingly, the directors continue to adopt the going concern basis in preparing the ﬁ nancial statements. 68 New and revised International Financial Report ing Standards not yet adopted The Group applies all applicable IFRS in preparation of the ﬁ nancial statements. Consequently, all IFRS statements that were effective at 30 June 2010 and are relevant to its operations have been applied. At the date of authorisation of these ﬁ nancial statements, the following standards and interpretations, which have not been applied in these ﬁ nancial statements, were in issue but not yet effective: Standard/ Interpretation New standards: Description Effective for annual periods beginning on or after IFRS 9 Financial Instruments: Classiﬁ cation and Measurement of Financial Assets 1 January 2013 Amendments to existing standards: IFRS 2 Share-based Payments: IFRS 3 IAS 24 IAS 32 IAS 39 Group Cash-settled Share-based Payment Transactions Business Combinations: Revisions to certain key areas of the standard Related Party Disclosures Financial Instruments: Presentation – Classiﬁ cation of Rights Issue Financial Instruments: Recognition and Measurement: Amendments to IAS 39 for eligible hedged items: Inﬂ ation in a ﬁ nancial hedged item A one-side risk in hedge item Improvements to IFRS – May 2008: IFRS 5 Non-current Assets Held for Sale and Discontinued Operations: Classiﬁ cation of non-current assets (or disposal groups) classiﬁ ed as held for sale or discontinued operations Improvements to IFRS – April 2009: IFRS 2 IFRS 5 IFRS 8 IAS 1 IAS 7 IAS 17 IAS 18 IAS 36 IAS 38 IAS 39 Share-based Payments: Consequential Amendment Relating to Business Combinations Non-current Assets held for Sale and Discontinued Operations: Disclosures Required in Respect of Non-current Assets (or Disposal Groups) Classiﬁ ed as Held for Sale or Discontinued Operations Operating Segments: Disclosure Information about Segment Assets Presentation of Financial Statements: Current/Non-current Classiﬁ cation of Convertible Instruments Statement of Cash Flows: Classiﬁ cation of Expenditures on Unrecognised Assets Leases: Classiﬁ cation of leases on land and buildings Revenue: Determining whether an Entity is Acting as a Principal or as an Agent Impairment of Assets: Allocation of Goodwill to Cash Generating Units Intangible Assets: Acquisition of Intangible Assets in a Business Combination Financial Instruments: Recognition and Measurement: Scope Exemption of Business Combination Contracts Cash Flow Hedge Accounting IFRIC 9 Reassessment of Embedded Derivatives: Scope of IFRIC 9 1 January 2010 1 July 2009 1 January 2011 1 February 2010 1 July 2009 1 July 2009 1 July 2009 1 July 2009 1 January 2010 1 January 2010 1 January 2010 1 January 2010 1 January 2010 1 January 2010 1 January 2010 1 July 2009 1 January 2010 1 January 2010 1 July 2009 e M w o h S y e n o M e h T Pan African Resources PLC Annual Report 2010 69 Not es to the Financial Statements cont. for the year ended 30 June 2010 New and revised International Financial Report ing Standards not yet adopted (continued) Standard/ Interpretation Effective for annual periods beginning on or after Description Improvements to IFRS – May 2010: IFRS 1 First Time Adoption of IFRS: Accounting Policy Changes in the year of adoption Use of Deemed Cost for Rate Regulated Activities IFRS 3 Business Combinations: Measurement of Non-controlling Interest Un-replaced and Voluntarily Replaced Share-based Payment Awards Transitional Provisions for Contingent Consideration from a Business Combination that occurred before the Effective Date of the Revised IFRS Improvements to IFRS – May 2010: IFRS 7 Financial Instruments: Disclosures Clariﬁ cation of Disclosures IAS 1 IAS 27 IAS 34 IFRIC 13 Presentation of Financial Statements: Clariﬁ cation of Presentation of Statement of Changes in Equity Consolidated and Separate Financial Statements: Transitional Provisions Interim Financial Reporting: Signiﬁ cant Events and Transactions Customer Loyalty Programmes: Fair Value of Award Credits New Interpretations: IFRIC 17 IFRIC 18 IFRIC 19 Distributions of Non-cash Assets to Owners Transfer of Assets from Customers Extinguishing Financial Liabilities with Equity Instruments Amendments to existing interpretations: 1 January 2011 1 January 2011 1 July 2010 1 July 2010 1 July 2010 1 January 2011 1 January 2011 1 July 2010 1 January 2011 1 January 2011 1 July 2009 1 July 2009 1 July 2010 IFRIC 14 Prepayments of a Minimum Funding Requirement 1 January 2011 The impact of the adoption of the above standards and interpretations still needs to be considered, but is not expected to have a material impact on the ﬁ nancial results. Basis of consolidation The consolidated ﬁ nancial statements incorporate the ﬁ nancial statements of the Company and entities controlled by the Company (its subsidiaries) to 30 June each year. Control is achieved where the Company has the power to govern the ﬁ nancial and operating policies of an investee enterprise so as to obtain beneﬁ ts from its activities. The results of the subsidiaries acquired or disposed of during the year are included in the consolidated Statement of Comprehensive Income from the effective date of acquisition or up to the effective date of disposal, as appropriate. Inter-company transactions and balances between Group entities are eliminated on consolidation. Business combinations Acquisitions of subsidiaries and businesses are accounted for using the purchase method. The cost of a business combination is measured as the aggregate of the fair values (at the date of exchange) of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control of the acquiree, plus any costs directly attributable to the business combination. The acquiree’s identiﬁ able assets, liabilities and contingent liabilities that meet the conditions for recognition under IFRS 3 Business Combinations are recognised at their fair values at the acquisition date, except for non-current assets (or disposal groups) that are classiﬁ ed as held-for-sale in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations, which are recognised and measured at fair value less costs-to-sell. Goodwill arising on acquisitions is recognised as an asset, and initially measured at cost, being the excess of the cost of the business combination over the Group’s interest in the net fair value of the identiﬁ able assets, liabilities and contingent liabilities 70 recognised. If, after reassessment, the Group’s interest in the net fair value of the acquiree’s identiﬁ able assets, liabilities and contingent liabilities exceeds the cost of the business combination, the excess is recognised immediately in proﬁ t or loss. The interest of minority shareholders in the acquiree is initially measured at the minority’s proportion of net fair value of the assets, liabilities and contingent liabilities recognised. Change in ownership interest In terms of IAS 27, changes in a parent’s ownership interest in a subsidiary that do not result in a change of control are accounted for as equity transactions. Propert y, plant and equipment Mining assets Mining assets, including mine development costs and mine plant facilities, are recorded at cost less provision for impairment and accumulated depreciation. Expenditure incurred to develop new ore bodies, to deﬁ ne mineralisation in existing ore bodies, to establish or expand productive capacity and expenditure designed to maintain productive capacities, is capitalised until commercial levels of production are achieved. Mineral and surface rights Mineral and surface rights are recorded at cost less provision for impairment and accumulated depreciation. Land Land is shown at cost and is not depreciated. Gain or loss on disposal or retirement of assets The gain or loss arising on the disposal or retirement of an item of property, plant and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in proﬁ t or loss. Depreciation Mining assets, mineral and surface rights mining assets, mine development costs, mineral and surface rights and plant mine facilities are depreciated over the estimated LOM to their residual values using the units-of-production method based on estimated proven and probable ore reserves. Other mining plant and equipment is depreciated on the straight-line basis over the shorter of the LOM or their estimated useful lives. Depreciation of non-mining ass ets Buildings and other non-mining assets are recorded at cost and depreciated on the straight-line basis over their expected useful lives, which vary between three to ten years. Mining exploration – Change in accounting policy on Greenﬁ eld prospects Previously expenditure on exploration activities on Greenﬁ eld prospects was capitalised until the viability of the mining venture was proven. If the mining venture was subsequently considered non-viable, the expenditure was charged against income when that fact became known. Exploration expenditure on Greenﬁ eld prospects is now expensed in the year in which it is incurred. When a decision is taken by the directors that a mining property/project is potentially commercially viable (normally when the project has reached the pre-feasibility stage, once it is considered probable that future economic beneﬁ ts will be realised and that development may be commissioned) all further directly attributable pre-production expenditure is capitalised. Capitalisation of the pre-production expenditure ceases when commercial levels of production are achieved, at which stage the respective assets are depreciated. e M w o h S y e n o M e h T The change in accounting policy will not impact current-year or prior-year ﬁ nancial results. Pan African Resources PLC Annual Report 2010 71 Not es to the Financial Statements cont. for the year ended 30 June 2010 Impairment (except for goodwill) At each Statement of Financial Position date, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists both the value in use and the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. Impairment losses are immediately recognised as an expense. A reversal of an impairment loss is recognised immediately in the Statement of Comprehensive Income. Goodwill Goodwill arising on consolidation represents the excess of the cost of acquisition over the Group’s interest in the fair value of the identiﬁ able assets and liabilities of a subsidiary, associate or jointly-controlled entity at the date of acquisition. Goodwill is initially recognised as an asset at cost and is subsequently measured at cost less accumulated impairment losses. For the purpose of impairment testing, goodwill is allocated to each of the Group’s cash-generating units (“CGU”) expected to beneﬁ t from the synergies of the combination. Cash-generating units to which goodwill has been allocated are tested for impairment annually, or more frequently when there is an indication that the CGU may be impaired. If the recoverable amount of the cash-generating unit is less than the carrying amount of the CGU, the impairment loss is allocated ﬁ rst to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the CGU pro rata on the basis of the carrying amount of each asset in the CGU. An impairment loss recognised for goodwill is not reversed in a subsequent period. On disposal of a subsidiary, associate or jointly-controlled entity, the attributable amount of goodwill is included in the determination of the proﬁ t or loss on disposal. Taxation The charge for current tax is based on the results for the year as adjusted for items which are non-deductible or disallowed. It is calculated using tax rates that have been enacted or substantively enacted by the Statement of Financial Position date. Deferred tax is accounted for using the liability method in respect of temporary differences arising from differences between the carrying amount of assets and liabilities in the ﬁ nancial statements and the corresponding tax basis used in the computation of taxable proﬁ t. In principle, deferred tax liabilities are recognised for all taxable temporary differences, and deferred tax assets are recognised to the extent that it is probable that taxable proﬁ t will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than a business combination) of other assets and liabilities in a transaction, which affects neither tax nor accounting proﬁ t. Deferred tax is calculated at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on tax rates (and laws) that have been enacted or substantively enacted by the Statement of Financial Position date. The measurement of deferred tax liabilities and asset reﬂ ects the tax consequences that would follow from the manner in which the Group expects, at the reporting date, to recover or settle the carrying amount of its assets and liabilities. Deferred tax is charged or credited to the statement of comprehensive income, except when it relates to items credited or charged directly to equity, in which case the deferred tax is also recorded within equity, or where they arise from the initial accounting for a business combination. In a business combination, the tax effect is taken into account in calculating goodwill or in determining the excess of the acquirer’s interest in the net fair value of the acquiree’s identiﬁ able assets, liabilities and contingent liabilities over the cost of the business combination. The carrying amount of deferred tax assets are reviewed at each Statement of Financial Position date and reduced to the extent that it is no longer probable that sufﬁ cient taxable proﬁ ts will be available to allow all or parts of the assets to be recovered. 72 Provisions Provisions are recognised when the Group has a legal or constructive obligation resulting from past events, it is probable that an outﬂ ow of resources embodying economic beneﬁ ts will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the Statement of Financial Position date, taking into account the risks and uncertainties surrounding the obligation. When some or all of the economic beneﬁ ts required to settle a provision are expected to be received from a third party, the receivable is recognised as an asset if it is virtually certain that reimbursement will be received and the amount of the receivable can be measured reliably. Lease ass ets The Group leases certain property plant and equipment. A lease is classiﬁ ed as a ﬁ nance lease if it transfers substantially all the risks and rewards incidental to ownership to the Group. Other leases are classiﬁ ed as operating leases. Finance lease assets are capitalised at the lease’s commencement at the lower of the fair value of the leased property and the present value of the minimum lease payments. Operating leases Operating lease payments are recognised as an expense on a straight-line basis over the lease term. The difference between the amounts recognised as an expense and the contractual payments are recognised as an operating lease liability. Foreign currencies Transactions in currencies other than the functional currency of the relevant subsidiary are initially recorded at the rates of exchange ruling on the dates of the transactions. Monetary assets and liabilities denominated in such other currencies are retranslated at the rates ruling at the Statement of Financial Position date. Proﬁ ts and losses arising on exchange are dealt with in the Statement of Comprehensive Income. In order to hedge its exposure to foreign exchange risks, the Group may enter into forward contracts. On consolidation, the assets and liabilities of the Group’s foreign operations are translated into Pounds Sterling at exchange rates ruling at the Statement of Financial Position date. Income and expense items are translated at the average exchange rates for the period. Exchange differences arising from the translation of foreign operations are classiﬁ ed as equity and are recognised as income or expenses in the period in which the operation is disposed of. Translation differences on foreign loans to subsidiaries which are classiﬁ ed as equity loans are also accounted for as equity. Consumable stores and product inventories Consumable stores are valued at the lower of cost, determined on a weighted average basis, and estimated net realisable value. Net realisable value represents the estimated selling price less all estimated costs of completion and costs to be incurred in marketing, selling and distribution. Obsolete and slow-moving consumable stores are identiﬁ ed and are written down to their economic or realisable values. Product inventories are valued at the lower of cost, determined on a weighted-average basis, and net realisable value. Costs include direct mining costs and mine overheads. Retirement and pension beneﬁ ts Payments to deﬁ ned contribution retirement beneﬁ t plans are charged as an expense as they fall due. Payments made to state- managed schemes are dealt with as deﬁ ned contribution plans where the Group’s obligations under the schemes are equivalent to those arising in a deﬁ ned contribution retirement beneﬁ t plan. Post-retirement beneﬁ ts ot her than pension Historically Barberton Mines provided retirement beneﬁ ts by way of medical-aid scheme contributions for certain employees. The practice has been discontinued for some years. The net present value of estimated future costs of company contributions towards medical aid schemes for these retirees is recorded as a provision on the Group Statement of Financial Position. The provision is reviewed annually with movements in the provision recorded in the Statement of Comprehensive Income. e M w o h S y e n o M e h T Pan African Resources PLC Annual Report 2010 73 Not es to the Financial Statements cont. for the year ended 30 June 2010 Equity part icipation plan Equity-settled share-based payments to employees are measured at the fair value of the equity instruments at the grant date. Details regarding the determination of the fair value of equity-settled share-based transactions are set out in note 33. The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the Group’s estimate of equity instruments that will eventually vest. At each Statement of Financial Position date, the Group revises its estimate of the number of equity instruments expected to vest. The impact of the revision of the original estimates, if any, is recognised in the Statement of Comprehensive Income such that the cumulative expense reﬂ ects the revised estimate, with corresponding adjustments to the equity-settled employee beneﬁ ts reserve. Provision for environmental rehabilitation costs Long-term environmental obligations are based on Barberton Mines environmental plans, in compliance with current environmental and regulatory requirements. Full provision is made based on the net present value of the estimated cost of restoring the environmental disturbance that has occurred up to the Statement of Financial Position date. Increases due to additional environmental disturbances are capitalised and amortised over the remaining lives of the mines. The estimated cost of rehabilitation is reviewed annually and adjusted as appropriate for changes in legislation or technology. Cost estimates are not reduced by the potential proceeds from the sale of assets or from plant clean-up at closure. Provision for closure costs The Group provides for closure costs other than rehabilitation costs, if any, when the directors have prepared a detailed plan for closure of the particular operation, the remaining life of which is such that signiﬁ cant changes to the plan are unlikely, and the directors have raised a valid expectation in those affected that it will carry out the closure by starting to implement that plan or announcing its main features to those affected by it. Revenue recognition Sales represents the value of minerals sold, excluding value-added tax, and is recognised when goods are delivered and risk and reward has passed, and is measured at the fair value of the consideration received or receivable. Interest income is accrued on a time basis, by reference to the principal outstanding and at the interest rates applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the ﬁ nancial asset to that asset’s net carrying amount. Dividend income from investments is recognised when the shareholders’ rights to receive payment have been established. Revenue is recognised when the buyer takes title, provided that: (a) It is probable that delivery will be made; (b) The item is on hand, identiﬁ ed and ready for delivery to the buyer at the time the sale is recognised; (c) The buyer speciﬁ cally acknowledges the deferred delivery instructions; and (d) The usual payment terms apply. Loans and receivables Trade receivables, loans and other receivables that have ﬁ xed or determinable payments and that are not quoted in an active market are classed as loans and receivables. Loans and receivables are measured at amortised cost using the effective interest method, less impairment if necessary. Interest income is recognised by applying the effective interest rate, except for short-term receivables, when the recognition of interest would be immaterial. Impairment of ﬁ nancial ass ets Financial assets, other than those at Fair Value Through Proﬁ t and Loss (“FVTPL”), are assessed for indicators of impairment at each Statement of Financial Position date. Financial assets are impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the ﬁ nancial asset, the estimated future cash ﬂ ows of the ﬁ nancial asset have been negatively impacted. 74 Derecognition of ﬁ nancial ass ets The Group derecognises a ﬁ nancial asset only when the contractual rights to the cash ﬂ ows from the asset expire, or when it transfers the ﬁ nancial asset and substantially all the risks and rewards of ownership of the asset to another entity. If the Group neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred asset, the Group recognises its retained interest in the asset and an associated liability for amounts it may have to pay. If the Group retains substantially all the risks and rewards of ownership of a transferred ﬁ nancial asset, the Group continues to recognise the ﬁ nancial asset and also recognises a collateralised borrowing for the proceeds received. Financial liabilities and equity instruments issued by the Group Classiﬁ cation as debt or equity Debt and equity instruments are classiﬁ ed as either ﬁ nancial liabilities or as equity in accordance with the substance of the contractual arrangement. Equity instruments An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by the Group are recorded at the proceeds received, net of direct issue costs. Financial liabilities Financial liabilities are classiﬁ ed as either ﬁ nancial liabilities FVTPL or “other ﬁ nancial liabilities”. Financial liabilities at FVTPL Financial liabilities are classiﬁ ed as at FVTPL where the ﬁ nancial liability is either held for trading or it is designated as at FVTPL. A ﬁ nancial liability is classiﬁ ed as held for trading if: • It has been incurred principally for the purpose of repurchasing in the near future; or • It is part of an identiﬁ ed portfolio of ﬁ nancial instruments that the Group manages together and has a recent actual pattern of short-term proﬁ t-taking; or • It is a derivative that is not designated and effective as a hedging instrument. A ﬁ nancial liability other than a ﬁ nancial liability held for trading may be designated as at FVTPL upon initial recognition if: • Such designation eliminates or signiﬁ cantly reduces a measurement or recognition inconsistency that would otherwise arise; or • The ﬁ nancial liability forms part of a group of ﬁ nancial assets or ﬁ nancial liabilities or both, which is managed and its performance is evaluated on a fair value basis, in accordance with the Group’s documented risk management or investment strategy, and information about the grouping is provided internally on that basis; or • It forms part of a contract containing one or more embedded derivatives, and IAS 39 Financial Instruments: Recognition and Measurement permits the entire combined contract (asset or liability) to be designated as at FVTPL. Financial liabilities at FVTPL are stated at fair value, with any resultant gain or loss recognised in proﬁ t or loss. The net gain or loss recognised in proﬁ t or loss incorporates any interest paid on the ﬁ nancial liability. The Group has no ﬁ nancial liabilities classiﬁ ed as FVTPL. Other ﬁ nancial liabilities Other ﬁ nancial liabilities are subsequently measured at amortised cost using the effective interest method, with interest recognised on an effective yield basis. The effective interest method is a method of calculating the amortised cost of a ﬁ nancial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that discounts the estimated future cash payments through the expected life of the ﬁ nancial liability or, where appropriate, a shorter period. e M w o h S y e n o M e h T Pan African Resources PLC Annual Report 2010 75 Not es to the Financial Statements cont. for the year ended 30 June 2010 Financial liabilities and equity instruments issued by the Group (continued) Derecognition of ﬁ nancial liabilities The Group derecognises ﬁ nancial liabilities only when the Group’s obligations are discharged, cancelled or they expire. Derivative ﬁ nancial instruments In the ordinary course of its operations, the Group may enter into a variety of derivative ﬁ nancial instruments to manage its exposure to commodity prices, volatility of interest rates and foreign exchange rate risk. Derivatives are initially recognised at cost at the date a derivative contract is entered into and are subsequently re-measured to their fair value at each Statement of Financial Position date. The resulting gain or loss is recognised in proﬁ t or loss immediately unless the derivative is designated and effective as a hedging instrument, in which event the timing of the recognition in proﬁ t or loss depends on the nature of the hedge relationship. A derivative is presented as a non-current asset or a non-current liability if the remaining maturity of the instrument is more than 12 months and it is not expected to be realised or settled within 12 months. Other derivatives are presented as current assets or current liabilities. Hedge accounting The Group may designate certain hedging instruments, which include derivatives, embedded derivatives and non-derivatives in respect of foreign currency risk, as either fair value hedges, cash ﬂ ow hedges, or hedges of net investments in foreign operations. Hedges of foreign exchange risk or ﬁ rm commitments are accounted for as cash ﬂ ow hedges. At the inception of the hedge relationship, the entity documents the relationship between the hedging instrument and the hedged item, along with its risk management objectives and its strategy for undertaking various hedge transactions. Furthermore, at the inception of the hedge and on an ongoing basis, the Group documents whether the hedging instrument that is used in a hedging relationship is effective in offsetting changes in fair values or cash ﬂ ows of the hedged item. Fair value hedge Changes in the fair value of any derivatives that are designated and qualify as fair value hedges are recorded in proﬁ t or loss immediately, together with any changes in the fair value of the hedged item that are attributable to the hedged risk. The change in the fair value of the hedging instrument and the change in the hedged item attributable to the hedged risk are recognised in the line of the Statement of Comprehensive Income relating to the hedged item. Hedge accounting is discontinued when the Group revokes the hedging relationship, the hedging instrument expires or is sold, terminated, or exercised, or no longer qualiﬁ es for hedge accounting. The adjustment to the carrying amount of the hedged item arising from the hedged risk is amortised to proﬁ t or loss from that date. Cash ﬂ ow hedge The effective portion of changes in the fair value of any derivatives that are designated and qualify as cash ﬂ ow hedges are deferred in equity. The gain or loss relating to the ineffective portion is recognised immediately in proﬁ t or loss, and is included in the “other gains and losses” line of the Statement of Comprehensive Income. Amounts deferred in equity are recycled in proﬁ t or loss in the periods when the hedged item is recognised in proﬁ t or loss, in the same line of the Statement of Comprehensive Income as the recognised hedged item. However, when the forecast transaction that is hedged results in the recognition of a non-ﬁ nancial asset or a non-ﬁ nancial liability, the gains and losses previously deferred in equity are transferred from equity and included in the initial measurement of the cost of the asset or liability. Hedge accounting is discontinued when the Group revokes the hedging relationships, the hedging instrument expires or is sold, terminated, or exercised, or no longer qualiﬁ es for hedge accounting. Any cumulative gain or loss deferred in equity at that time remains in equity and is recognised when the forecast transaction is ultimately recognised in proﬁ t or loss. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was deferred in equity is recognised immediately in proﬁ t or loss. Cash and cash equivalents Cash and cash equivalents comprise cash-on-hand and demand deposits, and other short-term highly liquid investments that are readily convertible to a known amount of cash and are subject to an insigniﬁ cant risk of changes in value. 76 3. Critical accounting estimates and judgements In preparing the annual ﬁ nancial statements in terms of IFRS, the Group’s management is required to make certain judgements, estimates and assumptions that may materially affect reported amounts of assets and liabilities at the date of the ﬁ nancial statements and the reported amounts of revenue and expense during the reported year and the related disclosures. The estimates and judgements are based on historical experience, current and expected future economic conditions and other factors. Actual results may differ from these estimates. Critical accounting estimates and judgements made by management The following judgements, that have the most signiﬁ cant effect on the amounts recognised in the ﬁ nancial statements, have been made by management in the process of applying the Group’s accounting policies: • Estimates made in determining the present obligation of environmental provisions including decommissioning and rehabilitation; • Estimates made in determining the recoverable amount of assets where there is an indication that an asset may be impaired, this includes the estimation of cash ﬂ ows and the discount rates used; • Estimates made in determining the life of the mines. The Life of Mine is determined from development plans based on mine management’s estimates and includes total mineral reserve and a portion of the mineral resource. These plans are updated from time to time and take into consideration the actual current cost of extraction, as well as certain forward projections. These projections are reviewed by the board. • Estimates made of legal or constructive obligations resulting in the raising of provisions, and the expected date of probable outﬂ ow of economic beneﬁ ts to assess whether the provision should be discounted; • Estimates of mineral resources and ore reserves in accordance with the SAMREC code (2000) for South African properties. Such estimates relate to the category for the resource (measured, indicated or inferred), the quantum and the grade; • Estimates of the carrying value of goodwill and intangible assets; • Estimates of the fair value of assets at acquisition are made in accordance with IFRS and take into account the replacement value of assets; and • Estimates of feasibility studies related to exploration and growth projects. e M w o h S y e n o M e h T Pan African Resources PLC Annual Report 2010 77 Not es to the Financial Statements cont. for the year ended 30 June 2010 4. Revenue Gold sales Finance income 5. Cost of production Salaries and wages Mining Processing Engineering and technical services Electricity Security Administration and other Group Company 30 June 2010 £ 30 June 2009 £ 30 June 2010 £ 30 June 2009 £ 68,506,394 661,645 53,000,352 816,754 – 468,490 – 113,205 69,168,039 53,817,106 468,490 113,205 (18,064,485) (5,494,006) (5,424,230) (2,919,966) (3,528,059) (2,714,009) (2,409,131) (12,652,511) (4,444,537) (4,581,547) (2,562,747) (2,044,367) (813,041) (1,405,936) (40,553,886) (28,504,686) – – – – – – – – – – – – – – – – 6. Segmental analysis A segment is a distinguishable component of the Group that is engaged in providing products or services in a particular business sector (business segment), which is subject to risk and rewards that are different to those of other segments. The Group’s business activities were conducted through three business segments, ﬁ rstly in Barberton Mines located in Barberton South Africa, the Group’s corporate and exploration activities and Phoenix Platinum Mining. The Chief Executive Ofﬁ cer reviews the operations in accordance with the disclosures presented below. Revenue Gold sales Realisation costs On-mine revenue Cost of production Depreciation Mining proﬁ t Other (expenses)/income Impairment costs Royalty costs Net income before ﬁ nance income and ﬁ nance costs Finance income Finance costs Proﬁ t before taxation Taxation Barberton Mines £ 68,506,394 (162,791) 68,343,603 (40,553,886) (3,125,093) 24,664,624 (173,988) – (837,378) 23,653,258 193,155 (67,836) 23,778,577 (7,655,913) 30 June 2010 Corporate *Phoenix and Growth Projects Platinum £ £ Barberton Mines £ Group £ 30 June 2009 Corporate *Phoenix and Growth Platinum £ Projects £ Group £ – – – – – – – – – – – – – – – 68,506,394 53,000,352 – (140,546) (162,791) – 68,343,603 52,859,806 – (40,553,886) (28,504,686) (3,125,093) (2,360,431) – – 24,664,624 21,994,689 (100,324) – – (1,755,799) (1,929,787) (335,401) (837,378) (335,401) – (2,091,200) 21,562,058 21,894,365 661,645 703,549 (67,915) (9,244) 468,490 (79) (1,622,789) 22,155,788 22,588,670 (7,655,913) (8,219,425) – – – – – – – – – – – – – – – – 53,000,352 (140,546) – – 52,859,806 – (28,504,686) (2,360,431) – – 21,994,689 (1,365,012) (1,465,336) (5,025,463) (5,025,463) – – (6,390,475) 15,503,890 816,754 (9,933) 113,205 (689) (6,277,959) 16,310,711 (8,219,425) – Proﬁ t after taxation 16,122,664 – (1,622,789) 14,499,875 14,369,245 – (6,277,959) 8,091,286 Other comprehensive income: Foreign currency translation differences Total comprehensive income for the year 1,936,738 443,024 – 2,379,762 3,301,475 348,426 – 3,649,901 18,059,402 443,024 (1,622,789) 16,879,637 17,670,720 348,426 (6,277,959) 11,741,187 * Costs directly attributable to Phoenix Platinum, along with attributable overheads, are capitalised to intangible assets. 78 6. Segmental analysis (continued) 30 June 2010 Corporate *Phoenix and Growth Projects Platinum £ £ Barberton Mines £ Barberton Mines £ Group £ 30 June 2009 Corporate *Phoenix and Growth Platinum £ Projects £ Group £ Segmental assets Segmental liabilities Goodwill Net assets (excluding goodwill) Capital expenditure 43,420,283 4,858,063 22,722,385 71,000,731 31,965,438 379,919 18,514,568 14,619,687 18,049,443 – – 25,370,840 4,772,857 22,342,466 52,486,163 17,345,751 5,918,271 4,052,655 17,075 5,935,346 85,206 – – 21,000,714 – 31,585 – 4,447,159 14,733,397 51,145,994 1,135,034 15,786,306 – 21,000,714 4,415,574 13,598,363 35,359,688 9,150,031 265,770 4,831,606 * Costs directly attributable to Phoenix Platinum, along with overheads, are capitalised to intangibles. 7. Operating leases At the ﬁ nancial year end, the Group and Company had outstanding commitments under non-cancellable operating leases mainly in respect of ofﬁ ce equipment, security cameras, building rentals and compressors, which fall due as follows: Within one year Years 2 to 5 Minimum lease payments under operating leases recognised as an expense in the year: Leases are negotiated for an average term of three to ﬁ ve years. 8. Other (expenses)/income Dividends received – subsidiaries Foreign exchange gain Operating leases Company depreciation Sundry other 9. Finance income/(costs) Interest received – Bank Interest paid – Bank 10. Proﬁ t before taxation Proﬁ t for the year has been arrived at after charging: Management fee expense/(income) – Metorex – Shanduka Share option expense Depreciation Impairment costs Staff costs Operating leases Group Company 30 June 2010 £ 30 June 2009 £ 204,240 121,350 176,651 298,331 325,590 474,982 30 June 2010 £ 41,407 19,865 61,272 30 June 2009 £ 33,890 57,581 91,471 182,762 164,760 23,237 29,348 – 101,369 (182,762) – (1,848,394) – 86,484 (164,760) – (1,387,060) 9,032,496 101,369 (23,237) (9,980) (935,401) 11,275,545 86,484 (29,348) (8,519) (1,559,803) (1,929,787) (1,465,336) 8,165,247 9,764,359 661,645 (67,915) 816,754 (9,933) 468,490 (79) 113,205 (689) 593,730 806,821 468,411 112,516 335,289 76,688 204,704 3,125,093 335,401 18,772,545 182,762 388,685 51,854 264,378 2,360,431 5,025,463 12,993,897 164,760 – – 113,516 9,980 335,401 708,060 23,237 – – 134,683 8,519 5,056,290 147,280 29,348 e M w o h S y e n o M e h T The Company impairment relates to the ﬁ nal impairment of the inter-company loan to Central African Republic exploration project. Pan African Resources PLC Annual Report 2010 79 Not es to the Financial Statements cont. for the year ended 30 June 2010 11. Auditor ’s remuneration Fees payable to the Company’s auditors for the audit of the Company’s annual accounts Audit of the consolidated ﬁ nancial statements Audit of the Company’s subsidiaries pursuant to legislation Under provision of audit fee in the prior year Group Company 30 June 2010 £ 30 June 2009 £ 30 June 2010 £ 10,000 48,180 40,880 19,280 10,000 32,000 22,577 88,447 10,000 48,180 – 19,280 30 June 2009 £ 10,000 32,000 – 88,447 Total audit fees 118,340 153,024 77,460 130,447 Other services rendered by the Auditors Total non-audit fees 2,012 2,012 – – 2,012 2,012 – – 12. Staﬀ costs The average number of employees were: Corporate and Growth Projects Mining Their aggregate remuneration comprised: Salary and wages Other pension costs 13. Taxation Income tax expense South African normal taxation – current year – prior year Deferred taxation – current year Total taxation charge Proﬁ t before taxation Taxation at the domestic taxation rate of 28% Non-deductible expenses/(exempt income) Taxation rate differential Tax effect of utilisation of tax losses Number Number Number Number 12 1,783 1,795 7 1,708 1,715 10 – 10 7 – 7 £ 17,503,662 1,268,883 £ 12,108,815 885,082 £ 682,278 25,782 Number 146,523 757 18,772,545 12,993,897 708,060 147,280 7,283,602 (356,490) 7,804,762 – 728,801 414,663 7,655,913 22,155,788 6,203,621 151,229 1,301,063 – 8,219,425 16,310,711 4,566,999 1,466,315 2,186,111 – – – – – – – – 8,298,257 2,323,512 (2,503,143) – 179,631 – 4,820,586 1,349,764 (1,690,838) – 341,074 Taxation expense for the year 7,655,913 8,219,425 Effective taxation rates Statutory rate Taxation rate differential Non-deductible expenses/(exempt income) Tax effect of utilisation of tax losses Effective taxation rate % 28.00 5.87 0.68 – 34.55 % 28.00 13.40 8.99 – 50.39 – % 28.00 – (30.16) 2.16 0.00 – % 28.00 – (35.08) 7.08 0.00 There are no signiﬁ cant unrecognised temporary differences associated with undistributed proﬁ ts of overseas subsidiaries. South African mining tax on mining income is determined according to a formula which takes into account the proﬁ t and revenue from mining operations. South African mining taxable income is determined after the deduction of all mining capital expenditure, with the proviso that this cannot result in an assessed loss. Capital expenditure amounts not deducted are carried forward as unredeemed capital expenditure to be deducted from future mining income. The Group has no unredeemed capital carried forward deductible against future proﬁ ts. 80 14. Earnings per share Basic and diluted earnings per share Basic and diluted earnings per share are based on the Group’s proﬁ t for the year attributable to owners of the parent, divided by the weighted average number of shares in issue during the year. 30 June 2010 Weighted average number of shares Net proﬁ t £ Earnings per share Pence 30 June 2009 Weighted average number of shares Net proﬁ t £ From continuing operations Basic EPS Share options 14,277,232 1,366,268,709 13,611,714 1.04 4,403,535 1,104,367,219 2,881,444 Diluted EPS 14,277,232 1,379,880,423 1.03 4,403,535 1,107,248,663 Earnings per share Pence 0.40 – 0.40 Headline earnings per share Headline earnings per share is based on the Group’s headline earnings divided by the weighted average number of shares in issue during the year. Reconciliation between earnings and headline earnings from continuing operations: 30 June 2010 Weighted average number of shares Net proﬁ t £ Earnings per share Pence 30 June 2009 Weighted average number of shares Net proﬁ t £ Earnings as reported Adjustments: Impairment costs 14,277,232 1,366,268,709 1.04 4,403,535 1,104,367,219 335,401 1,366,268,709 0.03 5,025,463 1,104,367,219 Headline earnings per share* Share options 14,612,633 1,366,268,709 13,611,714 1.07 – 9,428,998 1,104,367,219 2,881,444 Diluted headline earnings per share 14,612,633 1,379,880,423 1.06 9,428,998 1,107,248,663 * Headline earnings per share is required to be disclosed in terms of the Listing Requirements of JSE Limited. Earnings per share Pence 0.40 0.45 0.85 – 0.85 15. Dividends The board of directors recommend a ﬁ nal dividend for the year ended 30 June 2010 of 0.3723p per share (2009: dividend paid of 0.2555p per share), to be approved by shareholders at the forthcoming annual general meeting of the Company. e M w o h S y e n o M e h T Pan African Resources PLC Annual Report 2010 81 Not es to the Financial Statements cont. for the year ended 30 June 2010 16. Propert y, plant and equipment and mineral rights Mineral rights and mining property £ Land* £ Building and infra- structure £ Plant and machinery £ Shafts £ Exploration £ Other £ Total £ Group COST Balance at 30 June 2008 Additions Acquisition of subsidiary Impairment Disposal Foreign currency translation reserve Balance at 30 June 2009 Additions **Impairment Foreign currency translation reserve Balance at 30 June 2010 Group ACCUMULATED DEPRECIATION Balance at 30 June 2008 Charge for the year Foreign currency translation reserve Balance at 30 June 2009 Charge for the year Foreign currency translation reserve Balance at 30 June 2010 CARRYING AMOUNT 6,775 4,591,927 1,293,458 7,890,030 13,860,305 269,488 279,924 28,191,907 – – – 1,558,610 2,032,679 461,366 265,770 4,318,425 17,830 – – 4,813,776 – – – – – – – – – – – – – – – (242,730) (5,082) 4,831,606 (242,730) (5,082) 3,031 1,450,511 295,990 2,017,793 3,448,567 124,505 28,180 7,368,577 27,636 10,856,214 1,589,448 11,466,433 19,341,551 855,359 326,062 44,462,703 – – – – 24,760 – 1,811,948 – 3,774,572 – 306,991 – 17,075 (294,916) 5,935,346 (294,916) 2,706 1,062,711 156,442 1,184,752 2,023,133 94,286 120 4,524,150 30,342 11,918,925 1,770,650 14,463,133 25,139,256 1,256,636 48,341 54,627,283 Mineral rights and mining property £ Building and infra- structure £ Plant and machinery £ Land* £ Shafts £ Exploration £ Other £ Total £ – (1,539,122) (432,282) (2,268,323) (3,882,366) (330,172) (93,139) (719,080) (1,209,521) – (397,175) (111,607) (617,008) (1,053,154) (2,266,469) (637,028) (3,604,411) (6,145,041) – – – – – (8,122,093) (8,519) (2,360,431) – (2,178,944) (8,519) (12,661,468) (358,353) (112,550) (961,664) (1,574,982) (107,564) (9,980) (3,125,093) (234,186) (66,229) (385,903) (655,695) (3,699) – (1,345,712) – – – – (2,859,008) (815,807) (4,951,978) (8,375,718) (111,263) (18,499) (17,132,273) At 30 June 2009 At 30 June 2010 27,636 30,342 8,589,745 9,059,917 952,420 954,843 7,862,022 13,196,510 9,511,155 16,763,538 855,359 1,145,373 317,543 31,801,235 29,842 37,495,010 * Details of land are maintained in a register held at the ofﬁ ces of Barberton Mines, which may be inspected by a member or their duly authorised agents. The Group reviews the residual values used for purposes of depreciation calculations annually. ** The ﬁ nal impairment of the exploration machinery in the Central African Republic which was ﬁ nally written off during the closure and deregistration of the company. 82 16. Propert y, plant and equipment and mineral rights (continued) Mineral rights and mining Building and infra- Plant and Land* property structure machinery Shafts Exploration £ – – – – – £ – – – – – £ – – – – – £ – – – – – £ – – – – – £ – – – – – Other £ Total £ 21,670 7,396 21,670 7,396 29,066 29,066 17,075 17,075 46,141 46,141 Company COST Balance at 30 June 2008 Additions Balance at 30 June 2009 Additions Balance at 30 June 2010 Mineral rights and mining Building and infra- Plant and Company £ £ £ £ £ £ Land* property structure machinery Shafts Exploration Other £ Total £ ACCUMULATED DEPRECIATION Balance at 30 June 2008 Charge for the year Balance at 30 June 2009 Charge for the year Balance at 30 June 2010 CARRYING AMOUNT At 30 June 2009 At 30 June 2010 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – (8,519) – (8,519) (8,519) (8,519) (9,980) (9,980) (18,499) (18,499) 20,547 27,642 20,547 27,642 * Details of land are maintained in a register held at the ofﬁ ces of Barberton Mines, which may be inspected by a member or their duly authorised agents. The Group reviews the residual values used for purposes of depreciation calculations annually. ** The ﬁ nal impairment of the exploration machinery in the Central African Republic which was ﬁ nally written off during the closure and deregistration of the company. e M w o h S y e n o M e h T Pan African Resources PLC Annual Report 2010 83 Not es to the Financial Statements cont. for the year ended 30 June 2010 17. Other intangible ass ets EXPLORATION AND EVALUATION ASSETS Balance at 30 June 2008 Purchase of Ghana Exploration Licence Purchase of Central African Republic Mining Licence Purchase of subsidiary Exploration expenditure Impairment Foreign currency translation reserve Balance at 30 June 2009 Exploration expenditure Foreign currency translation reserve Balance at 30 June 2010 Group £ 12,837,045 720,000 39,749 239,997 1,580,349 (4,651,335) 1,272,811 12,038,616 976,373 72,891 13,087,880 The impairment of the intangible assets in the prior year was based on the cash-generating units in relation to the exploration and evaluation of assets based in Ghana and the Central African Republic. The intangible assets that were considered non- recoverable were impaired in full due to the mining venture being considered by the directors as non-viable. 18. Goodwill Goodwill acquired in a business combination is allocated at acquisition to the CGUs that are expected to beneﬁ t from that business combination. Group Company 30 June 2010 £ 30 June 2009 £ 30 June 2010 £ 30 June 2009 £ Opening and closing balance 21,000,714 21,000,714 – – The Group tests the goodwill carrying amount annually for impairment, or more frequently if there are indications that goodwill might be impaired. The goodwill carrying amount is not considered impaired and the review was performed in accordance with the Group’s accounting policies. The recoverable amounts of the CGUs are determined from value-in-use calculations. The key assumptions for the value-in-use calculations are those regarding the discount rates, growth rates and expected changes to selling prices and direct costs during the period. Management estimates discount rates using pre-tax rates of 12%, which reﬂ ect current market assessments of the time value of money and the risks speciﬁ c to the CGUs to the extent not already reﬂ ected in the cash ﬂ ows being discounted, an average gold price between US$900 – US$1,150 and exchange rate of ZAR7.80 – ZAR10.0 to the dollar over the life of projects. The life of projects were estimated at 10 years for Barberton Mines, and 10 years for the Manica gold project. Changes in selling prices and direct costs are based on past practices and expectations of future changes in the market. The Group prepares cash-ﬂ ow forecasts derived from the most recent ﬁ nancial budgets approved by management. 84 19. Investments Investments Company 30 June 2010 £ 30 June 2009 £ 53,259,921 38,499,708 At 30 June 2010 the Company held the following shares in subsidiary undertakings: Name of undertaking Barberton Mines Explorator Limitada Mistral Resource Development Corporation Brampton Capital Overseas Limited Phoenix Platinum Country of incorporation Principal activity Proportion of capital effectively held by Company Carrying amount 2010 £ Carrying amount 2009 £ South Africa Mozambique Mining Exploration 100% 100% 45,770,663 88,972 31,010,450 88,972 British Virgin Isles Exploration 100% 584,705 584,705 British Virgin Isles South Africa Exploration Mining 100% 100% 2,485,000 4,330,581 2,485,000 4,330,581 53,259,921 38,499,708 20. Rehabilitation trust fund Group Company 30 June 2010 £ 30 June 2009 £ 30 June 2010 £ Funds held in trust fund (refer to note 27) 2,740,546 2,357,266 – 21. Inventories Consumable stores Provision for obsolete stock 22. Trade and ot her receivables Trade receivables Other receivable and prepayments VAT receivables Group Company 30 June 2010 £ 30 June 2009 £ 1,222,381 (96,007) 410,995 (52,632) 1,126,374 358,363 30 June 2010 £ – – – Group Company 30 June 2010 £ 30 June 2009 £ 2,905,338 347,054 542,267 1,476,643 218,573 505,997 30 June 2010 £ 48,589 86,483 27,265 3,794,659 2,201,213 162,337 There are no material amounts owing that are past due and/or requiring impairment. 30 June 2009 £ – 30 June 2009 £ – – – 30 June 2009 £ 23,286 – – 23,286 e M w o h S y e n o M e h T Pan African Resources PLC Annual Report 2010 85 Not es to the Financial Statements cont. for the year ended 30 June 2010 22. Trade and ot her receivables (continued) The average credit period is: Number of days No interest is charged on trade receivables. Group 30 June 2010 15 30 June 2009 10 Before accepting any new customers, the Group uses a credit bureau or performs a credit assessment to assess the potential customer’s credit limit and credit quality. The Group only transacts with credit worthy customers and large institutions within South Africa. The fair value of trade receivables is not materially different from the carrying value presented. No receivables have been pledged as security. 23. Cash and cash equivalents Cash and cash equivalents comprise cash held by the Group and short-term bank deposits with an original maturity of three months or less. The carrying amount of these assets approximates their fair value. Group Company 30 June 2010 £ 30 June 2009 £ 30 June 2010 £ 30 June 2009 £ Cash and cash equivalents 12,756,262 2,389,301 14,240,891 1,507,134 CREDIT FACILITIES The Group has the following credit facilities at 30 June 2010: Overdraft facility Asset ﬁ nance facility Guarantee Credit card 1,647,389 – 587,222 8,670 1,579,479 45,015 236,922 10,661 2,243,281 1,872,077 – – – – – – – – – – The overdraft facility and asset ﬁ nance facilities are unsecured. The overdraft facility attracts interest at prime in South Africa. 24. Acquisition of additional shares in subsidiary Acquiring additional shares in the subsidiary after control was obtained is accounted for as an equity transaction with owners. On 19 June 2009 the Company announced that it had concluded an agreement with Shanduka and Shanduka’s holding company, Shanduka Resources (Proprietary) Limited, whereby Pan African would acquire Shanduka’s 26% shareholding in Barberton Mines, in exchange for the issue of new ordinary shares in Pan African to Shanduka. On 21 August 2009 Pan African announced that the transaction had become unconditional and that the shares had been issued and allotted to Shanduka. Barberton Mines became a wholly-owned subsidiary of Pan African from this date. The new shares issued to Shanduka (295,751,549 ordinary shares) represent 21% of the enlarged issued share capital of Pan African following implementation of this transaction. Shanduka acquired a further 5% of the issued ordinary share capital of Pan African via the Metorex book build, thereby increasing its shareholding to 26%. 86 24. Acquisition of additional shares in subsidiary (continued) For accounting purposes the Group consolidated 100% of proﬁ ts from Barberton Mines from 21 August 2009. The accounting treatment for the Shanduka and Pan African transaction was in accordance with IAS 27 (revised). Changes in a parent’s ownership interest in a subsidiary that do not result in a change of control are accounted for as equity transactions (i.e. transactions with owners in their capacity as owners). Therefore the additional investment of £14,760,214 through the Pan African share issue to Shanduka and non-controlling interest of £4,059,121 as at 21 August 2009 were eliminated on consolidation, and the Group’s realisation of equity reserve increased by £10,701,093. 25. Share capital Group Company 30 June 2010 £ 30 June 2009 £ 30 June 2010 £ 30 June 2009 £ Authorised 2,000,000,000 (2009: 2,000,000,000) ordinary shares of £0.01 each Issued and fully paid up 1,409,540,711 (2009: 1,112,589,162) ordinary shares of £0.01 each 20,000,000 20,000,000 20,000,000 20,000,000 14,095,406 11,125,891 14,095,406 11,125,891 The following non-cash issue of shares was made during the year: On 21 August 2009, 295,751,549 ordinary shares were issued in terms of the Share Exchange Agreement between Pan African Resources and Shanduka at 65 cents per share. The following cash issue of shares was made during the year: On 10 June 2010; 1,200,000 ordinary shares were issued to Mr N Steinberg at 4.0p per share for cash in relation to share options exercised. Subsequent to the year-end the following cash issues of shares has been made: On 23 August 2010; 4,000,000 ordinary shares were issued to Mr N Steinberg at 4.0p per share for cash in relation to share options exercised. Current number of share options outstanding at 30 June 2010 is 52,145,000 (2009: 49,945,000). 26. Borrowings Group Company 30 June 2010 £ 30 June 2009 £ 30 June 2010 £ 30 June 2009 £ Trade and other payables Accruals 4,064,830 976,924 3,719,877 – 200,338 334,089 253,101 – Total trade and other payables 5,041,754 3,719,877 534,427 253,101 Short-term liabilities – interest bearing Amount due within 12 months Amount due for settlement after 12 months Total borrowings – – – 20,669 – 20,669 – – – e M w o h S y e n o M e h T – – – Borrowings in the prior year represented instalment ﬁ nance loans and were secured by plant and equipment with a net book value of £249,786. These borrowings bore interest at South African prime less 1.5% and were paid in full in the current year. The Group has no ﬁ nance leases at 30 June 2010. Pan African Resources PLC Annual Report 2010 87 Not es to the Financial Statements cont. for the year ended 30 June 2010 27. Provisions GROUP Balance at 30 June 2008 Provided during the year Utilised during the year Foreign currency translation Balance at 30 June 2009 Provided/(utilised) during the year Utilised during the year Foreign currency translation Balance at 30 June 2010 Balance at 30 June 2009 Long-term provisions Current provisions Balance at 30 June 2010 Long-term provisions Current provisions COMPANY Balance at 30 June 2008 Provided during the year Utilised during the year Balance at 30 June 2009 Provided during the year Utilised during the year Balance at 30 June 2010 Balance at 30 June 2009 Long-term provisions Current provisions Balance at 30 June 2010 Long-term provisions Current provisions Post retirement beneﬁ ts £ 122,990 – (12,790) 26,402 Rehabilitation £ 2,096,964 193,347 – 506,192 Leave pay and bonuses £ 711,085 1,104,397 (842,253) 178,666 Total £ 2,931,039 1,297,744 (855,043) 711,260 136,602 2,796,503 1,151,895 4,085,000 (18,470) (14,937) 12,223 147,458 – 278,819 1,488,831 (1,291,205) 115,778 1,617,819 (1,306,142) 406,820 115,418 3,222,780 1,465,299 4,803,497 136,602 – 2,796,503 – – 1,151,895 2,933,105 1,151,895 136,602 2,796,503 1,151,895 4,085,000 115,418 – 3,222,780 – – 1,465,299 3,338,198 1,465,299 115,418 3,222,780 1,465,299 4,803,497 – – – – – – – – – – – – – – – – – – – – – – – – – – – 37,060 – 37,060 76,410 (72,059) 41,411 – 37,060 37,060 – 41,411 41,411 – 37,060 – 37,060 76,410 (72,059) 41,411 – 37,060 37,060 – 41,411 41,411 Rehabilitation trust fund The Group is exposed to environmental liabilities relating to its mining operations. Estimates of the cost of environmental and other remedial work such as reclamation costs, close down and restoration and pollution control are made on an annual basis, based on the estimated life of the mine, following which payments are made to a rehabilitation trust set up as required by South African Laws and Regulations. The provision represents the net present value of the best estimate of the expenditure required to settle the obligation to rehabilitate environmental disturbances caused by mining operations. These costs are expected to be incurred over the life of mine and after ﬁ nal closure of the operations. Leave pay The provision for leave pay is provided for, based on the total cost of employment of employees and the amount of leave days owing to them. 88 28. Deferred taxation Group Company Deferred tax liabilities Property, plant and equipment Provisions Net deferred tax liabilities Reconciliation of deferred tax liabilities: Net deferred liabilities at the beginning of the year Deferred tax asset acquired Deferred tax charge for the year Translation difference 30 June 2010 £ 30 June 2009 £ Note 8,881,636 (789,304) 7,240,069 (487,637) 8,092,332 6,752,432 6,752,432 – 728,801 611,099 5,201,245 (110,179) 414,663 1,246,703 13 Net deferred liabilities at the end of the year 8,092,332 6,752,432 30 June 2010 30 June 2009 £ – – – – – – – – £ – – – – – – – – 29. Financial instruments The Group manages its capital to ensure that it will be able to continue as a going concern while maximising the return to shareholders through the optimisation of the debt and equity balances. The Group’s overall strategy remains unchanged from the prior year. Components of capital: Interest-bearing debt Cash and cash equivalents Net interest-bearing assets Equity Group Company 30 June 2010 £ 30 June 2009 £ 30 June 2010 £ 30 June 2009 £ – (12,756,262) 20,669 (2,389,301) – (14,240,891) – (1,507,134) (12,756,262) 73,486,877 (2,368,632) 56,360,402 (14,240,891) 72,361,319 (1,507,134) 49,147,198 Net debt to equity ratio (%) (0.17) (0.04) (0.20) (0.03) Categories of ﬁ nancial instruments: Financial assets: Cash and cash equivalents Receivables Financial liabilities: Amortised cost 12,756,262 3,794,659 2,389,301 2,201,213 14,240,891 162,337 1,507,134 23,286 5,041,754 4,695,215 575,838 1,207,860 e M w o h S y e n o M e h T Pan African Resources PLC Annual Report 2010 89 Not es to the Financial Statements cont. for the year ended 30 June 2010 29. Financial instruments (continued) Financial risk management objectives The Group seeks to minimise the effects of ﬁ nancial risks by using derivative ﬁ nancial instruments to hedge risk exposures where appropriate. The use of ﬁ nancial derivatives is governed by the Group’s policies approved by the board of directors, which provide written principles on foreign exchange risk, interest rate risk, credit risk, the use of ﬁ nancial derivatives and non-derivative ﬁ nancial instruments, and the investment of excess liquidity. Compliance with the policies and exposure limits is reviewed on a continuous basis. The Group does not enter into or trade ﬁ nancial instruments, including derivative ﬁ nancial instruments, for speculative use. Credit risk Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in ﬁ nancial loss to the Group. The Group has adopted a policy of only dealing with creditworthy counterparties and obtaining sufﬁ cient collateral, where appropriate, as a means of mitigating the risk. The Group’s credit risk is primarily attributable to its trade receivables. The amounts presented in the Statement of Financial Position are net of allowances for doubtful receivables of £11,916 (2009: £16,771), estimated by the Group’s management based on the current economic environment. The credit risk on liquid funds is limited because the counterparties are dealt with in accordance with the Group’s credit policy. The Group has one major customer that represents more than 5% of the trade receivables balance for the individual companies. Customers above 5% Group 30 June 2010 £ 30 June 2009 £ 2,856,749 1,480,138 Market risk The Group’s activities expose it primarily to the ﬁ nancial risks of changes in foreign currency exchange rates and the gold price. Where appropriate, the Group enters into a variety of derivative ﬁ nancial instruments to manage its exposure to foreign currency risk and the commodity price risk. Market risk exposures are measured using sensitivity analysis. Foreign currency risk The Group undertakes certain transactions in foreign currencies. Hence, exposures to exchange rate ﬂ uctuation arise. Exchange rate exposures are managed within approved policy parameters. Commodity price risk The Group may enter into forward contracts to hedge their exposure to ﬂ uctuations in gold prices and exchange rates on speciﬁ c transactions. The contracts are matched with anticipated future cash ﬂ ows from gold sales. Interest rate and liquidity risk Fluctuations in the interest rates impact on short-term investment and ﬁ nancing activities, giving rise to interest rate risk. In the ordinary course of business, the Group receives cash proceeds from its operations and is required to fund working capital and capital expenditure requirements. Cash is managed to ensure that surplus funds are invested to maximise returns whilst ensuring that capital is safeguarded to the maximum extent by only investing with reputable ﬁ nancial institutions. Contractual arrangements for committed borrowing facilities are maintained to meet the Group’s normal and contingent funding needs. Currency and commodity price risk Currency and gold price Pound Sterling/Rand Gold price 90 Average rate for the year ended 30 June 2010 11.93 $1,098 Closing rate at 30 June 2010 11.53 $1,241 29. Financial instruments (continued) Currency and commodity price risk (continued) Foreign currency/gold price sensitivity 2010 2009 Impact of 10% currency or gold price movement on proﬁ t/(loss) £ 4,485,530 3,355,982 The Pound Sterling carrying amount of the Group’s foreign currency denominated monetary assets and liabilities at Statement of Financial Position date is as follows: 2010 Assets Liabilities 2009 Assets Liabilities South African Rands GBP Total 3,273,465 4,507,327 14,403,830 534,427 17,677,295 5,041,754 3,378,274 3,466,390 1,212,240 253,397 4,590,514 3,719,787 Commodity hedges The Group did not undertake any hedging in the current or prior year. Interest rate risk The Group is exposed to interest rate risk as entities within the Group borrow and invest funds at both ﬁ xed and ﬂ oating interest rates. Interest rate sensitivity Based on the low level of interest-bearing balances on the Statement of Financial Position, an interest rate sensitivity is not performed as the interest rate exposure to the Group is minimal. Liquidity risk Ultimate responsibility for liquidity risk management rests with the board of directors, which has built an appropriate liquidity risk management framework for the management of the Group’s short-term funding and liquidity management requirements. The Group manages liquidity risk by maintaining adequate reserves, banking facilities and reserve borrowings facilities, by continually monitoring forecasts and actual cash ﬂ ows and matching maturity proﬁ les of ﬁ nancial assets and liabilities. The Group has access to ﬁ nancing facilities at its mining operations, of which the total unutilised portion is currently £133,720 (2009: £1,900,000). The Group expects to meets its other obligations from operating cash ﬂ ows and proceeds of maturing ﬁ nancial assets. e M w o h S y e n o M e h T Pan African Resources PLC Annual Report 2010 91 Not es to the Financial Statements cont. for the year ended 30 June 2010 29. Financial instruments (continued) Liquidity risk analysis The following table indicates the Group’s remaining contractual maturity from its ﬁ nancial liabilities: Group 2010 Trade payables Long-term liabilities Other-short term liabilities Group 2009 Trade payables Long-term liabilities Other-short term liabilities Company 2010 Trade payables 2009 Trade payables Weighted average interest rate Less than 12 months £ 1-5 years Total 0% 0% 0% 0% 0% 0% 0% 0% 4,064,830 – – 3,719,787 – 975,428 200,338 1,207,860 – – – – – – – – 4,064,830 – – 3,719,787 – 975,428 200,338 1,207,860 Fair value of ﬁ nancial instruments The directors consider that the carrying amounts of ﬁ nancial assets and liabilities recorded approximate their fair values. 30. Post retirement beneﬁ t information All employees are required to be members of either the Barberton Retirement Fund, Sentinel Retirement Fund or Mine Workers Provident Fund or the Shanduka Group Provident Fund. These are deﬁ ned contribution funds and are registered under and governed by the South African Pension Act, 1956 as amended. The assets of the scheme are held separately from those of the Group in funds and they are in the control of the trustees. The total costs charged to the Statement of Comprehensive Income of £1,268,883 (2009: £885,082) represent employer contributions payable to the schemes by the Group at rates speciﬁ ed in the rules of the scheme. The calculation of the provision for post retirement medical beneﬁ ts is performed internally by management using the South African Revenue Services life expectancy tables as the beneﬁ ts payable are a ﬁ xed amount per pensioner. 31. Commitments , contingent liabilities and guarantees Group Commitments The Group had outstanding open orders contracted for at year end of £111,905 (2009: £62,231). Contingent liabilities The Group had no contingent liability in the current ﬁ nancial year, in the prior year £48,976 was in relation to a pending legal case in which a settlement was reached in the current ﬁ nancial year. Guarantees The Group had guarantees of £334,044 (2009: £225,285) in favour of Eskom, and £253,178 (2009: £1,579) in favour of the DMR at year end. Company There were no commitments, contingent liabilities and guarantees for the Company for the year ended 30 June 2010 (2009: £nil). 92 32. Directors’ emoluments The key management personnel for which remuneration has been disclosed are the directors: Executive directors Emoluments Share options Total Non-executive directors Emoluments Over-provision in the prior year Total Total remuneration Individual Executive Mr J Nelson Mr J A J Loots Total Individual Non-executive Mr R G Still Mr J Hopwood Mr K C Spencer Mr R M Smith Mr C M Ramaphosa Total 30 June 2010 £ 260,278 – 260,278 153,918 – 153,918 30 June 2009 £ 92,168 – 92,168 42,500 (30,000) 12,500 414,196 104,668 Share options exercised and sold £ Cost to Company £ Bonuses £ Total 2010 £ Total 2009 £ – – – 138,647 62,867 58,764 – 197,411 62,867 201,514 58,764 260,278 Share options exercised and sold £ Directors’ fees £ Bonuses £ – – – – – – 26,823 24,832 37,720 22,632 41,911 153,918 – – – – – – Total 30 June 2010 £ 26,823 24,832 37,720 22,632 41,911 153,918 92,168 – 92,168 Total 30 June 2009 £ 15,000 17,500 10,000 – – 42,500 Non-executive directors During the year under review, the non-executive directors were Mr R G Still, Mr J Hopwood, Mr K Spencer, Mr C M Ramaphosa and Mr R M Smith. Non-executive directors are entitled to the following fees as approved annually by the Remuneration Committee for services rendered, based on their appointment to the respective board sub-committees: Board of directors Chairman Board of directors Deputy Chairman Board of directors Remuneration Committee Audit Committee SHEC Committee Nominations Committee In the prior year the non-executive directors were entitled to an annual fee of £15 000. Chairperson £ 35,624 20,956 – 6,287 8,382 – 6,287 Member £ – – 16,345 4,191 6,287 6,287 4,191 e M w o h S y e n o M e h T Pan African Resources PLC Annual Report 2010 93 Not es to the Financial Statements cont. for the year ended 30 June 2010 32. Directors’ emoluments (continued) 2010 share options Mr K C Spencer Mr J Nelson Mr R G Still Mr J Hopwood Total 2009 share options Mr K C Spencer Mr J Nelson Mr R G Still Mr J Hopwood Total Average Total options option price Total options 1 July 2009 (Pence) 30 June 2010 3,000,000 6,000,000 4,000,000 1,000,000 6.2 2.0 2.5 6.2 3,000,000 6,000,000 4,000,000 1,000,000 14,000,000 – 14,000,000 Average Total options option price Total options 1 July 2008 (Pence) 30 June 2009 3,000,000 6,000,000 4,000,000 1,000,000 6.2 2.0 2.5 6.2 3,000,000 6,000,000 4,000,000 1,000,000 14,000,000 – 14,000,000 Directors’ interest in shares As at 30 June 2010 the CEO, Mr J P Nelson, held 122,442 shares in Pan African Resources, including a purchase of 75,134 shares at 95 cents per share on 16 October 2009. As at 30 June 2010 the Financial Director, Mr J A J Loots, held 130,000 shares, purchased at 76 cents per share on 24 February 2010. Mr R G Still is a director of Pangea Exploration (Proprietary) Limited (Pangea) and a trustee of a family trust which owns 33.33% of Pangea. Mr R G Still, a non-executive director of Pan African, is therefore deemed to have an indirect, non-beneﬁ cial interest in Pangea’s holding in the Company. Pangea holds 2.67% of the current issued share capital of Pan African. Substantial shareholdings As at 25 June 2010 the substantial shareholdings of which the Company is aware are as follows: Shares in issue: 1,409,540,711 Name Shanduka Gold Coronation Fund Managers Investec Asset Management Allan Gray Investment Council J P Morgan Asset Management Number of shares Percentage held 366,168,585 221,821,092 149,898,928 76,294,036 58,955,000 25.98% 15.74% 10.63% 5.41% 4.18% 33. Share options On 1 September 2005, the Company established a share option programme relating to equity-settled share options entitling speciﬁ c employees, ofﬁ cers, directors and qualifying consultants as approved by the board of directors of the Company and its subsidiaries to purchase shares in the Company. The share option exercise price is determined using the closing price at which shares are traded on the JSE or AIM (as determined by the board of directors), on the trading date immediately preceding the date upon which the board authorised the grant of the opportunity to acquire the relevant share options, as the case may be to a participant. Pursuant to resolutions of the board passed in accordance with the rules of the share option programme, share options may be released from the share option programme to participants, share options may be exercised by participants and allocation shares may be delivered to participants as follows for allocations prior to 21 July 2008: 94 33. Share options (continued) (i) 33.33% of the total number of shares allocated after one year has elapsed from the grant date by the participant of the grant; (ii) up to 66.67% of the total number of shares allocated after two years have elapsed from the grant date by the participant of the grant; (iii) the balance of the shares allocated after three years have elapsed from the grant date by the participant of the grant; and for allocations subsequent to 21 July 2008 as follows: (i) 25% of the total number of shares allocated after one year has elapsed from the grant date by the participant of the grant; (ii) up to 50% of the total number of shares allocated after two years have elapsed from the grant date by the participant of the grant; (iii) up to 75% of the total number of shares allocated after three years have elapsed from the grant date by the participant of the grant; and (iv) the balance of the shares after four years have elapsed from the grant date by the participant of the grant; provided that the board may, at its discretion, anticipate or postpone such dates. An option holder may not exercise a share option under the share option programme by later than the end of the year preceding the tenth anniversary of the grant date. Upon death of an option holder the estate would be entitled to exercise the options vested to date within twelve months of the date of death, if the options are not exercised the total available share options would lapse. The directors have the discretion to approve the vesting of the deceased total number of unvested share options. The number of vested share options to which an option holder is entitled expires after a period of six months due to retirement, redundancy or disability of the option holder. The number and weighted average exercise price of share options is as follows: Outstanding at 1 July Granted during the year Exercised during the year Lapsed in the year 30 June 2010 30 June 2009 Weighted average exercise price Number of options 4.7p 6.1p 4.0p – 49,945,000 3,400,000 (1,200,000) – Weighted average exercise price Number of options 4.7p – – – 49,945,000 – – – Outstanding and exercisable at 30 June 4.8p 52,145,000 4.7p 49,945,000 30 June 2010 30 June 2009 Vested Unvested Vested Unvested Total number share options at year end 37,019,583 15,125,417 29,533,333 20,411,667 The fair value of services received for share options granted is based on the fair value of share options granted, measured using for all issues prior to 20 March 2010 a Black Scholes model and a variant of the Binomial model for issues on 20 March 2010, with the following inputs: Share price Exercise price Expected volatility Expected life Risk-free interest rate 30 June 2010 30 June 2009 68c 68c 58.61% 6.2p 7.0p 72.39% 3 – 6 years 1 – 3 years 8.145% 5.31% e M w o h S y e n o M e h T Pan African Resources PLC Annual Report 2010 95 Not es to the Financial Statements cont. for the year ended 30 June 2010 33. Share options (continued) A Company dividend rate has not yet been determined and therefore is not taken into account in option fair value calculations. The volatility of the Company’s share price on each date of grant was calculated as the average of volatilities of share prices of the Company on the corresponding dates. The volatility of share price of the Company was calculated as the average of annualised standard deviations of daily continuously compounded returns on the Company’s stock, calculated over one to four years back from the date of grant. Therefore, volatility of the Company’s share prices was calculated over the period commensurate with the expected life of the options under consideration, giving more weight to more recent historical data to account for volatility persistence. There are no market conditions attached to the exercise of the share options. The Group recognised total expenses of £204,704 (2009: £264,378) related to equity-settled share-based payment transactions during the reporting period. 34. Related part y transactions The Group entered into the following transactions and held year end balances with related parties: Statement of comprehensive income 30 June 2010 £ Statement of comprehensive income 30 June 2009 £ Statement of ﬁ nancial position 30 June 2010 £ Statement of ﬁ nancial position 30 June 2009 £ (9,032,496) 885,163 – – – 181,707 335,289 76,688 (11,275,545) 194,107 4,600 5,050 3,291 27,246 388,685 51,854 (7,553,649) (10,600,712) – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 8,982,300 – 2,002,084 207,842 8,802,157 3,150,247 1,067,883 10,984,384 13,228,129 – (5,738,018) (954,759) – (5,738,018) (954,759) – 4,209,606 * Dividends received * Fee received from Barberton Mines * Admin fee received from Ghana * Admin fee received from Central African Republic * Admin fee received from Metorex * Admin fee received from Phoenix Platinum Fee paid to Metorex Fee paid to Shanduka Loans to/(from) subsidiaries *Barberton Mines *Mistral Resources *Or Oubangui *Phoenix Platinum Payable to another Group Company **Metorex *Barberton Mines Purchase of subsidiary Purchase of Phoenix Platinum from Metorex * These related party transactions related to Pan African and eliminate on consolidation. ** Metorex was the holding company of Pan African up to 1 July 2010, therefore was a related party to the Group in the prior year. The loan from Metorex was the balance owing in relation to the outstanding purchase consideration for Phoenix Platinum. The loan incurred no interest and was paid on 30 September 2009 in full. 35. Events aft er the report ing period Subsequent to the year end, an additional 4,000,000 ordinary shares were issued for cash at 4.0p per share on 23 August 2010 for cash at 2.0p per share in relation to share options exercised. 96 36. Reconciliation of proﬁ t before taxation to cash generated by/ (utilised in) operations Proﬁ t before taxation Adjusted for: Dividends received Impairment Share option costs Net ﬁ nance income Royalty costs Depreciation Group Company 30 June 2010 £ 30 June 2009 £ 22,155,788 3,908,846 16,310,711 6,843,451 – 335,401 204,704 (593,730) 837,378 3,125,093 – 5,025,463 264,378 (806,821) – 2,360,431 30 June 2010 £ 8,298,257 (9,042,010) (9,032,496) 335,401 113,516 (468,411) – 9,980 30 June 2009 £ 4,820,585 (6,188,569) (11,275,545) 5,056,290 134,683 (112,516) – 8,519 Operating cashﬂ ows before working capital changes 26,064,634 23,154,162 (743,753) (1,367,984) Working capital changes (857,137) 2,266,079 146,626 539,958 (Increase)/decrease in inventories (increase)/decrease in trade and other receivables Increase in trade and other payables and provisions (768,011) (1,593,446) 2,019,795 19,611 771,563 2,033,531 – (139,051) 285,677 – 286,907 253,051 Non-cash items (515,475) (558,626) – – Cash generated by/(utilised in) operations 25,207,497 25,420,241 (597,127) (828,026) Income taxes paid Royalties paid Net ﬁ nance income Dividends paid Dividends paid to minorities (6,685,351) (790,569) 593,730 – – (10,886,018) – 806,821 (2,812,005) (3,961,678) – – 468,411 – – – – 112,516 (2,812,005) – Net cash from/(used in) operating activities 18,325,307 8,567,361 (128,716) (3,527,515) Taxation paid during the year: Taxation charge per the statement of comprehensive income Less: Deferred taxation Taxation unpaid at beginning of year Taxation unpaid at end of year Foreign currency translation 7,655,913 (728,801) 6,927,112 253,659 (528,566) 33,146 8,219,425 (414,663) 7,804,762 3,055,393 (253,659) 279,522 Taxation paid during year 6,685,351 10,886,018 Royalty paid during the year: Royalty costs unpaid at beginning of year Royalty costs unpaid at end of year Royalty costs Foreign currency translation Royalty paid – (48,419) 837,378 1,610 790,569 – – – – – e M w o h S y e n o M e h T Pan African Resources PLC Annual Report 2010 97 Not es to the Financial Statements cont. for the year ended 30 June 2010 37. Special resolutions Special resolutions of members passed in accordance with the company’s articles of association at the Annual General Meeting held on 14 December 2009. It was resolved That the Company be generally and unconditionally authorised for the purposes of section 701 of the Companies Act 2006 to make market purchases (as deﬁ ned in section 693 of that Act) of ordinary shares of the Company on such terms and in such manner as the Directors of the Company shall determine provided that: (a) the maximum aggregate number of ordinary shares which may be purchased is 140,834,071 (representing approximately 10 per cent of the issued share capital of the Company at 10 November 2009); (b) the minimum price (excluding expenses) which may be paid for each ordinary share is 1p; (c) (d) the maximum price (excluding expenses) which may be paid for any ordinary share does not exceed 5 percent. above the average closing price of such shares for the ﬁ ve business days on the London Stock Exchange prior to the date of purchase; this authority shall expire at the conclusion of the next annual general meeting of the Company or on 31 December 2010, whichever is the earlier, unless such authority is renewed prior to that time (except in relation to the purchase of ordinary shares the contract for which was concluded before the expiry of such authority and which might be executed wholly or partly after such expiry); and (e) Any market purchases by the Company of ordinary shares in the Company as contemplated in this resolution shall comply, to the extent required, with the provisions of the Listings Requirements of JSE Limited pertaining to the general authority to repurchase securities for cash. That, the draft regulations in the form produced to the meeting be adopted as the articles of association of the Company in substitution for and to the exclusion of the existing articles of association. 98 38. Shareholder analysis Register date: 25 June 2010 Issued share capital: 1,409,540,711 shares Shareholder spread shareholders Percentage shares Percentage Number of Number of 1 – 1,001 – 1,000 shares 10,000 shares 10,001 – 100,000 shares 100,001 – 1,000,000 shares 1,000,001 shares and over Total 198 1,259 1,468 327 130 3,382 5.85 37.23 43.41 9.67 3.84 131,466 7,008,787 52,334,255 104,563,720 1,245,502,483 0.01 0.50 3.71 7.42 88.36 100.00 1,409,540,711 100.00 Number of Number of Distribution of shareholders shareholders Percentage Shares Percentage Banks Brokers Close corporations Endowment funds Individuals Insurance companies Investment companies Mutual funds Nominees and trusts Other corporations Pension funds Private companies Public companies Total 20 8 37 6 2,725 4 12 34 392 24 61 42 17 3,382 0.59 0.24 1.09 0.19 80.57 0.12 0.35 1.01 11.59 0.71 1.80 1.24 0.50 227,835,843 3,815,457 1,780,484 2,329,196 92,707,763 11,834,200 49,363,413 242,725,414 243,094,143 552,698 102,346,422 419,114,537 12,041,141 16.16 0.27 0.13 0.17 6.58 0.84 3.50 17.22 17.25 0.04 7.26 29.73 0.85 100.00 1,409,540,711 100.00 Public/Non-public shareholder shareholders Percentage shares Percentage Number of Number of Director non-public shareholders Strategic Holdings (more than 10%) non-public Public shareholders Total 2 3 3,377 3,382 0.06 0.03 99.91 252,442 737,888,605 671,399,664 0.02 52.35 47.63 100.00 1,409,540,711 100.00 Beneﬁ cial holding of 3% or more Shanduka Gold Coronation Fund Managers Investec Asset Management Allan Gray Investment Council JP Morgan Asset Management Number of shareholders Percentage 366,168,585 221,821,092 149,898,928 76,294,036 58,955,000 25.98 15.74 10.63 5.41 4.18 e M w o h S y e n o M e h T Pan African Resources PLC Annual Report 2010 99 Not ice of Annual General Meeting NOTICE IS HEREBY GIVEN that the 2010 Annual General Meeting of Pan African Resources Plc will be held at the ofﬁ ces of Fasken Martineau LLP, Fourth Floor, 17 Hanover Square, London W1S 1HU on Monday, 15 November 2010 at 10h00 (all times stated are United Kingdom times unless otherwise stated) to consider and, if thought ﬁ t, transact the following business: Ordinary business 1. To receive and adopt the Directors’ report, the Audited Statement of Accounts and Auditors’ report for the year ended 30 June 2010. To re-elect Mr R G Still as a Director of the Company, who retires by rotation pursuant to the Articles of Association of the Company. To re-elect Mr J P Nelson as a Director of the Company, who retires by rotation pursuant to the Articles of Association of the Company. To approve the ﬁ nal dividend of 0.3723p per share for the year ended 30 June 2010. To re-appoint Deloitte LLP as auditors of the Company and to authorise the Directors to determine their remuneration. 2. 3. 4. 5. Special business As special business, to consider and if thought ﬁ t, to pass the following resolutions of which Resolution 6 will be proposed as an Ordinary Resolution and Resolutions 7 and 8 will be proposed as Special Resolutions: 6. 7. THAT the Directors be and are hereby generally and unconditionally authorised pursuant to Section 551 of the Companies Act 2006 (the “Act”), in substitution for all previous powers granted to them, to exercise all the powers of the Company to allot and make offers to allot equity securities (within the meaning of Section 560 of the Act up to an aggregate nominal amount of £6,553,793.42; such authority shall, unless previously revoked or varied by the Company in general meeting, expire on the conclusion of the Annual General Meeting of the Company to be held in 2011 or on 31 December 2011, whichever is the earlier, provided that the Company may, at any time before such expiry, make an offer or enter into an agreement which would or might require equity securities to be allotted after such expiry and the Directors may allot equity securities pursuant to any such offer or agreement as if the authority conferred hereby had not expired. THAT the Directors be and they are hereby empowered pursuant to Section 571 of the Companies Act 2006 (the “Act”), in substitution for all previous powers granted thereunder, to allot equity securities (within the meaning of Section 560 of the Act) for cash pursuant to the authority granted by resolution 6 above as if Section 561 (1) of the Act did not apply to any such allotment provided that this power shall expire at the conclusion of the Annual General Meeting of the Company to be held in 2011 or on 31 December 2011, whichever is the earlier, and such power is limited to the allotment of equity securities: (a) in connection with rights issues and other pre-emptive issues to holders of ordinary shares where the equity securities respectively attributable to the interests of such holders are proportionate (as nearly as may be practicable) to the respective numbers of ordinary shares held by them, but subject to such exclusions or other arrangements as the directors may deem necessary or expedient to deal with any fractional entitlements or any legal or practical problems under law of, or the requirements of any regulatory body or any recognised stock exchange in, any territory; (b) up to a maximum aggregate nominal value of £287,450 in connection with the exercise of options granted to various parties (including Directors); (c) up to a maximum aggregate nominal value of £709,770.36 (being approximately 5 per cent. of the issued share capital of the Company as at the date of this notice) in connection with the granting of options by the Company granted in accordance with the Pan African Resources PLC Share Option Plan; and (d) up to a maximum aggregate value of £709,770.36 (being approximately 5 per cent. of the issued share capital of the Company as at the date of this notice) otherwise than pursuant to paragraphs (a) to (c) above); 100 save that the Company may, before such expiry make an offer or agreement which would or might require equity securities to be allotted after such expiry and the Directors may allot equity securities in pursuance of any such offer or agreement as if the authority conferred hereby had not expired. The allotment of shares for cash in accordance with this resolution shall comply, to the extent required, with the provisions of the Listings Requirements of JSE Limited pertaining to general issues of shares for cash. 8. That the Company be generally and unconditionally authorised for the purposes of Section 701 of the Companies Act 2006 to make market purchases (as deﬁ ned in Section 693 of that Act) of ordinary shares of the Company on such terms and in such manner as the Directors of the Company shall determine provided that: (a) the maximum aggregate number of ordinary shares which may be purchased is 70,977,035 (representing approximately 5 per cent of the issued share capital of the Company at 15 October 2010; (b) the minimum price (excluding expenses) which may be paid for each ordinary share is 1p; (c) the maximum price (excluding expenses) which may be paid for any ordinary share does not exceed 5 per cent. above the average closing price of such shares for the ﬁ ve business days on the London Stock Exchange prior to the date of purchase; (d) this authority shall expire at the conclusion of the Annual General Meeting of the Company to be held in 2011 or on 31 December 2011, whichever is the earlier, unless such authority is renewed prior to that time (except in relation to the purchase of ordinary shares the contract for which was concluded before the expiry of such authority and which might be executed wholly or partly after such expiry); and (e) Any market purchases by the Company of ordinary shares in the Company as contemplated in this resolution shall comply, to the extent required, with the provisions of the Listings Requirements of JSE Limited pertaining to the general authority to repurchase securities for cash. By Order of the Board St James’s Corporate Services Limited Company Secretary 15 October 2010 6 St James’s Place London England SW1A 1NP Pan African Resources PLC Annual Report 2010 d n A . . . y l t s a L 101 Not ice of Annual General Meeting cont. EXPLANATORY NOTES Entitlement to att end and vot e 1. Pursuant to Regulation 41 of the Uncertiﬁ cated Securities Regulations 2001, the Company speciﬁ es that only those members registered on the Company’s register of members at: • 16h00 on Friday, 12 November 2010; or, • if the AGM is adjourned, at 18h00 on the day two days prior to the adjourned meeting, shall be entitled to attend and vote at the AGM. Appointment of proxies 2. If you are a member of the Company at the time set out in note 1 above, you are entitled to appoint a proxy to exercise all or any of your rights to attend, speak and vote at the AGM and you should have received a proxy form with this notice of meeting. You can only appoint a proxy using the procedures set out in these notes and the notes to the proxy form. 3. A proxy does not need to be a member of the Company but must attend the AGM to represent you. Details of how to appoint the Chairman of the AGM or another person as your proxy using the proxy form are set out in the notes to the proxy form. If you wish your proxy to speak on your behalf at the AGM you will need to appoint your own choice of proxy (not the Chairman) and give your instructions directly to them. 4. 5. You may appoint more than one proxy provided each proxy is appointed to exercise rights attached to different shares. You may not appoint more than one proxy to exercise rights attached to any one share. To appoint more than one proxy, you may photocopy this form. A vote withheld is not a vote in law, which means that the vote will not be counted in the calculation of votes for or against the resolution. If you either select the “Discretionary” option or if no voting indication is given, your proxy will vote or abstain from voting at his or her discretion. Your proxy will vote (or abstain from voting) as he or she thinks ﬁ t in relation to any other matter which is put before the AGM. Appointment of proxy using hard copy proxy form 6. The notes to the proxy form explain how to direct your proxy how to vote on each resolution or withhold their vote. To appoint a proxy using the proxy form, the form must be: • completed and signed; and • sent or delivered to Capita Registrars at Proxies Department, The Registry, 34 Beckenham Road, Beckenham, Kent, BR3 4TU or Computershare Investor Services (Pty) Limited, Ground Floor, 70 Marshall Street, Johannesburg 2001, South Africa (PO Box 61051, Marshalltown 2107, Johannesburg, South Africa); no later than 10h00 on Friday, 12 November 2010. In the case of a member which is a company, the proxy form must be executed under its common seal or signed on its behalf by an ofﬁ cer of the company or an attorney for the company. Any power of attorney or any other authority under which the proxy form is signed (or a duly certiﬁ ed copy of such power or authority) must be included with the proxy form. Appointment of proxy by joint members 7. In the case of joint holders, where more than one of the joint holders purports to appoint a proxy, only the appointment submitted by the most senior holder will be accepted. Seniority is determined by the order in which the names of the joint holders appear in the Company’s register of members in respect of the joint holding (the ﬁ rst-named being the most senior). Changing proxy instructions 8. To change your proxy instructions simply submit a new proxy appointment using the methods set out above. Note that the cut-off time for receipt of proxy appointments (see above) also applies in relation to amended instructions; any amended proxy appointment received after the relevant cut-off time will be disregarded. Where you have appointed a proxy using the hard-copy proxy form and would like to change the instructions using another hard-copy proxy form, please contact Capita Registrars, Proxies Department, The Registry, 34 Beckenham Road, Beckenham, Kent 102 BR3 4TU or Computershare Investor Services (Pty) Limited, Ground Floor, 70 Marshall Street, Johannesburg 2001, South Africa (PO Box 61051, Marshalltown 2107, Johannesburg, South Africa). If you submit more than one valid proxy appointment, the appointment received last before the latest time for the receipt of proxies will take precedence. Termination of proxy appointments 9. In order to revoke a proxy instruction you will need to inform the Registrar by sending a signed hard copy notice clearly stating your intention to revoke your proxy appointment as above. In the case of a member which is a company, the revocation notice must be executed under its common seal or signed on its behalf by an ofﬁ cer of the company or an attorney for the company. Any power of attorney or any other authority under which the revocation notice is signed (or a duly certiﬁ ed copy of such power or authority) must be included with the revocation notice. The revocation notice must be received by Capita Registrars or Computershare Investor Services (Pty) Limited no later than 10h00 on Friday, 12 November 2010. If you attempt to revoke your proxy appointment but the revocation is received after the time speciﬁ ed then, subject to the paragraph directly below, your proxy appointment will remain valid. Appointment of a proxy does not preclude you from attending the AGM and voting in person. If you have appointed a proxy and attend the AGM in person, your proxy appointment will automatically be terminated. Issued shares and tot al vot ing rights 10. As at 18h00 on 15 October 2010, the Company’s issued share capital comprised 1,413,540,711 ordinary shares of 1p each. Each ordinary share carries the right to one vote at a general meeting of the Company and, therefore, the total number of voting rights in the Company as at 18h00 on 15 October 2010 was 1,413,540,711. Directors’ interests and documents on display 11. A statement or summary of transactions of directors (and their family interests) in the share capital of the Company and copies of their service contracts will be available for inspection at the Company’s registered ofﬁ ce during normal business hours (Saturdays and public holidays excepted) from the date of this notice until the conclusion of the AGM and will also be available for inspection at the place of the AGM for at least 15 minutes prior to and during the meeting. CREST 12. CREST members who wish to appoint a proxy or proxies through the CREST electronic proxy appointment service may do so for the meeting and any adjournment(s) thereof by using the procedures described in the CREST manual. CREST personal members or other CREST sponsored members, and those CREST members who have appointed a voting service provider(s), should refer to their CREST sponsor or voting service provider(s), who will be able to take the appropriate action on their behalf. 13. In order for a proxy appointment or instruction made using the CREST service to be valid, the appropriate CREST message (a “CREST Proxy Instruction”) must be properly authenticated in accordance with Euroclear’s speciﬁ cations and must contain the information required for such instructions, as described in the CREST Manual. The message, regardless of whether it constitutes the appointment of a proxy or to an amendment to the instruction given to a previously appointed proxy must, in order to be valid, be transmitted so as to be received by the issuer’s agent (ID: RA10) by 10h00 on Friday, 12 November 2010 (or 48 hours preceding the date and time for any adjourned meeting). For this purpose, the time of receipt will be taken to be the time (as determined by the timestamp applied to the message by the CREST Applications Host) from which the issuer’s agent is able to retrieve the message enquiry to CREST in the manner prescribed by CREST. After this time any change of instructions to proxies appointed through CREST should be communicated to the appointee through other means. 14. CREST members, and, where applicable, their CREST sponsors or voting service providers should note that Euroclear does not make available special procedures in CREST for any particular messages. Normal system timings and limitations will therefore apply in relation to the input of CREST Proxy Instructions. It is the responsibility of the CREST member concerned to take (or, if the CREST member is a CREST personal member or sponsored member or has appointed a voting service provider(s) to procure that his CREST sponsor or voting service provider(s) take(s) such action as shall be necessary to ensure that a message is transmitted by means of the CREST system by any particular time). In this connection, CREST members and, where applicable, their CREST sponsors or voting service providers are referred, in particular, to those sections of the CREST manual concerning practical limitations of the CREST system and timings. Pan African Resources PLC Annual Report 2010 d n A . . . y l t s a L 103 Glossary of Terms and Abbreviations Term Adit Deﬁ nition A mining tunnel that is mined from the side of a mountain or mining pit Attributable Proﬁ t to the Parent Proﬁ t on ordinary activities, after tax, minority interests and preference dividends, attributable to ordinary equity shareholders Cash Cost Cash costs include direct operating costs for all mining and processing sites, but are exclusive of royalties, production taxes, depreciation and rehabilitation, as well as corporate administration, capital and exploration costs Chrome Tailings Discards from a chrome washing plant be it historical (tailings dams) or new (current arisings) Chrome Tailings Retreatment Programme This is a ﬂ otation plant constructed to recover PGMs from chrome tailings Current Arisings Criminal Miners Decline Development Capital Earnings Per Share Effective Tax Rate Fatal Injury Greenstone Belt The live tailings discarded by the chrome operators’ washing plant and fed directly to a CTRP Trespassers who enter mining operations and illegally remove visible gold Underground evacuation at an inclined angle – normally a shaft Capital expenditure incurred in development of the workings areas and creation of additional Mineral Resources to support the mining operations Attributable proﬁ t to the parent company divided by the weighted average number of shares Current and deferred taxation as a percentage of net proﬁ t before taxation An injury that caused the death of a person Geological zone of variably metamorphosed matic to ultramatic volcanic sequences with associated sedimentary rocks that occur within Archaean and Proterozoic cratons between granite and gneiss Headline Earnings Per Share Headline earnings attributable to the parent company divided by the weighted average number of shares In situ Indicated Resource Inferred Resource Lost Day Severity Rate Lost Time Injury Rate Measured Resource Probable Reserve Proved Reserve Reserve Base Serious Injury Original or unbroken condition of the reef before mining A mineral resource reported as an in situ mineralisation estimate – intermediate level of geoscientiﬁ c knowledge and conﬁ dence A mineral resource reported as an in situ mineralisation estimate – low level of geoscientiﬁ c knowledge and conﬁ dence The lost day severity rate is calculated as the total lost days resulting from accidents during a period divided by the total lost day cases and this number represents the average days away The rate of lost time injuries occurring per 1,000,000 hours worked A mineral resource reported as an in situ mineralisation estimate – high level of geoscientiﬁ c knowledge and conﬁ dence A mineral reserve reported as a mineable production estimate – lower level of geoscientiﬁ c knowledge and conﬁ dence A mineral reserve reported as a mineable production estimate – higher level of geoscientiﬁ c knowledge and conﬁ dence A mineral reserve reported as a mineable production estimate – the probable and proved reserve An injury that incapacitates the employee from performing that employee’s similar occupation for a period of 14 days or more Underground mining Mining activities occurring below the earth’s surface Vamping tons Reef tons emanating from cleaning out of old underground working places 104 Abbreviation Deﬁ nition Barberton Mines Barberton Mines (Pty) Limited BBBEE BFS BIOX® CIL CTRP DMR IRR Broad Based Black Economic Empowerment Bankable Feasibility Study Biological Oxidation Carbon-in-leach Chromite Tailings Retreatment Plant Department of Mineral Resources: South African Governmental department (Previously DME) Internal Rate of Return Maintenance Capital Capital expenditure incurred to support or improve the current mining operations Metorex Mining Proﬁ t MPRDA NPV Metorex Limited – held 53.4% in Pan African until 1 July 2009 Mining proﬁ t represents the proﬁ ts earned from the Group’s mines and is stated before royalties, impairment of exploration assets and other (expenses)/income not directly related to the Group’s mining operations The South African Mineral and Petroleum Resources Development Act 28 of 2002 Net Present Value Pan African or the Company Pan African Resources PLC PFS PGE PGM PGM 4E Phoenix Platinum RC SAMREC The SAMREC Code Pre-Feasibility Study Platinum Group Elements generally referring to all elements associated with platinum i.e. platinum, palladium, rhodium, gold, ruthenium, iridium etc. Platinum Group Minerals/Metals Platinum Group Minerals/Metals only including the 4 Elements- Platinum, Palladium, Rhodium and Gold Phoenix Platinum Mining (Pty) Limited – The Chromite Tailings Retreatment Plant in the North-West province, South Africa Reverse Circulation: drilling method The South African Resource Committee The South African code for the reporting of exploration results, mineral resources and mineral reserves Shanduka Shanduka Gold (Pty) Limited, a 100% subsidiary of Shanduka Resources (Pty) Limited Pan African Resources PLC Annual Report 2010 d n A . . . y l t s a L 105 Not es 106 Form of Proxy - Pan African Resources PLC (Incorporated and registered in England and Wales under Companies Act 1985 with registration number 3937466 on 25 February 2000) Share code on AIM: PAF ISIN: GB0004300496 Share code JSE: PAN This Form of Proxy is for use by all non-South African shareholders and for South African certiﬁ cated shareholders and South African own name dematerialised shareholders only. I/We, the undersigned, being a member of the above-named company, hereby appoint the Chairman of the Meeting or (see note 1) Name of proxy Number of shares proxies appointed over as my/our proxy to attend, speak and vote on my/our behalf at the Annual General Meeting of Pan African Resources Plc to be held at the ofﬁ ce of Fasken Martineau LLP, Fourth Floor, 17 Hanover Square, London W1S 1HU at 10h00 on Monday, 15 November 2010 at any adjournment thereof. If you wish to appoint multiple proxies please see note 1 below. Please also tick here if you are appointing more than one proxy. The proxy will vote on the undermentioned resolutions, as indicated. ORDINARY BUSINESS: For Against Voting Withheld* Discretionary** 1. To receive the Accounts and the reports of the directors and auditors thereon 2. To re-elect Mr R G Still as a Director of the Company 3. To re-elect Mr J P Nelson as a Director of the Company 4. 5. To approve the ﬁ nal dividend of 0.3723p per share for the year ended 30 June 2010. To re-appoint Deloitte LLP as auditors of the Company and to authorise the Directors to determine their remuneration SPECIAL BUSINESS: For Against Voting Withheld* Discretionary** 6. To authorise the Directors to allot equity securities 7. To disapply the statutory pre-emption rights 8. To approve off market purchases of Ordinary Shares If this form is signed and returned without any indication as to how the proxy shall vote, he will exercise his discretion both as to how he votes (and whether or not he abstains from voting). * The ‘Vote Withheld’ option is to enable you to abstain on the speciﬁ ed resolution. Please note a ‘Vote Withheld’ has no legal effect and will not be counted in the votes ‘For’ and ‘Against’. ** If you select ‘Discretionary’ or fail to select any of the given options, the proxy is authorised to vote (or abstain from voting) at his or her discretion on the speciﬁ ed resolution. The proxy is also authorised to vote (or abstain from voting) on any other business, which may properly come before the meeting. (BLOCK CAPITALS) Print Name: Signature: Address: Dated this day of 2010 Notes 1. To appoint as a proxy a person other than the Chairman of the meeting insert the full name in the space provided. To appoint more than one proxy you may photocopy this form. Please indicate the proxy holder’s name and the number of shares in relation to which they are authorised to act as your proxy (which, in aggregate, should not exceed the number of shares held by you). Please also indicate if the proxy instruction is one of multiple instructions being given. All forms must be signed and should be returned together in the same envelope. A proxy need not be a member of the Company. 2. This form is for use of shareholders only and will be used only in the event of a poll being directed or demanded. 3. You may, if you wish, delete the words “the Chairman of the Meeting” and substitute the names(s) of your choice. Please initial such alteration. 4. To be effective, this form of proxy must be lodged at the Company’s registrars, Capita Registrars, PXS, The Registry, 34 Beckenham Road, Beckenham, Kent BR3 4TU or Computershare Investor Services 2004 (Pty) Limited, Ground Floor, 70 Marshall Street, Johannesburg 2001, South Africa not later than 48 hours before the start of the meeting. 5. In the case of a corporation, the form must be executed under its common seal or under the hand of an ofﬁ cer or attorney duly authorised in writing. 6. In the case of joint holders, the signature of any of them will sufﬁ ce but the names of all joint holders should be shown. The vote of the senior joint holder who tenders a vote whether in person or by proxy, shall be accepted to the exclusion of the votes of the other joint holders, and for this purpose seniority shall be determined by the order in which the names stand in the Register of Members in respect of the joint holding. 7. Dematerialised shareholders in South Africa who are not own name dematerialised shareholders and who wish to attend the AGM should instruct their CSDP or broker to issue them with the necessary authority to attend the meeting in person, in the manner stipulated in the custody agreement governing the relationship between such shareholders and their CSDP or broker. These instructions must be provided to the CSDP or broker by the cut-off time and date advised by the CSDP or broker for instructions of this nature. Dematerialised shareholders in South Africa who are not own name dematerialised shareholders and who cannot attend but who wish to vote at the AGM should provide their CSDP or broker with their voting instructions, in the manner stipulated in the custody agreement governing the relationship between such shareholders and their CSDP or broker. These instructions must be provided to the CSDP or broker by the cut-off time and date advised by the CSDP or broker for instructions of this nature. 8. Shares held in uncertiﬁ cated form (i.e. in CREST) may be voted through the CREST Proxy Voting Service in accordance with the procedures set out in the CREST manual. POSTAGE WILL BE PAID BY THE ADDRESSEE Second Fold NO POSTAGE NECESSARY IF POSTED IN SOUTH AFRICA l d o F t s r i F BUSINESS REPLY SERVICE LICENCE NO. J 5563 2107 MARSHALLTOWN Third Fold and tuck in ﬂ ap opposite The diﬀ erence • Dividend paying gold company • Unhedged and debt free • Gold production: shallow, low cost & high grade • Consistent year-on-year improvement in productivity • Low cost & high grade platinum production from surface due in 2011 • Management team with a proven track record of delivery Platinum - tipped gold – with a yield www.panafricanresources.com

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