Pan African Resources PLC Annual Report 2016

Plain-text annual report

Integrated annual report for the year ended 30 June 2016 +1 +3 79 79 Au Gold 196.97 2-8-18-32-18-1 P R O F I TA B L E • S U S TA I N A B L E • S TA K E H O L D E R S • G R O W T H Flap Investment case About this report Salient features Chairman’s review 1 2 Strategic report: Business overview STRATEGIC REPORT: BUSINESS OVERVIEW Mapungubwe: South Africa’s lost city of gold One thousand years ago, Mapungubwe in Limpopo province was the centre of the largest kingdom in the subcontinent, where highly sophisticated people traded gold and ivory with China, India and Egypt. The Iron Age site was declared a World Heritage site by Unesco in July 2003. Mapungubwe is an area of open savannah adjacent to the northern border of South Africa and the borders of Zimbabwe and Botswana. It thrived as a sophisticated trading centre from around 1220 to 1300. Unesco describes Mapungubwe as the centre of the largest kingdom in the subcontinent before it was abandoned in the 14th century. It was home to an advanced culture of people – the ancestors of the Shona people of Zimbabwe. They traded with China and India, had a flourishing agricultural industry, and grew to a population of around 5 000. The University of Pretoria excavated the site since its discovery in 1932 and now has a collection of artifacts made of gold and other materials, as well as human remains. The most spectacular of the gold discoveries is a little rhinoceros made of gold foil. The rhino has come to symbolise the high culture of Mapungubwe as well as being a symbol of leadership among the Shona people of Zimbabwe. http://www.southafrica.info/about/history/mapungubwe.htm Credit: © Roger de la Harpe/Africa Media Online Gold rhino (152mm x 42mm x 55mm, weighing 42.8g, 24ct gold). Ar tifact recovered from Mapungubwe Hill. Nor thern Province. South Africa. Made from multiple pieces of f ine gold foil originally tacked with tiny gold nails onto a wooden core (now decayed). Photographed at the Mapungubwe Museum, University of Pretoria +1 +3 79 Au Gold 196.97 2-8-18-32-18-1 Group highlights and challenges 6 7 Our history 8 Our organisation 10 Operating assets Strategic report: Strategy STRATEGIC REPORT: STRATEGY BARBERTON is a town born out of gold In 1881 gold was discovered in the Barber ton area by Tom McLachlan, who found alluvial gold at Jamestown. However, due to the location (the hot Lowveld region was rife with malaria) no-one wanted to go there until Auguste Rober ts discovered gold in Concession Creek on 20 June 1883. This discovery resulted in a gold rush to the area. The town was named after Graham Hoare Barber (1835 to 1888) who discovered a rich gold-bearing reef there in 1884. Barber ton became a municipality in 1904. At first it was just a simple mining camp but grew when Edwin Bray, a prospector, discovered gold in the hills above Barber ton in 1885 and with 14 par tners star ted the Sheba Reef Gold Mining Company. Considered one of the ‘mining wonders of the world’ the Sheba Mine holds the record of being the richest and oldest working mine in the world. Large amounts of money flowed into Barber ton and the first Stock Exchange to operate in the then Transvaal opened its doors. Barber ton flourished for only a brief period and soon the inhabitants began to move away to the newly discovered gold fields on the Reef. https://en.wikipedia.org/wiki/Barberton,_Mpumalanga Credit: Ludwig Sevenster Entrance to underground Sheba Mine +1 +3 79 Au Gold 196.97 2-8-18-32-18-1 14 Chief Executive Ofﬁ cer’s review 22 Our purpose, vision and strategy 26 28 Stakeholder value creation and distribution Business model 30 Enterprise risk management approach 34 Stakeholder engagement Strategic report: Performance review STRATEGIC REPORT: PERFORMANCE REVIEW Discovery of GOLD in South Africa Gold was discovered on a Transvaal farm, Langlaagte, on the Witwatersrand in 1886 by two prospectors. This discovery caused a turning point in South African history. Far more than diamonds, it changed South Africa from an agricultural society to become the largest gold producer in the world. The gold discovered ran for miles and miles underground, ‘an endless treasure of gold’. As news of the gold find spread throughout Southern Africa, various mining towns developed along the curve of the underground gold reef. This curve was named the Witwatersrand, attracting hundreds and hundreds of people seeking their for tune. http://www.randrefinery.com/brochures/Rand%20Refinery%20-%20 The%20Story%20of%20Gold.pdf Credit: © Museum Africa/Africa Media Online George Harrison Park, Langlaagte +1 +3 79 Au Gold 196.97 2-8-18-32-18-1 38 45 47 Financial Director’s review Five-year review Operational review and performance 56 Operational production 60 Abridged mineral resources and mineral reserves report Employee review Safety, health and environment review Community review Transformation 69 74 79 80 Supplementary information This report represents one of three elements of Pan African Resources’ 2016 ﬁ nancial year-end communication strategies with stakeholders, the other two being: • Online supplementary information, which contains additional non-ﬁ nancial disclosures referencing GRI • Pan African Resources’ mineral resources and mineral reserves report, which provides technical information on the mineral assets compliance with the South African Code for Reporting of Mineral Resources and Mineral Reserves (the SAMREC Code) The above supplementary information, together with this 2016 integrated annual report, is available on the group’s website at www.panafricanresources.com Feedback We welcome any feedback stakeholders may have on our integrated annual report. Please contact info@paf.co.za with your feedback. Online copies of our integrated annual report are available on our website http://www.panafricanresources.com. A limited number of hard copies are available on request from the Company Secretary, whose details appear on the inside back cover. Navigational tools The following tools will assist you throughout the report For further reading on our website www.panafricanresources.com For further reading in this report Transparency and accountability TRANSPARENCY AND ACCOUNTABILITY The missing KRUGER millions Lost in: 1890 Estimated value: USD250,000,000 Contents: gold coins, ingots, gold dust During the Second Anglo-Boer War, the Boers realised that their capital, Pretoria, would soon be captured by British troops so they swiftly commandeered as much gold as they could from government reserves, banks and the mines. They also minted many thousands of new gold coins. Much of this gold is believed to have travelled with the Boer President, Paul Kruger, as he journeyed eastwards through Middelburg, Machadodorp and Waterval Boven towards Mozambique to escape the advancing British. He departed for France by boat on 19 October 1900. The gold remained behind, hidden somewhere in the bushveld of the North Eastern Transvaal and it has never been officially found. http://www.southcapecoins.co.za/news/the-mystery-of-the-missing- kruger-millions +1 +3 79 Au Gold 196.97 2-8-18-32-18-1 84 Board of directors 86 Executive and operations management 88 Corporate governance review 93 Remuneration review Annual ﬁ nancial statements ANNUAL FINANCIAL STATEMENTS GOLD and the concept of MONEY Gold’s beauty, scarcity, unique density (no other metal outside the platinum group is as heavy), and the ease at which it could be melted, formed, and measured made it a natural trading medium. Gold gave rise to the concept of money itself: por table, private, and permanent. Gold and silver in standardised coins came to replace bar ter arrangements and made trade much easier. Gold increased trade between South Africa and the rest of the world. For the main trading nations, namely Europe and the United States, gold was of value because their currencies were backed by gold. This was known as the gold standard. Under the gold standard, these countries had to keep gold in a bank vault to the value of the currency they issued. For example, if the government of a country wanted to print more money, it had to buy gold to back that money. If that country did not produce gold itself, it had to impor t gold from another country. http://www.randrefinery.com/brochures/Rand%20Refinery%20-%20 The%20Story%20of%20Gold.pdf +1 +3 79 Au Gold 196.97 2-8-18-32-18-1 107 Audit committee report 109 Directors’ statement of responsibility 109 Certiﬁ cate of the Company Secretary 110 Directors’ report Independent auditors report 112 113 114 119 – United Kingdom – South Africa Consolidated and separate annual ﬁ nancial statements Notes to the consolidated and separate annual ﬁ nancial statements Shareholders’ information SHAREHOLDERS’ INFORMATION Gold as an INVESTMENT Of all the precious metals, gold is the most popular as an investment as investors generally buy gold as a way of diversifying risk, hedging against inflation, deflation or currency devaluation. The gold market is subject to speculation and volatility as are other markets; however compared to other precious metals used for investment, gold has the most effective safe haven and hedging properties across a number of asset classes. Gold has been used throughout history as money and like most commodities, the price of gold is driven by supply and demand including demand from speculation. Given the huge quantity of gold stored above-ground compared to the annual production, the price of gold is mainly affected by changes in demand from speculators, through investment demand, rather than changes in annual production (supply). Central banks and the International Monetary Fund play an important role in the gold price. At the end of 2004 central banks and official organisations held 19 percent of all above-ground gold as official gold reserves. It is generally accepted that the price of gold is closely related to interest rates. As interest rates rise the general tendency is for the gold price, which earns no interest, to fall, and as interest rates dip, for the gold price to rise. As a result, the gold price can be closely correlated to central banks through the monetary policy decisions made by them related to interest rates. The price of gold can be influenced by a number of macro-economic variables which include the price of oil, the use of quantitative easing, currency exchange rate movements and returns on equity markets. The most traditional way of investing in gold is by buying bullion gold bars. In some countries, like Canada, Austria, Liechtenstein and Switzerland, these can easily be bought or sold at the major banks. Alternatively, there are bullion dealers that provide the same service. Bars generally carry lower price premiums than gold bullion coins. However larger bars carry an increased risk of forgery due to their less stringent parameters for appearance. Gold coins are a common way of owning gold. Bullion coins are priced according to their fine weight, plus a small premium based on supply and demand, The sizes of bullion coins range from one-tenth of an ounce to two ounces, with the one-ounce size being most popular and readily available. South Africa’s Krugerrand is the most widely held gold bullion coin, with 46 million troy ounces (1,400 tonnes) in circulation. http://www.randrefinery.com/brochures/Rand%20Refinery%20-%20The%20Story%20of%20Gold.pdf +1 +3 79 Au Gold 196.97 2-8-18-32-18-1 Shareholders’ analysis 184 185 Notice of annual general meeting 191 Form of proxy – United Kingdom 193 195 Glossary ibc Company information ibc Form of proxy – South Africa Shareholders’ diary About this report Scope and boundary Scope and boundary We are pleased to present Pan African Resources’ integrated annual We are pleased to present Pan African Resources’ integrated annual report (the report). The report presents, to our shareholders and report (the report). The report presents, to our shareholders and other stakeholders, an overview of the group’s ﬁ nancial and non- other stakeholders, an overview of the group’s ﬁ nancial and non- ﬁ nancial information for the period 1 July 2015 to 30 June 2016. ﬁ nancial information for the period 1 July 2015 to 30 June 2016. The report includes the activities of the holding company, Pan African The report includes the activities of the holding company, Pan African Resources, and all of its operations and subsidiaries. The group’s Resources, and all of its operations and subsidiaries. The group’s subsidiaries are incorporated in South Africa and their functional subsidiaries are incorporated in South Africa and their functional currency is ZAR. The group’s business is conducted in ZAR and the currency is ZAR. The group’s business is conducted in ZAR and the accounting records are maintained in this same currency, with the accounting records are maintained in this same currency, with the exception of precious metal product sales, which are conducted in exception of precious metal product sales, which are conducted in USD, prior to conversion into ZAR. The ongoing review of the results USD, prior to conversion into ZAR. The ongoing review of the results of the operations conducted by executive management and the of the operations conducted by executive management and the board is also performed in ZAR. The report includes abbreviations board is also performed in ZAR. The report includes abbreviations page 195. page 195. and terms which have been deﬁ ned in the glossary on and terms which have been deﬁ ned in the glossary on KING III KING III IIRC IIRC GRI GRI IFRS IFRS Process for deﬁ ning report content Process for deﬁ ning report content The process for deﬁ ning the report content was guided by the The process for deﬁ ning the report content was guided by the recommendations contained in the International Integrated Reporting recommendations contained in the International Integrated Reporting Framework, issued by the International Integrated Reporting Council Framework, issued by the International Integrated Reporting Council in December 2013. We continue to embed the guiding principles in December 2013. We continue to embed the guiding principles and content elements contained in the International Integrated and content elements contained in the International Integrated Reporting Framework. The content in the report focuses on those Reporting Framework. The content in the report focuses on those issues which materially impact our ability to create and sustain value issues which materially impact our ability to create and sustain value over the short (one year), medium (two to three years) and long over the short (one year), medium (two to three years) and long term (beyond three years). Pan African Resources appreciates that term (beyond three years). Pan African Resources appreciates that its business operations use various forms of capital, including ﬁ nancial its business operations use various forms of capital, including ﬁ nancial capital, human capital, natural capital, intellectual capital, manufactured capital, human capital, natural capital, intellectual capital, manufactured capital and social and relationship capital. Consideration of the six capital and social and relationship capital. Consideration of the six forms of capital is shown in our business model on forms of capital is shown in our business model on page 26. page 26. Further, the report has been prepared in line with the London Further, the report has been prepared in line with the London Stock Exchange’s (LSE) Alternative Investment Market (AIM), the Stock Exchange’s (LSE) Alternative Investment Market (AIM), the LSE’s international market for smaller growth companies, and the LSE’s international market for smaller growth companies, and the Johannesburg Stock Exchange’s (JSE) Listings Requirements. We have Johannesburg Stock Exchange’s (JSE) Listings Requirements. We have ororooorpooooorararaaatetettet applied the majority of principles of the King Report on Corporate applied the majority of principles of the King Report on Corporate nccccce ononononon Governance (King III), with an explanation for non-complian Governance (King III), with an explanation for non-compliance on page 89. The UK Corporate Governance Code (UK Code) odedededede) ) page 89. The UK Corporate Governance Code (UK Co innnnnababababability was considered in the preparation of the report. The sustainability was considered in the preparation of the report. The sustainability information contained in this report and online was prepared based information contained in this report and online was prepared based on the GRI G3.1 standard disclosure guidelines. A separate GRI report on the GRI G3.1 standard disclosure guidelines. A separate GRI report is available on our website at www.panafricanresources.com. www.panafricanresources.com. is available on our website at The abridged mineral resources and mineral reserves report was The abridged mineral resources and mineral reserves report was based on the Mining and Metals Sector Disclosure Guidelines. The based on the Mining and Metals Sector Disclosure Guidelines. The annual ﬁ nancial statements have been prepared in accordance with annual ﬁ nancial statements have been prepared in accordance with the International Financial Reporting Standards (IFRS), the South the International Financial Reporting Standards (IFRS), the South African Institute of Chartered Accountants Financial Reporting African Institute of Chartered Accountants Financial Reporting Guides, as issued by the Accounting Practices Committee, and the Guides, as issued by the Accounting Practices Committee, and the requirements of the UK Companies Act 2006 (UK Companies Act). requirements of the UK Companies Act 2006 (UK Companies Act). Assurance Assurance Pan African Resources’ external auditors, Deloitte LLP, as the Pan African Resources’ external auditors, Deloitte LLP, as the statutory auditor and Deloitte & Touche SA as the local auditor for statutory auditor and Deloitte & Touche SA as the local auditor for JSE reporting purposes, have independently audited the ﬁ nancial JSE reporting purposes, have independently audited the ﬁ nancial statements for the year ended 30 June 2016. Their unmodiﬁ ed audit statements for the year ended 30 June 2016. Their unmodiﬁ ed audit reports are set out on pages 112 and 113. pages 112 and 113. reports are set out on Forward-looking statements Forward-looking statements Statements in this report that address exploration activities, mining Statements in this report that address exploration activities, mining potential and future plans and objectives of Pan African Resources potential and future plans and objectives of Pan African Resources are forward-looking statements and forward-looking information are forward-looking statements and forward-looking information that involve various risks, assumptions and uncertainties and are not that involve various risks, assumptions and uncertainties and are not statements of fact. The directors and management of Pan African statements of fact. The directors and management of Pan African Resources believe that the expectations expressed in such forward- Resources believe that the expectations expressed in such forward- looking statements or forward-looking information are based on looking statements or forward-looking information are based on reasonable assumptions, expectations, estimates and projections. reasonable assumptions, expectations, estimates and projections. However, these statements should not be construed as being However, these statements should not be construed as being guarantees or warranties (whether expressed or implied) of future guarantees or warranties (whether expressed or implied) of future performance. There can be no assurance that such statements will performance. There can be no assurance that such statements will prove to be accurate and actual values, results and future events prove to be accurate and actual values, results and future events could differ materially from those anticipated in these statements. could differ materially from those anticipated in these statements. Important factors that could cause actual results to differ materially Important factors that could cause actual results to differ materially from statements expressed in this report include, among others, the from statements expressed in this report include, among others, the actual results of exploration activities; technical analysis; the lack of actual results of exploration activities; technical analysis; the lack of availability to Pan African Resources of necessary capital on acceptable availability to Pan African Resources of necessary capital on acceptable terms; general economic, business and ﬁ nancial market conditions; terms; general economic, business and ﬁ nancial market conditions; political risks; industry trends; competition; changes in government political risks; industry trends; competition; changes in government regulations; delays in obtaining governmental approvals; interest rate regulations; delays in obtaining governmental approvals; interest rate ﬂ uctuations; currency ﬂ uctuations; changes in business strategy or ﬂ uctuations; currency ﬂ uctuations; changes in business strategy or development plans and other risks. Although Pan African Resources development plans and other risks. Although Pan African Resources has attempted to identify important factors that could cause actual has attempted to identify important factors that could cause actual results to differ materially, there may be other factors that cause results results to differ materially, there may be other factors that cause results not to be as anticipated, estimated or intended. Pan African Resources not to be as anticipated, estimated or intended. Pan African Resources is not obliged to publicly update any forward-looking statements is not obliged to publicly update any forward-looking statements included in this report, or revise any changes in events, conditions included in this report, or revise any changes in events, conditions or circumstances on which any such statements are based, occurring or circumstances on which any such statements are based, occurring after the publication date of this report, other than as required by after the publication date of this report, other than as required by regulation. regulation. Statement from the board of directors Statement from the board of directors The board acknowledges its responsibility to ensure the integrity The board acknowledges its responsibility to ensure the integrity of the integrated annual report. The board has applied its collective of the integrated annual report. The board has applied its collective mind in the preparation and presentation of the report and is mind in the preparation and presentation of the report and is satisﬁ ed that the report addresses all material matters and fairly satisﬁ ed that the report addresses all material matters and fairly presents the integrated performance of Pan African Resources. presents the integrated performance of Pan African Resources. Keith Spencer Keith Spencer Chairman Chairman 20 September 2016 20 September 2016 Cobus Loots Cobus Loots Chief Executive Ofﬁ cer Chief Executive Ofﬁ cer Investment case Pan African Resources is a mid-tier African-focused precious metals producer. The key enablers of our strategy are: People Fostering relationships through action, integrity and honesty Action Leadership, planning and control Disciplined approach to capital management • Management team that continues to drive shareholder value Preferred gold investment • Proﬁ table production growth from long-life assets rong statement of • Limited gearing with strong statement of ﬁ nancial position ability Committed to sustainability m • Focused on achieving zero harm ero harm ally • Legacy of environmentally responsible mining, rehabilitation liabilities are well-funded • Strong relationships with th labour, government and d communities LE P O E P RESULT S Results targets without compromimimiisese Delivering on all our targets without compromise le gold Maximising sustainable gold Positive impact on earnings • Long-life quality gold mining operations Barberton Mines – up to 22 years’ life of mine and Evander Mines – 16 years’ life of mine • Signiﬁ cant resource and reserve base, with a focus on bringing A C T I O N these ounces to account in the form of cash ﬂ ows and earnings • Ability to conclude further value-accretive acquisitions • Strong track record of replenishing mineral reserves by targeting exploration and development to increase the life of mine • Gold mining assets provide a safe haven investment in volatile equity markets Proven business model, committed to low-cost production and, successful organic growth with occasional opportunistic value-accretive transactions • Culture of delivery – Barberton Mines’ BTRP and Evander Mines’ ETRP Delivering consistent and increasing returns • Attractive dividend yield and sector-leading dividend pay-out with a track record of dividend growth • Attractive proﬁ tability and cash ﬂ ow generation • Quality assets delivering strong returns • PGM and coal assets do not detract from gold focus, but increase return to shareholders • Focused on strong and sustainable margins • Total mineral resources gold of 34.9Moz and 0.6Moz of platinum group elements and attractive project pipeline • People focused • High-margin assets allow for dividend to be maintained • Project delivery: BTRP payback – 18 months, ETRP forecasted payback – less than four years and the Uitkomst Colliery – forecasted payback of less than ﬁ ve years Salient features 16.5% Gold sold: 204,928oz (2015: 175,857oz) 43.1% Revenue: ZAR3,632.8 million (2015: ZAR2,539.4 million) 163.1% Earnings per share: 30.20 cents per share (2015: 11.48 cents per share) 156.1% Headline earnings: ZAR547.1 million (2015: ZAR213.6 million) 160.2% Proﬁ t after tax: ZAR547.0 million (2015: ZAR210.2 million) 3.5% All-in costs per kilogram: ZAR410,206/kg (2015: ZAR425,084/kg) 34.6% Proposed ﬁ nal dividend: ZAR0.15438 per share (2015: ZAR0.11466 per share) equating to ZAR300 million (2015: ZAR210 million) Group revenue ZAR millions Headline earnings ZAR millions 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0 600 500 400 300 200 100 0 Gold sold Ounces 250,000 200,000 150,000 100,000 50,000 0 Revenue and cost per kg ZAR/kg 600,000 500,000 400,000 300,000 200,000 100,000 0 2012 2013 2014 2015 2016 2012 2013 2014 2015 2016 2012 2013 2014 2015 2016 2012 2013 2014 2015 2016 Group revenue Headline earnings Underground Surface Tailings Cash cost All-in sustaining costs All-in costs Average spot price received Pan African Resources integrated annual report 2016 1 Chairman’s review Keith Spencer Chairman “Our 2016 ﬁ nancial year was characterised by a much improved gold price as well as a signiﬁ cant increase in the gold produced by our operations. Group proﬁ ts increased 160.2% to ZAR547 million and all-in sustaining costs increased 0.9% to ZAR405,847/kg. The group’s proposed dividend of ZAR300 million for the 2016 ﬁ nancial year is sector leading, with a ﬁ ve- year historical average dividend yield in excess of 5%.” In general, the year under review delivered attractive returns in the global gold industry, with the USD gold price rallying early in 2016. Investor sentiment towards the sector improved due to a number of factors, including continued global economic volatility and uncertainty. Locally, the rand continued along a volatile path, resulting in an overall depreciation during the year under review of almost 30% against the average ZAR/USD exchange rate. This depreciation assisted group earnings, both in GBP and ZAR. Although the rand strengthened following year-end, it remains vulnerable to further depreciation if South Africa is downgraded to non-investment grade at the end of 2016. A downgrade will negatively impact the country’s ability to attract foreign investment to fund economic growth, increase South Africa’s cost of borrowing and add to inﬂ ationary pressures. In August 2016, South Africa also went to the polls in one of the most ﬁ ercely contested local government elections since the advent of democracy. The elections were peaceful and well organised, with the governing African National Congress losing support nationally and also in major metropolitan areas. The manner in which these elections were conducted is encouraging for South Africa’s young democracy. Despite a volatile operating environment, Pan African Resources experienced an excellent ﬁ nancial and operational performance on the back of the strong rand gold price and the much improved operational performance at Evander and Barberton Mines. Gold revenue at Evander Mines rose 58.3% to ZAR1,538.3 million as the underground head grade improved to 5.7g/t, largely due to mining at 8 Shaft’s newly-established 25 level. The Evander Tailings Retreatment Plant also enhanced production growth and delivered low-cost, high-margin gold ounces. Barberton Mines’ gold sales rose by 7.1% to 113,281oz with a head grade of 11.0g/t 2 Pan African Resources integrated annual report 2016 and the Barberton Tailings Retreatment Plant contributed 28,591oz. Phoenix Platinum’s performance was negatively affected by International Ferro Metals Limited’s (IFM) business rescue proceedings announced in August 2015 in respect of its South African subsidiary (IFMSA), with processing and mining activities suspended. In July 2016, Phoenix Platinum reached agreement to allow for the cession of its IFMSA agreement to the new owner of the IFMSA assets, TC Smelters Proprietary Limited. This agreement has provided Phoenix Platinum with security of tenure going forward. The platinum price that has been trending upward since the beginning of 2016, together with productivity improvements implemented at Phoenix Platinum, should contribute positively to the operation’s sales and performance going forward. The Uitkomst Colliery, which was acquired during the year, contributed ZAR11.4 million in earnings which was in line with expectations. Group proﬁ ts increased 160.2% to ZAR547 million and all-in sustaining costs increased by only 0.9% to ZAR405,847/kg. The group’s ﬁ nal proposed dividend of ZAR300 million for the 2016 ﬁ nancial year is sector leading, with a ﬁ ve-year historical average dividend yield in excess of 5%. During the year under review, the group’s net debt position increased marginally, despite the cash acquisition of the Uitkomst Colliery and funds used for a portion of the Shanduka Gold Proprietary Limited (Shanduka Gold) transaction. Following year-end, the group’s liquidity position improved further, resulting in limited gearing and a strong ﬁ nancial position for future acquisitive or organic growth opportunities. Further details on the group’s ﬁ nancial results are included in the reviews by the Chief Executive Ofﬁ cer and Financial Director on pages 14 and 38 respectively. Apart from our solid ﬁ nancial and operational performance, other key highlights during the year included ﬁ nalising the acquisition of the Uitkomst Colliery as well as the conclusion of the Shanduka Gold transaction. The group assumed control of the Uitkomst Colliery operations on 31 March 2016 which, as testament to the group’s track record of project delivery, was immediately cash- generative and has a forecast payback period of four years. The board remains conﬁ dent that this acquisition will contribute to group earnings and cash ﬂ ows going forward. The Shanduka Gold transaction concluded in June 2016 realised material value for Pan African Resources’ shareholders via an investment – at a discounted price – in Pan African Resources’ shares through Shanduka Gold, on an earnings-accretive basis. It also allows the group to preserve its black economic empowerment (BEE) ownership, in compliance with prevailing BEE legislation and provides funding headroom to swiftly access potential growth opportunities. Further details on this transaction are included in the reviews by the Chief Executive Ofﬁ cer and Financial pages 14 and 38 respectively. Director on Due to the inherent risk associated with mining, there can be no compromise at Pan African Resources regarding our efforts to reduce the danger associated with unhealthy or unsafe conditions in the workplace. Safety is one of the group’s key priorities and we have a robust governance process in place that includes policies, procedures and standards to reinforce behaviours in support of our strategic objective of zero harm. Regrettably, we experienced one fatality at Evander Mines on 26 June 2016. We extend our deepest condolences to the family, friends and colleagues of our deceased colleague, Mr Joaquim Armando Muxhanga. Measures to further improve the group’s safety performance continue to be introduced. The group embraces the targets for social development and community upliftment as encapsulated in the Mining Charter. Our operations made good progress in achieving these goals, most notably meeting employment equity targets at management level. The group maintains its commitment to improving living conditions for mineworkers at all operations. The transformation trusts at our gold mining operations continued to generate funds to invest back into our communities by encouraging suppliers to contribute 1% of their contract value to these transformation trusts. A total of ZAR1.7 million was collected on behalf of these trusts during the year under review. The group recognises the immense need to uplift the communities in which we operate and invested ZAR21.0 million in corporate social investment and socio-economic development initiatives to alleviate the social and economic challenges facing these communities. Pan African Resources is committed to maintaining good relationships with our labour unions through a proactive, consultative, open-door approach. We are pleased to note that we successfully concluded multi-year wage agreements across our operations at Barberton and Evander Mines and did not experience signiﬁ cant labour disruptions during the year under review. South Africa’s labour environment will remain challenging in the short to medium term and we appreciate that all parties have to cooperate to ensure the sustainability of our industry into the future. In keeping with the group’s belief that its employees and associated communities should beneﬁ t from mining activities, we will be implementing our BEE transaction at Uitkomst Colliery by 31 December 2016 – employee share ownership schemes are already in place at our gold mining operations. The programme at Uitkomst Colliery will provide employees, the community and a strategic partner with a direct 9% shareholding through a trust structure. Value will be created for beneﬁ ciaries based on the proﬁ tability of the Uitkomst Colliery operation’s performance. Skills shortages remain a challenge in South Africa and many students do not have the resources for tertiary education. To effect a positive change, the group entered into a memorandum of understanding with the University of Johannesburg to provide bursaries for 16 mining and engineering students over a period of three years. These students will also be exposed to practical on-the-job training at the group’s operations and this initiative provides an alternative talent pipeline for the group going forward. Further page 71. detail on this initiative is shown on One of Pan African Resources’ key strategic pillars is sustainability. This entails continuous environmental management and oversight to minimise the negative impact of our operations on natural resources and the environment. I am pleased to note that there were no signiﬁ cant reportable environmental incidents or impacts on biodiversity at any of our operations during the year under review. The group constantly rehabilitates old mining areas and had a healthy rehabilitation trust fund balance of ZAR321.5 million as at year- end for restoring environmental disturbances. The estimated cost of rehabilitation is reviewed annually and appropriately adjusted for changes in legislation or technology. Pan African Resources is committed to the highest standards of governance. We strive to embed sound corporate governance practices into our daily operations and processes, as part of our robust corporate governance framework, taking into account both local (King III) and international (UK Code) best practice. The board has been kept apprised of developments relating to the new version of the King Code (King IV), which is a more practical approach to good corporate governance. King IV follows an outcomes- based rather than a rule-based approach, which should promote greater accountability and transparency. The board does not foresee any signiﬁ cant obstacles in implementing King IV once it is ﬁ nalised later in 2016. As we head into the 2017 ﬁ nancial year, we are well placed to further explore growth opportunities, either acquisitively or organically, backed by our dynamic management team and strong ﬁ nancial position. One such opportunity relates to the Elikhulu tailings retreatment project (Elikhulu), where the board has mandated a feasibility study to provide guidance on how best to proceed. The results of this study will be available in November 2016, after which shareholders will be notiﬁ ed. I would like to thank my fellow board members for their continued active participation in our business and their insights during the year under review. I also warmly thank the executive management team, who showed great commitment and determination in delivering on key objectives during the year under review. Thank you to our shareholders and employees, all business partners and industry regulators for your ongoing support of Pan African Resources. Keith Spencer Chairman 20 September 2016 Pan African Resources integrated annual report 2016 3 STRATEGIC REPORT: BUSINESS OVERVIEW Mapungubwe: South Africa’s lost city of gold One thousand years ago, Mapungubwe in Limpopo province was the centre of the largest kingdom in the subcontinent, where highly sophisticated people traded gold and ivory with China, India and Egypt. The Iron Age site was declared a World Heritage site by Unesco in July 2003. Mapungubwe is an area of open savannah adjacent to the northern border of South Africa and the borders of Zimbabwe and Botswana. It thrived as a sophisticated trading centre from around 1220 to 1300. Unesco describes Mapungubwe as the centre of the largest kingdom in the subcontinent before it was abandoned in the 14th century. It was home to an advanced culture of people – the ancestors of the Shona people of Zimbabwe. They traded with China and India, had a fl ourishing agricultural industry, and grew to a population of around 5 000. The University of Pretoria excavated the site since its discovery in 1932 and now has a collection of artifacts made of gold and other materials, as well as human remains. The most spectacular of the gold discoveries is a little rhinoceros made of gold foil. The rhino has come to symbolise the high culture of Mapungubwe as well as being a symbol of leadership among the Shona people of Zimbabwe. http://www.southafrica.info/about/history/mapungubwe.htm Credit: © Roger de la Harpe/Africa Media Online Gold rhino (152mm x 42mm x 55mm, weighing 42.8g, 24ct gold). Ar tifact recovered from Mapungubwe Hill. Nor thern Province. South Africa. Made from multiple pieces of f ine gold foil originally tacked with tiny gold nails onto a wooden core (now decayed). Photographed at the Mapungubwe Museum, University of Pretoria +1 +3 79 Au Gold 196.97 2-8-18-32-18-1 Group highlights and challenges HIGHLIGHTS t iﬁ Signiﬁcant Signiﬁ cant increase in gold production of i i 16.5% to 204,928oz ZAR gold price increased by 21.6% to ZAR542,850/kg Completion of the Shanduka Gold transaction for ZAR546.9 million, effectively improving earnings per share by 17.7% going forward Acquisition of the Uitkomst Colliery for a cash consideration of ZAR148 million BTRP continues to perform above expectations, producing 28,591oz of gold ETRP produced 18,151oz, of which 6,724oz were from tailings sources and 11,427oz from surface feedstock material Share price increased by 108% from ZAR1.80 to ZAR3.75 Maintenance of an industry-leading dividend yield throughout the low precious metals price cycle ZAR21.0 million invested in CSI and SED initiatives ZAR33.3 million invested in human resources development CHALLENGES sion in safet Regress Regression in safety Regress accident rates Volatile commodity prices and exchange rates Subdued growth outlook for the South African economy 6 Pan African Resources integrated annual report 2016 STRATEGIC REPORT: BUSINESS OVERVIEW Our history 2007 Acquired 74% of Barberton Mines from Metorex Limited (Metorex) 2001 – 2006 Exploration phase 2000 Incorporated as Viking Internet PLC in February Admitted to AIM in May 2016 2009 Acquired the remaining 26% of Barberton Mines from Shanduka in exchange for 295.7 million shares in the company Exercised the option to acquire 100% of Phoenix Platinum from Metorex for cash in May 2013 Finalised the acquisition of 100% of the share capital of Evander Mines for a total net purchase consideration of ZAR1.3 billion Commissioned Barberton Tailings Retreatment Plant 2015 Commissioned Evander Tailings Retreatment Plant Acquired the Uitkomst Colliery on 31 March for a cash consideration of ZAR148 million Acquired shares held by Standard Bank of South Africa Limited and the shares held by Jadeite Limited therefore gaining control in Shanduka Gold. Pan African Resources acquired the stake for ZAR546.9 million, a signiﬁ cant discount to prevailing market price. The transaction was funded from Pan African Resources’ operational cash ﬂ ows and a vendor consideration placement through an issue of shares Pan African Resources integrated annual report 2016 7 Our organisation Organisational structure 100% 95% 100% 100% 100% Emerald Panther Investment 91 Pty Ltd (Incorporated in South Africa) Barberton Mines Pty Ltd (Incorporated in South Africa) Barberton Mining Operations Phoenix Platinum Mining Pty Ltd (Incorporated in South Africa) Phoenix Platinum, Chrome Tailings Retreatment Project Pan African Resources Funding Company Pty Ltd Pan African Resources Management Services Company Pty Ltd (Incorporated in South Africa) (Incorporated in South Africa) 5% ESOP (Employees) 100% Evander Gold Mines Ltd (Incorporated in South Africa) ESOP (Employees) 5% 95% Evander Gold Mining Pty Ltd (Incorporated in South Africa) Evander Mining Operations Key features 49.9% Economic beneﬁ t derived of 97% PAR Gold Pty Ltd (Incorporated in South Africa) 100% Pan African Resources Coal Holdings Pty Ltd (Incorporated in South Africa) 100% 100% Uitkomst Colliery Pty Ltd Nyambose Pty Ltd (Incorporated in South Africa) Uitkomst Colliery Operation (Incorporated in South Africa) Dual listed on London’s AIM and South Africa’s JSE Market capitalisation at 30 June 2016 of ZAR7.3 billion (2015: ZAR3.3 billion) Diversiﬁ ed shareholder base, major South African and international institutions PAR Gold Proprietary Limited (PAR Gold) as empowerment partner with a 22.5% direct shareholding, equating to an effective 23.1% BEE ownership for purposes of the Mineral and Petroleum Resources Development Act (MPRDA). The mining operation’s BEE ownership exceeds the MPRDA 26% requirement by combining the BEE shareholding in Pan African Resources (23.1%) and the on-mine employee share ownership schemes (5%) AFRICAN MID-TIER PRECIOUS METALS BUSINESS Quality assets with a production capacity in excess of 200,000oz of gold per annum Focused on maintaining and increasing proﬁ table production ounces 8 Pan African Resources integrated annual report 2016 STRATEGIC REPORT: BUSINESS OVERVIEW Our operations BOTSWANA LIMPOPO LIMPOPO MPUMALANGA Nelspruit Rustenburg GAUTENG Zeerust Phoenix Platinum Pretoria Middelburg BTRP Barberton Witbank Kruger National Park Barberton Mines Johannesburg NORTH WEST PROVINCE Vryburg Kuruman Taung Potchefstroom Klerksdorp NORTHERN CAPE FREE STATE Cash ﬂ ow generative and dividend paying Progressive dividend policy and track record of sector-leading dividend payouts A ﬁ ve-year historical average dividend yield in excess of 5% Low level of gearing with strong balance sheet Access to funding facilities of ZAR1.2 billion Evander Mines ETRP 2 Secunda Ermelo SWAZILAND Newcastle Uitkomst Colliery Vryheid KWAZULU-NATAL Hluhluwe St Lucia Ladysmith Richards Bay Dolphin Coast Pietermaritzburg SIGNIFICANT GROWTH PROJECTS Gold resources base of 34.9Moz Pan African Resources integrated annual report 2016 9 Operating assets BOTSWANA MPUMALANGA LIMPOPO Zeerust Rustenburg Phoenix Platinum Pretoria GAUTENG Middelburg Nelspruit BTRP Barberton Johannesburg NORTH WEST PROVINCE Potchefstroom Klerksdorp Vryburg Kuruman Taung NORTHERN CAPE FREE STATE Kruger National Park Barberton Mines Evander Mines Witbank 2 Secunda ETRP SWAZILAND Ermelo Newcastle Uitkomst Colliery Vryheid Hluhluwe KWAZULU-NATAL St Lucia Ladysmith Richards Bay Dolphin Coast Pietermaritzburg Pan African Resources is a mid-tier African-focused precious metals producer with a production capacity in excess of 200,000oz gold, 10,000oz PGEs and 400,000 tonnes coal per annum. The group’s assets include: Barberton Mines three gold mines and the BTRP in Mpumalanga Evander Mines a gold mine in Mpumalanga, ETRP and several brownfield projects Phoenix Platinum the CTRP in the North West province Uitkomst Colliery an underground coal mining operation located in the KwaZulu-Natal province Group Mineral Resources (Moz) Gold Group Mineral Reserves (Moz) Gold Operation Headcount Life of mine 36 6 34.9 34.9 58 13 10.0 34.9 87 PGEs 4E PGEs 4E 17 0.6 34.9 17 50 0.2 34.9 50 66 Barberton Mines Employees: 1,835 Contractors: 422 22 years Barberton Tailings Retreatment Plant (BTRP) Employees: 56 Contractors: 38 14 years Evander Mines Employees: 2,406 Contractors: 772 16 years Evander Tailings Retreatment Plant (ETRP) Employees: 12 Contractors: 7 16 years Group Mineral Resources (Mt) Coal Group Mineral Reserves (Mt) Coal Phoenix Platinum Employees: 3 Contractors: 58 9 years 17 19 34.9 23.3 64 22.2 12.6 34.9 77.8 Measured Indicated Inferred Proved Probable 10 Pan African Resources integrated annual report 2016 Uitkomst Colliery Employees: 115 Contractors: 326 22 years STRATEGIC REPORT: BUSINESS OVERVIEW Description and location Operational statistics Resources and Reserves Located in a greenstone belt, this is a low-cost, high grade operation comprising three mines: Fairview, Sheba and New Consort and a recently commissioned tailings retreatment plant (BTRP). Mining Charter rating: 3 Production (tonnes milled): Produced (oz/annum): Capacity: Tonnage (capacity): Head grade: Sustainable capital per annum: Acquired: Located at Barberton Mines, the R325.7 million gold tailings retreatment plant commenced construction in April 2012, was completed on schedule and within budget, and achieved its inaugural gold pour in June 2013. Mining Charter rating: 3 Production (tonnes milled): Produced (oz/annum): Capacity: Tonnage (capacity): Head grade: Sustainable capital per annum: Developed: 268,383 84,690oz of Au per annum 95,000oz of Au per annum 300,000 tonnes per annum 11.0g/t ZAR120 million 74% from Metorex 2007: remaining 26% from Shanduka 2009 959,215 28,591oz of Au per annum 30,000oz of Au per annum 1.2 million tonnes per annum 1.7g/t ZAR5 million Steady-state production commenced in 2013 Located in the Witwatersrand basin, current operations comprise 8 Shaft, several potential development projects – Poplar, Evander South, Rolspruit and Elikhulu (a surface tailings retreatment project), the Kinross metallurgical processing plant and tailings storage facility. Mining Charter rating: 3 A tailings retreatment project which will exploit historically generated gold tailings deposited in the Kinross tailings storage facility and surface sources. Mining Charter rating: 3 Production (tonnes milled): Produced (oz/annum): Capacity: Tonnage (capacity): Head grade: Sustainable capital per annum: Acquired: 408,281 73,496oz 95,000oz of Au per annum 480,000 tonnes per annum 5.7g/t (includes development waste tonnes) ZAR148 million 100% from Harmony in March 2013 Production (tonnes milled): Produced (oz/annum): Capacity: Tonnage (capacity): Head grade: Sustainable capital per annum: Developed: 1,841,986 tonnes per annum 18,151oz of Au per annum 20,000oz of Au per annum 2.4 million tonnes per annum Tailings: 0.3g/t Surface feedstock: 1.1g/t – 1.3g/t ZAR2 million Steady-state production commenced in 2015 Resources: Reserves: Exploration: Cash cost: 9.0Mt @ 10.15g/t (2.9Moz) 4.9Mt @ 9.17g/t (1.4Moz) Ongoing USD694/oz Resources: Reserves: Exploration: Cash cost: 20.8Mt @ 1.27g/t (0.8Moz) 13.3Mt @ 1.46g/t (0.6Moz) Ongoing USD315/oz Resources: Reserves: Exploration: Cash cost: 92.4Mt @ 9.78g/t (29.0Moz) 29.0Mt @ 8.32g/t (7.6Moz) Ongoing USD954/oz Resources: Reserves: Exploration: Cash cost: 214.5Mt @ 0.30g/t (2.0Moz) 35.8Mt @ 0.31g/t (0.4Moz) Ongoing USD587/oz Phoenix Platinum is a tailings plant which extracts platinum group metals from chrome tailings. Mining Charter rating: 3 Production (tonnes milled): Produced (oz/annum): Capacity: Tonnage (capacity): Head grade: Sustainable capital per annum: Developed: 248,981 tonnes per annum 8,339 12,000oz of PGEs per annum 360,000 tonnes per annum 3.1g/t ZAR1 million Steady-state production commenced in 2012 Resources: Reserves: Exploration: Cash cost: 6.2Mt @ 3.16g/t (0.6Moz) 2.7Mt @ 2.54g/t (0.2Moz) Ongoing USD613/oz An underground coal mining operation located in the KwaZulu- Natal province. Mining Charter rating: New entity, to be rated in the near future Production (tonnes mined): Coal washed and sold (tonnes/annum): Tonnage (capacity): Kcal: Sustainable capital per annum: Acquired: 128,022 run-of-mine per annum 136,102 420,000 tonnes per annum >6 000 ZAR10 million 100% on 31 March 2016 Resources: Reserves: Exploration: Cash cost: 23.3Mt 12.6Mt Ongoing USD45/tonne Pan African Resources integrated annual report 2016 11 STRATEGIC REPORT: STRATEGY BARBERTON is a town born out of gold In 1881 gold was discovered in the Barber ton area by Tom McLachlan, who found alluvial gold at Jamestown. However, due to the location (the hot Lowveld region was rife with malaria) no-one wanted to go there until Auguste Rober ts discovered gold in Concession Creek on 20 June 1883. This discovery resulted in a gold rush to the area. The town was named after Graham Hoare Barber (1835 to 1888) who discovered a rich gold-bearing reef there in 1884. Barber ton became a municipality in 1904. At first it was just a simple mining camp but grew when Edwin Bray, a prospector, discovered gold in the hills above Barber ton in 1885 and with 14 par tners star ted the Sheba Reef Gold Mining Company. Considered one of the ‘mining wonders of the world’ the Sheba Mine holds the record of being the richest and oldest working mine in the world. Large amounts of money flowed into Barber ton and the first Stock Exchange to operate in the then Transvaal opened its doors. Barber ton flourished for only a brief period and soon the inhabitants began to move away to the newly discovered gold fields on the Reef. https://en.wikipedia.org/wiki/Barberton,_Mpumalanga Credit: Ludwig Sevenster Entrance to underground Sheba Mine +1 +3 79 Au Gold 196.97 2-8-18-32-18-1 Chief Executive Ofﬁ cer’s review Cobus Loots Chief Executive Ofﬁ cer “The Pan African Resources group delivered an outstanding set of results for the 2016 ﬁ nancial year. These results include a year of record gold production and proﬁ ts and the largest dividend payment to date. Our gold mining operations delivered exceptional results, producing in excess of 200,000oz of gold for the ﬁ nancial year. The performance from Evander Mines, in particular, demonstrated the potential of the operation, with production increasing by 30.8% year-on-year. Results were also assisted by the rand gold price and a full year’s production from the ETRP. Our robust ﬁ nancial position, well-established cash-generative operations, decentralised hands-on management structure and cost- conscious culture differentiate us from our peers. These attributes give Pan African Resources a competitive advantage for further growth through our project pipeline and also position the group to capitalise on potential acquisition opportunities.” 14 Pan African Resources integrated annual report 2016 STRATEGIC REPORT: STRATEGY HIGHLIGHTS f th ZAR Reco er oo Recovery of the ZAR gold price, a recent improvement in the USD gold price and much h improved investor sentiment towards the sector or Excellent group ﬁ nancial performance: – Revenue increased 43.1% to ZAR3,632.8 million – Adjusted EBITDA increased 89.3% to ZAR969.5 million – Proﬁ t after tax increased 160.2% to ZAR547.0 million, a record for the group – Dividend proposed increased by 42.9% to ZAR300 million Dividend policy amended to ensure sustainability of future payments Outstanding operational performance – Gold production up 16.5% to 204,928oz – All-in sustaining costs increased by only 0.9% to ZAR405,847/kg – All-in costs in USD reduced 23.9% to USD879/oz – Evander Mines returned to proﬁ tability – Barberton Mines’ BIOX® recoveries restored to previous levels Concluded two signiﬁ cantly value-accretive transactions – Completed an investment of 49.9% in Shanduka Gold, allowing the group to preserve and protect its BEE status on a substantially earnings-accretive basis – Finalised the acquisition of the Uitkomst Colliery Group well positioned for future proﬁ tability – Completing a deﬁ nitive feasibility study on Elikhulu at Evander Mines – Internal team dedicated to investigating acquisition opportunities CHALLENGES sion in safet Regress Regression in safety accident Regress rates – measures implemented to address this and improve safety performance Subdued growth outlook for the South African economy Possible downgrade of South Africa’s sovereign credit rating to non-investment grade Phoenix Platinum’s performance hampered by business rescue proceedings at IFM – however, outlook for Phoenix Platinum is now improved Pan African Resources integrated annual report 2016 15 Chief Executive Ofﬁ cer’s review continued USD vs ZAR gold price – ﬁ ve years Relative performance rebased to 100 250 200 150 100 50 0 30/06/2011 30/06/2016 USD gold price ZAR gold price Demand graphs from the World Gold Council Tonnes 1,400 1,200 1,000 800 600 400 200 0 March 2015 April 2015 January 2016 February 2016 Investment Jewellery Electronics Central banks and other institutions Source: http://www.gold.org/supply-and-demand/interactive-gold-market-charting 4,568t Total gold demand 4,537t Total gold supply Jewellery Investment Technology Central banks and other institutions Total mine supply Recycled gold Source: http://www.gold.org/supply-and-demand/interactive-gold-market-charting 16 Pan African Resources integrated annual report 2016 Overview On completing a review of any ﬁ nancial year one not only reﬂ ects on the year past and these themes that characterised the period, but also how it compares to previous years, as often, only by comparison can one gauge and assess performance. This review captures my thoughts on Pan African achievements to date and its future prospects. The economic environment and the gold market As a member of the Pan African Resources board since 2009, I have had the beneﬁ t of providing input to a number of integrated reports and annual results. If there is one matter that has remained unchanged in this period, it is the uncertainty that continues to dominate global ﬁ nancial markets and the international geopolitical landscape. The global economy is still grappling with the effects of the 2008 ﬁ nancial crash and the response of central banks to this crisis. While equity markets have recovered and rallied and the United States economy appears to have turned a corner, the uncertainty remains, and a normal interest rate cycle has not yet resumed. The realisation that the inﬂ uence of central banks cannot extend indeﬁ nitely and that lower interest rates may be prevalent for some time to come resulted in a rally in the USD gold price in early 2016, signiﬁ cantly improved investor sentiment towards gold producers and a rally in gold equities. Instability in the Middle East, the refugee crisis and terror attacks in Europe and the UK decision to exit the European Union added to the demand for safe-haven assets, with the World Gold Council reporting that the ﬁ rst half of 2016 saw the second-highest gold demand on record. The investment case for gold once again appears attractive. Despite the impact of favourable value drivers, we remain mindful that the current global and local mining industry remains a challenging operating environment. Analysts believe the higher gold price should not only be attributed to current uncertainties and predict a series of macro-economic and geopolitical events that could result in further global instability. STRATEGIC REPORT: STRATEGY Our operating environment in South Africa South Africa as a mining investment destination does not enjoy favour with many international investors, and to some extent, the negative perceptions are justiﬁ ed. Legislative uncertainty, labour unrest and electricity shortages are some of the elements that make operations challenging. It would, however, be remiss to consider these difﬁ culties without also taking into account the positive aspects to operating in South Africa. These include: • World class constitution and legal systems • A functioning and stable democracy • A century and more of deep-level and general mining experience • Access to technical skills and expertise and a well-trained workforce • Excellent roads and other infrastructure, with our operations experiencing no major power disruptions in the year under review. Currently, Pan African Resources only has operations in South Africa, and we have equipped and skilled our group to operate successfully and sustainably in the country. Hopefully, by continuing to operate successfully, Pan African Resources and other South African miners can, over time, increase investor appetite for our country. During the year under review, the rand came under severe pressure against the USD and other currencies, and by year-end it had depreciated on average by 26.7% against the USD. The weakening in our operating ZAR/USD exchange rate – ﬁ ve years ZAR/USD 18 16 14 12 10 8 6 4 2 0 30/06/2011 30/06/2016 ZAR/USD exchange rate currency increased the average ZAR gold price received for the year by 21.6%, which assisted margins. Even though the effect of the weaker rand was less pronounced in our reporting currency (GBP), it also assisted GBP earnings. Although the weaker rand will result in inﬂ ationary cost pressures over time our operating teams have done well to contain costs during the ﬁ nancial year. South Africa faces a possible sovereign credit rating downgrade to sub-investment grade, which could lead to a further depreciation in the rand. It is therefore vital that we remain vigilant and continue to look for opportunities to differentiate ourselves and proﬁ tably grow our business further, attract investments and provide shareholder returns in the form of dividends and capital appreciation in the company’s share price. Pan African Resources’ operations We cannot control or predict the price we receive for our gold. Exchange rate ﬂ uctuations make proceeds from gold receipts even more difﬁ cult to forecast. Our focus is therefore on those factors we can control or inﬂ uence positively, which includes gold production from operations and the cost of production. In the prior year Evander Mines’ lower grades severely affected the operation’s proﬁ tability, however, operating difﬁ culties have been addressed, as is evidenced by the excellent operating performances delivered by Evander Mines. Key operational highlights and features of the past year include the following: Total group gold production increased by 16.5% to 204,928oz (2015: 175,857oz). The gold production was a record for the Pan African Resources group and above the 2016 forecast of 200,000oz for the year. Underground production from Evander Mines recovered and 8 Shaft produced 73,496oz (2015: 53,746oz), an increase of 36.7% over the prior year. We are now ﬁ rmly established on the new 25 mining level and this should support a consistent performance from the underground mine going forward. The ETRP at Evander Mines contributed low-cost, high-margin ounces to the operation. The plant, which reprocesses CIL tailings, delivered 6,724oz (2015: 2,494oz) from its tailings sources and 11,427oz (2015: 13,842oz) from surface feedstock sources at an all-in sustaining cost of ZAR275,661/kg (2015: ZAR266,453/kg). The performance from the ETRP was in line with expectations and we expect a payback of the capital expenditure for this operation in less than four years. The ETRP serves as a large pilot plant for Elikhulu. This is detailed in the mineral resources and growth section of this review. Barberton Mines produced 113,281oz (2015: 105,776oz), which is a 7.1% year-on-year improvement. The BTRP, included in the production number above, produced 28,591oz (2015: 24,283oz) at an all-in sustaining cost of ZAR155,080/kg (2015: ZAR185,280/kg). Pan African Resources integrated annual report 2016 17 Chief Executive Ofﬁ cer’s review continued Phoenix Platinum’s performance in the current year has been hampered by the business rescue proceedings announced by IFM in August 2015 regarding its South African subsidiary (IFMSA), as well as the drought and associated water shortages affecting re-mining and processing. In addition, PGM prices remained subdued during the 2016 ﬁ nancial year. The 2010 agreement between Pan African Resources, Phoenix Platinum and IFMSA allowed for the construction of the Phoenix Platinum plant on IFMSA property. Phoenix Platinum obtained a portion of its feedstock from IFMSA’s processing activities, as well as electricity, water and other services. When IFMSA entered business rescue, mining activities and Phoenix Platinum’s access to the current arising feedstock were suspended. Phoenix Platinum is currently processing tailings from old dumps close to the plant. In terms of the business rescue proceedings, Samancor Chrome Limited’s subsidiary, TC Smelters Proprietary Limited (TC Smelters) was selected as the successful bidder to acquire IFMSA’s assets. In July 2016, Pan African Resources reached an agreement with TC Smelters, assigning the tailings treatment agreement to TC Smelters. Even though the agreement does not guarantee current arising feedstock to Phoenix Platinum, as this will be dependent on the way in which TC Smelters uses the IFMSA assets, it places Phoenix Platinum in a position where it should be able to continue operations under similar conditions to those prior to the business rescue proceedings. Moreover, it ensures that Phoenix Platinum´s operations and interests are safeguarded. Phoenix Platinum also has alternative sources of feedstock, which were processed during the business rescue proceedings. With the platinum price now on an upward trajectory, Phoenix Platinum is well placed to improve cash ﬂ ows and value to the group. Safety, health and environment The group’s board-approved integrated safety, health, environment, quality and community (SHEQC) committee policy is cascaded throughout our operations and our SHEQC performance is driven by the group’s philosophy of continuous improvement. It is also used to incentivise management and employees. The group’s SHEQC is the board sub-committee responsible for the oversight and management of SHEQC and keeping the board apprised of SHEQC matters relating to compliance, discipline and action plans pertaining to incidents and accidents. The general managers at the mines remain ultimately accountable for SHEQC within their operations. From a safety perspective we experienced a regression in our group safety accident rates at Evander Mine. In particular the lost time injury frequency rate (LTIFR) and reportable injury frequency rate (RIFR) increased. As safety is non-negotiable, we are actively pursuing measures to reduce injury frequency rates by stepping up management oversight and control of safety across all operations. We recognise that mining carries inherent health risks. As such, we assume full responsibility for providing a work environment that minimises these risks by promoting work practices conducive to the long-term wellbeing of our employees, ensuring adequate oversight of workplaces and employees and by providing appropriate healthcare facilities and resources. The group is committed to responsible stewardship of natural resources and the environment by eliminating or minimising the negative impacts of our operations. Environmental management is well entrenched in management practices throughout the group. We strive to continually improve our environmental performance. Further detail on our safety, health and environmental performance is on page 74. Dividend policy and payment We continue to acknowledge our shareholders’ desire for an attractive cash return on their investment. To this end, the Pan African Resources board is pleased to recommend the largest ever dividend payment of ZAR300 million (approximately GBP16 million) for approval at the upcoming AGM. We have also revisited our dividend policy, as detailed below, to provide the market with more certainty on future payments and to ensure that our dividend is sustainable. Pan African Resources aspires to pay a regular dividend to shareholders. In balancing this cash return to shareholders with the group’s strategy of generic and acquisitive growth, it believes that a target pay-out ratio of 40% of net cash generated from operating activities, after allowing for the cash ﬂ ow impact of sustaining capital, contractual debt repayments and also the cash ﬂ ow impact of once-off items, is appropriate. This measure aligns dividend distributions with the cash-generation potential of the business. In proposing a dividend, the board will also take into account the company’s ﬁ nancial condition, future prospects, satisfactory solvency and liquidity assessments and other factors deemed by the board to be relevant at the time. Value-enhancing and earnings- accretive transactions During the past year Pan African Resources’ executive management, guided by our board, completed two material value-enhancing and earnings-accretive transactions. The details of these are as follows: Shanduka Gold transaction (the transaction) Shanduka Gold was Pan African Resources’ primary South African empowerment partner for a number of years. Immediately prior to the transaction detailed below, Shanduka Gold was owned by the following entities: • The Mabindu Business Development Trust (Mabindu) (49.5%) • Jadeite Limited (Jadeite) (33.6%), a subsidiary of China Investment Corporation • Standard Bank of South Africa Limited (SBSA) (16.9%). Shanduka Gold´s only assets are its 22.46% interest in Pan African´s issued ordinary share capital and its interest in a notional loan of ZAR558 million at 30 June 2016. During the 2016 ﬁ nancial year, after a restructuring of the Shanduka Group, Pan African acquired all of SBSA and Jadeite’s shares in Shanduka Gold at a signiﬁ cant discount to the prevailing Pan African share price and the valuation of the shares acquired. Approximately 0.6% of the Shanduka Gold shares acquired from Jadeite were retained by Jadeite for sale at a future date to an 18 Pan African Resources integrated annual report 2016 STRATEGIC REPORT: STRATEGY independent third party nominated by Pan African Resources. Pan African Resources therefore acquired a 49.9% direct interest in Shanduka Gold, but consolidates the full interest in Shanduka Gold from an accounting perspective. Shanduka Gold was subsequently renamed PAR Gold. This transaction allowed Pan African to: • Address operational and value dilution risks presented by the possible dilution of its BEE ownership • Gain further ﬂ exibility and commensurate certainty as to its ability to comply with the BEE legislation • Partner with Mabindu in furthering Pan African Resources’ BEE ownership in a meaningful, mutually beneﬁ cial and ongoing basis. More detail on Mabindu is provided on page 181 • Realise further value for shareholders through a reinvestment in the company via Shanduka Gold on an earnings and dividends-accretive basis. This transaction did not affect the group’s operations or its ability to continue paying dividends. More detail on the ﬁ nancial effects of this transaction, and the structure of Shanduka Gold post-transaction, is included in the Financial Director’s review. Uitkomst Colliery transaction On 4 April 2016, Pan African Resources announced it had completed the acquisition of Uitkomst Colliery through a wholly owned subsidiary, Pan African Resources Coal Holdings Proprietary Limited, and that it had assumed effective control of the Uitkomst Colliery on 31 March 2016. The total purchase price of ZAR148 million was less than the ZAR200 million previously announced to the market and was funded from existing facilities and internally generated cash ﬂ ows. Uitkomst Colliery, located in Utrecht, KwaZulu-Natal, is a high-quality thermal- coal resource with the added beneﬁ t of metallurgical applications, such as a substitute for coke in steelmaking. This coal mine has 115 plant employees and 326 contractors. It produces approximately 34,000 tonnes of saleable coal per month, has approximately 23.3Mt of resources and a life of mine of 22 years at current production levels. Pan African Resources share price relative to market – ﬁ ve years Relative performance rebased to 100 and exchange rate 0 0 1 o t d e s a b e r e c n a m r o f r e p e v i t a e R l 350 300 250 200 150 100 50 0 30/06/2011 30/06/2016 19 17 15 13 11 9 7 5 E x c h a n g e r a t e Pan African Resources FTSE/JSE gold price index ZAR/USD exchange rate Pan African Resources price relative to peers – ﬁ ve years Relative performance rebased to 100 500 450 400 350 300 250 200 150 100 50 0 30/06/2011 30/06/2016 Pan African Resources Sibanye Anglo Gold Ashanti Harmony Gold Gold Fields Newmont FTSE/JSE gold price index Pan African Resources consolidated the Uitkomst Colliery results for three months in the 2016 ﬁ nancial year (from 31 March 2016) and the mine contributed ZAR11.4 million in earnings during this period. We expect the payback on this investment to be less than ﬁ ve years. Share price performance The Pan African Resources share price increased signiﬁ cantly, by 108% in ZAR terms from ZAR1.80 to ZAR3.75 during the year under review. In GBP terms the share price increased 100% from 9.5 pence to 19.0 pence. The share price was supported by the depreciation of the ZAR:USD exchange rate and the increase in the gold price to USD1,325 by year-end. For the past ﬁ ve years, Pan African Resources has consistently outperformed the FTSE/JSE gold index and its gold mining peers. The share price resilience is supported by our quality gold assets and our ability to consistently generate free cash ﬂ ows during all gold pricing environments. Pan African Resources integrated annual report 2016 19 Chief Executive Ofﬁ cer’s review continued Strategy During the year under review we made signiﬁ cant progress with the group strategic objectives, which are aimed at improving margins and driving proﬁ table production growth, within a sustainable and zero harm framework. Our strategy is underpinned by key strategic pillars, namely proﬁ table, sustainable, stakeholders and growth and the key enablers of our strategy are people, action and results. Our robust ﬁ nancial position, well-established cash-generative operations, decentralised hands-on management structure and cost-conscious culture differentiate us from our peers. These attributes give Pan African Resources a competitive advantage for further growth through our project pipeline and position the group to capitalise on potential acquisition opportunities. People Action We remain committed to our people and safety, which is evident in the way we operate and manage the group, as well as in our strategic objective of zero harm. This commitment extends to providing a working environment conducive to health and safety and ensuring our employees are given the relevant skills and equipment to perform their work in a safe and productive manner. Each of our operations has its own unique in-house safety training programme and all employees undergo medical examinations regularly. Despite these measures, mining retains an element of risk and it is with heartfelt regret that we experienced a fatality at Evander Mines when Mr Joaquim Armando Muxhanga, a locomotive driver, was fatally injured on 26 June 2016, while on duty. The Pan African Resources board and management extend their deepest condolences to Mr Muxhanga’s family, friends and colleagues. Additional measures have subsequently been put in place in an effort to prevent any recurrences of accidents of this nature. We strive to promote a culture in which employees at all levels engage openly with management and employee engagement is ongoing. We successfully concluded multi-year wage agreements with the relevant unions and continue to proactively engage the unions and our employees to further strengthen relations. Barberton Mines secured a two-year agreement ending on 30 June 2017 and Evander Mines secured a three-year agreement ending on 30 June 2018. The effective employee wage increases were above South African inﬂ ation and we believe our people are fairly remunerated for their services. Transformation for the group goes beyond compliance with the Mining Charter and agreed social and labour plans – it is embedded within our culture and we continued to achieve good progress in meeting employment equity targets and delivering on our other initiatives. During the year under review we invested ZAR21.0 million in corporate social investment and socio-economic development programmes to uplift the communities surrounding the areas in which we operate. We appreciate the needs of our communities and continue our upliftment initiatives by working closely with local municipalities. We pride ourselves on delivering value to our shareholders and being well positioned to capitalise on acquisitive and organic growth opportunities. This is evident in our acquisition of Uitkomst Colliery, the Shanduka Gold transaction and our plans to explore organic growth at our gold mining operations, as discussed below. Mineral Resources and Mineral Reserves and organic growth At Evander Mines, there are opportunities to open two previously closed shafts (7 Shaft and 9 Shaft) – the 9 Shaft “A-block” is particularly attractive due to its shallow reef – with estimated resources of about 300,000m2 at a grade of 1,207cmg/t (contained 322,000 oz). Following receipt of a positive high-level economic and technical assessment of the Elikhulu tailings retreatment project at Evander, the company has mandated DRA Projects Proprietary Limited to complete a deﬁ nitive feasibility study on the project. The results of the study will be available in November 2016, at which time shareholders will be apprised. Elikhulu will potentially treat slimes at a processing capacity of up to 12 million tonnes per annum, at a head grade of 0.29g/t from the Winkelhaak, Leslie and Kinross tailings storage facilities. The total mineral resource for Elikhulu is 178.7 million tonnes at 0.29g/t (1.7M in-situ ounces) with a life of mine of approximately 14 years and 1.7Moz of contained gold. The project is estimated to yield approximately 50,000oz of gold per annum in the initial eight years of production while treating the Kinross and Leslie tailings storage facilities and then approximately 38,000oz per annum for the remaining six years from processing the Winkelhaak tailings storage facility. To ensure the low-grade mining cycles at Evander Mines are mitigated, the mine will spend development capital to improve mining ﬂ exibility and reduce grade variability. The continued focus on improving tonnages processed by the retreatment plant resulted in the ETRP reaching its full capacity of 200,000 tonnes per month from tailings and surface feedstock material. 20 Pan African Resources integrated annual report 2016 STRATEGIC REPORT: STRATEGY Results Group ﬁ nancial performance The group delivered an excellent ﬁ nancial performance during the year under review. Group revenue increased 43.1% to ZAR3,632.8 million (2015: ZAR2,539.4 million), favourably impacted by an increase of 16.5% in gold sold as well as an increase of 21.6% received in the average ZAR gold price of ZAR542,850/kg (2015: ZAR446,274 /kg). The group’s total cost of production increased by 16.8% to ZAR2,321.4 million (2015: ZAR1,987.4 million), due to inﬂ ation and higher production numbers. The group’s cash generation increased greatly during the year under review and is a key benchmark of our success, enabling us to acquire the Uitkomst Colliery and fund a portion of the Shanduka Gold transaction with internally generated cash. As a result, we are well positioned to maintain our sector- leading dividend payout and take advantage of future growth opportunities. Details of our ﬁ nancial performance are contained in the Financial Director’s review on page 38. Looking ahead The group is well positioned to increase proﬁ table production through organic and acquisitive growth, while continuing to create shareholder value. In the next year, the key focus areas for the group, from an operational perspective, include: • Safety and compliance across operations • Barberton Mines: Renewed focus on creating additional ﬂ exibility and efﬁ ciencies to improve tonnages mined and gold produced from underground operations. The management team is currently considering options to improve the future tonnage output at Fairview Mines’ deeper levels and assessing future exploration targets • Evander Mines: The operation will continue to invest in development capital expenditure to ensure improved ﬂ exibility is achieved to maintain current levels of production • Phoenix Platinum aims to optimise resources from Elandskraal and Kroondal to maintain and improve production and cash ﬂ ows • Uitkomst will focus on ensuring that stable production is maintained and review the possibility of expanding run-of-mine production to 900,000t per annum. From an internal growth perspective, the following opportunities will be prioritised: • Finalising the feasibility study on the Elikhulu project and, if the feasibility is successful, progressing towards full-scale production within two years • Drilling the Evander 2010 pay channel for grade continuity and assessing options to exploit this orebody • Assessing further growth projects at Evander Mines. The group will also continue to evaluate acquisitive gold opportunities. Any project considered will however be subject to the group’s stringent capital allocation criteria, which requires any investment to be in a position to contribute proﬁ table production ounces within a short- to medium-term timeframe and deliver the requisite returns to our shareholders. Appreciation A lot of hard work and perseverance has gone into delivering a successful operational and ﬁ nancial performance and I am extremely grateful to each and every member of Pan African Resources’ team. Going forward, it is important that we remain focused on maintaining this excellent ﬁ nancial and operating performance and further increasing shareholder value. On behalf of the executive team, I extend thanks to our management, our general managers and all staff who allow Pan African Resources to operate successfully. I also thank my fellow directors for their support and guidance. We look forward to the year ahead. Strategic report Our strategic report including the investment case and from pages 1 to 81, was reviewed and approved by the board on 20 September 2016. Cobus Loots Chief Executive Ofﬁ cer 20 September 2016 Pan African Resources integrated annual report 2016 21 Our purpose, vision and strategy Our purpose is to exploit mineral deposits in a way that creates value for our stakeholders and for the betterment of society. Our vision is to continue to build and grow a mid-tier precious metals producer that delivers on this purpose. Our growth strategy is executed by identifying and exploiting mining opportunities that create stakeholder value by driving growth in our mineral reserve and resource base; production; earnings; cash ﬂ ows in a margin-accretive manner; and by capturing the full precious metals mining value chain by focusing on: • Low-cost base • High margins • Growth in mineral reserve base and proﬁ table production • Maximising recovered grade and production tonnes • Positive impact on earnings, in a sustainable manner. We actively foster and encourage an entrepreneurial culture which, in a consistent manner, creates value for stakeholders by ﬁ rst identifying and then executing opportunities within our business and operations. This culture further contributes to seeking new investments, thereby bolstering our portfolio of mining assets. The group is proﬁ table and cash generative at the current gold price, with the ability to fund all on-mine sustaining capital expenditure internally and also meet its other funding and growth commitments. The Chief Executive Ofﬁ cer’s review discusses the group’s strategic progress in greater detail on page 20. The key enablers of our strategy are: Fostering relationships through action, integrity and honesty LE P O E P A C T I O N Vision, leadership, planning and control RESULT S Delivering on all our targets without compromise, maximising sustainable gold, and positive impact on earnings 22 Pan African Resources integrated annual report 2016 STRATEGIC REPORT: STRATEGY The four business pillars upon which our strategy is based include: Strategy scorecard Strategic pillar Deliverable 2016 objectives 2016 progress Proﬁ table Good progress Moderate progress Limited progress Self- assessment on progress during 2016 Link to principal risk • Financial • Reserves and resources Attributable proﬁ t Improve proﬁ tability at operations Proﬁ ts increased by 160.2% and EPS by 163.1% HEPS Improve group HEPS HEPS improved by 158.8% to 30.20 cents per share EBITDA Improve group cash generation EBITDA increased by 89.3% to ZAR969.5 million Cost containment measured on an all-in sustaining cost basis and total cash cost Operational proﬁ t Grade improvement/ maintenance Cost containment Gross proﬁ t margin from gold operations Optimal grade/ tonnage production proﬁ les for operations and business plans All-in sustaining costs increased by 0.9% to ZAR405,847/kg. Total cash cost declined by 3.2% to ZAR338,242/kg Mining proﬁ ts increased by 201.8% to ZAR1,066.6 million (2015: ZAR353.4 million) Barberton Mines maintained its grade of 11.0g/t and the grade at Evander Mines improved to 5.7g/t. The ﬂ oat feed head grade at Phoenix Platinum increased to 3.1g/t following the curtailment of its arising tailings from IFM and reverting to processing tailings Pan African Resources integrated annual report 2016 23 Our purpose, vision and strategy continued Strategic pillar Deliverable 2016 objectives 2016 progress Sustainable Good progress Moderate progress Limited progress Self- assessment on progress during 2016 Link to principal risk Optimising mineral reserves for sustainable life of mine production proﬁ le Implement earnings and cash ﬂ ow accretive growth Operating proﬁ t margins Improved operating margins Life of mine increased to 22 years (2015: 20 years) at Barberton Mines and Evander Mines remained at 16 years (2015: 16 years). Following IFM being placed in business rescue, the life of mine at Phoenix Platinum declined to 9 years (2015: 28 years) Mining proﬁ ts increased by 201.8% to ZAR1,066.6 million (2015: ZAR353.4 million) • Financial • Reserves and resources • Safety • Environmental degradation • Reputational Maintaining cost inﬂ ation per kilogram All-in cash cost of production decreased by 3.5% to ZAR410,206/kg (2015: ZAR425,084/kg) All-in cash cost of production per kilogram Environmental compliance Zero harm Safety record No fatalities Sufﬁ cient working capital for maintenance and growth Reduced debt and improved working capital • Group capital expenditure reduced to ZAR302.4 million (2015: ZAR352 million) No environmental transgressions and ﬁ nes Severity of accidents: one fatality at Evander Mines (2015: one fatality at Barberton Mines) • Net cash ﬂ ow generated by operations before investing and ﬁ nancing activities increased to ZAR581.4 million (2015: ZAR95.7 million) Ongoing commitment to empowering employees by reinforcing group values and culture Strengthening of operational management structures Ongoing engagement with communities The group spent ZAR33.3 million (2015: ZAR29.1 million) on skills development and training Enabling company culture Benchmarking of group values and culture Decentralised and effective management Decentralised management structures in place Engagement with local communities Maintain engagement with communities Skills development and training Maintain skills and development training 24 Pan African Resources integrated annual report 2016 STRATEGIC REPORT: STRATEGY Strategic pillar Deliverable 2016 objectives 2016 progress Stakeholders Good progress Moderate progress Limited progress Self- assessment on progress during 2016 Link to principal risk Ongoing engagement Improve and maintain stakeholder communication and relationships Social labour plans and Mining Charter compliance Finalise negotiations of operational employee share ownership plan Return on shareholder funds Maintain dividend payments Dividend paying Safety record Improved safety across all operations Ongoing engagement with all stakeholders • Reputational • Legal • Safety • Financial Operational employee share ownership plans in place at gold mining operations and at the implementation of a BEE transaction at Uitkomst Colliery equating to 9% of the issued share capital of the operation The dividend payment was maintained and ZAR210 million was paid during December 2015 Dividend policy amended to ensure sustainability of future payments Severity of accidents: one fatality at Evander Mines (2015: one fatality at Barberton Mines) and regression in accident rates (LTIFR and RIFR) Growth Union engagement and relationships Ongoing improvement in labour relations Concluded multi-year wage agreements across all operations. Ongoing union engagement and minimal labour unrest Labour legislative compliance Minimising section 54 stoppages and ﬁ nes Ongoing engagement and interaction with the DMR and other regulators Wage increases – appropriate remuneration policies Appropriate levels of compensation across the group Remuneration benchmarking takes place and all senior personnel remuneration is approved by remuneration committee Contributions to revenue authorities Contributing to taxes and royalties Income tax and royalty paid of ZAR269.6 million (2015: ZAR151.2 million) CSI spend Contributions to CSI projects The group spent ZAR21.0 million (2015: ZAR20.8 million) on corporate social investment initiatives Organic growth (achieved within existing infrastructure) Acquisitive growth (achieved outside of existing infrastructure) Replacement of mineral reserve projects for depleted projects Organic growth in production proﬁ le 3.0Moz or 9.4% gross annual increase in group gold resources to 34.9Moz (2015: 31.9Moz) Acquisitive growth Acquisition of the Uitkomst Colliery and commencement of a deﬁ nitive feasibility study on Elikhulu Maintenance of life of mine of existing operations Barberton Mines 22 years (2015: 20 years), Evander Mines 16 years (2015: 16 years) and Phoenix Platinum 9 years (2015: 28 years) Refer to the 2016 MR&MR report for further details • Proﬁ table • Single country risk • Reserves and resources • Integration of acquisitions and construction of new plants Pan African Resources integrated annual report 2016 25 Business model INPUTS BUSINESS ACTIVITIES S We use each of the six forms of capital in our business activities to create and preserve shareholder value AL CAPITAL FINANCIAL CAPITAL it • Shareholder equity • Internally generated operational cash ﬂ ows after dividend • Debt facilities MANUFACTURED CAPITAL • Property, plant and equipment and mineral rights HUMAN CAPITAL ZAR2 874 4 ZAR2,874.4 million illi ZAR581.4 million ZAR1,200 million ZAR3,772.5 million • Employees’ skills and experience 4,441 employees INTELLECTUAL CAPITAL • Mining and prospecting licences • Key personnel for managing the BIOX® process • Management’s combined expertise We are committed to low-cost production and optimising extraction efﬁ ciency through our mining activities, while ensuring we invest in the communities within which we operate and maintain a legacy of environmentally responsible mining MINING ACTIVITIES Barberton Mines and Barberton Tailings Retreatment Plant Evander Mines and Evander Tailings Retreatment Plant Phoenix Platinum Chrome Tailings Retreatment Plant (CTRP) Uitkomst Colliery (effective 31 March 2016) OTHER ACTIVITIES Growing the business through organic and acquisitive opportunities such as: • Uitkomst Colliery SOCIAL AND RELATIONSHIP CAPITAL • Elikhulu Tailing Retreatment Project • Investing in our communities • Stakeholder relations – unions, regulators, communities NATURAL CAPITAL • Energy consumption • Water consumption Stakeholder engagement with shareholders, investors, employees, unions, regulators, communities, suppliers, customers Embracing best practice corporate governance Uplifting communities through corporate social investment and socio-economic enterprise development EXTERNAL ENVIRONMENT GOLD /PGE/ COAL MARKET REGULATORY ENVIRONMENT 26 Pan African Resources integrated annual report 2016 STRATEGIC REPORT: STRATEGY S OUTPUTS ES OUTCOMES Our outputs support our vision to continue to build a precious metals business b in Africa by remaining focused on our four strategic pillars: proﬁ table, sustainable, stakeholders and growth Through our business activities and the use of capital inputs, we continue to have a positive impact on the economy and the communities within which we operate: FINANC FINANCIAL CAPITAL FINANC CIAAL CAPI AL CAPITAL • Revenues generated t d • Gold revenue • PGE revenue • Coal revenue ZAR3,632.8 million • Internally generated operational cash ﬂ ows after dividend ZAR581.4 million • Dividends paid to shareholders ZAR210 million • Interest payments to debt funders ZAR31.1 million • Reinvestment in infrastructure ZAR302.4 million • Government taxes and royalties paid ZAR269.6 million MANUFACTURED CAPITAL • Reserves • Resources • Production Gold 10.0Moz PGE 0.2Moz Coal 12.6Mt Gold 34.9Moz PGE 0.6Moz Coal 23.3Mt 204,928oz of gold per annum PGE 8,339oz per annum Coal approximately 400,000 tonnes per annum HUMAN CAPITAL • One fatality • Skills development and training ZAR33.3 million • Employee remuneration ZAR1,040.1 million SOCIAL AND RELATIONSHIP CAPITAL • Corporate social investment and socio-economic development spend ZAR21.0 million NATURAL CAPITAL • Energy consumption • Water consumption • Carbon emissions 1,451,761Gj 16,422m3 0.1CO2e/t milled • Supporting South Africa’s economy through the taxes paid and employment for a large number of people • Supporting entrepreneurs, other sectors and industries through our supply chain • Supporting 24 students with full-time bursaries in the ﬁ elds of geology, mining engineering, mechanical engineering, BSc Actuarial Science, BCom Economics and mine surveying • Investing in communities through the group’s transformation trusts, which collected a total of ZAR1.2 million • Producing precious metals in support of the increased investor demand as they seek protection against economic and currency volatility • Supporting the automotive industry through the supply of platinum group metals to the catalytic converter industry • Creating employment and skills development opportunities to communities through initiatives such as Umjindi Jewellery and Sinqobile Life Skills Centre • Limiting environmental degradation • Minimising the occurrence of illegal mining • Creating shareholder value through dividend distributions • Supporting South Africa’s transformation goals CAPITAL AND FOREIGN EXCHANGE MARKETS ENERGY CONSTRAINTS LABOUR AND COMMUNITIES Pan African Resources integrated annual report 2016 27 Stakeholder value creation and distribution Through the use of our ﬁ nancial, human, manufactured and natural capital resources, Pan African Resources endeavours to create value and positively impact all stakeholders with whom it interacts, including communities, employees, government, shareholders and suppliers. During the year under review, the group created ZAR3,544.3 million in value (2015: ZAR2,541.0 million), which was distributed to our various stakeholders as depicted below. Pan African Resources remains committed to creating value for all stakeholders and recognises that all its capital resources are interconnected – as one capital resource is increased or created, another is depleted. To ensure future sustainability, it is important to balance the use of these capital resources. As depicted in the group’s business model on page 26, capital inputs are used in its mining activities to create value, which is distributed to various stakeholders by way of payment for services and goods, salaries and wages, corporate social investment, taxes and dividends. The mining industry is heavily dependent on various factors to sustain value creation, some of which are beyond its control. The group is cognisant of the need to explore other opportunities, either through organic or acquisitive growth, to ensure it can sustain and enhance the value it creates. The recent opportunistic acquisition of the Uitkomst Colliery and the Shanduka Gold transaction are examples of non-operational value creation during the 2016 ﬁ nancial year. Further, the group is exploring the merits of a number of organic surface and brownﬁ eld developments at both its gold mining operations with the intent of growing the existing production proﬁ le. In addition to organic and acquisitive growth, the group reinvested ZAR771.3 million (2015: ZAR396.3 million), which is 21.8% of the total value created, to sustain its existing operations. Creating value for employees is important to ensure the group attracts and retains its talent. The group has a total of 4,441 employees (2015: 4,4391) and distributed ZAR1,040.1 million (2015: ZAR910.8 million) in salaries during the year under review, which in turn impacts the communities within which these employees reside – as well as the broader economy as salaries are expended. In addition, the group has implemented employee share ownership schemes, which seek to align the aspirations of the group’s employees at its operations with that of management and shareholders. These employee share ownership schemes enable employees to participate directly in the value created at their respective operations. Further detail on the employee share ownership programme is shown on page 177. Distributions to suppliers for the provision of services and goods totalled ZAR1,284.8 million (2015: ZAR828.1 million), which has a direct and broad economic impact on the manufacturing, engineering and chemical sectors. The group strives to uplift, both economically and socially, the communities within which it operates. The social value created is driven through the respective operations’ social and labour plans (SLPs) that include relevant social upliftment projects based on the needs of these communities. The group distributed ZAR21.0 million (2015: ZAR20.8 million) through its corporate social investment and socio-economic development initiatives. Further detail on the group’s upliftment projects is shown on page 79. The group’s contribution to the ﬁ scus, comprising the skills development levy and corporate taxes, was ZAR186 million (2015: ZAR82.8 million). These taxes contribute to the infrastructure development, educational needs, health, social and various other services rendered by the government in pursuit of the economic and social upliftment of South Africa. Shareholder value, measured as total shareholder’s return, is determined by share price performance and dividend declarations. The group’s sector-leading dividend and track record of sustained dividend payments is a key differentiating factor relative to its peer group. Over the past ﬁ ve years, the group’s total dividends paid amounted to ZAR803.9 million (GBP46.7 million). 1 Comparatives restated to include 113 Uitkomst Colliery employees. Group employees total is 4,326 excluding Uitkomst Colliery employees. 28 Pan African Resources integrated annual report 2016 The recently announced Shanduka Gold transaction further enhanced shareholder returns by reducing, from an accounting perspective, the number of issued shares by 17.7%. Further detail on this transaction is shown on pages 18, 44 and 181. Value creation and distribution 2016 36.3% Suppliers 29.3% Employees 21.8% Reinvested 5.9% Shareholders 5.2% Taxation 0.9% Finance costs 0.6% Corporate social investment 2015 32.6% Suppliers 35.8% Employees 15.6% Reinvested 10.2% Shareholders 3.3% Taxation 1.7% Finance costs 0.8% Corporate social investment STRATEGIC REPORT: STRATEGY Chamber of Mines June 2016 fact sheet The gold and diamond mining industry represents a signiﬁ cant portion of South Africa’s mineral production Chamber of Mines members contribute about ZAR11.3 billion in taxes to the South African economy The industry employs about 462,000 people The South Africa mining market Pan African Resources’ sustainability and response to its operating environment are guided by its philosophy as shown below. We pursue our strategic goals through leadership that creates shared value and alignment between the company’s vision and values, its strategy as well as the needs and expectations of its stakeholders. See page 22 for more information. v e r a t e p o lv e t o o ain in c t u r e c c n p ly c n t in fr a str u n it y s u u e m e r n h p e Lic m m o • G o v • C n t cit y e a m p e a Macro environment • Slow eradication of poverty, unemployment • Subdued economic growth and inequality PURPOSE, VISION AND VALUES erienced leadership p x • E • LEADERSHIP AND OUR CULTURE • L i c e n R e • g s i E n v g o u l a l t a v n i n d g o r y a p p M P r e f o r m r o v a R D A l d e l a y s s e g n s e g n h t w o r g g alle alle h c y e r u t c u r t s a r f In h c e r u t c u r t s a r f in g ein g A • ele d n a r e t a W • r t c icit ainin r t s n o c ALIGNED COMMUNICATION SHARED VALUE AND VALUES STAKEHOLDER ENGAGEMENT • A • b o C C C C S t r u v e -i c t u n n l l a a o o o o s s s tt t t r a l: m ti ti o o pp p r r e e n a r s s a t u y c ri n g o s t p u r e s o r e r e s s u b o d i e r e s s Labour • Evolving labour environment, union rivalry • Productivity OUR STRATEGY e E m powerm ent erm ent • Offers potential opportunities • Group em powerm ent Pan African Resources integrated annual report 2016 29 Enterprise risk management approach The Pan African Resources board is ultimately responsible for setting the risk appetite of the group, identifying strategic risks and opportunities and managing these risks and opportunities. The board is guided by the audit committee and by its own internal risk assessments and regularly reviews the risk reports from the operations. Further, the board ensures the appropriate risk management programmes are in place and monitors the implementation of mitigating factors against key risk indicators. Factors impacting the group’s ability to create value in the short, medium and long term are grouped into the main categories listed below. The group’s material issues and challenges are informed by these factors as well as the nature of the individual operations’ activities (internal environment) and the external environment. These issues, if not effectively managed, could impact the group’s sustainability and its ability to continue to create value. The group’s principal risks are clustered under these material issues and the management of these risks is imperative for the group to execute its strategy in a risk-conscious manner. • Macro-economic: to an extent beyond the group’s control, although the effects can be anticipated to a degree and managed or mitigated • Financial: managed and monitored proactively through a centralised treasury, capital allocation discipline, balance sheet gearing levels and adherence to risk management and internal control policies • Operational: managed proactively by implementing policies and process controls • Strategic: impacting the group’s ability to execute its strategy and therefore it can anticipate and proactively address these. Factors impacting value creation Material issue Principal risk Macro-economic Financial Operational Managing our evolving regulatory environment and volatile commodity prices Financial sustainability in a challenging economy and macro-economic volatility Operating in a safe and healthy environment with continuous stakeholder engagement • Evolving regulatory environment and volatile commodity markets • Financial • Safety • Health and wellness • Operational execution • Industrial action Strategic Extracting reserves and resources in a responsible manner • Reserves and resources • Capital allocation – integration of acquisitions and construction of new plants Respecting the natural environment • Environmental degradation Attracting and retaining key talent • Succession planning and skills retention Operating in a dynamic regulatory environment and challenging local economy • Legal • Reputational • Concentrated sovereign risk Management has processes in place to deﬁ ne and align the macro-economic, ﬁ nancial, operational and strategic objectives with the group’s risk appetite. Risks are identiﬁ ed and analysed in a risk matrix format, based on the impact of the risk and the likelihood of the risk occurring. Controls in the form of policies, procedures and standards are established to monitor and/or mitigate the risk on an ongoing basis. These controls and actions are implemented at the level of individual operations, across a group discipline or at executive management level. The residual risks are those risks that remain after the mitigating effect of controls. Strategic workshops are conducted quarterly to evaluate risks and the appropriateness and effectiveness of risk mitigating measures. The table on page 31 describes each principal risk the group is exposed to and how it is mitigated and aligned to the group’s strategic pillars. Common risks across the mine level are predominantly related to safety and operational while head ofﬁ ce risks are more strategic and ﬁ nancial in their nature. All risks are managed in conjunction with the audit committee and board. 30 Pan African Resources integrated annual report 2016 STRATEGIC REPORT: STRATEGY Risk register Substantially achieved Moderate progress Not achieved Principal risk Nature of risk Controls in place to mitigate the risk Self- assessment on progress during 2016 Link to strategic pillar Macro-economic Evolving regulatory environment and volatile commodity markets Uncertainty surrounding mining and environmental legislation • Strengthening the group’s empowerment credentials and monitoring changing legislation to ensure compliance • Broad-based employee share ownership programme in place at • Proﬁ table • Sustainable • Stakeholders operational level • Annual independent assessment of status • Incentives linked to the achievement of objectives • Enterprise development funding • Community development spend • Training and development of own candidates through structured training plans • Cultivate good working relationships with regulators and with representatives of the national or local government Financial Financial Volatile commodity prices • Adherence to treasury and ﬁ nancial risk management policies to ensure ﬁ nancial risk remains within board-approved limits • Strategic hedging of gold prices and exchange rates • Focus on production costs so as to maximise margins Poor capital allocation decisions Weak cash ﬂ ow generation and excessive debt levels • Capital allocation is based on stringent investment criteria and subject to board oversight • Ongoing monitoring of working costs and capital expenditure, cash • Proﬁ table • Sustainable • Growth ﬂ ow generation and group debt levels • Conservative debt levels • Standby facilities to bridge working capital deﬁ cits Financial risk • Selective hedging and monitoring of currency, liquidity, commodity and interest rate exposures within board-approved risk levels Financial cybercrime • Robust internal controls • Fidelity insurance cover • Internal audit reviews Operational Safety Mine accidents • Legal compliance, standards and procedures in place, plan task observation and regular audits conducted • In addition to the above, ongoing examination of workplace conditions • Monthly and quarterly inspections by safety department and quarterly risk engineering reviews Ambient working conditions • Installation of a refrigeration plant at Barberton in the next ﬁ nancial year to reduce ambient temperatures • Sustainable • Stakeholders • Improvement of ventilation conditions using various methods • Ongoing monitoring of working conditions • Emergency service providers at operations and emergency training in place • Strict access control • Security actions, including proactive approach by on-mine security • Involvement of police and regulatory bodies Onerous logistic challenges in responding to emergency trauma situations Illegal miners pose a risk to employees and contractors underground and on surface Pan African Resources integrated annual report 2016 31 Enterprise risk management approach continued Principal risk Nature of risk Controls in place to mitigate the risk Substantially achieved Moderate progress Not achieved Self- assessment on progress during 2016 Link to strategic pillar Operational continued Safety continued Risk of a safety incident or section 54 stoppages due to regulatory issues • Continued emphasis on safety compliance and implementation of risk management systems such as proximity detection systems • Sustainable • Stakeholders • Governance of SHEQC which is decentralised and subject to group standardisation and oversight Legislative breaches • Ongoing training, audits, reviews and compliance Health and wellness Employees working in unhealthy workplace conditions • Medical surveillance and monitoring of occupational diseases • Annual medical examinations for all employees and contractors • Daily monitoring of workplace conditions for heat, noise and airborne • Sustainable • Stakeholders Industrial action Strike actions Operational execution Challenges associated with ageing infrastructure and power interruptions pollutants • Provision of medical facilities or medical aid coverage • Appropriate occupational health practices • Medical health hubs • Managed health programmes • Behaviour-based training, disease management programmes and awareness programmes • Prevalence testing, wellness programmes and anti-retroviral treatment • Proactive, strong relationships with representative unions • Recognition agreements • Multi-year wage agreements in place • Appropriate remuneration practices • Compliance with all relevant South African labour legislation including the Mining Charter and implementation of SLPs • People, systems and procedures in place to ensure successful continuing operations • Active managed engineering risk registers for all operations • Scheduling of operations to take account of constraints • Performance monitoring systems instituted • Planned routine maintenance contracts • Refurbishment, major overhaul and capex investment • Support generators for critical functions and back-up generators provide limited power to processing plants • Energy-efﬁ cient programmes to reduce consumption • Engagement with Eskom on planned and unplanned power interruptions • Power management and load monitoring • Production performance monitoring systems implemented • Proﬁ table • Stakeholders • Proﬁ table • Sustainable • Growth Environmental degradation Risk of environmental damage • Environmental management plans in place • Land rehabilitation trust funds in place to minimise and mitigate the • Sustainable • Stakeholders environmental effects of mining • Pollution control and water catchment dams • Continuous training and monitoring of environmental damage detection systems, such as scavenger borehole and pumping • Compliance with water use licence guidelines • Control of arsenic in contained storage areas • Speciﬁ c action plans in place to deal with ﬂ ooding incidents • Cyanide constraints dealt with by procuring additional solid cyanide briquette from alternative sources and continued engagement with principal supplier to ensure a sustainable supply 32 Pan African Resources integrated annual report 2016 STRATEGIC REPORT: STRATEGY Principal risk Nature of risk Controls in place to mitigate the risk Substantially achieved Moderate progress Not achieved Self- assessment on progress during 2016 Link to strategic pillar • Sustainable • Stakeholders • Proﬁ table • Sustainable • Stakeholders • Growth • Sustainable • Growth • Monitoring of ventilation systems and upgrading, where necessary • Strategies in place to identify value-enhancing organic and acquisitive growth opportunities • Conducting an independent geological review and mine optimisation study • Extensive change management experience • Project management skills in place Operational continued Environmental degradation continued Ventilation requirements are constrained with limited capacity to supply required volumes Strategic Reserves and resources Declining resource and reserve base Geological reporting of quality and quantity of reserves Inability to integrate acquisitions and manage new projects Capital allocation – integration of acquisitions and construction of new plants Succession planning and skills retention Inability to attract and retain staff • Recruitment strategies and succession programmes in place • Structured retention incentives – current, annual and long-term • Regularly benchmarked market-related remuneration • Growth opportunities and career planning for employees • Proﬁ table • Sustainable • Stakeholders • Growth Skills shortage • Apprenticeships and learnerships in place • Bursary in place for tertiary students • Ongoing market research conducted on availability of scarce category Legal Regulatory compliance skills • Comprehensive training including job-based skills training • Policies, standards and procedures in place to ensure compliance • Regular compliance review by advisers and sponsors • Register of all titles • Compliance with water use licence guidelines • Outsourced legal, tax and internal audit functions • Continuous engagement with regulators on compliance • Stakeholders Reputational Underperforming market expectations • Ongoing market communication and monitoring to ensure alliance • Sustainable with shareholder expectations • Stakeholders Stakeholder/ community expectations Not adhering to anti-bribery and corruption legislation • Stakeholders/community engagement with appropriate initiatives in • Growth place to support local communities • Anti-bribery and corruption policies in place • A culture of zero tolerance towards corruption • Ongoing training and awareness • Speciﬁ c internal controls to mitigate bribery risk • Independent internal and external audit functions Concentrated sovereign risk Operations limited to a single jurisdiction • Future growth plans to focus on diversiﬁ cation of operational base • People, systems and procedures in place to ensure successful • Sustainable • Growth continuing operations in South Africa Pan African Resources integrated annual report 2016 33 Stakeholder engagement Stakeholders are integral to the group’s growth, value creation n and sustainability. They have also been identiﬁ ed as one of our r four key strategic pillars which include: proﬁ table, sustainable, stakeholders and growth. Stakeholder feedback and concerns are therefore carefully considered when reviewing and reﬁ ning g strategy, which fosters realistic perceptions by our stakeholders rs of our business, decisions and performance. te ofﬁce At an operational level, stakeholder engagement is the responsibility of the general and human resources managers and at a corporate ofﬁ ce level the Chief Executive Ofﬁ cer assumes this responsibility. Key concerns raised operationally are governed by the management committee and at a board level the SHEQC committee oversees stakeholder concerns. at a corporat rces mana ers and at a corporat A detailed account of Pan African Resources’ stakeholders and their key concerns, as identiﬁ ed, is set out in the table below. Stakeholder What matters to stakeholders Nature of engagement Investors • Return on investment • Financial performance • Operational performance • Union relationships • Safe mining • Accreditations and regulatory compliance • Resources and reserves reporting • Sustainability of the business Employees • Safety • Transformation • Job security • Reward and incentives • Holistic and occupational health • Skills development and training • Results presentations and roadshows • Site visits • Regulatory communications • Ad hoc one-on-one meetings with investor community • Interim and full-year results announcements • Integrated annual report • Financier communications with respect to the group’s capital structure and compliance with conditions of existing debt agreements • Media releases • Group website • Bargaining council forums • Shaft committees • Health and safety structures • Supervisory and disciplinary structures • Social media • Publicity and posters • Policy and procedure • Environmental exposure documents • One-on-one supervision • Contract negotiations • Performance assessments How feedback informs strategy • Poll results and feedback from presentations and one-on-one meetings discussed at executive management level Responsibility • Chief Executive Ofﬁ cer • Financial Director • Discussed at operational, executive and board level • Operational human resource managers • Group Executive Human Resources • Group SHEQC manager 34 Pan African Resources integrated annual report 2016 STRATEGIC REPORT: STRATEGY Stakeholder What matters to stakeholders Nature of engagement How feedback informs strategy Suppliers Communities Unions Government departments Customers • Group ﬁ nancial performance • Payment track record • Growth project pipeline • Loyalty • Job creation • Corporate social investment • Environmental conservation/ protection • One-on-one meetings • Discussed at operational and executive management level • Community meetings • Media • Discussed at the SHEQC committee, Exco and board level Responsibility • General managers and ﬁ nancial managers • Group procurement manager • General managers • Community liaison managers at each operation • CSI ofﬁ cers at each operation • Health and safety • Transformation • Job security • Fair remuneration and reward • Employee committees • Branch committees • Shaft committees • Mine committees • Transformation • Mining Charter compliance • Job creation • Safe mining • Proﬁ table mining • Quality • Timeous delivery • Price • Volumes • Regular and frequent communication with Departments: DMR, Labour, Water Affairs, Education and Public Works and local municipalities’ independent development plans • One-on-one meetings • Discussions between • Group Executive Human union and management occur on the mines and the outcomes are conveyed to the corporate ofﬁ ce • Discussed at operational, executive and board level • Discussed at executive management and board level Resources • Shaft/mine/ branch committees • General managers • Chief Executive Ofﬁ cer • Discussed at executive management and board level • General managers • Metallurgical managers Pan African Resources integrated annual report 2016 35 STRATEGIC REPORT: PERFORMANCE REVIEW Discovery of GOLD in South Africa Gold was discovered on a Transvaal farm, Langlaagte, on the Witwatersrand in 1886 by two prospectors. This discovery caused a turning point in South African history. Far more than diamonds, it changed South Africa from an agricultural society to become the largest gold producer in the world. The gold discovered ran for miles and miles underground, ‘an endless treasure of gold’. As news of the gold find spread throughout Southern Africa, various mining towns developed along the curve of the underground gold reef. This curve was named the Witwatersrand, attracting hundreds and hundreds of people seeking their for tune. http://www.randrefi nery.com/brochures/Rand%20Refi nery%20-%20 The%20Story%20of%20Gold.pdf Credit: © Museum Africa/Africa Media Online George Harrison Park, Langlaagte +1 +3 79 Au Gold 196.97 2-8-18-32-18-1 Financial Director’s review Deon Louw Financial Director “ Pan African Resources’ share price recovered materially in the 2016 ﬁ nancial year, with year-on-year capital growth of 108%, outperforming its peers.” HIGHLIGHTS CHALLENGES Volatile Volatile gold price and exchange Volatile gold price rate environment Cost pressures in excess of inﬂ ation Regulatory uncertainty pertaining to amended mining and environmental legislation Evolving labour landscape Pa ment ot Payment of a ZAR210 million dividend in December 2015 f ZAR21 Increase in net proﬁ t after tax of 160.2% Reduction in the USD all-in sustaining costs per ounce by 20.4% to USD870/oz and a 0.9% increase in the ZAR all-in sustaining cost per kilogram to ZAR405,847/kg Acquisition of the Uitkomst Colliery with effect from 31 March 2016 for ZAR148 million Completion of the Shanduka Gold transaction resulting in an effective 23.83% (22.46% post dilution) indirect shareholding in Pan African Resources with effect from 7 June 2016 Increase in net cash generation from operating activities after dividends, by 507.5% to ZAR581.4 million (2015: ZAR95.7 million), illustrating the disproportional positive correlation between the increase in proﬁ ts and cash generation 38 Pan African Resources integrated annual report 2016 STRATEGIC REPORT: PERFORMANCE REVIEW Key ﬁ nancial statistics Revenue Cost of production Mining proﬁ t EBITDA Proﬁ t after taxation Headline earnings EPS (cents/pence) HEPS (cents/pence) Weighted average number of shares in issue (millions) For the year ended 30 June 2016 For the year ended 30 June 2015 Movement ZAR millions 3,632.8 (2,321.4) 1,066.6 969.5 547.0 547.1 30.20 30.20 GBP millions 169.4 (108.2) 49.7 45.2 25.5 25.5 1.41 1.41 ZAR millions 2,539.4 (1,987.4) 353.4 512.1 210.2 213.6 11.48 11.67 GBP millions 141.1 (110.4) 19.6 28.4 11.7 11.9 0.64 0.65 1,811.4 1,811.4 1,830.4 1,830.4 ZAR % 43.1 16.8 201.8 89.3 160.2 156.1 163.1 158.8 (1.0) GBP % 20.1 (2.0) 153.6 59.2 117.9 114.3 120.3 116.9 (1.0) Value creation Pan African Resources remains committed to creating value for all stakeholders. For shareholders, speciﬁ cally, value is determined by capital appreciation in the company’s share price and distributions in the form of dividends and share buy-backs. The distribution of stakeholder value created by the group is detailed on The table below benchmarks the group’s progress against our ﬁ nancial objectives and their link to our strategic pillars. page 28, which illustrates the substantial contribution by the group to the South African economy. FY2016 objective Maintain attractive dividend payments Improve proﬁ tability from current operations Implement earnings and cash ﬂ ow accretive growth Progress in FY2016 • ZAR210 million ﬁ nal dividend was paid in December 2015 and a ZAR300 million dividend is proposed for the 2016 ﬁ nancial year Substantially achieved Moderate progress Not achieved Self- assessment on progress during 2016 Link to strategic pillars • Stakeholders • The group’s proﬁ ts increased across all operations with the exception of Phoenix Platinum, • Proﬁ table due to the reasons explained in the Chief Executive Ofﬁ cer’s review on page 18 • Barberton Mines recovered from the oil contamination at its BIOX® plant and Evander Mines recovered from its low-grade mining cycle • Uitkomst made its ﬁ rst contribution to group proﬁ ts with a net proﬁ t after tax of ZAR11.4 million for the quarter ended 30 June 2016, which is consistent with our proﬁ t expectations from the mine • The group strategically entered into a two-year hedge in July 2015 to protect its cash ﬂ ows and dividend from short-term declines in the gold price. The fair value mark-to-market adjustment on the collar resulted in a post-tax loss of ZAR82 million • The group’s gold production increased to 204,928oz, a 16.5% increase relative to the prior year • Production ounces declined at Phoenix Platinum due to water shortage and the termination of tailings from IFM, which was placed in business rescue • Proﬁ table • Growth Pan African Resources integrated annual report 2016 39 Financial Director’s review continued Operating environment The local gold mining environment enjoyed a recovery as the gold price improved and the rand depreciated during the year under review. The gold price of ZAR542,850/kg compared favourably with the ZAR446,274 received during the corresponding period. Margin expansion was further assisted by a marginal increase in all-in sustaining costs to ZAR405,847/kg relative to the ZAR402,221/kg incurred in the previous corresponding period, which demonstrates the group’s culture of stringent cost control. The group’s proﬁ tability is affected by various external and economic drivers, the most signiﬁ cant of which are: • USD precious metal spot prices – determines the price received for gold and PGE produced • USD/ZAR exchange rate – determines the value received in ZAR for gold and other metals produced and ultimately the group’s revenue. This also drives speciﬁ c production costs and capital goods through inﬂ ation and the cost of imported goods and consumables • South African general inﬂ ation, wages and other price increases determine the rate of increase in the group’s operating costs – the most signiﬁ cant of which is employee costs, followed by electricity costs • GBP/ZAR exchange rate – inﬂ uences the group’s reporting performance in GBP, its reporting currency for accounting purposes • Interest rates – determines the cost of debt ﬁ nance and the return on surplus cash resources. USD precious metal spot price During the course of the year the average USD gold price declined 4% to USD1,164 per ounce relative to the USD1,212 per ounce received during the previous corresponding ﬁ nancial period. The average PGE basket price achieved (applying the Phoenix Platinum prill split) was substantially lower than that of the previous year at USD617/oz (2015: USD839/oz), after taking into account the terms of the off-take agreement with Western Platinum Limited, a subsidiary of Lonmin PLC. USD/ZAR exchange rate The group records its revenue from precious metals sales in ZAR and the depreciation in the value of the ZAR relative to the USD during the year had a compensating effect on the weaker USD metals price revenue received. The average ZAR/USD exchange rate was 26.7% weaker at ZAR14.51:1 (2015: ZAR11.45:1). Despite the lower USD gold price, the average ZAR gold price received increased by 21.6% to ZAR542,850/kg (2015: ZAR446,274/kg), as a result of the aggressive depreciation in the ZAR/USD exchange rate. The average ZAR PGE basket price received decreased by 6.8% to ZAR8,952/oz (2015: ZAR9,603/oz) as a consequence of the declining PGM prices, offset by the depreciating ZAR/USD exchange rate. South African inﬂ ation, wage rate and other cost increases During the year CPI was reported at 6.3% (2015: 4.7%) while PPI was recorded at 7.4% (2015: 3.3%). Annual wage negotiations were completed successfully during the period under review, with Barberton entering into a two-year agreement at an average annual increase of 9% and Evander a three-year agreement with an average annual increase of 8%. Electricity price inﬂ ation Although the problems in national electricity generation appear to have been overcome, increased breakdowns in the distribution network have been experienced in the past year. Electricity is the group’s second largest cost contributor at ZAR323.2 million (2015: ZAR275.4 million), representing 13.9%, of the group’s total cost of production. Electricity increases in the current year amounted to 17.4% (2015: 8.6%) compared to the NERSA-approved Eskom increases of 12.7% for the past ﬁ nancial year. The higher-than-average cost increase in our ﬁ nancial statements relates to the electricity costs from ETRP, which was in production for the full year, and the newly acquired Uitkomst Colliery. Eskom’s most recent announcement, in March 2016, points to average increases of 9.4% which will further increase the group’s electricity costs going forward. GBP/ZAR exchange rate Given that the ZAR’s performance against the GBP is a key determinant of the GBP results, it is important for shareholders to be aware of the effect this exchange rate has on reported results. The value of the ZAR against the GBP deteriorated for the most part of the year under review. The average ZAR/GBP exchange rate was 19.2% weaker at ZAR21.45:1 when compared to the previous year (2015: ZAR18.00:1). Interest rates The group incurs a margin of 250 basis points above the Johannesburg Interbank Agreed Rate (JIBAR) on any balance outstanding on its revolving credit facility (RCF) and receives interest on surplus funds at quoted bank call account rates. Changes in interest rates affect the group’s interest expense and income. JIBAR at 30 June 2016 was quoted at 7.1% (2015: 6.0%). 40 Pan African Resources integrated annual report 2016 STRATEGIC REPORT: PERFORMANCE REVIEW Overview of the group’s ﬁ nancial performance Revenue, costs, proﬁ tability and dividend analysis Performance 2016 ﬁ nancial year commentary Revenue The group’s revenue, year-on-year, increased by 43.1% to ZAR3,632.8 million (2015: ZAR2,539.4 million). The increase was predominantly due to, inter alia: • Gold sold increased 16.5% to 204,928oz (2015: 175,857oz) • The average ZAR gold price received by the group increased 21.6% to ZAR542,850/kg (2015: ZAR446,274/kg), as a result of the weakening of the ZAR/USD exchange rate • Consolidation of the Uitkomst Colliery revenue of ZAR98 million effective from 31 March 2016 The increase in the average ZAR gold price by 21.6% was a result of the following movements: • The group realised an average gold price of USD1,164/oz, a decrease of 4% from the USD1,212/oz achieved in the prior reporting period • The average ZAR/USD exchange rate was 26.7% weaker at ZAR14.51:1 (2015: ZAR11.45:1) Cost of production The group’s total cost of production increased by 16.8% to ZAR2,321.4 million (2015: ZAR1,987.4 million). The group’s cost of production incorporated a full year’s production costs for the ETRP of ZAR154.8 million (2015: ZAR54.1 million) and the Uitkomst Colliery coal production costs of ZAR91.8 million (2015: nil). Pan African Resources’ gold cost of production per the statement of comprehensive income increased by 12.3% to ZAR2,155.5 million (2015: ZAR1,919.6 million) affected by the following: • The group’s gold operations salaries and wages increased by 12.5% to ZAR967.7 million (2015: ZAR860.1 million), which was predominately due to: – The incremental increase in salaries and wages following the wage agreements at Barberton and Evander Mines – Higher production incentives following increased productivity at the gold operations. Barberton Mines’ production incentives increased by ZAR13.7 million equating to 1.6% of the total year-on-year increase. Evander Mines’ production incentives increased by ZAR4.3 million contributing an additional 0.5% to the year-on-year increase in labour costs – The ETRP salary and wages increased by ZAR4.7 million resulting in an additional 0.5% increase year-on-year following a full production year • The group’s gold operations electricity costs increased by 16.8% to ZAR317.3 million (2015: ZAR271.6 million). The NERSA-approved increase applied to electricity consumption was 12.7% for the period under review. The additional increase was predominantly as a result of the electricity costs associated with the ETRP being in production for the full year, amounting to ZAR9.9 million (2015: ZAR2.1 million) • The ETRP and associated surface feedstock material cost of production was ZAR154.8 million (2015: ZAR54.1 million) following a full year’s production (prior year ETRP cost production related to a four-month period) The gold cost of production excluding ETRP and surface feedstock has increased by 7.2% to ZAR2,000.7 million (2015: ZAR1,865.5 million). The PGE cost of production increased by 9.3% to ZAR74.1 million (2015: ZAR67.8 million), predominately due to: • Salaries and wages increasing by 3.1% to ZAR20.2 million (2015: ZAR19.6 million). The Phoenix Platinum employee incentives decreased following lower production levels • Reﬁ ning and processing costs increased by 10.8% to ZAR48.3 million (2015: ZAR43.6 million), following additional transporting costs to move tailings material from the Kroondal tailings site, and incurring higher chrome reﬁ ning costs as a result of a higher chrome prevalence in tailings processed • Electricity costs increased by 13.5% to ZAR4.2 million (2015: ZAR3.7 million) The group’s realisation costs increased 65.3% to ZAR20.5 million (2015: ZAR12.4 million) due to additional reﬁ ning costs associated with the extraction and recovery of gold contained at Evander Mines’ processing plant’s infrastructure. Depreciation increased 20.5% to ZAR224.3 million (2015: ZAR186.1 million) following increased charges associated with the commissioning of the ETRP and Evander Mines’ 8 Shaft 25 level development. The group’s cost of production per kilogram of gold declined 3.2% to ZAR338,242/kg (2015: ZAR349,410/kg). The decline is attributed to: • Gold sold increasing by 16.5% to 204,928/oz (2015: 175,857/oz), resulting in a lower unit cost of production • Improved head grades mined compared to the previous year Cash costs All-in sustaining cash costs The group’s all-in sustaining cash cost of production per kilogram of gold (including direct cost of production, royalties, associated corporate costs and overheads and sustaining capital expenditure) increased 0.9% to ZAR405,847/kg (2015: ZAR402,221/kg). The group’s all-in sustaining cash costs were primarily impacted by: • Increased gold production and the improved head grades compared to the prior year Pan African Resources integrated annual report 2016 41 Financial Director’s review continued Performance 2016 ﬁ nancial year commentary All-in cost Other income and expenditure The all-in cost per kilogram (sustaining cost of production and once-off expansion capital) declined 3.5% to ZAR410,206/kg (2015: ZAR425,084/kg), due to the increase in gold production and the completion of the ETRP, which contributed ZAR95.1 million in capital costs to the 2015 cost base. Barberton Mines entered into a short-term strategic hedge (the cost collar) in July 2015, when the prevailing spot gold price was ZAR440,000/kg, to protect its cash ﬂ ows and the group’s annual dividend against severe adverse movements in the ZAR gold price. During the current reporting period, the group recorded a pre-tax net unrealised mark-to-market fair value loss of R117.6 million on the cost collar, offset by a realised cost collar derivative income of ZAR3.8 million, resulting in a net pre-tax fair value cost collar loss for the year of ZAR113.8 million (2015: pre-tax realised cost collar derivative income of ZAR44.8 million). The economic consequence of the mark-to-market fair value adjustment is to lock in revenue on 25,000oz of gold production from Barberton Mines at ZAR625,000/kg (the closing ZAR gold price at 30 June 2016) for the twelve-month period commencing 1 October 2016. The group currently only has this gold collar derivative in place. Pan African Resources’ share price increased signiﬁ cantly by 108% to ZAR3.75 from ZAR1.80 during the current reporting period, which resulted in an increase in the group’s cash-settled share option costs. The pre-tax effect of cash-settled share option costs for the current reporting period amounted to ZAR100.6 million (2015: pre-tax ZAR6.1 million gain). The fair value adjustment of the group’s rehabilitation liability resulted in the liability reducing by ZAR38.2 million (2015: increased by ZAR19.7 million). The rehabilitation investment increased by ZAR9.2 million (2015: ZAR33.9 million). Finance income and costs Finance income increased to ZAR9.5 million (2015: ZAR6.3 million), while ﬁ nance cost decreased to ZAR31.1 million (2015: ZAR44.2 million), following improved cash ﬂ ows generated. Proﬁ t after tax and headline earnings Proﬁ t after tax increased 160.2% to ZAR547.0 million (2015: ZAR210.2 million) and the corresponding headline earnings increased 156.1% to ZAR547.1 million (2015: ZAR213.6 million), primarily impacted by: • Revenue increased by ZAR1,093.4 million, supported by higher gold production and an increase in the effective ZAR gold EPS and HEPS price received • Cost of production increased by ZAR334.0 million • Depreciation increased by ZAR38.2 million following increased charges associated with the commissioning of the ETRP and Evander Mines’ 8 Shaft 25 level development • Other income and expenditure increased by ZAR265.8 million, due to the pre-tax net cost collar mark-to-market fair value adjustment of ZAR113.8 million (2015: realised cost collar derivative income of ZAR44.8 million), and higher cash-settled share option costs linked to the increase in the share price amounting to ZAR100.6 million (2015: ZAR6.1 million gain) • Royalty costs increased by ZAR30.4 million linked to the increased gold revenues • Taxation increased by ZAR102.2 million due to the improved operational performance The group’s EPS in ZAR increased 163.1% to 30.20 cents (2015: 11.48 cents). The group’s HEPS in ZAR increased by 158.8% to 30.20 cents (2015: 11.67 cents). The difference between the EPS and HEPS resulted from adjusting the attributable earnings for the loss on the disposal of ﬁ xed assets and the associated impairment upon the sale of Auroch Minerals NL in the prior reporting period. Refer to the statement of comprehensive income for the reconciliation between EPS and HEPS. The EPS and HEPS is calculated by applying the group’s weighted average number of shares to the attributable and headline earnings, which decreased by 1% to 1,811.4 million shares (2015: 1,830.0 million shares). The decrease in the shares was attributed to eliminating the Shanduka Gold Proprietary Limited shares held in Pan African Resources with effect from 7 June 2016. Taxation Dividend The group’s total taxation charge increased 137.4% to ZAR176.6 million (2015: ZAR74.4 million) due to the group’s improved ﬁ nancial performance. The group paid a ﬁ nal dividend of ZAR210 million or GBP9.7 million (2014: ZAR258 million or GBP14.9 million) on 24 December 2015 relating to the 2015 ﬁ nancial year, equating to ZAR0.11466 per share or 0.53 pence per share (2014: ZAR0.14100 per share or 0.82 pence per share). In light of the materially improved operational and ﬁ nancial performance the board has proposed an increased dividend of ZAR300 million or approximately GBP16 million equating to ZAR0.15438 per share or approximately 0.82338 pence per share. This dividend is subject to approval at the AGM, which will take place on 25 November 2016. The GBP proposed ﬁ nal dividend was calculated based on 1,943,206,554 total shares in issue and an illustrative exchange rate of ZAR18.75:1. Shareholders on the London register should note that a revised exchange rate will be communicated prior to approval at the AGM. 42 Pan African Resources integrated annual report 2016 STRATEGIC REPORT: PERFORMANCE REVIEW Financial position and resource allocation Non-current assets increased 7.3% to ZAR4,450.9 million (2015: ZAR4,147.1 million). The increase was partly attributable to further capital expenditure during the year amounting to ZAR302.4 million (2015: ZAR352.0 million), less depreciation of ZAR224.3 million (2015: ZAR186.1 million). Included in non-current assets is the rehabilitation trust fund balance of ZAR321.5 million (2015: ZAR312.3 million), which increased by ZAR9.2 million as a result of capital growth in the underlying investment portfolio. The rehabilitation trust fund’s investment portfolio comprises investments in guaranteed equity-linked notes, government bonds, equities and cash holdings. Current assets increased 30.7% to ZAR434.2 million (2015: ZAR332.3 million) due to: • Cash on hand decreased to ZAR52.6 million (2015: ZAR64.2 million) • Accounts receivable increased to ZAR277.8 million (2015: ZAR184.5 million) predominately due to: – Uitkomst Colliery contributed an additional ZAR55.3 million to the group’s accounts receivable at 30 June 2016 – The increase in the average ZAR gold prices resulted in an increase in the average gold receivable held year-on-year • Inventory increased to ZAR87.0 million (2015: ZAR67.6 million) mainly due to consolidating additional Uitkomst Colliery coal inventory of ZAR11.8 million • Current tax asset increased to ZAR16.8 million (2015: ZAR16.0 million). Despite the cash funding of the Uitkomst Colliery of ZAR148 million, the cash consideration of ZAR182 million used to fund a portion of the Shanduka Gold transaction and the payment of a ZAR210 million dividend, the group’s net debt increased only marginally from ZAR321.1 million at 30 June 2015 to ZAR339.6 million at 30 June 2016. Operational cash generation, after providing for the dividend payments and before capital expenditure, improved to ZAR581.4 million for the year under review relative to ZAR95.7 million for the previous corresponding period, which illustrates the robust cash-generative capacity of the group in light of the improved operational performance and favourable movement in the ZAR price of gold. Non-current liabilities increased by 4.8% to ZAR1,372.4 million (2015: ZAR1,309.5 million), the composition of which is as follows: • Non-current portion of the revolving credit facility increased to ZAR279.3 million (2015: ZAR224.1 million) • Non-current portion of the gold loan balance decreased to ZAR26.6 million (2015: ZAR82.0 million), due to the gold loan term ending on 31 October 2017 • Non-current portion of cash-settled share option liability ZAR55.4 million (2015: ZAR7.3 million) • Non-current post-retirement beneﬁ ts was ZAR1.3 million (2015: ZAR1.4 million) • Long-term rehabilitation provisions reduced to ZAR206.4 million (2015: ZAR236.4 million) • Deferred taxation liability increased to ZAR803.4 million (2015: ZAR758.3 million). Current liabilities increased to ZAR639.6 million (2015: ZAR431.4 million), predominately due to: • The increase in the cost collar mark-to- market liability by ZAR117.8 million (2015: nil) • Uitkomst Colliery accounts payable contributed ZAR29.3 million (2015: nil) • The current portion of the revolving credit facility increased to ZAR31.1 million (2015: ZAR21.6 million) • The current portion of the gold loan decreased to ZAR55.2 million (2015: ZAR57.8 million) • The current portion of the cash-settled share option liability increased to ZAR54.2 million (2015: ZAR18,0 million). The increase in the group’s retained earnings by ZAR337 million is due to the proﬁ t after taxation of ZAR547.0 million (2015: ZAR210.2 million) and the dividend of ZAR210 million (2015: ZAR258 million) for the 2016 ﬁ nancial year. Share capital and premium increased by ZAR340 million following the issue of 111,711,791 shares to part fund the Shanduka Gold transaction, referred to below. Financial risk management The group manages its ﬁ nancial risk and liquidity by means of a centralised treasury function in Pan African Resources Funding Company Proprietary Limited (Funding Company), a wholly owned subsidiary of Pan African Resources, with the objective of centrally managing all aspects of the group’s ﬁ nancial risk. The group’s philosophy is to hedge only speciﬁ c exposures arising from capital investments and transactional ﬂ ows and limit hedging to a maximum of 25% of the group’s annual production. Hedging will only be entered into to cover speciﬁ c operational risks and capital expenditure. Revolving credit facility The group’s existing revolving credit facility is provided by a consortium of local banks. The ZAR800 million facility has a tenure of ﬁ ve years, with a two-year accordion option, at the group’s election (subject to approval from the credit committees of the respective banks), to increase the facility to ZAR1.1 billion. The revolving credit facility bears interest at JIBAR plus a margin of 2.5% and provides Pan African Resources with access to a long-term ﬂ exible debt facility to fund its organic and acquisitive growth ambitions. Working capital and debt management The group manages its debt levels within prudency limits approved by the board and based on the recommendations of the audit and risk committee after taking into account the variability in group cash ﬂ ow generation, capital expenditure programmes and the board’s ambitions to continue declaring a sector-leading dividend. Capital allocation discipline The board is conscious of the aspirations of our stakeholders for value creation and all capital allocation decisions are subject to rigorous scrutiny and pre-deﬁ ned risk-adjusted return parameters to ensure this objective is fulﬁ lled. Of paramount consideration in all such capital allocation decisions is the group’s ability to successfully execute on investment opportunities Pan African Resources integrated annual report 2016 43 Looking ahead Our focus for the 2017 ﬁ nancial year continues to be on cost containment and the cash ﬂ ow generation of our existing operations, while developing the latent potential of these operations. Further, we continue to look into the merits of acquisitive growth opportunities that meet our investment criteria and will contribute to the group’s proﬁ tability in the short to medium term. Deon Louw Financial Director 20 September 2016 Financial Director’s review continued and realise the required returns over the investment horizon. The attractive returns being earned on the capital invested in the BTRP, the ETRP and the recent Uitkomst Colliery and Shanduka transactions bear testimony to our success in this regard. Our investment return criterion is to earn a minimum real return of 15% per annum, after adjusting for project-speciﬁ c and sovereign risks. Further, to ensure our returns are robust, we endeavour to invest only in projects that fall into the lower half of the cost curve and of which the execution risk is within our capability. The Elikhulu tailings retreatment project is a near-term growth prospect which is currently undergoing such an evaluation process. Should the board approve the investment decision on this project, the intent is to ﬁ nance it with a dedicated debt facility that will limit the impact on the group’s existing cash ﬂ ows, borrowing capacity and ability to continue paying dividends. A number of ﬁ nance options are being evaluated for the funding of the project and the group does not foresee any difﬁ culty in raising the requisite funding on competitive terms. Share price and return performance Pan African Resources’ share price recovered materially in the 2016 ﬁ nancial year with year-on-year capital growth of 108% from ZAR1.80 to ZAR3.75, outperforming its peers, as reﬂ ected in the UK FTSE and JSE J150 gold indices. Dividend policy Pan African Resources aspires to pay a regular dividend to shareholders. In balancing this cash return to shareholders with the group’s strategy of generic and acquisitive growth, it believes that a target pay-out ratio of 40% of net cash generated from operating activities, after allowing for the cash ﬂ ow impact of sustaining capital, contractual debt repayments and also the cash ﬂ ow impact of once-off items, is appropriate. This measure aligns dividend distributions with the cash-generation potential of the business. In proposing a dividend, the board will also take into account the company’s ﬁ nancial condition, future prospects, satisfactory solvency and liquidity assessments and other factors deemed by the board to be relevant at the time. Shanduka Gold transaction Conclusion of the Shanduka Gold transaction, which is explained in detail in the Chief Executive Ofﬁ cer’s review on page 18, resulted in PAR acquiring control of Shanduka Gold, representing 436,358,058 Pan African Resources shares, an effective 17.7% of Pan African Resources’ issued share capital. The acquisition was funded by a cash tranche of ZAR187.3 million and an equity placement of 111,711,791 shares for ZAR359.6 million. The accounting treatment of the transaction is akin to that of a share buy-back with the acquired shares being designated as treasury shares, in terms of which the full shareholding of 436,358,058 shares is eliminated on consolidation. The number of shares taken into account for calculating undiluted earnings per share is reconciled below: Pan African shares Opening balance shares Issue of shares – vendor placement Elimination of shares held by Shanduka Gold Closing balance Reduction in number of shares Shares 1,831,494,763 111,711,791 (436,358,058) 1,506,848,496 324,646,268 % change – 6.1 (23.8) – 17.7 44 Pan African Resources integrated annual report 2016 STRATEGIC REPORT: PERFORMANCE REVIEW Five-year review Salient features – ﬁ ve-year information Operating performance Gold mining tonnes milled Gold tailings processed Gold head grade – mining operations Gold head grade – tailings operations Gold sold (t) (t) (g/t) (g/t) (oz) Gold spot price received Total gold mining cash costs (USD/oz) (USD/oz) Coal sold PGE 6E sold (t) (oz) 2016 2015 2014 2013 2012 676,664 2,801,021 908,958 1,618,794 7.7 0.9 204,928 1,164 725 136,102 8,339 5.4 1.0 175,857 1,212 949 – 10,245 948,149 815,736 5.8 1.6 188,179 1,303 897 – 7,204 512,869 308,095 – 8.6 – 130,493 1,553 815 – 6,480 – 10.6 – 94,449 1,694 776 – – 2016 2015 2014 2013 2012 ZAR millions GBP millions ZAR millions GBP millions ZAR millions GBP millions ZAR millions GBP millions ZAR millions GBP millions Statement of comprehensive income Revenue Cost of production Mining proﬁ t EBITDA Impairment costs Proﬁ t after taxation Headline earnings Dividends Statement of ﬁ nancial position Non-current assets Current assets Total equity Non-current liabilities Current liabilities Cash ﬂ ows Net cash generated from operating activities Capital expenditure Net movements in cash and cash equivalents (%) 3,632.8 169.4 2,539.4 141.1 2,608.8 154.6 1,848.1 133.5 1,240.3 (2,321.4) (108.2) (1,987.4) (110.4) (1,795.9) (106.4) (985.1) (71.2) (566.0) 1,066.6 969.5 – 547.0 547.1 49.7 45.2 – 25.5 25.5 353.4 512.1 (1.0) 210.2 213.6 19.6 28.4 (0.1) 11.7 11.9 637.8 745.5 – 452.1 452.0 (210.0) (9.7) (258.0) (14.9) (240.3) (14.7) 37.8 44.2 776.8 735.2 56.1 53.1 – (242.3) (16.1) 26.8 26.8 558.9 487.0 – 42.6 35.2 – 632.3 552.5 (0.6) 358.9 359.7 (95.6) 4,450.9 230.6 4,147.1 220.1 3,941.5 223.4 3,726.2 249.3 1,143.8 434.2 2,874.4 1,372.4 639.6 21.9 332.3 17.2 423.4 23.5 401.5 26.7 367.8 151.0 2,738.5 147.2 2,788.4 159.4 2,568.8 172.2 1,357.5 102.6 69.5 32.2 1,309.5 431.4 67.9 22.4 1,144.1 432.4 63.5 24.0 1,200.9 361.2 80.0 24.1 180.8 142.9 14.0 11.1 101.1 (46.1) 51.5 45.0 – 29.2 29.3 (7.4) 86.1 28.5 581.4 302.4 28.5 14.1 95.7 352.0 5.4 19.6 360.3 363.0 22.2 21.5 668.0 381.6 48.3 27.6 375.2 30.6 (213.9) (17.4) (11.7) (1.5) (36.9) (1.7) 29.6 1.7 (216.0) (15.6) 140.8 11.5 Note 1: At 30 June 2012, Phoenix Platinum had not reached steady state production, therefore all income and expenditure was capitalised. Note 2: Current assets at 30 June 2016 excluded non-current assets held for sale of ZAR1.3 million (GBP0,1 million), 30 June 2013, ZAR3.2 million (GBP0.2 million) and at 30 June 2012, ZAR169.6 million (GBP13.1 million). Pan African Resources integrated annual report 2016 45 Five-year review continued 2016 2015 2014 2013 2012 ZAR GBP ZAR GBP ZAR GBP ZAR GBP ZAR GBP (%) (Ratio) (Ratio) (Ratio) (Ratio) 19.0 0.12 0.35 24.0 0.7 16.9 0.10 0.34 24.8 0.7 7.7 0.12 0.63 7.3 0.8 7.9 0.11 0.58 7.2 0.8 16.2 0.04 0.14 38.9 1.0 16.8 0.04 0.13 37.9 1.0 21.8 0.04 0.13 41.6 1.1 24.7 0.04 0.12 41.9 1.1 26.4 (0.19) (0.46) 28.5 (0.19) (0.44) 301.1 417.0 2.6 2.6 Key ratios Return on shareholders’ funds Net debt: equity ratio Net debt: EBITDA Interest cover Current ratio Statistics Shares in issue (millions) (Number) 1,943.2 Weighted average number of shares in issue (Number) 1,811.4 1,831.5 1,830.4 1,830.0 1,827.2 1,822.8 1,619.8 1,448.3 1,445.2 Earnings per share (EPS) (Cents/pence) 30.20 1.41 11.48 0.64 24.74 1.47 34.51 2.63 24.83 2.02 Headline earnings per share (HEPS) (Cents/pence) 30.20 1.41 11.67 Net asset value (NAV) (Cents/pence) 190.75 10.02 149.52 Dividends per share (DPS) (Cents/pence) 11.47 (%) (Ratio) 5.1 12.4 0.53 4.3 13.5 14.10 6.3 15.7 0.65 8.04 0.82 6.7 14.9 24.74 152.37 13.15 5.6 10.79 1.47 8.71 0.81 5.7 9.69 30.07 140.93 – – 5.5 2.17 9.45 – – 4.8 24.89 93.74 6.60 3.0 9.7 2.03 7.09 0.51 3.6 7.3 Dividend yield Price earnings Volume of shares traded (millions) Volume traded as percentage of number in issue (Number) 650.7 461.6 573.2 527.9 435.5 199.8 760.3 459.2 606.9 424.2 (%) 33.5 25.5 31.3 28.8 23.8 10.9 41.7 25.2 41.9 29.3 Number of transactions (Number) 35,926 20,784 29,855 21,221 28,498 11,496 30,814 16,121 21,827 13,593 Value of shares traded (millions) Traded prices – last sale in year – high – low – average price per share traded (Number) 1,540.6 58.2 1,266.7 64.3 1,029.6 28.3 1,762.4 74.4 1,342.6 60.2 (Cents/pence) (Cents/pence) (Cents/pence) 375.0 400.0 122.0 19.0 19.0 6.3 180.0 278.0 180.0 9.5 15.5 9.5 267.0 294.0 186.0 14.3 16.8 11.8 191.0 299.0 185.0 12.8 21.0 11.8 242.0 299.0 180.0 14.8 17.4 9.5 (Cents/pence) 225.0 12.4 222.3 12.2 236.0 14.2 233.0 16.2 218.0 14.2 46 Pan African Resources integrated annual report 2016 STRATEGIC REPORT: PERFORMANCE REVIEW Operational review and performance Barberton Mines Casper Strydom General Manager Historical overview Barberton Mines consists of three mines: Fairview, Sheba and New Consort and the BTRP. Fairview produces 50% of Barberton Mines’ gold production with Sheba and New Consort producing 30% and 20% respectively. Operating three mines continues to provide ﬂ exibility and versatility in terms of resource allocation. The mix of high grade ore from the mines is planned monthly to maintain the targeted grade/tonnage proﬁ le and gold production, giving Barberton Mines the advantage of managing cash ﬂ ows from an early stage in the mining process. The operation has a proven track record of consistently delivering a solid performance, driven to a large extent by an embedded culture of cost control. The mining methods used are underground semi-mechanised cut and ﬁ ll by either up-dip or breast mining. An estimated 16% to18% of gold is recovered by sweeping and vamping contractors focusing on worked-out areas and mining high grade pillars. Gold is extracted using the BIOX® gold extraction process, an environmentally friendly process, which uses bacteria to release gold from the sulphide ore. Gold was originally discovered in the Barberton area in 1886 and comprises the sediments and metavolcanics within the Barberton Greenstone Belt. Barberton Mines has therefore been mined for over a century with current production practices now embedded. Given the aged mine infrastructure, the operations undergo ongoing maintenance and refurbishment. Historically Barberton Mines’ relative isolation has spurred creative engineering solutions, which contribute to its cost control. Facilities established over the years, such as an in-house workshop for maintenance of the mines’ ﬂ eet not only help control costs but also allow for in-house manufacture or customisation of equipment. Barberton Mines has been ISO 9001:2008 certiﬁ ed for 10 years. Pan African Resources integrated annual report 2016 47 HIGHLIGHTS ld ld i Gold sold i Gold sold increased by 7.1% to increased b 113,281oz (2015: 105,776oz) Remained one of the lowest-cost producers in the South African gold industry with an all-in cost of R354,417/kg CHALLENGES ed depth of Increase Increased depth of mining at Increase Fairview resulting in increased underground temperatures Low grade at New Consort operations Operational review and performance continued Barberton Mines continued Gold sold Ounces 120,000 110,000 100,000 90,000 80,000 70,000 60,000 50,000 2012 2013 2014 2015 2016 Underground Surface BTRP Production statistics – Mining and surface Tonnes 350,000 300,000 250,000 200,000 150,000 100,000 50,000 2012 2013 2014 2015 2016 Fairway Sheba Consort Vamping tonnes Head grade Production statistics – BTRP Tonnes 1,000,000 950,000 900,000 850,000 800,000 750,000 700,000 2.0 1.5 1.0 2014 2015 2016 BTRP BTRP head grade 48 Pan African Resources integrated annual report 2016 Sales and production Overall Barberton Mines operation (including BTRP) Barberton Mines’ (including BTRP) gold sold increased by 7.1% to 113,281oz (2015: 105,776oz). The total combined ZAR cash cost per kilogram increased marginally to ZAR279,226/kg (2015: ZAR278,859/kg). The combined USD cash costs per ounce decreased by 21% to USD599/oz (2015: USD758/oz). Some challenges facing Barberton Mines included a reduction in the grade at the New Consort mining operations and increased temperatures experienced at the deeper levels of the Fairview mining operation. The installation of a refrigeration system is underway at Fairview and will be in operation by the end of the 2017 ﬁ nancial year. Underground mining Tonnes mined from underground mining operations increased to 268,383t (2015: 260,749t), while the head grade improved to 11g/t (2015: 10.9g/t) which resulted in improved gold sold of 84,690oz (2015: 81,493oz). Barberton Mines’ (excluding BTRP) ZAR cash costs per kilogram terms increased by 4.7% to ZAR323,799/kg (2015: ZAR309,289/kg), whilst USD cash costs per ounce decreased by 17.4% to USD694/oz (2015: USD840/oz). BTRP Tonnes processed by the BTRP reduced marginally to 959,215t (2015: 971,627t). The head grade of the Bramber tailings processed increased to 1.7g/t (2015: 1.4g/t). The overall recoveries were 54% (2015: 57%). This resulted in the gold sold from the BTRP increasing to 28,591oz (2015: 24,283oz) for the year. The BTRP’s ZAR cash costs decreased by 16.7% to ZAR147,162/kg (2015: ZAR176,734/kg) and USD cash costs per ounce were USD315/oz (2015: USD480/oz). The BTRP remains one of the lowest-cost producers in the gold industry. 11 10 9 8 STRATEGIC REPORT: PERFORMANCE REVIEW Cost of production Barberton Mines’ cost of production increased by 7.2% to ZAR983.7 million (2015: ZAR917.4 million). The main cost increases included salaries and wages (up 16.5%), predominantly due to an incremental increase following multi-year wage agreements, as well as higher production incentives, following increased productivity by the operations. Electricity costs (up 10.8%) were well managed below the 12.7% NERSA-approved increases. Capital expenditure Total capital expenditure at Barberton Mines increased by 24.1% to ZAR139.7 million (2015: ZAR112.6 million). Maintenance capital expenditure of ZAR54.5 million (2015: ZAR44.2 million) and development capital expenditure of ZAR63.4 million (2015: ZAR53.7 million) was incurred. Expansion capital of ZAR21.8 million (2015: ZAR14.7 million) comprised ZAR8.1 million for completion of the Eskom line extension to the BTRP and ZAR13.7 million for the Royal Sheba development at Sheba Mine. In the prior ﬁ nancial year Barberton Mines spent ZAR14.7 million on the development of the Fairview ventilation raise borehole project to improve operating environment conditions. Looking ahead Three-shaft deepening at Fairview operations remains a priority to increase ﬂ exibility and ultimately additional tonnages. The management team remains committed to improving the safety performance and working with the DMR to reduce safety stoppages. Cash cost breakdown (excluding BTRP) Cash cost breakdown (including BTRP) 2016 2016 51% Salaries 13% Mining 7% Processing 9% Engineering 11% Electricity 3% Security 6% Other 46% Salaries 12% Mining 16% Processing 7% Engineering 11% Electricity 3% Security 5% Other 2015 2015 48% Salaries 14% Mining 8% Processing 9% Engineering 11% Electricity 3% Security 7% Other 42% Salaries 12% Mining 19% Processing 8% Engineering 10% Electricity 3% Security 6% Other Capital expenditure (including BTRP) ZAR millions 350 300 250 200 150 100 50 0 2012 2013 2014 2015 2016 Development capital Maintenance capital BTRP Pan African Resources integrated annual report 2016 49 Operational review and performance continued Evander Mines Band Malunga General Manager HIGHLIGHTS Historical overview Evander Mines exploits the Kimberley reef in the Evander basin, part of the greater Witwatersrand basin. Mining methods employed are underground conventional scraper mining and rail bound equipment with some trackless mechanised development. With 8 Shaft at a depth of 2.5km, it takes the workforce approximately an hour to reach the mining area via a lift and locomotive and two chairlifts. The rock is then hauled along 11 conveyors from the rock face to the bottom of 7 Shaft, where it is hoisted to surface. The gold is extracted at a CIL hybrid plant. 50 Pan African Resources integrated annual report 2016 ld d b ld i i Gold sold i Gold sold increased by 30.8% to 91,647oz (2015: 70,081oz) primarily due to a turnaround in production and an increase in head grade Underground head grade improved to 5.7g/t (2015: 4.6g/t) largely due to increased mining on 25 level on 8 Shaft ETRP and associated surface sources production increased to 18,151oz (2015: 16,336oz) CHALLENGES One fat One fatality and safety One fat tality and sa stoppages halting production Legacy infrastructure requiring maintenance STRATEGIC REPORT: PERFORMANCE REVIEW Gold sold – underground and surface sources Ounces 120,000 100,000 80,000 60,000 40,000 20,000 0 6 5 4 3 2 1 0 2012 2013 2014 2015 2016 Underground Surface ETRP Production statistics – underground and surface sources Tonnes 800,000 700,000 600,000 500,000 400,000 300,000 200,000 100,000 0 2012 2013 2014 2015 2016 Underground Surface Head grade – underground and surface Note: All surface sources production is allocated to the ETRP from 1 March 2015. Production statistics – ETRP Tonnes 2,000,000 1,600,000 1,200,000 800,000 400,000 0 2015 2016 ETRP ETRP head grade 1.0 0.5 0 Pan African Resources integrated annual report 2016 51 Sales and production For the year under review Evander Mines’ gold sold increased by 30.8% to 91,647oz (2015: 70,081oz). Underground mining Underground tonnes milled increased by 6.9% to 408,281 (2015: 381,986t). The increase in tonnes milled reﬂ ects beneﬁ ts derived from investing and increased maintaining the 8 Shaft infrastructure. The head grade increased by 23.9% to 5.7g/t (2015: 4.6g/t). Gold sold from underground operations increased by 36.7% to 73,496oz (2015: 53,746oz) due to the improved tonnages mined and higher head grades achieved. Evander Mines’ (excluding ETRP) ZAR cash costs per kilogram terms decreased by 6.4% to ZAR445,078/kg (2015: ZAR475,338/kg), whilst USD cash costs per ounce decreased by 26.1% to USD954/oz (2015: USD1,291/oz). ETRP The ETRP was in production for the full ﬁ nancial year compared to four months in the prior year. Evander Mines’ ETRP and associated surface sources production increased by 11.1% to 18,151oz (2015: 16,336oz). In the prior year surface sources of 9,813oz was reported in mining and surface operations and for comparability purposes included in the prior year’s gold sold amounts for the ETRP. The ETRP’s ZAR cash costs per kilogram amounted to ZAR273,965/kg (2015: ZAR266,453/kg), equating to USD cash costs per ounce of USD587/oz (2015: USD688/oz). Cost of production The total cost of production (including off-mine costs) increased by 17.9% to ZAR1,172.2 million (2015: ZAR993.8 million). The cost of production includes additional costs in relation to the new ETRP plant and related surface feedstock of ZAR154.8 million (2015: ZAR54.1 million). The cost of production (excluding the ETRP costs) therefore only increased by 8.3% to ZAR1,017.4 million (2015: ZAR939.7 million). The main cost increases included salaries and wages (up 9.2%), predominantly due to an incremental increase following a multi-year wage agreement. Processing costs (up 125.6%) increased due to the ETRP being in production for the full ﬁ nancial year. Electricity costs (up 20.1%) increased due to the 12.7% NERSA-approved increase and the additional ETRP electricity costs incurred. Capital expenditure Total capital expenditure at Evander Mines was ZAR153.8 million (2015: ZAR238.2 million). Maintenance capital expenditure was ZAR29.4 million (2015: ZAR38.7 million) and development capital expenditure was ZAR118.4 million (2015: ZAR104.4 million). Expansion capital of ZAR6.0 million (2015: ZAR95.1 million) was spent on development of the 26 level and for the prior year the expansionary capital related to the completion of the ETRP construction. Looking ahead There will be a review of the 18 to 24 level vent shaft hoisting project to ascertain the feasibility of using the current vent shaft for hoisting ore. This will eliminate the use of the current 4.2km conveyor belt system. Operational review and performance continued Evander Mines continued Cash cost breakdown (excluding ETRP) Cash cost breakdown (including ETRP) 2016 2016 50% Salaries and wages 8% Mining 6% Processing 9% Engineering and technical services 20% Electricity 2% Security 5% Other 44% Salaries and wages 7% Mining 17% Processing 8% Engineering and technical services 18% Electricity 1% Security 5% Other 2015 2015 50% Salaries and wages 13% Mining 4% Processing 7% Engineering and technical services 19% Electricity 1% Security 6% Other 48% Salaries and wages 12% Mining 9% Processing 6% Engineering and technical services 18% Electricity 1% Security 6% Other Capital expenditure (including ETRP) ZAR millions 250 200 150 100 50 0 2012 2013 2014 2015 2016 Development capital Maintenance capital ETRP 52 Pan African Resources integrated annual report 2016 STRATEGIC REPORT: PERFORMANCE REVIEW Phoenix Platinum Bertin McLeod Plant Manager: Metallurgy Historical overview Phoenix Platinum recovers PGEs from CTRP located on IFL’s Lesedi Mine. The Buffelsfontein, Elandskraal and Kroondal mineral resources originate from the mining of chromitite seams from the Bushveld Igneous Complex. The Bushveld Igneous Complex is host to the world’s largest deposits of PGEs. The operation is expected to produce PGEs over a life of mine of 9 years. It has a total process capacity of 360kt per annum. The PGEs are extracted in the ﬂ otation plant and the toll concentrate is delivered to Lonmin’s Mooi Nooi Smelter for toll extraction. The CTRP was designed to treat sulphide material from the Lesedi Mine, which is supplied to Phoenix Platinum with sulphide-rich material, as a current arising. HIGHLIGHTS CHALLENGES li d Finalised a Finalised an agreement with TC Smelters Proprietary Limited to restore plant conditions prior to the business rescue proceedings Proactively secured feedstock from alternative suppliers business res IFMSA IFMSA business rescue resulted IFMSA in loss of feedstock from Lesedi Mine Feedstock sourced from alternative supplier was of a lower grade No tailings deposition facility available while IFMSA was in business rescue Pan African Resources integrated annual report 2016 53 Operational review and performance continued Phoenix Platinum continued Sales and production Phoenix Platinum’s operational performance was negatively impacted by the curtailment in current arisings from IFMSA’s Lesedi Mine, due to IFMSA’s business rescue proceedings. As a result, ounces sold decreased to 8,339oz (2015: 10,245oz). However, with the new agreement in place between Pan African Resources and TC Smelters Proprietary Limited, tailings deposition onto the IFMSA TSF resumed from June 2016. Phoenix Platinum is now positioned to continue operations under similar conditions to those prior to the business rescue proceedings. Phoenix Platinum secured feedstock from alternative suppliers (Elandskraal and Kroondal), however the grade of feedstock was lower than that received from Lesedi Mine. Overall plant recoveries remained stable at 43% (2015: 44%). The effective average ZAR PGE basket price received decreased by 6.8% to ZAR8,952/oz (2015: ZAR9,603/oz). Cost per ounce of production increased to ZAR8,890/oz (2015: ZAR6,621/oz) following the lower ounce production. In USD terms the PGE basket price received decreased by 26.5% to USD617/oz (2015: USD839/oz). The USD cash costs per ounce decreased by 6.1% to USD613/oz (2015: USD578/oz). Cost of production The cost of production increased by 9.3% to ZAR74.1 million (2015: ZAR67.8 million). The main cost increases were salaries and wages (up 2.9%), lower-than-average inﬂ ationary increases due to lower incentives earned in line with the lower production achieved, reﬁ ning and processing increases (up 10.8%) following additional transport costs to move tailings material from the Kroondal tailings site, and higher chrome reﬁ ning costs as a result of higher chrome content in the concentrate dispatched to Lonmin. Electricity costs (up 12.1%) increased in line with the NERSA-approved increase of 12.7%. Capital expenditure Total capital expenditure at Phoenix Platinum increased to ZAR6.8 million (2015: ZAR0.6 million) due to the installation of a scrubber and high-energy agitation cells. Looking ahead Phoenix Platinum has invested in high-energy agitation cells and a scrubber, which is expected to signiﬁ cantly improve throughput and recoveries and ultimately lead to improved ounces. PGE ounces sold Ounces Production statistics Tonnes and g/t 12,000 10,000 8,000 6,000 4,000 2,000 0 2013 2014 2015 2016 300,000 250,000 200,000 150,000 100,000 50,000 0 2013 2014 2015 2016 H e a d g r a d e ( g / t ) 5 4 3 2 1 0 PGEs sold Plant feed tonnes Head grade 54 Pan African Resources integrated annual report 2016 STRATEGIC REPORT: PERFORMANCE REVIEW Uitkomst Colliery HIGHLIGHTS Johan Gloy General Manager i d th Acq ired th Acquired the Uitkomst Colliery operations on 31 March 2016 h Uitk The operation produces yields of high grade coal suitable for export or metallurgical markets Surplus demand for coal production CHALLENGES Volatile Volatile coal market Volatile coal marke Historical overview The group assumed effective control over the Uitkomst Colliery on 31 March 2016, which was followed by a smooth operational integration process. This operation produces yields of high grade coal suitable for export or metallurgical markets. In addition, it produces approximately 30,000 to 35,000 tonnes of saleable coal per month from its underground mining operation, with approximately 23.3Mt of resources and a life of mine of 22 years. Sales and production The Uitkomst Colliery earnings for the period 1 April 2016 to 30 June 2016 were ZAR11.4 million. The coal plant was fed with 128,022t of coal and a total of 136,102t was sold. The coal sales were higher than the coal feed due to coal acquired and sold that was not processed through the plant. Uitkomst Colliery contributed ZAR98 million to the group’s revenue during the last quarter. The average revenue per tonne received was ZAR720/t or USD48/t. Managing coal seam heights above 1.2 metres Cost of production Cost of production amounted to ZAR91.8 million which equated to ZAR674/t or USD45/t for the period under review. Operating costs 2016 8% Salaries and wages 38% Mining costs 20% Processing costs 11% Engineering and technical services 2% Electricity costs 5% Administration and other costs 16% Inventory adjustment Capital expenditure Capital expenditure incurred amounted to ZAR0.9 million. Looking ahead Identify and incorporate additional coal sources to ﬁ ll the coal wash plant’s surplus capacity, which will also meet the surplus demand requirements for our coal in the area. The Uitkomst Colliery will be reviewing options to possibly increase the coal production from 50,000t to 75,000t per month in the future. In addition, the BEE transaction as noted on concluded during the 2017 ﬁ nancial year. page 80 will be Pan African Resources integrated annual report 2016 55 Operational production Gold operations Underground and surface operations Tailings operations Total continuing operations Year ended 30 June Units Barberton Mines Evander Mines Total BTRP ETRP Barberton Mines Total Evander Mines Total Group Total Tonnes milled – underground Tonnes milled – surface (note 1) Tonnes milled – total underground and surface Tonnes processed – tailings (note 2) Tonnes processed – surface feedstock Tonnes processed – total tailings and surface feedstock Tonnes milled and processed – total Head grade – underground Head grade – surface Head grade – total underground and surface Head grade – tailings Head grade – surface feedstock Head grade – total tailings and surface feedstock Head grade – total Recovered grade Overall recovery – underground operations Overall recovery – tailings operations Gold production – underground operations Gold production – surface operations 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 (t) (t) (t) (t) (t) (t) (t) (t) (t) (t) (t) (t) (t) (t) (g/t) (g/t) (g/t) (g/t) (g/t) (g/t) (g/t) (g/t) (g/t) (g/t) (g/t) (g/t) (g/t) (g/t) (g/t) (g/t) (%) (%) (%) (%) (oz) (oz) (oz) (oz) 258,405 408,281 666,686 254,673 381,986 636,659 9,978 6,076 – 9,978 266,223 272,299 268,383 408,281 676,664 260,749 648,209 908,958 – – – – – – – – – – – – 258,405 408,281 666,686 254,673 381,986 636,659 9,978 6,076 – 9,978 266,223 272,299 268,383 408,281 676,664 260,749 648,209 908,958 – – – – – – – – – – – – – – – – – – 959,215 1,445,044 959,215 1,445,044 2,404,259 971,627 507,444 971,627 507,444 1,479,071 – – 396,942 139,723 – – 396,942 396,942 139,723 139,723 959,215 1,841,986 959,215 1,841,986 2,801,201 971,627 647,167 971,627 647,167 1,618,794 268,383 408,281 676,664 959,215 1,841,986 1,227,598 2,250,267 3,477,865 260,749 648,209 908,958 971,627 647,167 1,232,376 1,295,376 2,527,752 11.0 10.9 1.2 1.4 10.7 10.7 – – – – – – 10.7 10.7 9.8 9.7 92 91 – – 5.7 4.6 – 1.1 5.7 3.2 – – – – – – 5.7 3.2 5.6 3.0 98 97 – – 7.8 7.1 1.2 1.1 7.7 5.3 – – – – – – 7.7 5.3 7.3 5.0 95 93 – – 84,428 73,496 157,924 81,315 53,746 135,061 262 178 – 9,813 262 9,990 – – – – – – 1.7 1.4 – – 1.7 1.4 1.7 1.4 0.9 0.8 – – 54 57 – – – – – – – – – – 0.3 0.3 1.3 1.1 0.5 0.5 0.5 0.5 0.3 0.3 – – 46 54 – – – – 11.0 10.9 1.2 1.4 10.7 10.7 1.7 1.4 – – 1.7 1.4 3.7 3.3 2.9 2.7 92 91 54 57 5.7 4.6 – 1.1 5.7 3.2 0.3 0.3 1.3 1.1 0.5 0.5 1.5 1.8 1.3 1.7 98 97 46 54 7.8 7.1 1.2 1.1 7.7 5.3 0.9 1.0 1.3 1.1 0.9 1.0 2.2 2.6 1.8 2.2 95 93 52 56 84,428 73,496 157,924 81,315 53,746 135,061 262 178 – 9,813 262 9,990 56 Pan African Resources integrated annual report 2016 Gold production – tailings operations Gold production – surface feedstock Gold sold (note 2) Average ZAR gold price received Average USD gold price received ZAR cash cost ZAR all-in sustaining cost ZAR all-in cost USD cash cost USD all-in sustaining cost USD all-in cost ZAR cash cost per tonne (note 3) 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 STRATEGIC REPORT: PERFORMANCE REVIEW Underground and surface operations Tailings operations Total continuing operations Year ended 30 June Units Barberton Mines Evander Mines Total BTRP ETRP Barberton Mines Total Evander Mines Total Group Total 35,315 26,776 11,427 4,029 (oz) (oz) (oz) (oz) (oz) (oz) – – – – – – – – – – – – 28,591 24,283 – – 6,724 2,494 11,427 4,029 28,591 24,283 – – 6,724 2,494 11,427 4,029 84,690 81,493 73,496 158,186 63,558 145,051 28,591 24,283 18,151 113,281 91,647 204,928 6,523 105,776 70,081 175,857 (ZAR/kg) 544,618 539,202 542,102 547,862 541,483 545,437 539,654 542,850 (ZAR/kg) 446,246 447,474 446,784 447,387 430,797 446,508 445,922 446,274 (USD/oz) (USD/oz) 1,167 1,212 1,156 1,216 1,162 1,214 1,174 1,215 1,161 1,113 1,169 1,213 1,156 1,216 1,164 1,212 (ZAR/kg) 323,799 445,078 380,150 147,162 273,965 279,226 411,168 338,242 (ZAR/kg) 309,289 475,338 382,048 176,734 266,453 278,859 455,896 349,410 (ZAR/kg) 413,422 526,817 466,109 155,080 275,661 348,231 477,044 405,847 (ZAR/kg) 375,914 532,767 444,644 185,280 266,453 332,151 507,980 402,221 (ZAR/kg) 418,628 529,438 470,114 164,168 275,661 354,417 479,145 410,206 (ZAR/kg) 382,620 539,315 451,280 185,280 735,262 337,317 557,553 425,084 (USD/oz) (USD/oz) (USD/oz) (USD/oz) (USD/oz) (USD/oz) (ZAR/t) (ZAR/t) 694 840 886 1,021 897 1,039 3,178 3,006 131.6 109.3 954 1,291 1,129 1,447 1,135 1,465 2,492 1,450 153.8 143.1 815 1,038 999 1,208 1,008 1,226 2,764 1,896 285.4 252.5 Capital expenditure (note 4) 2016 (ZAR million) 2015 (ZAR million) Revenue 2016 (ZAR million) 1,434.6 1,232.6 2,667.2 2015 (ZAR million) 1,131.1 884.6 2,015.7 Cost of production 2016 (ZAR million) 2015 (ZAR million) 852.9 783.9 1,017.4 1,870.3 939.7 1,723.6 All-in sustainable cost of production All-in cost of production Adjusted EBITDA (note 5) Average exchange rate 2016 (ZAR million) 1,089.0 1,204.3 2,293.3 2015 (ZAR million) 952.8 1,053.2 2,006.0 2016 (ZAR million) 1,102.7 1,210.3 2,313.0 2015 (ZAR million) 2016 (ZAR million) 2015 (ZAR million) 2016 2015 (ZAR/USD) (ZAR/USD) 969.8 422.4 301.8 14.51 11.45 1,066.2 2,036.0 204.3 32.4 14.51 11.45 626.7 334.2 14.51 11.45 315 480 332 503 352 503 136 137 8.1 3.3 487.2 337.9 130.8 133.5 137.9 139.9 145.9 139.9 307.4 203.7 14.51 11.45 587 688 591 688 591 1,899 84 84 – 95.1 305.7 87.4 154.8 54.1 155.7 54.1 155.7 149.2 153.3 15.0 14.51 12.04 599 758 746 902 760 916 801 744 139.7 112.6 881 1,238 1,023 1,380 1,027 1,515 521 767 153.8 238.2 725 949 870 1,093 879 1,155 620 756 293.5 350.8 1,921.8 1,538.3 3,460.1 1,469.0 972.0 2,441.0 983.7 917.4 1,172.2 2,155.9 993.8 1,911.2 1,226.9 1,360.0 2,586.9 1,092.7 1,107.3 2,200.0 1,248.6 1,366.0 2,614.6 1,109.7 1,215.4 2,325.1 729.8 505.5 14.51 11.45 357.6 1,087.4 47.4 14.51 11.45 552.9 14.51 11.45 Note 1: Surface source tonnes allocated to ETRP from 1 March 2015. Note 2: ETRP production for January and February 2015 was capitalised according to IAS 16 (204,024t producing 17kg gold). Note 3: Split between ETRP and surface feedstock cost per tonne is R44.92/t and R220.25/t respectively, averaging at R84/t. Note 4: Included in Evander Mines capital for the prior year is an amount of ZAR95.1 million relating to the construction of the ETRP. Note 5: Adjusted EBITDA is represented by earnings before interest, taxation, depreciation and amortisation, impairments and loss on disposal of associate. Pan African Resources integrated annual report 2016 57 Operational production continued PGE operations Tonnes processed – tailings Head grade – tailings Overall recovery PGE sold Average ZAR PGE price received Average USD PGE price received ZAR cash cost ZAR all-in sustaining cost ZAR all-in cost USD cash cost USD all-in sustaining cost USD all-in cost ZAR cash cost per tonne Capital expenditure Revenue Cost of production All-in sustainable cost of production All-in cost of production Adjusted EBITDA (note 1) Average exchange rate Year ended 30 June 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 Units (t) (t) (g/t) (g/t) (%) (%) (oz) (oz) (oz) (oz) (USD/oz) (USD/oz) (ZAR/oz) (ZAR/oz) (ZAR/oz) (ZAR/oz) (ZAR/oz) (ZAR/oz) (USD/oz) (USD/oz) (USD/oz) (USD/oz) (USD/oz) (USD/oz) (ZAR/t) (ZAR/t) (ZAR million) (ZAR million) (ZAR million) (ZAR million) (ZAR million) (ZAR million) (ZAR million) (ZAR million) (ZAR million) (ZAR million) (ZAR million) (ZAR million) (ZAR/USD) (ZAR/USD) Tailings operations Phoenix Platinum 248,981 262,119 3.08 3.31 43 44 8,339 10,245 8,952 9,603 617 839 8,890 6,621 10,113 7,016 10,600 7,016 613 578 697 613 731 613 298 259 6.8 0.6 74.7 98.4 74.1 67.8 84.3 71.9 88.4 71.9 (4.8) 27.7 Total 248,981 262,119 3.08 3.31 43 44 8,339 10,245 8,952 9,603 617 839 8,890 6,621 10,113 7,016 10,600 7,016 613 578 697 613 731 613 298 259 6.8 0.6 74.7 98.4 74.1 67.8 84.3 71.9 88.4 71.9 (4.8) 27.7 14.51 11.45 14.51 11.45 Note 1: Adjusted EBITDA is represented by earnings before interest, taxation, depreciation and amortisation, impairments and loss on disposal of associate. 58 Pan African Resources integrated annual report 2016 STRATEGIC REPORT: PERFORMANCE REVIEW Coal operations Tonnes processed – underground Tonnes processed – coal acquired Tonnes processed – total underground and acquired Tonnes – total Yield Coal washed – underground and acquired Coal traded – no processing required Coal sold Average ZAR coal price received Average USD coal price received ZAR cash cost ZAR all-in sustaining cost ZAR all-in cost USD cash cost USD all-in sustaining cost USD all-in cost Capital expenditure Revenue Cost of production All-in sustainable cost of production All-in cost of production Adjusted EBITDA (note 1) Average exchange rate Three months ended 30 June Units Total 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 (t) (t) (t) (t) (t) (t) (t) (t) (%) (%) (t) (t) (t) (t) (t) (t) (ZAR/t) (ZAR/t) (USD/t) (USD/t) (ZAR/t) (ZAR/t) (ZAR/t) (ZAR/t) (ZAR/t) (ZAR/t) (USD/t) (USD/t) (USD/t) (USD/t) (USD/t) (USD/t) (ZAR million) (ZAR million) (ZAR million) (ZAR million) (ZAR million) (ZAR million) (ZAR million) (ZAR million) (ZAR million) (ZAR million) (ZAR million) (ZAR million) (ZAR/USD) (ZAR/USD) 128,022 – 38,354 – 166,376 – 166,376 – 68.3 – 113,634 – 22,468 – 136,102 – 720 – 48 – 674 – 657 – 657 – 45 – 44 – 44 – 0.9 – 98.0 – 91.8 – 89.4 – 89.4 – 10.8 – 15.01 – Note 1 – Adjusted EBITDA is represented by earnings before interest, taxation, depreciation and amortisation, impairments and loss on disposal of associate. Pan African Resources integrated annual report 2016 59 Abridged Mineral Resources and Mineral Reserves report The 2016 Abridged Mineral Resources and Mineral Reserves Report (MR&MR) is available on the company’s website at www.panafricanresources.com. A summary of the report including the group mineral resource and reserve statement as at 30 June 2016 has been provided in this report. Gold Relationship between exploration results, mineral resources and mineral reserves showing Pan African Resources’ attributable resources and reserves as at 30 June 2016. EXPLORATION RESULTS RESOURCES Total 34.9Moz Au Inferred 12.3Moz Au Indicated 20.4Moz Au Measured 2.2Moz Au RESERVES Total 10.0Moz Au Probable 8.7Moz Au Proved 1.3Moz Au PGEs 4E* Relationship between exploration results, mineral resources and mineral reserves showing Pan African Resources’ attributable resources and reserves as at 30 June 2016. EXPLORATION RESULTS RESOURCES Total 0.6Moz PGEs 4E Inferred 0.4Moz PGEs 4E Indicated 0.1Moz PGEs 4E Measured 0.1Moz PGEs 4E RESERVES Total 0.2Moz PGEs 4E Probable 0.1Moz PGEs 4E Proved 0.1Moz PGEs 4E * PGEs 4E are stated as PGE 4E (Pt, Pd, Au, Rh). Coal Relationship between exploration results and mineral resources showing Pan African Resources’ attributable resources as at 30 June 2016. EXPLORATION RESULTS RESOURCES Total 23.3Mt Inferred 4.0Mt Indicated 4.3Mt Measured 15.0Mt RESERVES Total 12.6Mt Probable 2.8Mt Proved 9.8Mt Scope of report This version of the Pan African Resources Mineral Resources and Mineral Reserves Report 2016 (MR&MR) conforms to the standards determined by the South African Code for the Reporting of Exploration Results, Mineral Resources and Mineral Reserves (the SAMREC Code, 2007 edition) and forms part of Pan African Resources’ integrated annual report including the annual ﬁ nancial statements for the year ended 30 June 2016. The entire suite of documents is available in full on www.panafricanresources.com. The mineral resource is inclusive of the mineral reserve component, unless otherwise stated. Information is presented either by operation, mine or project, as indicated. The tables and graphs used to illustrate developments across the operations of Pan African Resources in FY16 include: • Mineral resources tables by commodity • Mineral reserves modifying factors • Mineral reserves tables by commodity • A comparison of the mineral reserves and mineral resources estimates with the previous year together with explanations of material differences • Appointed competent persons. Matters on which detail is provided in this version include regional geology, location, exploration drilling organic ore reserve projects, type of mining, production ﬁ gures and mineral tenure. Reporting Code The guiding principle in the MR&MR is to ensure integrity, transparency and materiality in informing all stakeholders on the status of the group’s mineral asset base. Pan African Resources uses the SAMREC Code, which sets out the internationally recognised procedures and standards for reporting Mineral Resources and Mineral Reserves in South Africa, developed by the South African Institute of Mining and Metallurgy as the recommended guideline for reserve and resource reporting for JSE-listed companies. Distinct effort has also been made to comply with AIM Rules for Mining and Oil and Gas Companies of the London Stock Exchange. 60 Pan African Resources integrated annual report 2016 STRATEGIC REPORT: PERFORMANCE REVIEW The guiding principle in the MR&MR The guiding principle in the MR&MR is to ensure integrity, transparency is to ensure integrity, transparency and materiality in informing all and materiality in informing all stakeholders on the status of the stakeholders on the status of the group’s mineral asset base; also group’s mineral asset base; also informing our life of mine planning informing our life of mine planning and the sustainable future of and the sustainable future of Pan African Resources. Pan African Resources. Barry Naicker Group Mineral Resource Manager Reporting in compliance with SAMREC Code To meet the requirement of the South African Code for the Reporting of Exploration Results, Mineral Resources and Mineral Reserves (SAMREC Code) that the material reported as a Mineral Resource should have “reasonable and realistic prospects for eventual economic extraction”, Pan African Resources has determined an appropriate cut-off grade which has been applied to the quantiﬁ ed mineralised body. In determining the cut-off grade, Pan African Resources uses a gold price of ZAR550,000/kg. At our underground mines, the optimal cut-off is deﬁ ned as the lowest grade at which an orebody can be mined to maximise total proﬁ ts, under a speciﬁ ed set of mining parameters. The mineral resource optimiser tool developed in-house was applied to the mineral resource inventory. The optimiser programme requires the following inputs to convert the mineral resource to the mineral reserve: • The on-mine database inventory of all mineral resource blocks • An assumed gold price – ZAR450,000/kg • Planned production rates for each mine • Mine call factor (MCF) • Plant recovery factors • Historical cash operating costs and other efﬁ ciency factors. The mineral reserves represent that portion of the Measured and Indicated Mineral Resources above cut-off in the LOM plan, and have been estimated after considering the modifying factors affecting extraction. A range of disciplines has been involved at each mine in the life of mine planning process including geology, surveying, planning, mining engineering, rock engineering, metallurgy, ﬁ nancial management, human resources management and environmental management. Note: mineral resources are inclusive of the mineral reserve, unless otherwise stated. Rounding of numbers contained in this report may result in minor computational discrepancies. Competent person The competent person for Pan African Resources, Mr Barry Naicker, the group Mineral Resource Manager, signs off the MR&MR for the group and has reviewed and nd approved the information contained in this announcement in writing. He is a member of the South African Council for Scientiﬁ c Professions (400234/10). Mr Naicker has 15 years of experience in economic geology gy and mineral resource management. He is based at 1st Floor, The Firs, corner Cradock and Biermann Avenues, Rosebank 2196, Gauteng. Pan African Resources integrated annual report 2016 61 Abridged Mineral Resources and Mineral Reserves report continued Strategy Pan African Resources has an exceptional asset base and attractive growth opportunities, in both established projects and brownﬁ eld exploration prospects. Strategy in this regard is based on global best practice in mineral resource management (MRM) to aggressively explore and develop projects that will become next generation long-term business units. The MRM framework aims at optimally exploiting the group’s mineral inventory ethically and responsibly. Best practices are aligned to mitigate risks, ensuring longevity and sustainable operations. A range of disciplines has been involved at each mine in the life of mine planning process including geology, surveying, planning, mining engineering, rock engineering, metallurgy, ﬁ nancial management, human resources management and environmental management. PAR has the legal entitlement to the minerals being reported and PAR is unaware of any material risks and legal proceedings that could impact the MR&MR declared in this report. Highlights • Positive pre-feasibility study (PFS) of the Elikhulu tailings retreatment project, the company mandated DRA Projects Proprietary Limited to conduct a defi nitive feasibility (DFS) study on the project. The study will be completed by November 2016 • 3.0Moz or 9.4% gross annual increase in group gold resources to 34.9Moz (2015: 31.9Moz) • Down dip extension of the high grade 11 Block of the MRC orebody by a further 70 metres • This extension to the MRC orebody resulted in additional mineral reserves at Fairview Mine, thereby extending the life of mine of Barberton Mines to 22 years • Positive grade/tonnage profi le for the 25 – 26 levels at Evander 8 Shaft, thereby maintaining the life of mine of Evander Mines to 16 years • Surface exploration drilling commenced at Evander Mines targeting the 2010 Payshoot orebody • 23.3Mt of mineable tonnage in situ coal from Uitkomst Colliery The evolution of a project from initial testing to commissioning can take 12 to 18 months or longer, and involves a series of study stages to reach investment approval and implementation. We distinguish the group from our peers by having a clear focus on growth and only mining resources that must be proﬁ table in all parts of the price cycle, in order to deliver long-term economic value to Pan African Resources. The graph below demonstrates the group’s mineral assets within the value chain and how value is released through acquisitions and projects such as BTRP, Elikhulu, ETRP, Royal Sheba and Uitkomst Colliery. EXPLORATION DEVELOPMENT PROJECT MINE CONSTRUCTION MINE PRODUCTION Mineral Resources Reconnaissance Inferred Proved Probable Measured Indicated Evander 7 Shaft No.3 Decline Royal Sheba 2010 Payshoot Rolspruit Poplar Elikhulu Evander 9 Shaft A Block Evander South Mineral Reserves Barberton Mines Evander 8 Shaft Phoenix Platinum BTRP ETRP Uitkomst Colliery DESKTOP STUDY DISCOVERY FEASIBILITY STUDY PROJECT COMMISSIONING E U L A V T C E J O R P 62 Pan African Resources integrated annual report 2016 STRATEGIC REPORT: PERFORMANCE REVIEW Progress Sustainable Progress Substantially achieved Moderate progress Not achieved Mineral Resource Gold 34.9Moz, PGEs 0.6Moz, Coal 23,3Mt Organic growth projects: Evander Shaft 8 – 26 level, Fairview Mine – MRC orebody and Royal Sheba Brownﬁ eld projects: Elikhulu PFS completed now progressing with DFS, 2010 Payshoot – surface exploration drilling in progress, Evander 9 Shaft A Block and Rolspruit Accretive acquisitions Proﬁ table High grade/low cost producer Barberton Mines: 11.0g/t* Evander Mines: 5.7g/t* Phoenix Platinum: 3.7g/t* * Head grade Uitkomst Colliery – high grade thermal coal Attributable proﬁ t Earnings per share A working strategy This strategy includes: • Improving the conversion of mineral resources to mineral reserves by accessing, developing and exploiting underground orebodies and surface assets • Unlocking the value of major organic projects • Identifying new expansion opportunities to sustain growth. Stakeholders Mineral tenure secured Progress Growth Progress Mineral Reserve Gold 10.0Moz, PGEs 4E 0.2Moz, Coal 12.6Mt Compliance with all relevant South African labour legislation Cash-generative Compliance with MPRDA, Mining Charter and implementation of social and labour plans Proactive, strong relationships with regulators, organised labour and communities Attractive dividend Continual low cash cost gold production Barberton Mines – 22* Evander Mines – 16* Phoenix Platinum – 9* BTRP – 14* ETRP – 16* Uitkomst Colliery – 22* * Life of mine – years Pan African Resources integrated annual report 2016 63 Abridged Mineral Resources and Mineral Reserves report continued Highlights In the context of achieving our vision, the MR&MR report encompasses our four strategic pillars as below: High grade/low cost Barberton Mines 11.0g/t* producer ETRP Evander Mines 5.7g/t* Phoenix Platinum 3.7g/t* P ROFIT A B E L Evander Mines * Head grade Mineral Resources Gold 34.9Moz up 9.4% PGEs 0.6Moz Coal 23.3Mt Organic growth projects Barberton Mines – MRC orebody extension, Royal Sheba and Evander Shaft 8 – 26 level Brownfi eld projects Rolspruit, 2010 Payshoot, Evander 9 Shaft A Block DFS on Elikhulu to be completed by November 2016 2010 Payshoot – surface exploration drilling in progress S USTAI N A B L E S T AKEHO L D E R S Mineral tenure Stakeholder engagement Longevity in operations Local economic development Organised labour Mineral Reserves Life of mine Gold 10.0Moz down 3.8% Barberton Mines 22 years GROW T H PGEs 0.2Moz Coal 12.6Mt Life of mine increased Evander Mines 16 years Phoenix Platinum 9 years BTRP ETRP 14 years 16 years Uitkomst Colliery 22 years 64 Pan African Resources integrated annual report 2016 STRATEGIC REPORT: PERFORMANCE REVIEW Gold Group gold Mineral Resources The group’s attributable gold mineral resources increased from 31.9 million ounces (Moz) in June 2015 to 34.9Moz in June 2016, equating to an annual increase of 3.0Moz, or 9.4%. This increase can be attributed to additional resources estimated for the Elikhulu project at Evander Mines and a higher gold price used for the declaration of the group’s gold mineral resource. Group gold % changes during 2016 Mineral Resources Contained gold 9.4% As at 30 June 2016 Category Mineral Resource Pan African Resources Measured Indicated Inferred Total Tonnes million 6.6 261.3 69.4 337.3 Grade g/t 10.27 2.42 5.56 3.22 Tonnes 67.8 633.5 386.0 1 087.3 Moz 2.2 20.4 12.3 34.9 Group gold Mineral Reserves The group’s attributable mineral reserves decreased from 10.4Moz in June 2015 to 10.0Moz in June 2016 – an annual decrease of 0.4Moz, or 3.8%. As at 30 June 2016 Category Mineral Reserve Pan African Reserves Proved Probable Total Tonnes million 5.0 77.3 82.3 Grade g/t 7.78 3.51 3.71 Contained gold Tonnes 38.8 271.8 310.6 Moz 1.3 8.7 10.0 The decrease in the group’s gold mineral reserve can be attributed to mining depletion during the year under review. Mineral Reserves (3.8%) Platinum Group Elements (PGEs 4E) Group PGEs 4E Mineral Resources The group’s attributable PGEs 4E mineral resources did not change materially for the year under review. Contained PGEs 4E Group – PGEs 2016 (%) Mineral Resources As at 30 June 2016 Category Mineral Resource Pan African Resources Measured Indicated Inferred Total Tonnes million 1.4 1.3 3.5 6.2 Grade g/t 2.43 2.65 3.65 3.16 Tonnes Moz 0% 3.4 3.4 12.6 19.0 0.1 0.1 0.4 0.6 Group PGEs 4E Mineral Reserves The group’s attributable PGEs 4E mineral reserves decreased from 0.5Moz in June 2015 to 0.2Moz in June 2016 – an annual decrease of 0.3Moz or 60%. This decrease is attributed to the exclusion of the mineral reserves from the Lesedi Mine, current arisings. Following IFM being placed in business rescue, the PGEs 4E mineral reserves at Phoenix Platinum declined year-on-year by 0.3Moz. Mineral Reserves As at 30 June 2016 Category Mineral Reserve Pan African Reserves Proved Probable Total Tonnes million 1.4 1.3 2.7 Grade g/t 2.43 2.65 2.54 Contained PGEs 4E Tonnes Moz (60%) 3.4 3.4 6.8 0.1 0.1 0.2 Pan African Resources integrated annual report 2016 65 Abridged Mineral Resources and Mineral Reserves report continued Coal Group coal Mineral Resources The group’s attributable coal mineral resource was declared as 23.3Mt as at June 2016. Resources Raw coal qualities (ad) Class MTIS (Mt) Measured Indicated Inferred Total Class Proved Probable Total 15.0 4.3 4.0 23.3 Reserves MTIS (Mt) 9.8 2.8 12.6 RD 1.50 1.51 1.50 Yield % 73.9 76.2 IM % 2.5 2.5 2.4 IM % 2.7 2.8 Ash % 23.5 23.8 23.4 VM % 24.3 23.9 23.4 FC % 49.8 49.8 50.9 Run of mine qualities (12% ash product) Ash % 12.0 12.0 VM % 28.0 27.5 FC % 57.3 57.8 CV MJ/kg 24.75 24.62 25.02 CV MJ/kg 28.96 29.00 TS % 1.23 1.14 1.03 TS % 0.96 0.97 MTIS – mineable tonnes in situ | RD – relative density | IM – inherent moisture | FC – ﬁ xed carbon | CV – caloriﬁ c value | TS – total sulphur Group organic growth Current exploration drilling as well as accessing and developing of our orebodies were maintained during the year. The strategy of converting mineral resource to mineral reserve was progressed by moving organic projects further up the mining value chain towards commissioning. The tables below reﬂ ect the progress of near-mine growth projects that have contributed ounces to the mineral resource for the year. Group: Exploring the orebody – exploration drilling Operation Barberton Mines Evander Mines Total metres Number of boreholes Average channel width cm Number of intersections above cut-off Average grade g/t Total expenditure Rm 9,916 567 118 9 146 27 50 1 17.46 16.20 7.0 0.6 Exploration drilling projects at Barberton Mines yielded positive results on all three operations (see table on page 67). • At Fairview Mine, exploration drilling conﬁ rmed a further 70m down-dip extension of the MRC orebody with a high-grade intersection of 125.8b0g/t over 680cm. The depth extent of this orebody is open-ended. 66 Pan African Resources integrated annual report 2016 STRATEGIC REPORT: PERFORMANCE REVIEW Recent borehole results are detailed below: Borehole number Fairview Mine Bh 5951 Sheba Mine Bh SWR 15 New Consort Bh 14L19 New Consort Bh 33C2 Group: Accessing the orebody – on-reef development Operation Barberton Mines Evander Mines Barberton Mines: Developing the orebody – capital ore reserve projects Project Sheba Mine – pillar development Sheba Mine – Edwin Bray to Thomas and Joe’s Luck area Fairview Mine – 11 Level Royal Reef Fairview Mine– 1# ore reserve opening Fairview Mine – 3 Shaft deepening Fairview Mine – 64-68 Level Sheba Mine – Western Cross Royal Sheba Consort – 33-45PC Consort – MMR pillar development 8 – 3 # Evander Mines: Developing the orebody – capital ore reserve projects Project 2 Decline 24–25 Level 25 A block ventilation Channel width cm 680 100 100 100 Total on-reef development m 926 330 Year end 30 June 2016 m Year end 30 June 2015 m Year end 30 June 2014 m Grade g/t 125.80 28.90 22.80 17.00 Average grade g/t 4.41 41.59 Potential resource oz 540 27 – 131 64 581 133 189 387 – 17 824 5 – 84 26 447 295 165 258 – 327 23,599 351 13,246 171 17,000 – 14,821 154 1,600 – 860,766 295 32,022 71 206,750 – 10,000 193 173 (new target area) 900 253 Year end 30 June 2016 m 356 87 Year end 30 June 2015 m 904 10 Year end 30 June 2014 m 686 925 Potential resource oz 1,200,000 Pan African Resources integrated annual report 2016 67 Abridged Mineral Resources and Mineral Reserves report continued Group growth projects Elikhulu Following receipt of a positive PFS of the Elikhulu tailings retreatment project, the company has mandated DRA Projects Proprietary Limited to conduct a DFS on the project. The results of the study will be completed by November 2016, after which shareholders will be apprised. In March 2016, SRK independently estimated the mineral resource of the Elikhulu project at 178.7Mt @ 0.29g/t (1.7Moz). 2010 Payshoot A surface exploration drilling programme was initiated during the year to deﬁ ne additional mineral resources for the 2010 Payshoot orebody. The 2010 Payshoot is a secondary payshoot originating from the main Kinross Payshoot and can be accessed from the No.3 decline at Evander Mines 7 Shaft. Previous surface holes in this area delivered results up to 36.04g/t over a Kimberley reef width of 49cm. The potential mineral resource of the 2010 Payshoot is estimated at 6.3Mt @ 10.82g/t (2.2Moz). The company’s current generic growth projects are summarised below: Evander Mine projects Elikhulu 2010 Payshoot Category Resource Resource Tonnes million 178.7 6.3 Grade g/t 0.29 10.82 Ounces Moz Depth below surface m 1.7 2.2 On surface 1,800 – 2,500 Z-400 Z-400 1 6 . 1 m 8 7 . 0 0 0 00110 - 6 0 d 0 m 0 . 0 s 1 7 0 d 0 m 0 . 0 s 6 2 . 1 9 0 1 / 0 1 / 0 1 : 5 8 4 9 5 8 4 9 6 2 . 1 9 0 1 / 0 1 / 0 1 F v _ s u l F V W B o r e h o l e s 00122 01 f o n t 0 0 1 00110 8 7 . 0 0 0 - 6 0 d 0 m 0 . 0 s 1 7 0 d 0 m 0 . 0 s 6 2 . 1 9 0 1 / 0 1 / 0 1 : 5 8 4 9 5 8 4 9 6 2 . 1 9 0 1 / 0 1 / 0 1 F v _ s u l F V W B o r e h o l e s 00122 01 f o n t 0 0 1 35° 1 4 5 . 9 2 00110 - 7 9 6 6 . 5 - 5 0 2 . 1 9 4 6 4 3 9 . 3 4 2 8 - 1 1 7 1 0 . 8 4 3 2 2 0 1 1 / 1 0 / 1 2 S Z N M R T 5 8 6 4 1 9 0 1 / 0 1 / 0 1 6 2 F v _ s u l f o n t 0 0 1 0 . 0 0 0 - 7 8 d 4 8 m 0 . 0 s 00122 01 6 6 d 3 0 m 0 . 0 s 6 2 . 1 9 0 1 / 0 1 / 0 1 : 5 8 6 4 5 8 6 4 6 2 . 1 9 0 1 / 0 1 / 0 1 F v _ s u l F V W B o r e h o l e s 00122 01 f o n t 0 0 1 00110 1 4 5 . 9 2 - 7 9 6 6 . 5 - 5 0 2 . 1 9 4 6 4 3 9 . 3 4 2 8 - 1 1 7 1 0 . 8 4 3 2 2 0 1 1 / 1 0 / 1 2 S Z N M R T 5 8 6 4 1 9 0 1 / 0 1 / 0 1 6 2 F v _ s u l 0 . 0 0 0 - 7 8 d 4 8 m 0 . 0 s 6 6 d 3 0 m 0 . 0 s 6 2 . 1 9 0 1 / 0 1 / 0 1 : 5 8 6 4 5 8 6 4 6 2 . 1 9 0 1 / 0 1 / 0 1 F v _ s u l F V W B o r e h o l e s 1 5 5 . 1 3 0 00110 - 5 5 d 0 m 0 . 0 s 5 8 d 0 m 0 . 0 s 6 4 . 1 9 0 1 / 0 1 / 0 1 : 5 8 1 6 5 8 1 6 6 4 . 1 9 0 1 / 0 1 / 0 1 F v _ s u l F V W B o r e h o l e s 00122 01 f o n t 0 0 1 00110 1 5 5 . 1 3 0 - 5 5 d 0 m 0 . 0 s 5 8 d 0 m 0 . 0 s 6 4 . 1 9 0 1 / 0 1 / 0 1 : 5 8 1 6 5 8 1 6 6 4 . 1 9 0 1 / 0 1 / 0 1 F v _ s u l F V W B o r e h o l e s 00122 01 f o n t 0 0 1 (cid:125) 3 2 4 2 2 5 . 3 ; 0 . 8 9 . 2 ; 0 . 8 6 . 0 ; 0 . 8 9 . 6 ; 0 . 9 7 . 2 ; 0 . 8 4 . 3 ; 0 . 8 9 . 2 ; 0 . 9 8 . 6 ; 0 . 8 2 . 8 ; 0 . 8 7 . 5 ; 0 . 8 2 . 3 ; 0 . 8 1 . 2 ; 0 . 9 4 2 5 3 1 5 2 6 4 1 ; 2 1 . 8 0 . .5 1 0 ; 1 . 5 . 3 ; 0 . 9 4 . 6 ; 0 . 8 3 . 3 ; 0 . 7 9 9 . ;0 9 1 2 0. 4 . 3 ; 0 . 7 1 . 0 3 . 1 ; 5 . 9 ; 0 . 8 7 . 8 ; 0 . 8 1 0 . 7 7 . 6 ; 9 . 7 ; 0 . 7 0 . 5 ; 0 . 8 1 1 9 4 8 5 0 ; 0 . 0 . 1 . 1 . 6 .6 ; ; 8 0 0 0 .6 0 6 - 66.50MRC11E / 280 2.02 Z-600 Z-800 Ch Gwk Gns Gwk Ch Gns Ch Gns Gns Ch Ch GwkGwk 0 .7 Gns 3 ; 1 . 66.50MRC11 / 732 25.19 1 8 1 . 7 4 0 00110 - 5 5 d 0 m 0 . 0 s 3 d 0 m 0 . 0 s 6 4 . 1 9 0 1 / 0 1 / 0 1 : 5 9 4 0 5 9 4 0 6 4 . 1 9 0 1 / 0 1 / 0 1 F v _ s u l f o n t 0 0 1 F V W B o r e h o l e s 00122 01 00122 01 f o n t 0 0 1 00110 1 8 1 . 7 4 0 - 5 5 d 0 m 0 . 0 s 3 d 0 m 0 . 0 s 6 4 . 1 9 0 1 / 0 1 / 0 1 : 5 9 4 0 5 9 4 0 6 4 . 1 9 0 1 / 0 1 / 0 1 F v _ s u l F V W B o r e h o l e s 66.50MRC11 / 732 29.72 (cid:125) 13.9 ;0.8 155.1 ;0.6 120.2 ;0.7 192.2 ;0.7 139.4 ;0.6 277.3 ;0.6 153.8 ;0.7 166.5 ;0.7 20.2 ;0.8 10.0 ;0.7 3.9 ;0.8 66MRC11 M / 594 25.24 66MRC11D / 576 7.69 66MRC11E / 510 11.08 66MRC11B / 564 10.83 1 .5 ;0 . 7 (cid:125) 5. 9 ;0.7 3.9 ;0.8 92.5 ;0.8 149.0 ;0.7 63.1 ;0.8 12.6 ;0.6 6.0 ;0.7 1 .5 ;0 .9 0 . 8 ; 0 .8 3.4 ;0.8 2.1 ;0.7 2.7 ;0.7 10.7 ;0.8 71.5 ;0.8 126.0 ;0.8 262.0 ;0.6 208.0 ;0.5 3.0 ;0.7 66MRC11C / 660 59.04 1 .0 ;0 . 8 2.7 ;0.7 2.3 ;0.7 6 1 8 5 5 5 - 4 6 8 5 8 7 - 1 .2 ; 0.5 4.1 ;0.8 4.5 ;0.6 . 2 ; 0. 5 ;0. 6 0 1.6 0. 8 ;0 0 .6 0. . 5 ; 8 ; 0 . 74.1 ;0.6 0.56.9 ;0.8 5.4 ;0.6 ;0. 7 1.0 Z-600 2 0 6 . 0 0 0 00110 - 7 5 d 0 m 0 . 0 s 3 0 5 d 0 m 0 . 0 s 6 4 . 1 9 0 1 / 0 1 / 0 1 : 5 9 5 1 5 9 5 1 6 4 . 1 9 0 1 / 0 1 / 0 1 F v _ s u l F V W B o r e h o l e s 00122 01 f o n t 0 0 1 00110 2 0 6 . 0 0 0 - 7 5 d 0 m 0 . 0 s 3 0 5 d 0 m 0 . 0 s 6 4 . 1 9 0 1 / 0 1 / 0 1 : 5 9 5 1 5 9 5 1 6 4 . 1 9 0 1 / 0 1 / 0 1 F v _ s u l F V W B o r e h o l e s 00122 01 f o n t 0 0 1 66MRC11A / 406 7.95 0 .0 ; 0 .8 0. 0 ;0 . 9 0 .0 ; 0 . 9 0 .0 ; 0 . 8 0 . 0 ;1 . 0 0. 0 ; 0 . 9 0 .0 ; 1 .0 0 .0 ; 1 . 0 0 . 0 ; 1 . 1 0. 0 ; 1 . 0 0 .0 ; 1 .0 0 . 0 ;1 . 0 0 . 0 ; 0 . 8 0 . 0 ;0 . 9 (cid:125) 3 4 7 7 5 4 1.1 ;0.9 4.7 ;0.9 8.8 ;0.9 6.6 ;1.6 9.8 ;0.4 7.6 ; 7.2 ;1.0 9.5 ; 3.9 ;1.0 8.2 ; 2.4 ;1.0 2.9 ;1.0 8.1 ;1.0 4.0 ;1.0 1.0 0.8 1.1 5 6 7 1 0 .0 ; .0 5 5 - 0 . 0 ;1 . 0 0 .0 ; 1 .0 0 . 0 ; 1. 0 0 .0 ;1 .0 0 . 0 ;1 . 0 0 . 0 ; 0 . 8 0 . 1 ; 1 .1 0 . 1 ; 1 .0 0 .1 ;0 . 9 0 4 9 5 68MRC11IND / 517 28.4 (cid:125) 12.8 ;0.9 28.8 ;1.0 250.0 ;0.9 408.0 ;1. 0 90.6 ;0.9 94.9 ;0.9 194.0 ;0.9 128.0 ;1.0 163.0 ;1.0 13.4 ;1.0 5.3 ;1.0 1 5 9 5 5 7 - Z-800 68 Pan African Resources integrated annual report 2016 STRATEGIC REPORT: PERFORMANCE REVIEW Employee review Our people are one of the three enablers that assist the group in executing its strategy. As such, we recognise our employees as fundamental to the sustainability of the business and appreciate that we also have a responsibility beyond our own employees, in the wider employment context. HIGHLIGHTS sful c Successful c Successful conclusion of multi-year wage agreements conclus Integration of employees at the Uitkomst Colliery operation into the Pan African group Finalisation of a memorandum of understanding (MoU) with the University of Johannesburg (UJ) formalising the provision of bursaries over a three-year period Finalisation of the employee share ownership programmes for Evander Mines Low staff turnover at the majority of operations CHALLENGES henin Strengthenin Strengthening relations with communities surrounding our operations and with the unions ng rela Ageing workforce, especially the rock drill operators Increased rate of unemployment in the communities surrounding our operations LOOKING AHEAD Continuousuous Continuous stakeholder and employee engagement to ensure alignment with the company’s vision and strategic objectives stakeh Reinforcing succession planning and training of staff in specialised positions Successful implementation of all elements of the SLPs Aligning human resource policies and practices at the Uitkomst Colliery with those of the group Pan African Resources integrated annual report 2016 69 Employee review continued Key performance indicators Employee statistics Employees – Permanent – Contractors Employee turnover Human resources development spend Total number of operational employees by age group 20 – 30 years 30 – 40 years 40 – 50 years 50+ years Total operations Unit (Number) (Number) (Number) (%) (ZAR million) (Number) (Number) (Number) (Number) (Number) 2016 6,062 4,441 1,621 6.4 33.3 582 1,156 1,129 1,574 4,441 The SLP covers • Employment equity • Human resources development • Local economic development • Preferential procurement • Downscaling/retrenchments • Housing and living conditions • Nutrition and health • Adult education 20151 5,863 4,439 1,424 7.0 29.1 793 1,057 1,239 1,350 4,439 1 Comparatives restated to include 113 Uitkomst Colliery employees. Group employees total is 4,326 excluding Uitkomst employees. Employee statistics per operation Barberton Mines Evander Mines Phoenix Platinum Uitkomst Colliery Corporate ofﬁ ce Group Employment type 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 20151 Employees Contractors Total % of workforce South African 1,891 460 2,351 1,882 460 2,342 2,418 772 3,190 2,427 577 3,004 3 62 65 3 58 61 115 326 441 113 329 442 14 1 15 14 0 14 4,441 1,621 6,062 4,439 1,424 5,863 98.0 97.1 76.18 73.0 100.0 100.0 99.3 99.6 100.0 100.0 86 86 1 Comparatives restated to include 113 Uitkomst Colliery employees. Group employees total is 4,326 excluding Uitkomst employees. Overview of progress Substantially achieved Moderate progress Not achieved Our focus for 2016 What we achieved Self- assessment Maintaining a stable workforce and low turnover rate Integrating the group’s new employees following the Uitkomst Colliery acquisition Aligning employees, through greater engagement, with the objectives of the respective operational business plans by creating a sense of belonging through the revised incentive and employee share ownership programmes Implementing an effective and efﬁ cient communication strategy. This was achieved at most operations except Evander Mines where a high turnover was experienced in the engineering department Smooth transition upon completion of the acquisition – focus will now be on aligning all policies and practices with that of the group Revised incentive schemes at Barberton Mines and Evander Mines Ongoing communication strategy in place at all operations 70 Pan African Resources integrated annual report 2016 STRATEGIC REPORT: PERFORMANCE REVIEW Pan African Resources in partnership with University of Johannesburg – supporting education in the ﬁ elds of various mining disciplines “We are grateful for the opportunity to partner with a reputable learning institution such as UJ and we are certain that this partnership will be a success.” Andre van den Bergh, Executive Human Resources Education enables students to improve on their skills and reach their career and personal ambitions as well as ensuring that they make a meaningful contribution to the South African economy, where the unemployment rate is about 26.6%1. Education has always been a focus for Pan African Resources, mainly through our gold mining operations, which have learnerships and bursary programmes in place and have promoted mathematics and science in the local community through the Mining Expo in Barberton. As we entered into the 2017 ﬁ nancial year, we expanded on the support we currently offer to students in the ﬁ elds of the mining disciplines such as mining engineering, mineral surveying, metallurgy and geology, through a partnership with UJ. This partnership formalised the provision of bursaries to students over a three-year period. The group currently offers bursary support to 11 UJ students, with the aim of increasing those numbers to 16 over the coming year(s). With the expertise of UJ, we will identify the most deserving students to be recipients of these bursaries as and when they become available. Recipients will be sourced from the local communities within the areas in which we operate and in accordance with our SLP development plan. Further, we also intend to offer development and mentorship support and where possible, training on site at our operations to enable students to beneﬁ t from the programme. 1 http://www.tradingeconomics.com/south-africa/unemployment-rate. Ofﬁ cial signing ceremony Pan African Resources integrated annual report 2016 71 Employee review continued At year-end the group had a total staff complement of 6,062 (2015: 5,863). We identify our people as the ﬁ rst and primary driver of our four-pronged business strategy. Phoenix Platinum employs three individuals and operations at the processing plant are outsourced to a specialist metallurgical company, Metanza, which is responsible for employment at the operation. The Uitkomst Colliery employs 115 (2015: 113) permanent staff and 326 contractors are outsourced from a specialist mining company (Khethekile Mining), which is responsible for contractor employment at the operation. Our employees provide the bedrock of our group, often working in challenging conditions to enable Pan African Resources to successfully conduct its core business. We also recognise that we have a responsibility beyond our own employees in the wider employment context. Accordingly, wherever possible we employ from and upskill the communities surrounding our operations. Our operations are controlled by mining rights and each operation has developed a social and labour plan (SLP), which has been submitted to the DMR. The elements covered in the SLP are shown on page 70. During the year under review, Pan African Resources entered into a partnership with UJ for the provision of bursaries over a three-year period – please see details on page 71. Furthermore, UJ is collaborating with Pan African Resources on an additional project – uncovering mineral content in calcine samples collected from Pan African Resources. Employee relations Pan African Resources has a unionised workforce and it complies with all applicable legislation and bargaining arrangements. In addition, each operation has a strategic, proactive and consultative engagement process with unions and employees to further strengthen relations. In concluding Barberton Mines’ wage negotiations, the NUM embarked upon a protected strike which was amicably resolved. Skills development and training Pan African Resources is committed to human resources development and spent ZAR33.3 million on training for the year under review (2015: ZAR29.1 million). Barberton Mines and Evander Mines have on-site accredited training centres offering a range of occupational skills training e programmes, while Phoenix Platinum and the Uitkomst Colliery provide on-site training or outsource training where applicable. Learnership programmes are also in place at the operations. Performance management Pan African Resources recognises that managing and reviewing employee performance and fostering employee development are critical to achieving strategic priorities and overall success. All group employees from the head of department and above to chief executive level have deﬁ ned key performance indicators (KPIs), which are aligned with the group’s strategic objectives. These KPIs include production and personal-related KPIs, the weighting of which depends on the employee’s role and position. Assessments take place annually with the employee’s line manager and remuneration is linked to the score achieved by the employee. Talent management Talent management is important in attracting, developing, motivating and retaining productive, engaged employees. Through its talent management approach, Pan African Resources aims to create a high- performance, sustainable organisation that meets its strategic and operational objectives. To ensure adequate succession planning, key individuals who perform critical roles within the group have been earmarked as part of the group’s retention and performance plan over a three-year lock-in period from 2016 to 2018. Regular engagements are conducted with these individuals to ensure development requirements needed for them to fulﬁ l their position are proactively addressed. Disabled employees The group is committed to providing equal opportunity for individuals in all aspects of employment. The group gives every consideration to applications for employment by disabled persons where the requirements of the job may be adequately Our employees provide the bedrock of our group, often working in challenging conditions to enable Pan African Resources to successfully conduct its core business. ﬁ lled by a disabled person. Where existing employees become disabled, it is the group’s policy, wherever practicable, to provide continuing employment under similar terms and conditions and to provide training, career development and promotion wherever appropriate. Remuneration Pan African Resources ensures its employees are fairly remunerated for their roles. Remuneration is dependent on the individual job grading and the group undertakes relevant research to ensure its remuneration is market related. Remuneration for employees consists of a basic salary and beneﬁ ts including medical aid and pension. In addition, short-term incentive rewards are paid monthly, quarterly and annually, depending on the level of the employee. All remuneration and incentives are measured objectively against the individual’s KPIs. In addition, the group’s equity share option and share appreciation bonus plans are in place to appropriately incentivise selected employees at managerial level within the group. This ensures retention of key skills required for the group’s sustainable performance and to align management interests with those of its shareholders. The group implemented its employee share ownership programme at its gold and coal mining operations. This programme seeks to align the objectives of Pan African Resources with that of management and shareholders. The remuneration review on provides further detail on the group’s remuneration philosophy as well as detail on executive and non-executive directors’ remuneration. page 93 72 Pan African Resources integrated annual report 2016 STRATEGIC REPORT: PERFORMANCE REVIEW OUR PEOPLE People and safety remains at the heart of our culture and is evident in the way we operate and manage the group. Pan African Resources integrated annual report 2016 73 Safety, health and environment review Our formal integrated SHEQC policy, which is board approved, ﬁ lters down through the group. Our SHEQC performance, as with all performances within the group, is driven by the group philosophy of continuous improvement. It is also used as a basis for incentivising management and employees. HIGHLIGHTS mplementeente Implemented a group SHEQC dashboard programme to further improve focus on safety ed a gr Successful implementation of safety “stop notes” – an internal safety stoppage instruction system Increased voluntary counselling and testing of HIV/Aids Increased awareness of health-related lifestyle diseases No environmental ﬁ nes at operations CHALLENGES tality One fatality One fatality at Evander Mines y at Eva Behaviour and culture of employees towards safety DMR safety stoppages Illegal miners on the increase, posing a safety threat to the workforce Managing lifestyle diseases despite awareness improvements Ensuring all operations focus on reducing greenhouse gas emissions LOOKING AHEAD shing Establishing Establishing and implementing a behavioural safety-based programme g and im Establishing a group health strategy within the next two years Preventing new cases of noise-induced hearing loss Maintaining zero environmental ﬁ nes 74 Pan African Resources integrated annual report 2016 STRATEGIC REPORT: PERFORMANCE REVIEW Key performance indicators Safety, health and environmental statistics Safety Total recordable injury frequency rate (TRIFR) Lost time injury frequency rate (LTIFR) Reportable injury frequency rate (RIFR) Fatal injuries Health HIV/Aids – voluntary counselling and testing Noise-induced hearing loss cases reportable Sporotrichosis Environment1 Total water consumption Total electricity consumption Total GHG emissions Environmental ﬁ nes and penalties 1 Environment ﬁ gures exclude the Uitkomst Colliery. Units 2016 2015 (Rate/million man hours) (Rate/million man hours) (Rate/million man hours) (Number) (Number) (Number) 14.57 3.50 2.04 1 2,516 56 0 11.14 2.29 1.11 1 2,399 26 5 (000m3) (Gj) (tCO2e/t milled) (Number) 16,422 1,451,761 1.0 0 12,249 1,376,815 1.1 0 Overview A safe and healthy mining culture, with minimal impact on the environment, is a business imperative that underpins the group’s four key strategic pillars – proﬁ table, sustainable, stakeholders and growth. Pan African Resources expends considerable effort in promoting a safe and healthy work environment. The group’s SHEQC objectives aim to achieve a sustained SHEQC management culture by promoting safety performance through zero harm to our employees and minimal impact on the environment. The group has an enabling culture where employees at all levels are encouraged to engage freely around SHEQC matters, as well as adhering to policies and procedures conducive to achieving this objective. SHEQC governance and compliance The board assumes ultimate responsibility for the group’s SHEQC performance. The SHEQC sub-committee is responsible for the oversight and management of SHEQC and keeping the board apprised of SHEQC matters relating to compliance, discipline and action plans around incidents and accidents. The general managers at the mines remain ultimately accountable for SHEQC on their operations. Meetings are held as deemed appropriate but no fewer than four are held annually. Membership, responsibilities and attendance of the SHEQC committee meetings are shown on page 90. The group’s SHEQC policy extends to safety, health, environment, quality and communities and contains speciﬁ c guidelines. Pan African Resources is committed to conducting its mining operations in strict compliance with the mining licence conditions set by the DMR, the Mine Health and Safety Act 29 of 1993, as amended from time to time, and other relevant legal requirements. Guidance and advice is provided by the group SHEQC manager, together with the safety, health and environmental ofﬁ cials at the group’s operations, within the group philosophy of continuous improvement. Legal requirements are treated as minimum requirements. Regular internal audits are performed by the operations’ safety, health and environmental ofﬁ cials. Further, monthly SHEQC performance reviews are carried out to ensure compliance with SHEQC standards and procedures. Mining operations are subject to various environmental legislative requirements and the group ensures adherence to these by ongoing monitoring through a robust SHEQC governance framework. Environmental aspects and impact assessments have been conducted at all our operations. The aspects and impact registers are available for each operation. The operations review their risk registers quarterly. Pan African Resources integrated annual report 2016 75 Safety, health and environment review continued Safety Overview of progress Substantially achieved Moderate progress Not achieved Self- assessment Our focus for 2016 What we achieved Achieving and maintaining a fatality-free year One fatality at Evander Mines Continuing to improve safety indicators towards achieving zero harm Improvements noted in operations Establishing cross-operations safety, health and environmental audit teams and conducting internal audits bi-annually Establishing a central electronic safety, health and environmental system for improved management control Establishing formal Fatal Risk Standards that will incorporate elements such as: fall of ground, gassing, trackless mobile machinery, rail-bound equipment and underground ﬁ res Internal audits are ongoing Implemented a central electronic database system at all operations with the exception of Phoenix Platinum and Uitkomst Colliery Code of practices in place that serve as best practice The group safety trend for TRIFR, LTIFR and RIFR has regressed compared to the 2015 rates. The group fatal injury frequency rate (FIFR) remained at 0.07 (2015: 0.07). We are committed to continually improving safety and we endeavour to work towards zero harm. Regrettably one fatality occurred at Evander Mines on 26 June 2016, where Mr Joaquim Armando Muxhanga, a locomotive driver, was fatally injured while on duty. The cause of this fatality was miscommunication between the locomotive driver and the locomotive guard. Subsequently, changes were made to the following: • The signal communication processes between the locomotive drivers and the locomotive guards • All locomotives drivers and guards were retrained on the tramming standard • All locomotive drivers and guards were retrained on signalling, safe coupling and uncoupling of hoppers. The board and management extend their deepest condolences to the family, friends and colleagues of Mr Joaquim Armando Muxhanga. Each mining operation has its unique in- house training programmes, aligned to the group’s strategic objective of zero harm. Safety, health and environmental training is included in induction for new employees as well as in refresher courses when employees return from leave. Training also includes job-speciﬁ c training. To address the ongoing safety risk that illegal miners pose at our gold mine operations, a biometric clocking system has been installed to prevent, as far as possible, illegal miners accessing the underground operations. To further improve on document control, the group implemented a safety dashboard system that will assist in the close-out of all actions, management of safe operating procedures and code of practices. During the year under review, the group implemented an internal safety stoppage instruction system where any employee is able to stop operations posing a risk to employees’ safety. This was implemented to improve our safety performance and to address the group’s challenges of DMR safety stoppage instructions. The group continues to actively engage and strengthen relations with the DMR Inspectorate. As a result of a review of the way in which safety data is collated and reported across operations, management identiﬁ ed that reporting of safety incidents at Evander Mines had been understated and that the information from the 2015 ﬁ nancial year was not an appropriate base to benchmark the 2016 safety statistics. Following internal management investigations, the system for reporting of safety statistics was rectiﬁ ed and a new safety tracking database was implemented across all operations, to ensure the accurate and complete reporting of safety data going forward for future benchmarking. In addition, the management structure at Evander Mines was revised to bolster the safety reporting. A turnaround strategy was implemented to reduce accidents and instil a culture of safe behaviour, which included: • The introduction of a safe production intervention strategy aimed at curbing the accident rates • The implementation of a stop note initiative that empowered all employees to immediately stop unsafe working environments • The introduction of a new safe declaration procedure, which incorporates an intense incident investigation process to identify root causes of safety • The restructuring of the safety department • The implementation of regular internal safety audits. Following the implementation of the abovementioned measures, there was a noticeable improvement in Evander Mines’ safety rates in the third and fourth quarters of FY2016. 76 Pan African Resources integrated annual report 2016 STRATEGIC REPORT: PERFORMANCE REVIEW Health Overview of progress Substantially achieved Moderate progress Not achieved Our focus for 2016 What we achieved Continuing education and awareness initiatives Ongoing at all operations Self- assessment Targeting a 10% increase in the uptake of voluntary counselling and testing The group achieved a 4.9% increase in the uptake of voluntary counselling and testing hearing loss (NIHL). Barberton Mines also focuses on a seventh disease – sporotrichosis1 – and noted a decrease in the suspected cases of sporotrichosis. There was an increase in the participation in HIV/Aids voluntary counselling and testing, which is a testament to the focus on health and wellness at our operations. Campaigns are conducted regularly on HIV/Aids and TB prevention initiatives. NIHL increased at our gold operations due to an enhanced diagnosis system implemented in FY2015, which proactively identiﬁ ed old NIHL cases. Subsequent to 2008, no new NIHL cases were identiﬁ ed. The management of NIHL cases remains a focus and all employees are issued with hearing protection devices and receive regular training. Employees diagnosed with lifestyle-related diseases such as hypertension and diabetes are regularly monitored and educational programmes are provided. Testing for these diseases also forms part of the medical surveillance programme, in an attempt to combat these diseases at an early stage. Occupational hygiene stressors are monitored by a qualiﬁ ed occupational hygienist and quarterly reports are submitted to the DMR. Each employee has an individual health risk proﬁ le. All operations’ crystalline silica occupational exposure limits were below the legislative requirement of 0.05mg/m3 for the year under review. All employees are trained in the correct use of personal protective equipment (PPE). We recognise that mining carries inherent health risks. Effectively managing associated conditions and diseases is a direct investment by the group in our people, and managing their health is in the interests of our long- term sustainability. The group provides a work environment that minimises health risks by ensuring adequate surveillance of workplaces and employees. This promotes work practices conducive to the long-term wellbeing of employees. The group provides appropriate and adequate healthcare facilities and resources. Management of the major diseases at our mining operations remains a top priority. At all operations, occupational health and employee wellness includes the management of the Big 6 diseases: HIV/Aids, TB, diabetes, hypertension, silicosis and noise-induced Environment Overview of progress Our focus for 2016 What we achieved Continuing to embed and establish internal environmental targets and objectives within all operations Continuing to create awareness and change behaviour in respect of environmental impacts The targets and objectives have been embedded within operations and these are measured on an ongoing basis Over and above the policies and procedures in place, we implemented a SHEQC dashboard to reinforce awareness and change behaviours Self- assessment Pan African Resources is committed to responsible stewardship of natural resources and the environment to eliminate or minimise the negative impacts of our operations. Environmental management is integrated into management practices throughout our operations. The group is steadfast in its commitment to enhancing its approach to reducing its impact on the environment and its environmental objectives include: • Achieving zero penalties for environmental breaches • Achieving the internal environmental targets established for reducing the group’s carbon footprint • Ensuring compliance with water use licence conditions. 1 Sporotrichosis is an infection caused by a fungus called Sporothrix schenckii. Pan African Resources integrated annual report 2016 77 Safety, health and environment review continued Environmental impact assessments have been conducted and impact and aspect registers are available for each operation, which are reviewed annually to ensure compliance with environmental legislation. All operations have assessed the environmental risk associated with the transport of goods and materials and established that there are no signiﬁ cant environmental impacts from these activities. Any cyanide transported to Barberton Mines and Evander Mines is taken by a supplier-approved transporter. Emergency response trailers are stationed onsite at Barberton Mines, BTRP and Evander Mines to deal with spillages. Water Water quality in the areas surrounding operations is vigilantly monitored and managed. Surrounding surface and ground water is monitored to prevent polluted water being discharged. The discharge of water by our operations through controlled releases into the environment is pre-determined through regulatory requirements and is in line with our water use licences. Expenditure on environmental protection Barberton Mines Evander Mines Phoenix Platinum Group total ZAR 2016 ZAR 2015 ZAR 2016 ZAR 2015 ZAR 2016 ZAR 2015 ZAR 2016 ZAR 2015 Pollution control and prevention Rehabilitation Environmental – operational Total 919,258 637,583 267,359 1,824,200 1,041,862 542,670 254,039 1,838,572 549,328 319,966 1,080,899 1,950,193 687,640 322,585 1,068,821 2,079,046 250,443 – 497,205 747,648 245,722 – 187,336 433,058 1,468,586 957,549 1,845,463 4,271,598 1,975,224 865,255 1,510,196 4,350,675 The group’s expenditure on environmental protection of ZAR4.3 million remained on par with that of the prior year. Evander Mines’ operational expenditure reduced marginally and Phoenix Platinum’s expenditure increased due to the use of the water bowser for dust suppression and sewage removal. Land rehabilitation trust funds Barberton Mines Evander Mines ZAR 2016 ZAR 2015 ZAR 2016 ZAR 2015 Total ZAR 2016 ZAR 2015 Total 44,514,220 43,242,175 276,984,119 269,068,978 321,498,340 312,311,153 Land rehabilitation minimises and mitigates the environmental effects of mining. Rehabilitation management at the group’s operations is an ongoing process. The rehabilitation trust fund had a balance of ZAR321.5 million (2015: ZAR312.3 million) at year-end, which increased by ZAR9.2 million as a result of growth in investments. The rehabilitation trust funds comprise investments in guaranteed equity-linked notes, government bonds and equities. 78 Pan African Resources integrated annual report 2016 STRATEGIC REPORT: PERFORMANCE REVIEW Community review Pan African Resources strives to minimise potential negative social impacts caused by our mining operations while promoting opportunities for the local communities. We are committed to monitoring, measuring and managing the social and economic impacts created by our operations, in line with our approved SLPs. Our operations engage in a range of development projects and community relations activities, which promote sustainable welfare within the communities. In addition, wherever possible, the group promotes responsible and ethical management of its supply chain by encouraging suppliers to support local economic development. HIGHLIGHTS spen Group spen Group spend on corporate social investment (CSI) and socio-economic development (SED) initiatives amounted to ZAR21.0 million nd on c CHALLENGES Finding suitasuita Finding suitable local suppliers to assist with community projects and able loc with supplying our operations LOOKING AHEAD Continuallyually Continually uplifting the communities within which we operate upliftin Overview of progress at all operations Substantially achieved Moderate progress Not achieved Our focus for 2016 What we achieved Continually uplifting the communities within which we operate Initiatives are ongoing across our operations Self- assessment Positively impacting our communities At the mines, management is proactive in building and maintaining stakeholder relationships with the local communities and has forged close working relationships with ward councillors and local leaders. (See stakeholder engagement on pages 34 and 35 of the integrated annual report.) In terms of the MPRDA, mines are required to develop and implement comprehensive SLPs, human resources development programmes, mine community development plans, a housing and living conditions plan, employment equity plan, and other processes to save jobs and manage downscaling and/or closure. Progress reports are submitted annually to the DMR. The group is committed to upholding the human rights of all our employees, contractors, suppliers and the communities in which we operate. We recognise people’s rights to culture, heritage and tradition through supporting indigenous cultural heritage. Barberton Mines received a heartfelt letter of thanks from a Grade 10 learner at Emjindini Senior Secondary School, on behalf of all the learners, following the mine’s involvement in upgrading the school. The letter can be found on the group’s website on www.panafricanresources.com in the sustainability section. Pan African Resources integrated annual report 2016 79 Transformation Employee share ownership programme: Qualiﬁ cations criteria for annual dividend distributions Permanent employee of operation Employed in a non- managerial position Employed by entity prior to the commencement of the ﬁ nancial year in respect of which the dividend distribution is made Remained employed by operation on last day of ﬁ nancial year in respect of which the dividend distribution is made Allocation of beneﬁ t Each qualifying beneﬁ ciary receives an equal beneﬁ t Good leavers during a period receive a pro-rata dividend distribution for that period 80 Pan African Resources integrated annual report 2016 Transformation Pan African Resources acknowledges that integrating genuine transformation, which permeates the group, is critical for the sustainability of its business in South Africa. We are committed to integrating real transformation throughout the group, under the auspices of the Mining Charter and social and labour plans. The group does not currently rank its B-BBEE contribution at group level but per operation current contributions are rated as per the Mining Charter requirements. Oversight of progress against transformation targets is monitored by the SHEQC committee. Recent Mining Charter developments To further align the mining industry with the B-BBEE Act and the Department of Trade and Industry (DTI) codes, the revised B-BBEE Mining Charter draft, published on 15 April 2016, includes changes to its predecessor, the 2010 Mining Charter. According to the draft, ownership, housing and living conditions, and human resources development elements are ring-fenced, which means 100% compliance will be required at all times and mines have three years to comply with revised targets. Ownership Pan African Resources strategic BEE partner In August 2009 Shanduka Gold exchanged its shareholding of 26% in Barberton Mines for a 21% shareholding in Pan African Resources and acquired an additional 5% from Metorex, making the black-owned and managed Shanduka Gold a 26% shareholder in Pan African Resources. Shanduka is a black- owned investment holding company with interests in a diverse portfolio of listed and private companies, primarily in the resources and food and beverage industries. Following limited dilution due to a rights issue, at 30 June 2016, Shanduka Gold (subsequently renamed PAR Gold) held 22.46% of Pan African Resources’ shares. By applying provisions of the MPRDA and Mining Charter to the Pan African Resources share register and discounting shareholders who qualify as organs of state and public entities, we calculate as at 30 June 2016 that this equates to an effective 23.1% BEE ownership at a holding company level for purposes of the MPRDA. Operational ownership Barberton Mines On 1 June 2015, Barberton Mines implemented an employee share ownership programme. A newly established employee trust (the trust) will effectively own 5% of the issued share capital of Barberton Mines. The transaction was ﬁ nanced by Barberton Mines on a notional basis with preference share funding attracting a real return of 2% per annum and without any dilution to Pan African Resources. A portion of dividends issued is retained to repay the notional ﬁ nancing. The portion retained ranges from 50% to 80% over the period of the scheme. Barberton Mines’ total BEE ownership equates to 28.1% by combining the Pan African Resources BEE ownership and the employee share ownership programme. Evander Mines In July 2015, a similar scheme was implemented at Evander Mines with the same terms and conditions as the Barberton Mines programme amounting to 5%` ownership. The employee share ownership programme seeks to align the aspirations of Pan African Resources’ employees at its operations with that of management and shareholders. Value will be created for beneﬁ ciaries based on the proﬁ tability of each operation’s performance. Assuming that regular dividends are declared by these operations, beneﬁ ciaries will receive dividends from the scheme from year one. In addition, beneﬁ ciaries will receive an annual distribution from the BEE trusts and any capital appreciation will be distributed to the beneﬁ ciaries upon winding up of the programme after a minimum of 10 years. Evander Mines’ total BEE ownership equates to 28.1% by combining the Pan African Resources BEE ownership and the employee share ownership programme. Uitkomst Colliery The Uitkomst Colliery will be implementing a BEE transaction similar to those currently in place at Barberton and Evander. The BEE transaction will result in an additional 9% historically disadvantaged on-mine ownership in the Uitkomst Colliery. This 9% ownership will be held by broad-based trusts and by a strategic entrepreneur’s trust. The BEE transaction will be ﬁ nanced by the Uitkomst STRATEGIC REPORT: PERFORMANCE REVIEW Colliery on a notional basis, with the notional funding accruing interest linked to the prime interest rate. This transaction results in limited dilution to Pan African Resources and 80% of dividends issued to the BEE shareholders will be retained to repay the notional funding over a period of 10 years. Management and control Our group board includes one male black board director as at 30 June 2016. Employment equity Representation of HDSAs Senior management Middle management Junior management Representation of women Women employed at mine Women in mining (core business) Percentage of women in mining/core positions Skills development Detail on this pillar is provided on page 72. Preferential procurement Supply chain management Pan African Resources’ primary procurement objective is to control costs, initiate savings and manage inventory across its operations through centralised strategic sourcing. In addition, the group is committed to increasing spend from black-owned and black women-owned businesses. Pan African Resources is committed to continually uplifting the communities within which it operates, through its projects and initiatives and proactive strategic sourcing. Procurement governance Pan African Resources’ procurement governance process ensures maximum efﬁ ciency and ethical conduct when procuring goods and services within its operations. A group procurement policy is in place and relevant employees at each operation are trained in these procurement procedures and practices. The tender process is governed by a tender committee at each operation, to ensure Pan African Resources complies fully with all relevant regulation, Barberton Mines Evander Mines Phoenix Platinum Corporate Unit 2016 2015 2016 2015 2016 2015 2016 2015 (%) (%) (%) (Number) (Number) (%) 44.4 57.1 49.1 134 81 4.3 37.5 55.2 41.0 126 73 3.9 44.4 44.8 78.3 265 81 6.6 50 41 76 263 81 6.2 100.0 50.0 100 100.0 50.0 100.0 40.0 100.0 100.0 40.0 100.0 100.0 – – – – – – 4 – 3 – 26.7 21.4 including the UK Bribery Act 2010. Monthly procurement and inventory reports are sent to the corporate ofﬁ ce. Centralised contracts The group has implemented a procurement plan for its high-value commodities, with the intent of meeting the group’s procurement objectives mentioned above. Transformation trusts Wherever possible, the group promotes responsible and ethical management of its supply chain by encouraging suppliers to support local economic development. Transformation trusts for Barberton and Evander generate additional funds to invest back into the community, through encouraging its suppliers to contribute 1% of their contract value to these trusts. The objective of these trusts is to improve the quality of life of the local community, to create jobs and to promote socio-economic development. A total of ZAR1.2 million was collected on behalf of Barberton Mines Transformation Trust (BMTT) during the 2016 ﬁ nancial year. The Evander Mines Transformation Trust (EMMT) was formed in the prior ﬁ nancial year and has collected ZAR0.5 million since it was incorporated. Socio-economic development Detail on this pillar is provided on the group’s website on www.panafricanresources.com in the sustainability section. Housing and living conditions In line with the Mining Charter requirements, the gold mining operations have made a considerable investment in upgrading and converting old hostels into single and family accommodation units. At our Barberton and Evander mining operations a total of 4.3% and 38.0% employees respectively live in hostel accommodation and employees who do not live in company accommodation receive an appropriate housing allowance. Barberton’s Fairview hostel upgrade and conversion was completed, as was the renovation of ablution blocks at New Consort Mine. Historically disadvantaged South Africans (HDSAs) The Mining Charter requires 40% of specialised functions be ﬁ lled by HDSAs. Our operations made good progress in achieving this goals, most notably meeting employment equity targets at management level. Pan African Resources integrated annual report 2016 81 TRANSPARENCY AND ACCOUNTABILITY The missing KRUGER millions Lost in: 1890 Estimated value: USD250,000,000 Contents: gold coins, ingots, gold dust During the Second Anglo-Boer War, the Boers realised that their capital, Pretoria, would soon be captured by British troops so they swiftly commandeered as much gold as they could from government reserves, banks and the mines. They also minted many thousands of new gold coins. Much of this gold is believed to have travelled with the Boer President, Paul Kruger, as he journeyed eastwards through Middelburg, Machadodorp and Waterval Boven towards Mozambique to escape the advancing British. He departed for France by boat on 19 October 1900. The gold remained behind, hidden somewhere in the bushveld of the North Eastern Transvaal and it has never been offi cially found. http://www.southcapecoins.co.za/news/the-mystery-of-the-missing- kruger-millions +1 +3 79 Au Gold 196.97 2-8-18-32-18-1 Board of directors Name Age Qualiﬁ cations Designation Appointed Committee member Skills and experience Keith Spencer 66 BSc Eng (Mining) Hester Hickey 62 CA(SA), BCompt (Hons) Thabo Mosololi 46 BCom (Hons), CA(SA) Independent non-executive director Independent non-executive director 12 April 2012 9 December 2013 Audit, remuneration Thabo brings a wealth of experience in ﬁ nancial management, corporate governance and audit, having qualiﬁ ed as a chartered accountant with KPMG in 1994. Since then, he has served on various boards as a member and chairman of audit committees in the resources and other industries in South Africa. He is currently a director of MFT Investment Holdings, a family-owned investment company strategically placed to capitalise on B-BBEE investment opportunities. Audit (Chairperson), SHEQC Hester worked at AngloGold Ashanti, initially as group internal audit manager and later as executive ofﬁ cer: head of risk. Prior to this she worked at Ernst & Young and Liberty Life and was acting head of internal audit at Transnet. In her early career she lectured at the University of Witwatersrand, was a partner at Ironside Greenwood and was the national technical and training manager at BDO Spencer Steward. Hester has also previously served as the chairperson of SAICA. She currently performs board evaluations and director training for the IoDSA and serves on the following boards: Northam Platinum Limited, Omnia Limited, Cashbuild Limited and African Dawn Capital Limited. Hester is also a trustee on the Sentinel Pension Fund. Independent non-executive director – Chairman 8 October 2007 Audit, SHEQC (Chairman) Keith is a qualiﬁ ed mining engineer with 48 years’ practical mining experience. He has managed some of the largest gold mines in the world. 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 consulting engineer for Gold Fields, South Africa including 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, South Africa. In 1999 Keith joined Metorex, ﬁ rst as a private consultant and later as a permanent member of the executive, managing the Wakeﬁ eld Coal operations, O’kiep Copper Company, Barberton Mines and Metmin Manganese Mine. In 2001 Keith became operations director for Metorex. Board meeting attendance 4/4 4/4 4/4 84 Pan African Resources integrated annual report 2016 TRANSPARENCY AND TRANSPARENCY AND ACCOUNTABILITY ACCOUNTABILITY Rowan Smith 52 BSc (Hons), BCom (Hons) Cobus Loots 38 CA(SA), CFA® Charterholder Deon Louw 54 CA(SA), CFA® Charterholder, PGD (Tax Law), AMCT (UK) Executive director – Financial Director 1 March 2015 Deon has extensive ﬁ nance and business experience, which includes investment banking, advisory and business administration in the ﬁ nance and mining sectors. He has fulﬁ lled the roles of ﬁ nancial director of Sentula Mining Limited, chief ﬁ nancial ofﬁ cer of Shanduka Coal, Director of Resource Finance Advisers and Head of resource structured ﬁ nance at Investec Bank. Deon was appointed as Financial Director on 1 March 2015. Executive director – Chief Executive Ofﬁ cer 26 August 2009 SHEQC Cobus served articles with Deloitte & Touche and became an audit manager with the ﬁ rm before leaving to pursue a career in ﬁ nance. His experience includes mining-speciﬁ c acquisitions and ﬁ nance as well as the management of both exploration and production of mineral assets, most recently before 2009 as managing director of Shanduka Resources. Cobus has been a director of Pan African Resources since 2009 (Financial Director during 2009–2011 and a non- executive director during 2011–2013). He served as joint Chief Executive Ofﬁ cer alongside Ron Holding until assuming the ofﬁ ce of Financial Director on 1 October 2013. Cobus was appointed Chief Executive Ofﬁ cer on 1 March 2015. Independent non-executive director 8 September 2014 Remuneration (Chairman) Rowan has nearly three decades of collective experience in the resources and investment banking industries. He was a founding shareholder and managing director of Shanduka Resources, which he helped develop from a start-up in 2002 until his departure in 2012. Key milestones achieved at Shanduka Resources included signiﬁ cant investments in Mondi Shanduka Newsprint, Mondi Packaging, Kangra Coal, Shanduka Coal (with Glencore), Pan African Resources, DRA Projects, Lonmin (through Incwala), Assore and Lace Diamonds. Rowan’s post-investment involvement included his representation on the executive committees and boards of most of the investee companies, including an executive directorship of the Shanduka group. Before Shanduka, Rowan was a director of Investec Bank’s Mining Finance team in Johannesburg and worked on a number of debt and equity-based transactions in the sub-Saharan region. He also worked for Swiss-based Société Générale de Surveillance in Geneva, which entailed the management of audits on mineral consignments throughout the world. He started his career as a valuation geologist at the Harmony mine. Rowan is currently chairman of Rail2Rail, an adviser to Athena Capital and a director of Hlanganani Capital. 3/4 4/4 4/4 Pan African Resources integrated annual report 2016 85 Executive and operations management Executive management (Exco) Cobus Loots (38) Chief Executive Ofﬁ cer CA(SA), CFA® Charterholder Committee: SHEQC See directorate on page 84 for CV Anaki Karigeni (48) Chief Operating Ofﬁ cer BSc Mining Engineering, MSc Project Management Committee: SHEQC 24 years of mining-related experience Deon Louw (54) Financial Director CA(SA), CFA® Charterholder, PGD (Tax Law), AMCT (UK) See directorate on page 84 for CV André van den Bergh (60) Executive: Human Resources Diploma in Human Resources Management, Diploma in Labour Relations Management Committee: SHEQC 41 years of mining-related experience 86 Pan African Resources integrated annual report 2016 TRANSPARENCY AND ACCOUNTABILITY Operations committee (Opsco) Casper Strydom (58) General Manager: Barberton Mines National Higher Diploma, Metalliferous Mining Mine Managers Certiﬁ cate 40 years of mining-related experience Band Malunga (43) General Manager: Evander Mines BTech Mining Engineering 23 years of mining-related experience Johan Gloy (48) General Manager: Uitkomst Mine National Higher Diploma Extractive Metallurgy, BTech Environmental Management, MDP Stellenbosch, Registered Competent Person – Metallurgy – South African Council for Natural Scientiﬁ c Professions, Registered with Engineering Council of South Africa 25 years of gold and coal mining-related experience Bertin McLeod (39) Plant Manager: Metallurgy Phoenix Platinum BTech: Chemical Engineering Management Development Certiﬁ cate, Senior Management Development Certiﬁ cate 14 years of platinum industry experience Wayne Allen (47) Group Consulting Engineer National Diploma Engineering, Mechanical Engineer’s Certiﬁ cate of Competency, MAP (Wits), AMRE (SA) 24 years of mining-related experience Barry Naicker (43) Group Mineral Resource Manager MEng Mineral Resource Management (Wits), Grad Dip Engineering (MRM), BSc (Hons) Geology and Economic Geology 15 years of mining-related experience Mandla Ndlozi (45) Group SHEQC Manager NADSM (Unisa), EIA (PU for CHE), MDP (GIBS), SAMTRAC (NOSA), Integrated SHEQ Management (University of North-West) Committee: SHEQC 17 years of mining-related experience Neal Reynolds (33) Group Financial Controller BCom Accounting (Hons), CA(SA) 8 years of mining-related experience Niel Symington (35) Group Management Accounting and IT Manager BCom Accounting, Professional Accountant (SA) 8 years of mining-related experience Pan African Resources integrated annual report 2016 87 Corporate governance review Pan African Resources’ board is committed to responsibility, accountability, fairness and transparency in accordance with King III, the UK Code and applicable laws and regulations, reﬂ ecting integrity in all business dealings. The board aims to integrate this responsible corporate citizenship into the group’s business strategy, audits and assessments and to embed sound corporate governance practices into daily operations and processes throughout the group. The standards of disclosure relating to corporate governance at the group are regulated by the UK Companies Act, the SA Companies Act, AIM Rules, the JSE Listings Requirements and King III. In addition, the board has considered the principles of corporate governance contained in the UK Code and the guidance published by the Institute of Chartered Accountants in England and Wales concerning the internal control requirements of the UK Code. Governance framework BOA R D A U DIT COM M I T T EE R E M U N E R ATION C O M E E T MIT S H E Q C CO M M I T EE T Chairman: Keith Spencer Chairperson: Hester Hickey Chairman: Rowan Smith Chairman: Keith Spencer Members Hester Hickey Thabo Mosololi Rowan Smith Cobus Loots Deon Louw Invitees Exco and Opsco for ad hoc presentations to the board Members Thabo Mosololi Keith Spencer Invitees Cobus Loots, Chief Executive Ofﬁ cer Deon Louw, Financial Director External auditors Internal auditors Financial executives Members Thabo Mosololi Invitees Cobus Loots, Chief Executive Ofﬁ cer Deon Louw, Financial Director André van den Bergh, Group Human Resources Executive Members Hester Hickey Cobus Loots Anaki Karigeni Mandla Ndlozi André van den Bergh Sozabile Nkuna1 Invitees General managers – Barberton Mines, Evander Mines, Phoenix Platinum and the Uitkomst Colliery 1 Sozabile Nkuna is a representative from Phembani The board The Pan African Resources board is responsible and accountable for the performance and affairs of the group and has full control over all subsidiaries and operations. It acts as the focal point for and custodian of our corporate governance. In doing so, it ensures the group remains a responsible corporate citizen, cognisant of the impact our operations may have on the environment and society in which we operate, while acting in accordance with our own code of conduct. At reporting date, our unitary board comprised six directors. The Chairman, Keith Spencer, is an independent non-executive director. Executive directors are the Chief Executive Ofﬁ cer and the Financial Director. A brief CV of all directors is provided on pages 84 and 85. The entire board performs the function and responsibility of the nominations committee. There were no changes to the board during the year under review. Our board reﬂ ects a balance of executive and non-executive directors, the majority of whom are independent. More importantly, the board reﬂ ects signiﬁ cant experience in mining and related activities and collectively has a wealth of industry knowledge, adding depth to board discussions. The responsibilities of the independent non-executive Chairman and the Chief Executive Ofﬁ cer and the other non-executive and executive directors are strictly separated to ensure proﬁ cient decision-making. No single director is positioned to exercise unfettered decision- making, which protects against the inﬂ uence of possible personal interests and ensures that the interests of all stakeholders are represented and 88 Pan African Resources integrated annual report 2016 TRANSPARENCY AND ACCOUNTABILITY taken into account. The Chairman provides independent board leadership and guidance and facilitates suitable deliberation on all matters requiring the board’s attention. He further ensures the board operates efﬁ ciently and collectively. The Chief Executive Ofﬁ cer and Financial Director, supported by the executive committee, are accountable for strategy implementation and the day-to-day operational decisions and business activities. Non-executive directors are not involved in the daily operations of the company. A formal board charter is in place to regulate the parameters within which the board operates and to ensure the application of good corporate governance in compliance with the group’s code of conduct. A copy of the board charter is available from the group Company Secretary on request. Rotation and re-election of directors In terms of King III and the group’s constitutional documents, one-third of the directors, excluding any director appointed since the previous AGM, must retire from ofﬁ ce at each annual general meeting on a rotation basis. The directors to retire are those who have been longest in ofﬁ ce since their last election. Retiring directors may make themselves available for re-election provided that they remain eligible as required by the constitutional documents and in compliance with the AIM Rules and JSE Listings Requirements. Accordingly, Mrs HH Hickey and Mr T Mosololi retire by rotation and offer themselves for re-election. A brief CV of each director standing for re-election at the AGM is contained on pages 84 and 85. Board evaluation An annual effectiveness self-evaluation is undertaken in respect of the board and the audit committee. Share dealings All group employees at Paterson Grading D and above (which includes operational management, executive and operational management) with access to ﬁ nancial and any other price-sensitive information are prohibited from dealing in Pan African Resources shares during ‘closed periods’, as deﬁ ned by the AIM and JSE Listings Requirements, or while the company is trading under a cautionary announcement. An appropriate communication is sent to all such employees alerting them that the company is entering a closed period. Should any of the relevant employees wish to trade Pan African Resources shares, written permission must be obtained from either the Chief Executive Ofﬁ cer or Financial Director and conﬁ rmed with the South African and UK based corporate advisers prior to the trade taking place. There were no contraventions of this policy during the year. Succession planning The board, which fulﬁ ls the role of nominations committee, is responsible for succession planning for the board of directors and executive and senior management. The board regularly reviews the group’s succession strategy. In general, succession plans are in place for the incumbent key executives, with an informal ‘on-the-job’ mentor programme for identiﬁ ed successors supporting this process. New appointments The board identiﬁ es, interviews and proposes potential candidates to the board. The board evaluates each individual in the context of the board as a whole. The objective remains having a board that can best perpetuate our success and represent shareholder interests through the exercise of sound judgement, using its diversity of experience. The group ensures all new directors are informed of the AIM and JSE rules with the assistance of the UK Nomad and JSE sponsor, given that all appointees are accomplished board directors and familiar with the ﬁ duciary duties expected of them. New appointees are provided with the latest annual and interim results, integrated annual report and minutes of previous board meetings. It is intended that a formal induction programme will be introduced in the near future. Ongoing development All directors receive ongoing training on relevant matters and directors who are chartered accountants comply with SAICA continued professional development requirements. The UK-based Nomad ensures the directors remain up to date with AIM regulations, while the South African sponsor ensures the same regarding the JSE Listings Requirements. The Company Secretary and Chairman of the audit committee are responsible for keeping the board abreast of new legislation, recommendations and best practice. Ethical leadership The board strives to ensure that the group conducts its business with integrity, leading by example. This commitment is formalised in a code of conduct which applies beyond the board and includes all employees of the group. The code sets out the group’s values and practices over and above requirements of formal governance codes and legal requirements mentioned above. It is designed to provide guidance on ethical conduct in all areas and across all activities. To supplement the effectiveness of the code of conduct, directors, executive management and operational management receive ongoing training in regulations and in ethical leadership. Pan African Resources has a zero-tolerance approach to bribery and corruption. A separate bribery and corruption policy is in place, which is communicated to all employees as well as to mine contractors, all of whom are expected to comply fully. In the event of a breach by an employee of the code of conduct, policies or practices above, the group human resources disciplinary procedures are followed. No breaches by senior group employees were reported during the year. King III compliance In line with King III’s ‘apply or explain’ approach, the directors will continue to state the extent to which the company applies good corporate governance principles to create and sustain value for stakeholders over the short, medium and long term. To optimally manage its application of King III, the company has adopted the IoDSA Governance Assessment Instrument, allowing for the maintenance of a register recording its progress in applying the principles of King III as well as the JSE Listings Requirements. Principle 2.25 (paragraph 153) recommends that non-executive directors’ fees should comprise a base fee, which may vary according to factors including the level of expertise of each director, as well as an attendance fee per meeting. The group remunerates its non-executive directors based on a ﬁ xed fee, as the board’s input extends beyond the attendance at meetings. The group’s King III checklist can be found on the group’s website on www.panafricanresources.com. Pan African Resources integrated annual report 2016 89 Corporate governance review continued Board committees Pan African Resources has an audit committee, remuneration committee and an SHEQC committee to assist the board in discharging its collective responsibility of corporate governance. The SHEQC committee serves as a social and ethics committee in terms of the South African (SA) Companies Act requirements. All committees have satisﬁ ed their responsibilities during the year in compliance with their formal charters. A copy of these charters is available from the group Company Secretary on request. The key issues discussed at these board committees are tabled below. Committee Audit committee Remuneration committee SHEQC committee Key issues discussed in 2016 Integrated report sign-off for 30 June 2016 Interim report sign-off for 31 December 2015 Review of internal and external audit reports Control environment at Evander Mines Group internal control policy and standardisation process Uitkomst Colliery, Shanduka Gold transaction and gold loans Detailed on page 94 Safety performance, challenges and improvements at all operations Quantiﬁ cation of speciﬁ c measurements that are required from a sustainability perspective Environmental monitoring and management Board and committee meetings attendance The board meets quarterly with additional meetings as and when necessary. Attendance at board and committee meetings is set out below. In addition to these meetings, ad hoc meetings and calls are held regularly. Not all of these are recorded in the table below. Keith Spencer Hester Hickey Cobus Loots Thabo Mosololi Rowan Smith Deon Louw PAR board meeting 14 September 2015 3 December 2015 18 February 2016 14 June 2016 Pre-audit committee meeting 10 July 2015 Audit committee meeting 14 September 2015 3 December 2015 18 February 2016 Remuneration committee meeting 30 July 2015 3 December 2015 SHEQC committee meeting 10 September 2015 2 December 2015 30 March 2016 13 June 2016 √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ √ X √ √ √ √ √ √ √ √ √ √ √ √ √ √ Note: The above attendance schedule does not include special board meetings and discussions relating to the Shanduka Gold/PAR Gold transaction. These took place as follows: 18 April 2016, 13 May 2016, 26 May 2016, 1 June 2016. 90 Pan African Resources integrated annual report 2016 TRANSPARENCY AND ACCOUNTABILITY Advisers One Capital is the company’s appointed sponsor in accordance with the JSE Listings Requirements. One Capital is responsible for ensuring the company is at all times guided and advised as to the application of the JSE Listings Requirements. The group appointed BMO Capital Markets Limited as joint broker (effective 22 June 2016) alongside Numis Securities Limited and Peel Hunt LLP. IT governance The board is responsible for IT governance, which is governed by an IT charter. The framework consists of an IT steering committee which includes the Financial Director, the Chief Information Ofﬁ cer and Executive: Human Resources. This steering committee is responsible for directing, controlling and measuring the IT activities and processes of the group. It also keeps the board apprised of the group’s IT performance on a regular basis. Each operation has formal business continuity and disaster management plans in place, which are the responsibility of the respective general managers. Compliance The group complies with all applicable legal acts and regulations. Independent advice All independent non-executive directors have unrestricted access to management and the group’s external auditor. Further, all directors are entitled to seek independent professional advice on any matters pertaining to the group as they deem necessary and at the group’s expense. Company Secretary Pan African Resources outsources the company secretarial function to St James’s Corporate Services Limited. The Company Secretary advises the board of any relevant regulatory changes and/or updates. The Company Secretary keeps records of shareholder registers, meeting attendance registers, meeting minutes, resolutions, directors’ declarations of personal interest(s), all notices and circulars issued by the company, guidance on directors’ duties and good governance. The Company Secretary is well versed in all relevant updates to current legislation and regulation and is responsible for advising the board in this regard. Further, the Company Secretary reviews the rules and procedures applicable to the conduct of the board. Wherever necessary the sponsor, Nomad and other relevant experts are involved in ensuring that the directors have adequate information to sufﬁ ciently discharge their responsibilities in the best interests of the company. The appointment and removal of the Company Secretary is a matter for the board as a whole. The audit committee reviews the Company Secretary’s qualiﬁ cations and competence and provides recommendations to the board. The board is comfortable that the Company Secretary, St James’s Corporate Services Limited, maintains an arm’s length relationship with the board at all times and is sufﬁ ciently qualiﬁ ed and skilled to act in accordance with and update directors in terms of the UK and international regulations and legislation. Pan African Resources integrated annual report 2016 91 Corporate governance review continued Risk governance The board is ultimately responsible for the management of risk and a formal risk governance process is in place to ensure the board adequately discharges its responsibility, as described below. The board regularly reviews the risk reports from the operations, ensuring the appropriate risk management programmes and monitoring of progress against key risk indicators are being effectively implemented. The roles of the audit committee and internal and external functions, as they relate to risk management, are described below and the group’s key risks are set out on pages 30 to 33. BOARD OF DIRECTORS AUDIT COMMITTEE INTERNAL AUDIT FUNCTION EXECUTIVE MANAGEMENT OPERATIONS EXTERNAL AUDIT FUNCTION The internal audit function is outsourced to BDO, which evaluates the effectiveness and general compliance of controls aimed at addressing risks within the group. Executive management implements operational controls to ensure the validity, accuracy and completeness of ﬁ nancial information. It ensures that employees assume responsibility for conducting themselves in accordance with established policies and procedures, to minimise the potential occurrence of any risk event and to seek opportunities to improve performance and efﬁ ciencies. Initiatives to mitigate risks at operational level are designed to ensure continuous, safe and responsible production of gold, PGEs and coal. Risks are identiﬁ ed at risk workshops and in an annual strategy session. Each of the group’s operations maintains a risk register, which includes risk identiﬁ cation, risk mitigating factors and responsibilities. External audit reports on the fair presentation of ﬁ nancial information on a statutory reporting level in compliance with IFRS as adopted by the EU and Article 4 of the IAS Regulation, UK Companies Act and the SA Companies Act. The board, assisted by the audit committee, evaluates the effectiveness and independence of the external auditors – the South African and UK ﬁ rm of Deloitte & Touche. This committee reports directly to the board and has several responsibilities including internal control, internal audit, risk management and assurance. The committee meets at least three times a year (attendance is outlined on page 90) and makes recommendations to the board, which retains ultimate responsibility with regard to risk tolerance levels. It also works closely with the internal audit function and approves and reviews the internal audit plan and its execution. 92 Pan African Resources integrated annual report 2016 TRANSPARENCY AND ACCOUNTABILITY Remuneration review Message from the Chairman of the remuneration committee Dear Pan African stakeholders I am pleased to present the 2016 Pan African Resources remuneration report on behalf of our remuneration committee and board. The 2016 ﬁ nancial year was a particularly rewarding period for Pan African Resources and also for many of our stakeholders, including our shareholders. Our group delivered record gold production and, as a result, also produced record proﬁ ts. We recognise that, in part, this excellent performance was also a result of increased gold prices. However, this gold price increase was only after a number of years of depressed prices and investor sentiment, where the group, our management and employees continued to work tirelessly to ensure the sustainability of our operations and to increase gold production. Following the ﬁ nalisation of the Uitkomst Colliery acquisition, a review of its remuneration policies, processes and procedures formed part of our due diligence and we do not foresee major challenges with ﬁ nalising this integration. Even though stakeholders generally focus on the remuneration of senior executives and group directors contained in this report, it is important to highlight the progress of our remuneration committee and management in aligning the interests of all employees to those of shareholders. We are particularly pleased that we have successfully concluded multi-year wage agreements at our gold operations, and also that we have now implemented employee share ownership plans (ESOP) at Barberton and Evander Mines. The Uitkomst Colliery ESOP will be ﬁ nalised by 31 December 2016. These ESOPs allow non-management employees to beneﬁ t from ownership of the businesses in which they make a positive contribution. The remuneration committee (Remco) assists the board in ensuring that group remuneration is aligned with the overall business strategy, with the aim of enabling Pan African Resources to attract, incentivise and retain personnel who will create long-term value for all stakeholders. The committee reviews current compensation levels and incentive schemes on a regular basis to ensure that they remain market related and fulﬁ l their purpose as an incentive to align the interest of the group’s senior management and employees to that of the stakeholders. In this regard the committee draws on PricewaterhouseCoopers’ (PwC) Remchannel and Aon Hewitt market analysis to ensure compliance to best practice in executive compensation. We also benchmark remuneration of other employees in the group on a regular basis. Our previous ﬁ nancial year’s remuneration report was endorsed by almost 90% of shareholders voting at the annual general meeting. However, following an assessment of current market practices and interactions with some of our shareholders in the current year, we again evaluated and adjusted remuneration structures (speciﬁ cally the variable and long-term portions of packages) for executive directors, on a forward-looking basis. These changes continue to ensure that senior management directs our business in a manner that creates long-term value for shareholders. In our drive for continuous improvement, we have again improved the level of disclosure in this year’s report, speciﬁ cally on matters such as details of short-term incentive targets for senior executives. Providing motivational and shareholder aligned remuneration structures in a demanding operating environment will always be a challenge, however we believe that we have found an equitable approach to this sensitive matter. We do, however, remain receptive to feedback from our stakeholders on our remuneration philosophy or any matter related thereto. Yours faithfully Rowan Smith Chairman, remuneration committee 20 September 2016 Pan African Resources integrated annual report 2016 93 Remuneration review continued Remuneration philosophy Pan African Resources’ remuneration philosophy seeks to reward executive directors and other senior management for individual and group performance. It recognises that these individuals have the ability to signiﬁ cantly impact the performance of the group, over the short and long term. Executive directors and other senior management carry signiﬁ cant responsibility, statutory and otherwise, and appropriate skills are difﬁ cult to attract and retain in what is increasingly a challenging environment. It is therefore critical that remuneration is aligned to the contribution and performance of the company, teams and individuals. The group’s key remuneration objectives include: • Facilitating the delivery of superior long-term results for the business and shareholders and promoting sound risk management principles • Reinforcing leadership, accountability, teamwork and innovation • Supporting the corporate values and desired culture • Supporting the attraction, retention, motivation and alignment of the talent we need to achieve our business goals. The group’s remuneration policy provides a framework for remuneration to attract, retain and motivate employees to achieve the strategic objectives of the organisation, within its risk appetite and risk management framework. The remuneration framework recognises the following principles: • Objectivity in short-term incentives – comprising an annual bonus which rewards management for matters under their control or inﬂ uence, but not matters outside their control such as commodity prices and exchange rates • Objectivity in long-term incentives – the purpose with this component of the remuneration framework is to align the long-term interest of the group’s management and employees with that of the group’s shareholders through incentives, which are directly linked to the increase in the Pan African Resources share price. These awards generally vest over a period of four years • Alignment to shareholders – we believe that the combination of these incentives will achieve the objectives set out in the above philosophy, by aligning the interests of employees with the shareholder’s aspirations • Application of discretion – Remco has the authority to apply its discretion in the event where speciﬁ c circumstances are outside the control of the operations and these circumstances would be prejudicial to employees/management. In order to achieve its remuneration objectives, Remco, in consultation with and oversight from the board, retains ﬂ exibility in terms of how it incentivises and rewards performance. Remco may therefore, in the event of exceptional performance by speciﬁ c members of senior management or others, approve additional incentives if this is deemed justiﬁ ed. In the event of any such payments, the motivation and details are disclosed in this remuneration report and in the group ﬁ nancial statements. Remuneration governance Remco comprises only independent non- executive directors, which monitors and strengthens the credibility of the group’s executive remuneration system. It reviews the performance of the Chief Executive Ofﬁ cer, executives and senior management and sets the scale, structure and basis of their remuneration and the terms of their service agreements. The committee also considers and makes recommendations to the board on remuneration packages and policies in this regard. The Remco Chairman is Mr Rowan Smith and the membership and attendance of Remco is shown on page 90. Remco meetings are attended by the Chief Executive Ofﬁ cer, Financial Director and the Executive Human Resources. None of these individuals are present when their remuneration is discussed. Some of the key focus areas discussed during the ﬁ nancial year are tabled below. Focus areas during 2016 ﬁ nancial year Discussion Bonus retention incentive agreement Revision of Evander Mine’s short-term incentive plan Salary adjustments and benchmarking Review of executive director remuneration structure and contract period Finalising the bonus retention agreements for the nominated employees. This retention scheme excludes the Chief Executive Ofﬁ cer Revising Evander Mines’ short-term incentive plan to better align with the group’s plan and strengthen the philosophy of pay for performance Ensuring that the salary adjustments were in line with the group’s remuneration philosophy and within the benchmarks provided by PwC Remchannel and Aon Hewitt market analysis New structures ﬁ nalised and disclosed in this report. New remuneration structure is expected to continue to reward performance and ensure long-term alignment with shareholders Access to information and advisers Remco has unrestricted access to the company’s records, facilities and any other resources necessary to discharge its duties and responsibilities. Remuneration is reviewed annually against competitive market data and analysis from the PwC Remchannel market analysis. In the current year, directors’ remuneration was also benchmarked against AIM100 and FTSE250 peers. The board approves remuneration proposals from Remco and submits them to shareholders for endorsement at the annual general meeting. 94 Pan African Resources integrated annual report 2016 TRANSPARENCY AND ACCOUNTABILITY Remuneration framework Basic salary and beneﬁ ts Short-term incentives Remuneration: key features Long-term incentives Reviewed annually against competitive market data and the PwC Remchannel • Paid annually at corporate level • Paid annually at operations • Measured objectively against the group’s performance or • The Equity Share Option Plan • Pan African Resources’ group Share Appreciation Bonus Plan • Employee ownership programme (Barberton and Evander personal contribution Mines) • Speciﬁ c other schemes for executive directors Remuneration: criteria for eligibility Employment at the group Executive management (Exco) Production and Safety KPIs account for 60% of assessment based on: • Group’s gold and PGEs sold (ounces) • Costs of production • Safety targets (objective measurement based on group’s actual achievements against set business plans for the ﬁ nancial year) The main objective of the group Equity Share Option Plan and Share Appreciation Bonus Plan is to: • Appropriately incentivise select employees who are employed at a managerial level within the group • Ensure retention of key skills required for the group’s ongoing proﬁ table performance and growth • Align management interests with those of shareholders During the last year, executive management achieved the following percentages in terms of the above criteria: • Group’s gold and PGEs sold (ounces): 12.7% out of a possible 18% • Costs of production: 5.1% out of a possible 10.8% • Safety targets (objective measurement based on group’s actual achievements against set business plans for the ﬁ nancial year): 6.6% out of a possible 7.2% Personal KPIs account for 40% of assessment and are speciﬁ c to the employee concerned. These personal KPIs are clearly deﬁ ned and are intended to contribute speciﬁ c positive outcomes to group results. Examples of personal KPIs during the last year included: • Successful conclusion of multi-year wage agreements within mandate provided • Improved production at Evander Gold Mining Operational management committees (Opsco) Production and Safety KPIs account for 60% of assessment based on: • Group’s gold sold (ounces) • Costs of production • Safety targets (objective measurement based on group’s actual achievements against set business plans for the ﬁ nancial year) Personal KPIs account for 40% (from 1 July 2016: 40%) of assessment and are speciﬁ c to the employee concerned. These personal KPIs are clearly deﬁ ned and are intended to contribute speciﬁ c positive outcomes to group results. Examples of personal KPIs during the last year included: • Successful integration of Uitkomst Colliery into the Pan African Resources group • Geology model sign-off for Klipspruit Mine (Uitkomst Colliery) • Effective and cost efﬁ cient implementation of an efﬁ cient and user friendly safety and environmental data system Operational management on-mine (Manco) Production and Safety KPIs account for 80% of assessment based on: • Operation’s gold/PGEs sold (ounces) • Costs of production • Safety targets (objective measurement based on group’s actual achievements against set business plans for the ﬁ nancial year) Personal KPIs account for 20% of assessment and are speciﬁ c to the employee concerned. Operational heads of department (HODs) This grouping is paid quarterly. A maximum of 12.5% (from 1 July 2016: 12.5%) per quarter of the individual’s annual cost to company (CTC) at 100% achievement (therefore a total of 50%) of which only 50% of the 12.5 % will be due and payable per quarter. The other 50% is retained and is only due and payable at the end of the ﬁ nancial year. The quarterly production KPIs are based on the following: • Operation’s gold/PGEs sold (ounces) • Costs of production • Safety targets (objective measurement based on the operation’s actual achievements against set business plans for the ﬁ nancial year) Pan African Resources integrated annual report 2016 95 Remuneration review continued Employee remuneration components page 167, however all non-executive directors, Remuneration is currently disclosed and presented in GBP in the annual ﬁ nancial statements on executive directors and employees are remunerated and paid in ZAR. Director and employment contracts are therefore also ZAR denominated. Element Key features Purpose Eligibility Factors considered Guaranteed pay Executives, senior managers and heads of department • Pensionable salary • Leave • Pension/provident fund contributions • Medical contributions • Travel allowance • All of the above adds to the total cost to company of an employee Aligned to the value the individual provides to the group, including: • Skills and competencies required to generate results • Sustained contribution to the group • The value of the role and contribution of the individual to the group Executives, senior managers and heads of department • Group performance • Outlook for the next ﬁ nancial year • Individual performance Collective bargaining employees • Pensionable salary • Leave • Medical contributions • Overtime/housing or living out Aligned to the value the individual provides to the group, including: • Skills and competencies Collective bargaining employees All relevant factors in the industry such as annual wage agreements allowance • Other ﬁ xed allowances – underground allowances, rock drill operator allowances and meal allowances required to generate results • Sustained contribution to the group • The value of the role and contribution of the individual to the group Variable pay Short-term incentives • Paid annually at corporate level • Paid monthly, quarterly or annually at operations depending on the level of employee • Measured objectively against the group’s performance or personal contribution Designed to drive and reward medium-term results, reﬂ ecting the level and time horizon of risk. This includes ﬁ nancial and non-ﬁ nancial results and metrics at an organisation, division and individual (and team) level Executives, managers and heads of department – paid annually • Group ﬁ nancial and strategic performance • Business unit (team) ﬁ nancial and strategic performance • Individual contribution to team performance • Individual performance, including alignment with corporate values and meeting performance objectives • Contribution to meeting risk and compliance requirements at group, team and individual level, risk and compliance requirements also comprise a gateway to whether a payment is made and the size of the payment • Notwithstanding ﬁ nancial performance and the individual contribution and performance, if the individual, team or group does not meet or only partially meets risk and compliance requirements, no award or a reduced award may be made 96 Pan African Resources integrated annual report 2016 TRANSPARENCY AND ACCOUNTABILITY Element Key features Purpose Eligibility Factors considered Variable pay continued Short-term incentives continued Retention bonus- short- to medium- term incentive (excluding Chief Executive Ofﬁ cer) Long-term incentives • Once-off payment in advance to key personnel to ensure their continued employment for the three-year retention period • Three-year lock-in period is from 1 July 2015 to 30 June 2018 • Claw-back clause included if three-year service period is interrupted • Alignment to shareholders’ investment horizon and aspirations • Equity linked • Measured objectively against the group’s performance or personal contribution Long-term incentives – equity participation plans • Alignment of the aspirations of Pan African Resources’ employees at its operations with that of management and shareholders • Discretionary Special remuneration beneﬁ ts – sign-on, retention and termination beneﬁ ts Collective bargaining employees • Eligibility to participate in the scheme • The maximum variable remuneration as a percentage of total cost to company of an individual • The parameters for production targets to be achieved • The personal KPIs for each participant • Key personnel identiﬁ ed to ensure sustainability Designed to retain key personnel for a lock-in period of three years – 1 July 2015 to 30 June 2018 Select key personnel, excluding the Chief Executive Ofﬁ cer Discretionary remuneration designed to drive and reward long-term growth and sustained company value and align the interests of shareholders and participants. These may or may not be share options, share appreciation retention schemes or the like. It should be the intention to structure any form of long-term incentive in such a way as to retain and attract the necessary skills for the group and to ensure that it is market related To align the interests of employees with those of shareholders through providing direct participation in the beneﬁ ts of future company performance Designed to retain and attract certain scarce skills, especially at the heads of department and senior management levels Executives and others approved by the board Seniority and level of responsibility Collective bargaining employees Seniority and level of responsibility Heads of department and senior managers Experience and relevant qualiﬁ cations The detailed remuneration of the group’s independent non-executive directors, executive directors and prescribed ofﬁ cers is disclosed in the ﬁ nancial statements on pages 167 to 170. Pan African Resources integrated annual report 2016 97 Remuneration review continued Risk management and remuneration Pan African Resources recognises the need to fairly remunerate employees in order to attract and retain talent. However, it is cognisant of the need to ensure that effective risk management is part of its remuneration consideration, in order to drive the correct behaviour. As such, all employees’ KPIs include speciﬁ c elements that are aligned to the group’s long-term goals, including zero harm. Safety is imperative to the mines’ operations and the group’s remuneration philosophy reinforces the need for the delivery of superior long-term results, while promoting sound risk management principles. Non-executive director remuneration Remco advises the board on fees for non-executive directors. In determining the annual fees, Remco considers the directors’ responsibilities throughout the year, scarcity of skills, the group’s performance, market-related conditions and local and international comparative remuneration. King III recommends that fees should comprise a base fee and an attendance fee per meeting. The board agreed that a ﬁ xed fee for directors’ services on the board and sub-committees was more appropriate, as the board’s input extends beyond the attendance at meetings. When, as a result of a speciﬁ c transaction or circumstances, non-executive directors are required to spend signiﬁ cantly more time and effort than is normally expected in preparing for and attending board meetings and discussions, Remco considers additional fees to compensate non-executive directors for this additional time and effort. Non-executive fees are paid on a quarterly basis. There are no contractual arrangements for compensation for loss of ofﬁ ce. Regulatory requirements taken into account when determining non-executive directors’ remuneration include the SA Companies Act, the UK Companies Act, JSE Listings Requirements, King III and the UK Code. Exco, Opsco and mine management (Manco) remuneration Remco is responsible for making recommendations to the board on the remuneration of the Chief Executive Ofﬁ cer, those who report directly to him and selected other senior staff. Remuneration is reviewed on an annual basis and takes into account the group’s and operations’ ﬁ nancial and strategic performance, individual contribution to the group’s and operations’ performance, alignment with group values and the contribution in meeting risk and compliance requirements. Where the individual, team or group does not meet or partially meets requirements, no award or a reduced award may be made. An annual benchmarking exercise, through the PwC Remchannel market analysis, is utilised to determine a fair market-related remuneration. Individual KPIs are agreed upon annually and contain various elements, as shown on pages 100 to 101. Remuneration comprises ﬁ xed and variable (short- and long-term incentives) remuneration. Short-term incentives have certain parameters, shown on pages 96 and 97, to ensure a performance- based culture. The board and executive committee retain discretion to determine which parameters apply and their weighting to reﬂ ect immediate priorities. There will be times when it is appropriate, and in shareholders’ best interest, to attach more signiﬁ cant weight to (for example) one or more of production, ﬁ nancial or transformation imperatives as circumstances dictate. 98 Pan African Resources integrated annual report 2016 TRANSPARENCY AND ACCOUNTABILITY The maximum variable remuneration percentages applied are tabled below. Position 2016 maximum variable remuneration (as a % of total remuneration) Chief Executive Ofﬁ cer Executive committee and Financial Director Senior managers and others approved by the board Up to 90% Up to 60% Up to 50% Regulatory requirements taken into account when determining non-executive directors’ remuneration include the SA Companies Act, the UK Companies Act, JSE Listings Requirements, King III and the UK Code. Variable remuneration conditions Position Maximum variable remuneration (as a % of total remuneration) Qualiﬁ cation criteria at 100% achievement Chief Executive Ofﬁ cer Up to 90% 60% based on the following production parameters: • Total group gold and PGMs sold – weight 50% • Total group cost per kilogram – weight 30% • Group safety – weight 20% Executive committee Up to 60% Up to 50% Up to 50% Senior managers at corporate level approved by Remco Senior managers at operational level approved by Remco 40% based on personal KPIs determined by the Remco. KPIs relate to pre-determined, deﬁ nitive outcomes which add tangible value to the group. KPIs for the 2016 ﬁ nancial year are detailed below 60% based on the following production parameters: • Total group gold and PGMs sold – weight 50% • Total group cost per kilogram – weight 30% • Group safety – weight 20% 40% based on personal KPIs determined by the Chief Executive Ofﬁ cer in consultation with the Remco. KPIs relate to speciﬁ c pre-determined outcomes 60% based on the following production parameters: • Total group gold and PGMs sold – weight 50% • Total group cost per kilogram – weight 30% • Group safety – weight 20% 40% based on personal KPIs which relate to speciﬁ c pre-determined outcomes set by the Chief Executive Ofﬁ cer 80% based on the following production parameters per individual operation: • Total gold or PGMs sold – weight 50% • Total cost per kilogram – weight 30% • Operational safety – weight 20% 20% based on personal KPIs which relate to speciﬁ c pre-determined outcomes set by the Chief Operating Ofﬁ cer and General Manager Pan African Resources integrated annual report 2016 99 Remuneration review continued Executive director operational and personal KPI performance analysis 2016 ﬁ nancial year Cost to company ZAR Production parameters % Personal KPIs % Total incentive % Evidence of achievement (note 1) 3,500,000 36.7 (max 54) 36 (max 36) 72.7 (max 90) Executive director Cobus Loots (Chief Executive Ofﬁ cer) Deon Louw (Financial Director) 2,750,000 24.5 (max 36) 24 (max 24) 48.5 (max 60) Contractual 2016 ZAR incentive Transaction bonus ZAR (note 2) Total 2016 ZAR incentive 2,544,500 4,000,000 6,544,500 1,333,750 2,000,000 3,333,750 Production parameters per operation are weighted on budgeted proﬁ t contribution: • Barberton Mines production and safety 31.53% (max 34.06%) • Evander Mines production and safety 4.73% (max 17.78%) • Phoenix Platinum production and safety 0.44% (max 2.16%) Personal KPIs: • Successful conclusion of the Uitkomst Colliery transaction before 30 June 2016: Transaction was successfully concluded on 31 March 2016. Percentage achieved – 18% (max 18%) • Conclusion of wage negotiations at all of the operations: Multi-year agreements concluded with the NUM, AMCU and UASA within the approved board mandates. Percentage achieved – 18% (max 18%) Production parameters per operation are weighted on budgeted proﬁ t contribution: • Barberton Mines production and safety 21% (max 22.7%) • Evander Mines production and safety 3.2% (max 11.9%) • Phoenix Platinum production and safety 0.3% (max 1.4%) Personal KPIs: • Facilitation of an action plan to improve efﬁ ciencies and production at Evander Mines: Gold production increased by 30.8%. Percentage achieved – 12% (max 12%) • Facilitation of and ensuring that the due diligence process with regard to a potential gold acquisition is completed by 30 June 2016: Due diligence and valuation timeously completed, however negotiations terminated. Percentage achieved – 12% (max 12%) Note 1: In addition to the initial KPIs agreed for the 2016 ﬁ nancial year, Remco also noted the following achievements when assessing executive director performance for the 2016 ﬁ nancial year: • Material production improvements at Evander Mines and Barberton Mines • Successful completion of due diligence on a potential gold acquisition target • Evander Mines successfully concluded proﬁ table reﬁ ning contract for secondary gold resources obtained from the Kinross CIL plant (example: gold recovered from mill ﬂ oor etc.) • ETRP operating in accordance with and better than initial project expectations • Progress with addressing safety challenges in group companies Note 2: Following the conclusion of the high value and earnings-accretive Shanduka Gold transaction and related vendor consideration placement of Pan African Resources shares, the Remco noted the value created for shareholders exceeded ZAR800 million or approximately 17% of Pan African Resources’ market capitalisation. In light of this, Remco deemed it appropriate to review the executive director’s remuneration to include a transaction bonus following the successful conclusion of this transaction. 100 Pan African Resources integrated annual report 2016 TRANSPARENCY AND ACCOUNTABILITY 2015 ﬁ nancial year Cost to company ZAR Production parameters % Personal KPIs % Total incentive % Evidence of achievement 3,500,000 6.4 (max 22) 33 (max 33) 39.4 (max 55) Executive director Cobus Loots (Chief Executive Ofﬁ cer) 2,750,000 7 (max 24) 36 (max 36) 43 (max 60) Deon Louw (Financial Director) (note 1) Total ZAR incentive 1,379,000 393,892 Production parameters per operation are weighted on budgeted ounces produced: • Barberton Mines production and safety 3.7% (max 12.1%) • Evander Mines production and safety 1.8% (max 9%) • Phoenix Platinum production and safety 0.9% (max 0.9%) Personal KPIs: • All subsidiaries to achieve a minimum of 40% HDSA representation in the speciﬁ c DOL categories: All subsidiaries above the 40% requirement. Barberton Mines Manco at 44%, Evander Mines’ Manco at 56%, Phoenix Platinum’s Manco at 100% and all other groupings as deﬁ ned by the DOL were above 40%. Percentage achieved – 16.5% (max 16.5%) • Implement at least one value-accretive transaction/structure for the Pan African Resources group: Operational gold trading and conclusion of two concentrate gold sales. Percentage achieved – 8.25% (max 8.25%) • Present and have approved at least one investment opportunity to the Pan African Resources board: Two opportunities presented and approved by the board. Percentage achieved 8.25% (max 8.25%) Production parameters per operation are weighted on budgeted proﬁ t contribution: • Barberton Mines production and safety 4% (max 13.2%) • Evander Mines production and safety 2% (max 9.8%) • Phoenix Platinum production and safety 1% (max 1.0%) Personal KPIs: • Conclude a new revolving credit facility and general banking facilities for the group by 30 June 2015: Successfully concluded a ZAR800 million revolving credit facility and a ZAR100 million general banking facility before 30 June 2015. Percentage achieved – 18% (max 18%) • Obtain board approval and implement a group treasury function by 30 June 2015: Successfully approved and implemented by 30 June 2015. Percentage achieved – 18% (max 18%) Note 1: Deon Louw was appointed on 1 March 2015 and his incentive was calculated on a pro-rata basis. Executive director service contracts The Pan African Resources Chief Executive Ofﬁ cer and Financial Director have entered into three-year employment contracts effective 1 March 2015 with the group, and are remunerated in ZAR for services performed. In terms of these contracts no amounts are payable at inception or termination at the end of the contract term. There is no limitation on the number of times an executive director may stand for board re-election. Subsequent to ﬁ nancial year-end, the Pan African Resources’ Remco and board noted that the executive directors had only 18 months remaining in terms of their current contracts of employment. The board then reviewed the option of extending their contracts for the following purposes: • Ensuring retention of highly competent and motivated management team • Ensuring continuity and stability of senior management • Continuity in executive management remains important in achieving group strategic initiatives and for the conclusion of imminent projects such as the Elikhulu tailings. Pan African Resources integrated annual report 2016 101 Remuneration review continued Remco also reviewed the terms of the executive directors’ contracts and agreed the following amendments to align contracts to market best practice performance-based remuneration, addressing the following elements: • Basic remuneration • Short-term incentives linked to operational performance and personal performance • Long-term equity-settled performance incentives to ensure individual and group performance which aligns with the interests of shareholders. Such long-term incentives should be linked to shareholder returns relative to Pan African Resources’ peers. New contractual arrangements in respect of the Chief Executive Ofﬁ cer and Financial Director: Term Chief Executive Ofﬁ cer Financial Director Contract duration Extended by three years to 28 February 2021 – currently to 28 February 2018 Extended by three years to 28 February 2021 – currently to 28 February 2018 Guaranteed remuneration Benchmarked, adjusted to 17% below the market mean (PwC Remchannel) Benchmarked, adjusted to 16% below the market mean (PwC Remchannel) Short-term annual incentive Currently a maximum of 90% of annual CTC. Going forward adjusted to a maximum of 110% of annual CTC, however 30% of this bonus is deferred, and only payable 24 months after initial payment (in shares or cash, at Remco election), subject to conﬁ rmation that original KPIs and operational performance was correctly recorded and beneﬁ ted the group as originally anticipated Currently a maximum of 60% of annual CTC. Going forward adjusted to a maximum of 80% of annual CTC, however 30% of this bonus is deferred, and only payable 24 months after initial payment (in shares or cash, at Remco election), subject to conﬁ rmation that original KPIs and operational performance was correctly recorded and beneﬁ ted the group as originally anticipated Participation in the group phantom share scheme No further participation in the phantom share scheme (other than existing allocation) and new long-term incentive as described below No further participation in the phantom share scheme (other than existing allocation) and new long-term incentive as described below Minimum shareholding in PAR Currently no requirement. New requirement is a minimum initial shareholding to the value of ZAR2 million, to be held for a minimum of two years. Requirements to be increased in next ﬁ nancial year Currently no requirement. New requirement is a minimum initial shareholding to the value of ZAR0.5 million, to be held for a minimum of two years. Requirements to be increased in next ﬁ nancial year Long-term share incentive Further alignment with shareholders Currently a maximum of 8,000,000 PAR shares, allocated for no consideration over a three-year period and vesting on 28 February 2018. Total of 5,133,333 allocated to date. Currently, allocation is at the discretion of Remco on the basis of group/executive performance New allocation of 5,000,000 PAR shares, vesting over the further additional three-year contract term. Vesting will however be determined by measuring total shareholder return (deﬁ ned as share price performance and dividends to shareholders) against gold sector peers on an annual basis. Shares vest only when PAR outperforms the sector, with a pro-rata vesting and all shares vesting in the event of an outperformance of 8% or more against peers New long-term incentives therefore vest in approximately ﬁ ve years from date of original issue Remco may elect, at its discretion, in circumstances deemed reasonable/equitable, to apply amended vesting criteria In the event of a signiﬁ cant outperformance of the market (in excess of 8%), Remco may also allocate additional shares No current allocation New allocation of 3,100,000 PAR shares, vesting over the further three-year contract term. Vesting will however be determined by measuring total shareholder return (deﬁ ned as share price performance and dividends to shareholders) against gold sector peers. Shares vest only when PAR outperforms the sector, with a pro-rata vesting and all shares vesting in the event of an outperformance of 8% or more against peers. Measurement occurs annually New long-term incentives therefore vest in approximately ﬁ ve years from date of original issue Remco may elect, at its discretion, in circumstances deemed reasonable/equitable, to apply amended vesting criteria In the event of a signiﬁ cant outperformance of the market (in excess of 8%), Remco may also allocate additional shares In the event of a signiﬁ cant acquisition or growth project, Remco will determine a portion of the annual short- term bonus “at risk”. If the signiﬁ cant acquisition or growth project does not deliver into initial expectations, after-tax portion of bonus “at risk” is to be refunded by the executive director to the company. In the event that the signiﬁ cant acquisition or growth project performs according to or in excess of expectations, a top-up bonus is payable by the company In the event of a signiﬁ cant acquisition or growth project, Remco will determine a portion of the annual short- term bonus “at risk”. If the signiﬁ cant acquisition or growth project does not deliver into initial expectations, after-tax portion of bonus “at risk” is to be refunded by the executive director to company. In the event that the signiﬁ cant acquisition or growth project performs according to or in excess of expectations, a top-up bonus is payable by the company 102 Pan African Resources integrated annual report 2016 TRANSPARENCY AND ACCOUNTABILITY Payment for loss of ofﬁ ce for executive directors Notice periods Notice periods do not exceed six months Upon appointment, Remco can agree on an extended notice period for the ﬁ rst year following appointment Good leaver Voluntary resignation Bad leaver Circumstances for departure Retirement, redundancy, death, ill health, injury, disability or as deﬁ ned by Remco Where departure is on mutually agreed terms, Remco may treat the departing executive as a good leaver. Remco uses its discretion judiciously and shareholders will be notiﬁ ed of any exercise as soon as reasonable Termination by company for misconduct or poor performance Salary and beneﬁ ts for notice period Salary and beneﬁ ts continue to be paid to the date of termination of employment, including any notice period and/or garden leave period Salary and beneﬁ ts continue to be paid to the date of termination of employment, including any notice period and/or garden leave Immediate termination with no notice period Bonus accrued prior to termination Remco applies its discretion as to whether a time prorated bonus award may be made and if the bonus will be paid wholly in cash Remco applies its discretion as to whether or not to pay out any bonus No accrued bonus is payable Prescribed ofﬁ cers The group’s prescribed ofﬁ cers are those individuals who exercise general executive control over and manage a signiﬁ cant portion of the group’s business activities or regularly participate, to a material degree, in the exercise of general executive control over a signiﬁ cant portion of the group’s business activities. In accordance with these requirements, Pan African Resources’ prescribed ofﬁ cers include: • Anaki Karigeni, Chief Operating Ofﬁ cer • André van den Bergh, Executive Human Resources • Casper Strydom, General Manager, Barberton Mines • Band Malunga, General Manager, Evander Mines • Bertin McLeod, Plant Manager, Phoenix Platinum. The prescribed ofﬁ cers’ remuneration is disclosed on page 168. Short- and long-term incentives Pan African Resources provides both short- and long-term incentives to executives, senior management and other persons approved by the board. The short-term incentives are largely used to incentivise eligible employees, based on operational outcomes that are mainly under management control. The long- term incentive is used to drive performance over the longer term (three to ﬁ ve years) to ensure improved alignment with the group’s strategic objectives and long-term sustainability. Share Appreciation Bonus Plan The main objective of the Share Appreciation Bonus Plan (Bonus Plan) is to provide appropriate incentives to select employees who are employed at a senior managerial level within the group. This ensures retention of key skills required for the ongoing proﬁ table performance and growth of Pan African Resources and to align management interests with those of shareholders. In terms of the Bonus Plan, select executives and employees (participants) of the group will be allocated notional shares in Pan African Resources. These notional shares will confer the conditional right on the participant to be paid a cash bonus equal to the appreciation in the Pan African Resources share price, from the date of allocation to the date of surrender or deemed surrender of his/her notional shares (share appreciation bonus). The share appreciation bonus will lapse no later than the sixth anniversary of the date that any notional shares were allocated. However, the participant can elect, subject to approval by Remco, to surrender his/her notional shares and receive the bonus at a date prior to the sixth anniversary date. The bonus will be regarded as remuneration for income tax purposes and will be subject to the deduction of PAYE and all other taxes and contributions. Salary multiples and total The total bonus scheme exposure and ceiling levels of eligible employees’ participation in the Bonus Plan is proposed by Remco and approved by the board. The multiples agreed to are shown below and Remco is required to monitor Pan African Resources’ exposure to the Bonus Plan in a consistent manner. Position Multiples applied in determining the number of options to be issued Executive committee Operations committee Management committee 3.5 times annual cost to company (excluding Chief Executive Ofﬁ cer and Financial Director) 3.0 times annual cost to company 2.0 times annual cost to company Pan African Resources integrated annual report 2016 103 ANNUAL FINANCIAL STATEMENTS GOLD and the concept of MONEY Gold’s beauty, scarcity, unique density (no other metal outside the platinum group is as heavy), and the ease at which it could be melted, formed, and measured made it a natural trading medium. Gold gave rise to the concept of money itself: por table, private, and permanent. Gold and silver in standardised coins came to replace bar ter arrangements and made trade much easier. Gold increased trade between South Africa and the rest of the world. For the main trading nations, namely Europe and the United States, gold was of value because their currencies were backed by gold. This was known as the gold standard. Under the gold standard, these countries had to keep gold in a bank vault to the value of the currency they issued. For example, if the government of a country wanted to print more money, it had to buy gold to back that money. If that country did not produce gold itself, it had to impor t gold from another country. http://www.randrefi nery.com/brochures/Rand%20Refi nery%20-%20 The%20Story%20of%20Gold.pdf +1 +3 79 Au Gold 196.97 2-8-18-32-18-1 Physical attributes of GOLD Gold is a chemical element in the periodic table that has the symbol Au and atomic number 79. Gold is a soft, shiny, yellow, dense, malleable, ductile (trivalent and univalent) transition metal. Gold does not react with most chemicals but is attacked by chlorine, fl uorine and aqua regia1. The metal occurs as nuggets of gold, or grains of gold in rocks and in alluvial deposits and is one of the coinage metals. Gold is the most malleable (able to be hammered into very thin sheets) and ductile (able to be drawn into a fi ne wire) of all metals. It is so malleable that a goldsmith can hammer one ounce of gold into a thin translucent wafer covering more than 100 square feet only fi ve millionths of an inch thick. It would be so thin that 1,000 sheets would be needed to make up the thickness of one newspaper page. Its ductility is equally amazing. One ounce of gold can be drawn into a wire 80,5 kilometres long. Furthermore, only one ounce of this metal is required to plate a thread of copper 1,000 miles long. Gold is also one of the heaviest metals known. It has a specifi c gravity of 19.3, which means it weighs 19.3 times as much as an equal volume of water. Gold is a good conductor of heat and electricity, and is not affected by air and most reagents. Heat, moisture, oxygen, and most corrosive agents have very little chemical effect on gold, making it well suited for use in coins and jewellery; conversely, halogens will chemically alter gold, and aqua regia dissolves gold. 1 Aqua regia (royal water in Latin) is a very strong acid. It is made by mixing one part nitric acid and three parts hydrochloric acid. The acid was named by alchemists because it can dissolve the noble metals gold and platinum. http://www.randrefi nery.com/brochures/Rand%20Refi nery%20-%20 The%20Story%20of%20Gold.pdf Gold pouring at Barber ton Mines +1 +3 79 Au Gold 196.97 2-8-18-32-18-1 ANNUAL FINANCIAL STATEMENTS Audit committee report Introduction The committee was appointed at the AGM held on 27 November 2015. All the directors are considered by the board to have an independent and objective mindset. In terms of the King Code there are three independent directors. The audit committee comprises two independent directors and an independent chairman of the board is the third member. In terms of the JSE guidelines the chairman is entitled to be a member of the committee as long as the committee is chaired by an independent board director. This situation has arisen as the company has a small number of directors. In terms of the UK Code the audit committee requires a majority of independent members for AIM listed companies. The committee has reporting responsibilities to the shareholders and the board of directors of Pan African Resources and is accountable to them. It operates in line with a documented charter and complies with all relevant legislation, regulation and governance codes and executes its duties in terms of the requirements of the governance codes in the UK and South Africa. These codes include the UK Code and the King III Code. The performance of the audit committee is evaluated against the charter annually and a self-evaluation of the committee’s effectiveness is performed by the members and reviewed by the board. The independent non-executive directors of the audit committee are: • HH Hickey (Chairperson) • T Mosololi • KC Spencer (Board Chairman) Audit committee responsibilities and duties The audit and risk committee fulﬁ ls its responsibilities and duties as set out in its charter. The functions of the audit and risk committee include: • Review of the interim and year-end ﬁ nancial statements and integrated report culminating with a recommendation to the board • Review of the external audit reports, after audit of the interim and year-end ﬁ nancial statements • Assess the external auditors’ independence and performance • Authorise the audit fees in respect of the interim and year-end audits • Specify guidelines and authorise the award of non-audit services to the external auditors • Review of the internal audit and risk management reports with, when relevant, recommendations being made to the board • Ensure that a co-ordinated approach to all assurance activities is in place • Evaluate the appropriateness and effectiveness of risk management, internal controls and the governance processes • Deal with concerns relating to accounting practices, internal audit, the audit or content of annual ﬁ nancial statements and internal ﬁ nancial controls. Financial statements The committee has evaluated the consolidated and separate ﬁ nancial statements for the year ended 30 June 2016 and, based on the information provided to the committee, considers that the consolidated and separate ﬁ nancial statements comply, in all material respects, with the requirements of the UK Companies Act and IFRS. The requirements from King III are being continuously assessed and improved with signiﬁ cant issues resolved. Risk management The committee is responsible for ensuring that a risk management process is in place. The board focuses on risk management during the strategy and business planning phase. The audit committee considers the risks when the interim results and ﬁ nal results are produced. The business units produce and evaluate their risks quarterly. Continued efforts to improve the risk management process are ongoing. The key risks (amongst others) reviewed by the audit committee during this audit were: • Revenue recognition and management override risks that are considered to be generic risks that need continuous focus • Going concern is another key focus area and is extremely important when the economic climate is difﬁ cult and impairment of assets needs due consideration. In addition, the operating environment is one of the increasing costs that puts a strain on our businesses and there is a great deal of uncertainty in relation to the current labour environment. The audit committee reviewed management’s assumptions and considered the group’s disclosure on a going concern basis. The auditors’ report on the matter was carefully considered and the committee concluded that the company is a going concern and made this recommendation to the board • The committee reviewed the annual ﬁ nancial statements and the non-ﬁ nancial information in the integrated report and web-based information and concluded the key risks have been appropriately reported on. Subsidiary companies The functions of the audit committee are also performed for each subsidiary company of the group that has not appointed an audit committee. External auditor The committee nominated Deloitte LLP as the statutory auditor and Deloitte & Touche SA for JSE reporting requirement purposes, for reappointment as external auditors of Pan African Resources. The committee satisﬁ ed itself through enquiry that the external auditors are independent as deﬁ ned by the UK Companies Act and the standards stipulated by the auditing profession. The audit committee, in consultation with executive management, agreed to the terms of engagement. The audit fee for the external audit has been considered and approved for the 2016 ﬁ nancial year-end, taking into consideration such factors as the timing of the audit, the extent of the work required and the scope. The committee approved a non-audit services policy which determines the nature and extent of any non-audit services which Deloitte & Touche may provide to the company. The policy allows for limited tax and corporate governance advice as well as the provision of reporting accountant services in relation to capital market transactions. Pan African Resources integrated annual report 2016 107 Audit committee report continued Accounting practices and internal control Based on the available and communicated information, together with discussions with the independent external auditor, the committee is satisﬁ ed that there was no material breakdown in the internal accounting controls during the ﬁ nancial year under review. The committee reviewed the auditor’s report to those charged with governance and can report that there were no material issues requiring immediate additional attention. The value added issues raised are receiving the appropriate attention to ensure increased effectiveness in all areas of ﬁ nancial and business systems and controls. On behalf of the audit committee HH Hickey Audit committee Chairperson 20 September 2016 Financial Director The directors have considered the functioning of Pan African Resources’ ﬁ nancial department and believe that it functions effectively, with the required controls and systems in place. The committee has assessed and is satisﬁ ed that Deon Louw has the appropriate skill, expertise and experience as required by paragraph 3.84(h) of the JSE Listings Requirement. Internal auditor The committee plays an oversight role of internal audit by approval of the internal audit plan and review of the reporting of any ﬁ ndings. The committee satisﬁ ed itself that the internal audit function is independent and has the necessary resources, standing and authority to discharge its duties. The Head of internal audit has direct access to the chairman of the audit committee and internal auditors are invited to attend each audit committee meeting. The focus for the year under review has been on obtaining assurance on the following: • Alignment of the group’s internal control and information technology policies and procedures • Review of key risk areas within the control environment and investigations where this was necessary at the speciﬁ c operations • Follow-up reviews on previously identiﬁ ed control weaknesses and areas of concern. 108 Pan African Resources integrated annual report 2016 ANNUAL FINANCIAL STATEMENTS Directors’ statement of responsibility The directors are responsible for preparing the integrated annual report and the ﬁ nancial statements in accordance with applicable law and regulations. Company law requires the directors to prepare such ﬁ nancial statements for each ﬁ nancial year. Under that law the directors are required to prepare the group ﬁ nancial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union (and Article 4 of the IAS Regulation) and have also chosen to prepare the parent company ﬁ nancial statements under IFRS as adopted by the EU. Under company law, the directors must not approve the accounts unless they are satisﬁ ed that they give a true and fair view of the state of affairs and of the proﬁ t or loss of the group for that period. In preparing these ﬁ nancial statements, the IAS requires that directors: • Properly select and apply accounting policies • Present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information • Provide additional disclosures when compliance with the speciﬁ c requirements in IFRS are insufﬁ cient to enable users to understand the impact of particular transactions, other events or conditions on the entity’s ﬁ nancial position and ﬁ nancial performance • Make an assessment of the group’s ability to continue as a going concern. The directors are responsible for keeping adequate accounting records that are sufﬁ cient to show and explain the group’s transactions, disclose with reasonable accuracy at any time the ﬁ nancial position of the group, and ensure that the ﬁ nancial statements comply with the UK Companies Act. They are also responsible for safeguarding the assets of the company and therefore responsible for taking reasonable steps for the prevention and detection of fraud and other irregularities. The directors are responsible for the maintenance and integrity of the corporate and ﬁ nancial information included on the company’s website. Legislation in the United Kingdom governing the preparation and dissemination of ﬁ nancial statements may differ from legislation in other jurisdictions. Certiﬁ cate of the Company Secretary I hereby certify that Pan African Resources has lodged with the Registrar of Companies all such returns as are required of a public company in terms of the UK Companies Act. All such returns are true, correct and up to date. St James’s Corporate Services Limited Company Secretary 20 September 2016 Pan African Resources integrated annual report 2016 109 Directors’ report The directors present their integrated annual report and the audited ﬁ nancial statements for the year ended 30 June 2016. The company’s South African income tax reference number is 9154588173 and it has 1,943,206,554 shares currently in issue. 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 target credit days are 30 days from statement date. Residual risks include the current South African labour market and associated union rivalry, USD gold price, USD/ZAR exchange rate, government and environmental regulatory frameworks, as well as unforeseen natural disasters. The board believes that the current processes of identifying and dealing with risks are effective. Employment policy Details of the group’s employment policies are provided on pages 70 to 72. Further details of the group’s approach to risk management are disclosed on page 30 of the integrated report and in note 30 to the ﬁ nancial statements. Capital structure The company’s issued share capital as at 30 June 2016, together with details of share allotments and issue of treasury shares during the year, is set out in note 24 on page 148. Purchase of own shares During the year, the company acquired a controlling interest of 49.9% in Shanduka Gold Proprietary Limited. As Shanduka Gold held 23.83% of Pan African Resources at the acquisition date, the effect of the transaction was therefore a share buyback. Further details are provided in note 41 to the ﬁ nancial statements. Risk management The key business risks for the group have been considered on pages 30 to 33. A separate risk committee is not considered necessary, as this role is fulﬁ lled by the board, its sub-committees and executive management. The identiﬁ cation and management of critical risks is a strategic focus area for executive management, reviewed on a monthly basis and, together with action plans, reported regularly to the board. Executive management and other board members have the ability to call emergency board meetings, should the need arise. Risk registers for each business segment are in place. The board has reviewed the current risks to the business and, at the time of reporting, believes that the current business risks do not exceed the risk appetite of the group. Internal control The board is responsible for maintaining a sound system of internal controls to safeguard shareholders’ investment and group’s 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 • Review and debate of treasury and other policies. The board has reviewed the operation and effectiveness of the group’s system of internal control for the ﬁ nancial year and the period up to the date of approval of the ﬁ nancial statements. Principal activities The group’s principal activity during the year was mining. A full review of the activities of the business and of future prospects is contained in the Chief Executive Ofﬁ cer’s report that accompanies these ﬁ nancial statements, with ﬁ nancial and non-ﬁ nancial key performance indicators shown on page 100. Results and dividends The results for the year are disclosed in the consolidated statement of comprehensive income on features of these results can be found on page 115. The salient page 1. The group paid a ﬁ nal dividend of ZAR210 million or GBP9.7 million (2014: ZAR258 million or GBP14.9 million) on 24 December 2015 relating to the 2015 ﬁ nancial year, equating to ZAR0.11466 or 0.53 pence (2014: ZAR0.14100 or 0.82 pence). Proposed ﬁ nal dividend for approval at the AGM The board has proposed an increased ﬁ nal dividend of ZAR300 million or approximately GBP16 million, equating to ZAR0.15438 per share or approximately 0.82338 pence per share. This dividend is subject to approval at the AGM, which will take place on 25 November 2016. The GBP proposed ﬁ nal dividend was calculated based on 1,943,206,554 total shares in issue and an illustrative exchange rate of ZAR18.75:1. Shareholders on the London register should note that a revised exchange rate will be communicated prior to approval at the AGM. The local dividend tax rate is ﬁ fteen percent per ordinary share for shareholders who are liable to pay the dividend tax, resulting in a net dividend of ZAR0.13123 per share, and foreign investors who qualify for a lower dividend tax rate, subject to completing a dividend tax declaration and submitting it to Computershare Limited and Capita Asset Services, who managed the SA and UK registers respectively. 110 Pan African Resources integrated annual report 2016 ANNUAL FINANCIAL STATEMENTS Going concern The board conﬁ rms that the business is a going concern and that it has reviewed the working capital requirements of the business in conjunction with its future funding capabilities for at least the next 12 months, from the date of approval of the annual ﬁ nancial statements, and has found them to be adequate. The group has a ZAR800 million revolving credit facility from a consortium of South African banks (and a two-year accordion option, subject to the bank’s credit committee approval, for an additional ZAR300 million facility) and access to general banking facilities of ZAR100 million. At 30 June 2016 the group had borrowing capacity on the revolving credit facility and general banking facilities of ZAR490 million (GBP24.8 million) and ZAR50 million (GBP2.5 million), respectively, to assist in funding working capital requirements. On 1 July 2016 the group secured an additional general banking facility of ZAR85 million (GBP4.3 million) for the Uitkomst Colliery. 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. Should the need arise the group can cease discretionary exploration and certain capital expenditure activities to conserve cash in the short to medium term. Indemnities To the extent permitted by law and the Articles, the company has made qualifying third-party indemnity provisions for the beneﬁ t of its directors during the year, which remain in force at the date of this report. Copies of these indemnities are open for inspection at the company’s registered ofﬁ ce. Auditors Deloitte LLP has been appointed as the statutory auditor and Deloitte & Touche SA has been appointed as auditor for JSE reporting requirements until the conclusion of the next AGM. Each of the persons who are directors at the date of approval of this integrated annual report conﬁ rms that: • As far as the directors are aware, all relevant information has been provided to the group’s auditors • The directors have taken all the steps that they ought to have taken as directors in order to make themselves aware of any relevant audit information and to establish that the group’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. Events after the reporting period No material events occurred after the reporting period review and up to the date of approval of this integrated annual report. Deloitte LLP and Deloitte & Touche have expressed their willingness to continue in ofﬁ ce as auditors, and a resolution to reappoint them will be proposed at the forthcoming AGM. Directors The following were directors during the year under review: KC Spencer (Independent non-executive Chairman)1 Approval of ﬁ nancial statements The board of directors therefore approves the integrated annual report and associated ﬁ nancial statements. JAJ Loots (Chief Executive Ofﬁ cer) By order of the board GP Louw (Financial Director) HH Hickey1 T Mosololi1 R Smith1 1 Independent non-executive director. Cobus Loots Chief Executive Ofﬁ cer 20 September 2016 Pan African Resources integrated annual report 2016 111 Independent auditor’s report United Kingdom We have audited the ﬁ nancial statements of Pan African Resources for the year ended 30 June 2016 which comprise the consolidated and separate statement of proﬁ t or loss and comprehensive income, the consolidated and separate statement of ﬁ nancial position, the consolidated and separate statement of cash ﬂ ows, the consolidated and separate statement of changes in equity and the related notes 1 to 41. The ﬁ nancial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRS) as adopted by the European Union. This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the 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 auditor’s 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 auditor As explained more fully in the directors’ responsibilities statement, 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 and express an opinion on 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 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. In addition, we read all the ﬁ nancial and non-ﬁ nancial information in the integrated annual report to identify material inconsistencies with the audited ﬁ nancial statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report. 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 2016 and of the group’s and the parent company’s proﬁ t for the year then ended • Have been properly prepared in accordance with IFRS as adopted by the European Union • Have been prepared in accordance with the requirements of the Companies Act 2006. Opinion on other matters prescribed by the Companies Act 2006 In our opinion the information given in the strategic report and the directors’ report for the ﬁ nancial year for which the ﬁ nancial statements are prepared is consistent with the ﬁ nancial statements. Matters on which we are required to report by exception We have nothing to report in respect of the following matters where the Companies Act 2006 requires us 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 • The parent company ﬁ nancial statements are not in agreement with the accounting records and returns • Certain disclosures of directors’ remuneration speciﬁ ed by law are not made • We have not received all the information and explanations we require for our audit. Timothy Biggs FCA Senior statutory auditor for and on behalf of Deloitte LLP Chartered Accountants and Statutory Auditor London, United Kingdom 20 September 2016 112 Pan African Resources integrated annual report 2016 ANNUAL FINANCIAL STATEMENTS Opinion In our opinion, the consolidated and separate ﬁ nancial statements present fairly, in all material respects, the consolidated and separate ﬁ nancial position of Pan African Resources as at 30 June 2016, and its consolidated and separate ﬁ nancial performance and consolidated and separate cash ﬂ ows for the year then ended in accordance with International Financial Reporting Standards. Deloitte & Touche Registered Auditor Per: MLE Tshabalala Partner 20 September 2016 Independent auditor’s report South Africa To the shareholders of Pan African Resources We have audited the consolidated and separate ﬁ nancial statements of Pan African Resources set out on pages 114 to 181, which comprise the statements of ﬁ nancial position as at 30 June 2016, and the statements of comprehensive income, statements of changes in equity and statements of cash ﬂ ows for the year then ended, and the notes, comprising a summary of signiﬁ cant accounting policies and other explanatory information. Directors’ responsibility for the consolidated ﬁ nancial statements The company’s directors are responsible for the preparation and fair presentation of these consolidated and separate ﬁ nancial statements in accordance with International Financial Reporting Standards, and for such internal control as the directors determine is necessary to enable the preparation of consolidated and separate ﬁ nancial statements that are free from material misstatement, whether due to fraud or error. Auditor’s responsibility Our responsibility is to express an opinion on these consolidated and separate 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 about whether the consolidated and separate 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 policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the ﬁ nancial statements. We believe that the audit evidence we have obtained is sufﬁ cient and appropriate to provide a basis for our audit opinion. Pan African Resources integrated annual report 2016 113 Consolidated and separate Statement of ﬁ nancial position as at 30 June 2016 Assets Non-current assets Property, plant and equipment and mineral rights Other intangible assets Deferred taxation Long-term inventory Goodwill Investments Rehabilitation trust fund Current assets Inventories Receivables from other group companies Current tax asset Trade and other receivables Cash and cash equivalents Non-current assets held for sale Total assets Equity and liabilities Capital and reserves Share capital Share premium Translation reserve Share option reserve Retained earnings Realisation of equity reserve Treasury capital reserve Merger reserve Other reserves Equity attributable to owners of the parent Total equity Non-current liabilities Long-term provisions Long-term liabilities Deferred taxation Current liabilities Trade and other payables Current portion of long-term liabilities Financial instrument liabilities Payable to other group companies Current tax liability Total equity and liabilities Consolidated Separate Audited 30 June 2016 GBP Audited 30 June 2015 GBP Audited 30 June 2016 GBP Audited 30 June 2015 GBP Notes 16 17 29 21 18 19 20 21 35 26 22 23 36 24 27 28 29 25 28 30 35 26 190,725,199 123,235 1,117,092 186,861 21,000,714 1,269,228 16,253,708 230,676,037 4,398,813 – 848,946 14,042,357 2,658,947 21,949,063 66,873 252,691,973 19,432,065 108,936,082 (58,583,848) 1,035,888 126,620,650 (10,701,093) (25,376,743) (10,705,308) 317,509 150,975,202 150,975,202 10,432,986 18,456,309 40,616,337 69,505,632 18,743,235 6,980,711 5,945,399 – 541,794 32,211,139 252,691,973 181,532,780 202,488 327,748 – 21,000,714 904,818 16,181,925 220,150,473 3,502,569 – 827,298 9,559,010 3,328,850 17,217,727 – 237,368,200 18,314,947 94,846,046 (56,402,515) 1,035,888 110,850,201 (10,701,093) – (10,705,308) (70,679) 147,167,487 147,167,487 12,249,367 16,312,982 39,288,059 67,850,408 16,799,043 5,047,478 – – 503,784 22,350,305 237,368,200 – – – – – 124,200,675 – 124,200,675 – 51,716,563 8,469 57,939 77,660 51,860,631 – 176,061,306 19,432,065 108,936,082 (5,875,138) 897,658 43,496,979 – – 1,560,000 317,509 168,765,155 168,765,155 – – – – – – – – – 122,911,964 – 122,911,964 – 31,369,774 141,574 41,531 888,498 32,441,377 – 155,353,341 18,314,947 94,846,046 (7,382,888) 897,658 39,760,855 – – 1,560,000 (70,679) 147,925,939 147,925,939 – – – – 257,837 – 213,861 – 7,038,314 – 7,296,151 176,061,306 7,213,541 – 7,427,402 155,353,341 The ﬁ nancial statements of Pan African Resources, registered number 3937466, were approved by the board of directors on 20 September 2016 and signed on its behalf by: Cobus Loots Chief Executive Ofﬁ cer 114 Pan African Resources integrated annual report 2016 Deon Louw Financial Director ANNUAL FINANCIAL STATEMENTS Consolidated and separate Statement of proﬁ t or loss and other comprehensive income for the year ended 30 June 2016 Revenue Gold sales Platinum sales Coal sales Realisation costs On-mine revenue Gold cost of production Platinum cost of production Coal cost of production Mining depreciation and amortisation Mining proﬁ t Other (expenses)/income Loss in associate Loss on disposal of associate Impairments 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 (net of taxes): Items that may be reclassiﬁ ed subsequently to proﬁ t and loss Fair value movement on available for sale investment Other movements Foreign currency translation differences Total comprehensive income for the year Proﬁ t attributable to: Owners of the parent Total comprehensive income attributable to: Owners of the parent Notes 4 4 4 4 5 5 5 16,17 8 19 19 19 9 9 10 13 19 Consolidated Separate Audited 30 June 2016 GBP Audited 30 June 2015 GBP Audited 30 June 2016 GBP Audited 30 June 2015 GBP 169,360,532 161,312,220 3,480,338 4,567,974 (956,709) 168,403,823 (100,487,340) (3,456,007) (4,279,735) (10,456,129) 49,724,612 (12,182,895) – – – (2,799,947) 34,741,770 442,616 (1,448,738) 33,735,648 (8,233,831) 25,501,817 141,076,883 135,611,436 5,465,447 – (690,538) 140,386,345 (106,644,655) (3,768,530) – (10,337,211) 19,635,949 249,776 (127,950) (139,970) (58,424) (1,647,297) 17,912,084 348,959 (2,458,287) 15,802,756 (4,132,789) 11,669,967 – – – – – – – – – – – 13,421,553 – – – – 13,421,553 79,755 (6) 13,501,302 (33,810) 13,467,492 – – – – – – – – – – – 53,880,947 (127,950) (139,970) (58,424) – 53,554,603 53,290 (13,165) 53,594,728 (24,306) 53,570,422 388,188 – (2,181,333) 23,708,672 (70,679) 5,529 (8,857,195) 2,747,622 388,188 – 1,507,750 15,363,430 (70,679) – (1,700,002) 51,799,741 25,501,817 25,501,817 11,669,967 11,669,967 13,467,492 13,467,492 53,570,422 53,570,422 23,708,672 23,708,672 2,747,622 2,747,622 15,363,430 15,363,430 51,799,741 51,799,741 Earnings per share Diluted earnings per share 14 14 1.41 1.41 0.64 0.64 Pan African Resources integrated annual report 2016 115 Consolidated and company Statement of changes in equity for the year ended 30 June 2016 Share capital (Note 24) GBP 18,299,947 15,000 – – – 18,314,947 1,117,118 – – – – 19,432,065 Share capital (Note 24) GBP 18,299,947 15,000 – – – 18,314,947 1,117,118 – – – 19,432,065 Share premium GBP Translation reserve GBP 94,792,516 53,530 – – – 94,846,046 15,011,206 (921,170) – – – 108,936,082 (47,545,320) – (8,857,195) – – (56,402,515) – – (2,181,333) – – (58,583,848) Share premium GBP Translation reserve GBP 94,792,516 53,530 – – – 94,846,046 15,011,206 (921,170) – – 108,936,082 (5,682,886) – (1,700,002) – – (7,382,888) – – 1,507,750 – (5,875,138) Share option reserve GBP 1,154,891 – – – (119,003) 1,035,888 – – – – – 1,035,888 Share option reserve GBP 1,016,661 – – – (119,003) 897,658 – – – – 897,658 Group Balance at 30 June 2014 Issue of shares Total comprehensive income Dividends paid Share based payment – charge for the year Balance at 30 June 2015 Issue of shares Share issue costs Total comprehensive income Dividends paid Share buyback Balance at 30 June 2016 Company Balance at 30 June 2014 Issue of shares Total comprehensive income Dividends paid Share-based payment – charge for the year Balance at 30 June 2015 Issue of shares Share issue costs Total comprehensive income Dividends paid Balance at 30 June 2016 116 Pan African Resources integrated annual report 2016 ANNUAL FINANCIAL STATEMENTS Retained earnings GBP Realisation of equity reserve GBP Treasury capital reserve (Note 41) GBP 114,106,005 – 11,669,967 (14,925,771) – 110,850,201 – – 25,501,817 (9,731,368) – 126,620,650 (10,701,093) – – – – (10,701,093) – – – – – (10,701,093) – – – – – – – – – – (25,376,743) (25,376,743) Retained earnings GBP Realisation of equity reserve GBP Treasury capital reserve GBP 1,116,204 – 53,570,422 (14,925,771) – 39,760,855 – – 13,467,492 (9,731,368) 43,496,979 – – – – – – – – – – – – – – – – – – – – – – Merger reserve GBP (10,705,308) – – – – (10,705,308) – – – – – (10,705,308) Merger reserve GBP 1,560,000 – – – – 1,560,000 – – – – 1,560,000 Other reserves GBP (5,529) – (65,150) – (70,679) – – 388,188 – – 317,509 Other reserves GBP – – (70,679) – – (70,679) – – 388,188 – 317,509 Total GBP 159,396,109 68,530 2,747,622 (14,925,771) (119,003) 147,167,487 16,128,324 (921,170) 23,708,672 (9,731,368) (25,376,743) 150,975,202 Total GBP 111,102,442 68,530 51,799,741 (14,925,771) (119,003) 147,925,939 16,128,324 (921,170) 15,363,430 (9,731,368) 168,765,155 Pan African Resources integrated annual report 2016 117 Consolidated and separate Statements of cash ﬂ ows for the year ended 30 June 2016 Consolidated Separate Audited 30 June 2016 GBP Audited 30 June 2015 GBP Audited 30 June 2016 GBP Audited 30 June 2015 GBP Notes Net cash generated from operating activities 38 28,464,205 5,364,480 4,600,543 39,723,238 Investing activities Additions to property, plant and equipment and mineral rights Sale of assets and liabilities to PAR Management Services Additions to other intangible assets Investments acquired Loans to subsidiaries Proceeds on disposals of associate Proceeds on disposals of property, plant and equipment and mineral rights Acquisition of Uitkomst Colliery Treasury share buyback Net cash used in investing activities Financing activities Proceeds from borrowings Borrowings repaid Settlement of equity share option costs Loans from subsidiaries Shares issued Share issue costs Net cash from/(used in) ﬁ nancing activities Net (decrease)/increase 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 16 17 19 28 28 34 24 23 (14,079,918) – (17,248) – – – 14,620 (5,700,402) (25,299,095) (45,082,043) 38,061,147 (38,131,957) – – 16,128,324 (921,170) 15,136,344 (1,481,494) 3,328,850 811,591 2,658,947 (19,528,616) – (25,740) (1,037,677) – 277,732 – – – – (20,346,789) – – (951,449) – (1,037,677) (8,914,156) 277,732 (20,314,301) (20,346,789) (10,625,550) 27,898,927 (14,728,154) (303,067) – 68,530 – 12,936,236 (2,013,585) 5,618,323 (275,888) 3,328,850 – – – (175,227) 16,128,324 (921,170) 15,031,927 (714,319) 888,498 (96,519) 77,660 – (112,476) – (28,110,615) 68,530 – (28,154,561) 943,127 1,803,545 (1,858,174) 888,498 118 Pan African Resources integrated annual report 2016 ANNUAL FINANCIAL STATEMENTS Notes to the consolidated and separate Annual ﬁ nancial statements for the year ended 30 June 2016 1. General information Pan African Resources is a company incorporated in England and Wales under the UK Companies Act. The company has a dual primary listing on the AIM of the LSE and JSE. The nature of the group’s operations and its principal activities relate to gold, PGE and coal 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 results of each group company are maintained in their functional currencies, which are 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 are 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 IFRS adopted by the EU and South Africa. The accounting policies listed below apply to both consolidated and separate annual ﬁ nancial statements. Accounting policies 2. 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 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 these ﬁ nancial statements. In addition, note 30 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, foreign currency, commodity price, interest rate and liquidity risk. 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 ﬁ nancial 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. Further details are provided in the going concern section of the directors’ report. New and revised IFRS not yet adopted The group applies all applicable IFRS in preparation of the ﬁ nancial statements. Consequently, all IFRS statements adopted by the EU that were effective at 30 June 2016 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 been applied in these ﬁ nancial statements, for the ﬁ rst time, were in issue and effective as at 30 June 2016. Standard Amendment IFRS 7: Financial Instruments: Disclosures IAS 39: Financial Instruments: Recognition and Measurement Deferral of mandatory effective date of IFRS 9 and amendments to transition disclosures Amendments for novations of derivatives Effective date Annual periods beginning on or after 1 January 2015 Annual periods beginning on or after 1 January 2014 Pan African Resources integrated annual report 2016 119 Notes to the consolidated and separate Annual ﬁ nancial statements continued for the year ended 30 June 2016 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 and not yet effective as at 30 June 2016. Standard Amendment IFRS 5: Non-current Assets Held for Sale and Discontinued Operations IFRS 7: Financial Instruments: Disclosures IFRS 9: Financial Instruments IFRS 10: Consolidated Financial Statements IFRS 10: Consolidated Financial Statements IFRS 12: Disclosure of Interests in Other Entities IFRS 15: Revenue from Contracts with Customers IFRS 15: Revenue from Contracts with Customers IFRS 15: Revenue from Contracts with Customers IFRS 16: Leases IAS 1: Presentation of Financial Statements IAS 7: Cash Flow Statement Amendments resulting from 2012 – 2014 Annual Improvements Cycle Amendments resulting from September 2014 Annual Improvements to IFRSs Reissue of a complete standard with all the chapters incorporated Amendments on sale or contribution of assets between an investor and its associate or joint venture Amendments related to the application of the investment entities exceptions Amendments related to the application of the investment entities exceptions Original issue Amendment to defer the effective date to 1 January 2018 Clariﬁ cations to IFRS 15 Original issue Amendments arising under the Disclosure Initiative Amendments as result of the Disclosure Initiative IAS 12: Income Taxes IAS 16: Property, Plant and Equipment IAS 16: Property, Plant and Equipment IAS 19: Employee Beneﬁ ts Amendments regarding the recognition of deferred tax assets for unrealised losses Amendments resulting from clariﬁ cation of acceptable methods of depreciation and amortisation (Amendments to IAS 16 and IAS 38) Amendments to include 'bearer plants' within the scope of IAS 16 rather than IAS 41 Amendments resulting from 2012 – 2014 Annual Improvements Cycle IAS 27: Separate Financial Statements IAS 28: Investments in Associates and Joint Ventures IAS 28: Investments in Associates and Joint Ventures IAS 34: Interim Financial Reporting IAS 38: Intangible Assets Amendments relating to equity method in separate ﬁ nancial statements Amendments on sale or contribution of assets between an investor and its associate or joint venture Amendments related to the application of the investment entities exceptions Amendments resulting from 2012 – 2014 Annual Improvements Cycle Amendments resulting from clariﬁ cation of acceptable methods of depreciation and amortisation (Amendments to IAS 16 and IAS 38) Effective date Annual periods beginning on or after 1 January 2016 Annual periods beginning on or after 1 January 2016 Annual periods beginning on or after 1 January 2018 Deferred indeﬁ nitely Annual periods beginning on or after 1 January 2016 Annual periods beginning on or after 1 January 2016 Annual periods beginning on or after 1 January 2017 Annual periods beginning on or after 1 January 2018 Annual periods beginning on or after 1 January 2018 Annual periods beginning on or after 1 January 2019 Annual periods beginning on or after 1 January 2016 Annual periods beginning on or after 1 January 2017 Annual periods beginning on or after 1 January 2017 Annual periods beginning on or after 1 January 2016 Annual periods beginning on or after 1 January 2016 Annual periods beginning on or after 1 January 2016 Annual periods beginning on or after 1 January 2016 Deferred indeﬁ nitely Annual periods beginning on or after 1 January 2016 Annual periods beginning on or after 1 January 2016 Annual periods beginning on or after 1 January 2016 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. 120 Pan African Resources integrated annual report 2016 ANNUAL FINANCIAL STATEMENTS 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. 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 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: Separate Financial Statements, 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. Investment in associate An associate is an entity over which the group and the company have signiﬁ cant inﬂ uence and that is neither a subsidiary nor an interest in a joint venture. In the company’s separate ﬁ nancial statements, an investment in associate is stated at fair value less impairment losses, if any. An investment in associate is accounted for in the consolidated ﬁ nancial statements using the equity method of accounting. The investment in associate in the consolidated balance sheet is initially recognised at fair value and adjusted thereafter for the post- acquisition change in the group’s share of net assets of the investment. Property, 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 after feasibility stage to develop new orebodies, to deﬁ ne mineralisation in existing orebodies, to establish or expand productive capacity and expenditure designed to maintain productive capacities, is capitalised within capital under construction until commercial levels of production are achieved. Capital under construction is not depreciated. All revenue generated during the commissioning phase is capitalised back to the property, plant and equipment as per IAS 16: Property, Plant and Equipment. 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 life of mine (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 life of mine or their estimated useful lives. Depreciation of non-mining assets 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. Research, development, mineral exploration and evaluation costs Research, development, mineral exploration and evaluation costs are expensed in the year in which they are incurred until they result in projects that the group: • Evaluates as being technically or commercially feasible • Has sufﬁ cient resources to complete development • Can demonstrate will generate future economic beneﬁ ts. Once these criteria are met, all directly attributable development costs and ongoing mineral exploration and evaluation costs are capitalised within other intangible assets. Capitalisation of pre-production expenditure ceases when the mining property is capable of commercial production. Capitalised pre-production expenditure is assessed for impairment in accordance with the group accounting policy stated below. Impairment (except for goodwill) At each statement of ﬁ nancial 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. Pan African Resources integrated annual report 2016 121 Notes to the consolidated and separate Annual ﬁ nancial statements continued for the year ended 30 June 2016 If any such indication exists, the recoverable amount of the asset, being the higher of fair value less costs to sell or value in use, 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 (CGU) to which the asset belongs. Impairment losses are immediately recognised as an expense. A reversal of an impairment loss is recognised 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 CGUs expected to beneﬁ t from the synergies of the combination. CGUs 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 CGU 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 ﬁ nancial 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 ﬁ nancial position date. The measurement of deferred tax liabilities and assets 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 is reviewed at each statement of ﬁ nancial 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 part of the assets to be recovered. Revenues, expenses and assets are recognised net of the amount of associated VAT, unless VAT incurred is not recoverable from the taxation authority. In this case it is recognised as part of the cost of acquisition of the asset or as part of the expense. Receivables and payables are stated inclusive of the amount of VAT receivable or payable. The net amount of VAT recoverable from, or payable to, the taxation authority is included with other receivables or payables in the consolidated statement of ﬁ nancial position. 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 ﬁ nancial 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 assets 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 is recognised as an operating lease liability. Foreign currencies The group’s subsidiaries are incorporated in South Africa and their functional currency is ZAR. The group’s business is conducted in ZAR and the accounting records are maintained in this same currency, with the 122 Pan African Resources integrated annual report 2016 ANNUAL FINANCIAL STATEMENTS exception of precious metal product sales, which are conducted in USD, prior to conversion into ZAR. The ongoing review of the results of operations conducted by executive management and the board is also performed in ZAR. 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. On consolidation, the group’s results are translated into GBP, the presentational currency of the group, at exchange rates prevailing on the reporting date. Monetary assets and liabilities denominated in such other currencies are translated at the rates ruling at the statement of ﬁ nancial position date. Proﬁ ts and losses arising on exchange are recorded 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 ﬁ nancial 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. Inventories Inventories include the gold bullion on hand, PGE concentrate, coal mined prior to washing and post washing, gold, PGE or coal in process and consumable stores. Bullion, PGE concentrate and coal on hand 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. Gold, PGE and coal in process inventories represent materials that are currently in the process of being converted to saleable gold, PGE or coal products. The gold, PGE and coal in process inventories are valued only if they are reliably measurable and are valued at the lower of the average cost of the material fed to process plus the in-process conversion costs and net realisable value. 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. 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 and are charged as an expense as they fall due. Post-retirement beneﬁ ts other than pension Historically Barberton Mines and Evander 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 ﬁ nancial position. The provision is reviewed annually with movements in the provision recorded in the statement of comprehensive income. Equity participation plan Equity-settled share-based payments to employees are measured at the fair value of the equity instruments at the grant date. 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 ﬁ nancial 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. Cash participation plan Cash-settled share-based payments to employees are measured at the fair value of the cash instruments at the grant date. The fair value determined at the grant date of the cash-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the company’s estimate of cash instruments that will eventually vest. At each statement of ﬁ nancial position date, the company revises its estimate of the number of cash 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 cash-settled employee beneﬁ ts liability. Provision for environmental rehabilitation costs Long-term environmental obligations are based on Barberton Mines, Evander Mines, Phoenix Platinum and the Uitkomst Colliery environmental plans, in compliance with current environmental and regulatory requirements. The provision is based on the net present value of the estimated cost of restoring the environmental disturbance that has occurred up to the statement of ﬁ nancial 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. Contributions to rehabilitation trust Contributions are made to a dedicated environmental rehabilitation trust to fund the estimated cost of rehabilitation during and at the end of the life of the group’s mines. The trust’s assets are recognised separately on the statement of ﬁ nancial position as non-current assets at fair value. Interest earned on funds invested in the environmental rehabilitation trust is accrued on a time proportion basis and credited to the provision for environmental rehabilitation costs. Pan African Resources integrated annual report 2016 123 Notes to the consolidated and separate Annual ﬁ nancial statements continued for the year ended 30 June 2016 Provision for decommissioning costs The group provides for decommissioning 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 gold, PGE and coal 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: • It is probable that delivery will be made • The item is on hand, identiﬁ ed and ready for delivery to the buyer at the time the sale is recognised • The buyer speciﬁ cally acknowledges the deferred delivery instructions • 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 assets Financial assets, other than those at fair value through proﬁ t and loss (FVTPL), are assessed for indicators of impairment at each statement of ﬁ nancial 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. Derecognition of ﬁ nancial assets 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 at 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. • 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 • 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 • 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 • 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 initially valued at fair value and 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. 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 Derecognition of ﬁ nancial liabilities The group derecognises ﬁ nancial liabilities only when the group’s obligations are discharged, cancelled or they expire. 124 Pan African Resources integrated annual report 2016 ANNUAL FINANCIAL STATEMENTS 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 ﬁ nancial position date. The resulting gain or loss is recognised in the statement of comprehensive income immediately unless the derivative is designated and effective as a hedging instrument, in which event the timing of the recognition in the statement of comprehensive income 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 is 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. Fair value measurement The assessment of fair value is principally used in accounting for business combinations, impairment testing and the valuation of certain ﬁ nancial assets and liabilities. Fair value is determined based on observable market data (in the case of listed investments, the market share price at 30 June of the respective investments is utilised) or discounted cash ﬂ ow models (and other valuation techniques) using assumptions considered to be reasonable and consistent with those that would be applied by a market participant. Where discounted cash ﬂ ows are used, the resulting fair value measurements are considered to be at level 3 in the fair value hierarchy as deﬁ ned in IFRS 13: Fair Value Measurement as they depend to a signiﬁ cant extent on unobservable valuation inputs. The determination of assumptions used in assessing the fair value of identiﬁ able assets and liabilities is subjective and the use of different valuation assumptions could have a signiﬁ cant impact on ﬁ nancial results. In particular, expected future cash ﬂ ows, which are used in discounted cash ﬂ ow models, are inherently uncertain and could materially change over time. They are signiﬁ cantly affected by a number of factors including ore reserves and resources, together with economic factors such as commodity prices, exchange rates, discount rates and estimates of production costs and future capital expenditure. 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. Non-current assets held-for-sale A non-current asset is designated as held-for-sale when its carrying amount will be recovered principally through a sale transaction rather than through continuing use and the asset is available for immediate sale in its present condition and the sale is highly probable. A sale is considered highly probable if management is committed to a plan to sell the non-current asset, an active divestiture programme has been initiated, the non-current asset is marketed at a price reasonable to its fair value and the disposal is expected to be completed within one year from classiﬁ cation. Non-current assets held- for-sale are stated at the lower of carrying value and fair value less cost to sell and are reviewed for impairment at each subsequent reporting date. At the time of classiﬁ cation as held-for-sale, these assets are reviewed for impairment. The impairment charged to the income statement is the excess of the carrying value of the non-current asset and its expected net selling price (fair value less costs to sell). Pan African Resources integrated annual report 2016 125 Notes to the consolidated and separate Annual ﬁ nancial statements continued for the year ended 30 June 2016 At each subsequent reporting date, the carrying values are reassessed for possible impairment. A reversal of impairment is recognised for any subsequent increase in net selling price but not in excess of the cumulative impairment loss already recognised. No depreciation is provided on non-current assets from the date they are classiﬁ ed as held-for-sale. Segment reporting Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision- maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identiﬁ ed as the Pan African Resources executive committee. Management has determined the operating segments of the group based on the reports reviewed by the executive committee that are used to make strategic decisions. The executive committee considers the business principally according to the nature of the products and service provided, with the segment representing a strategic business unit. The reportable operating segments derive their revenue primarily from mining, extraction, production and selling of gold, PGEs and coal. 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 (this includes the scope and timing of work required, the related costs and the discount rate used) • Estimates made in determining the recoverable amount of assets, this includes the estimation of cash ﬂ ows and the discount rates used (including future production levels, commodity price and costs) • 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 recoverability 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 • Estimates involved in feasibility studies related to exploration and growth projects and hence the recoverability of any related capital expenditure. 126 Pan African Resources integrated annual report 2016 4. Revenue Gold sales Platinum sales Coal sales Realisation costs On-mine revenue Finance income 5. Cost of production Gold cost of production Salaries and wages Processing Electricity Mining Engineering and technical services Administration and other Security Inventory valuation adjustment Platinum cost of production Reﬁ ning costs Salaries and wages Processing Electricity Other plant operation costs Coal cost of production Mining contractor Plant operations Inventory valuation adjustment Salaries and wages Transport costs Administration and other Electricity Security and safety Reﬁ ning costs ANNUAL FINANCIAL STATEMENTS Consolidated Separate Year ended 30 June 2016 GBP Year ended 30 June 2015 GBP Year ended 30 June 2016 GBP Year ended 30 June 2015 GBP 161,312,220 3,480,338 4,567,974 (956,709) 168,403,823 442,616 168,846,439 135,611,436 5,465,447 – (690,538) 140,386,345 348,959 140,735,304 – – – – – 79,755 79,755 – – – – – 53,290 53,290 Consolidated Separate Year ended 30 June 2016 GBP Year ended 30 June 2015 GBP Year ended 30 June 2016 GBP Year ended 30 June 2015 GBP (45,115,956) (16,991,750) (14,791,254) (9,289,873) (7,424,303) (4,618,025) (2,042,705) (213,474) (100,487,340) (47,785,708) (14,349,345) (15,089,408) (12,676,638) (7,595,857) (5,706,416) (2,154,974) (1,286,309) (106,644,655) (1,423,196) (940,978) (828,616) (195,922) (67,295) (3,456,007) (1,469,111) (1,166,769) (675,571) (321,342) (334,999) (204,542) (81,017) (17,847) (8,537) (4,279,735) (1,415,944) (1,089,427) (1,005,258) (208,303) (49,598) (3,768,530) – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – Pan African Resources integrated annual report 2016 127 Notes to the consolidated and separate Annual ﬁ nancial statements continued for the year ended 30 June 2016 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 or segment, which is subject to risks and rewards that are different to those of other segments. The group’s business activities were conducted through six business segments which are separable by geographical locations and operational functions: • Barberton Mines, located in Barberton South Africa, derives revenue from the sale of gold to South African ﬁ nancial institutions • Evander Gold Mining Proprietary Limited and Evander Gold Mines Limited (collectively known as Evander Mines), located in Evander South Africa, derive revenue form the sale of gold to South African ﬁ nancial institutions • Phoenix Platinum, located in the North West province in South Africa, derives revenue from the sale of PGE concentrate to Western Platinum Limited (a subsidiary of Lonmin PLC) • Uitkomst Colliery, located in Newcastle, KwaZulu-Natal, derives revenue from the sale of coal to local and export markets. Uitkomst Colliery was effectively consolidated into the group, from 1 April 2016 • Corporate ofﬁ ce and growth projects, which includes PAR Gold, derives revenue from management fees resulting from providing management and administration services to other group companies. Management fee income is disclosed in other expenses (refer to note 8) • Funding Company provides treasury function activities for the group. The executive committee reviews the operations in accordance with the disclosures presented below. Year ended 30 June 2016 Barberton Mines GBP Evander Mines GBP Phoenix Platinum GBP Uitkomst Colliery GBP 89,596,245 – – (398,937) 89,197,308 (45,461,824) (3,562,121) 40,173,363 (7,253,912) – 71,715,975 – – (557,772) 71,158,203 (55,025,516) (6,433,405) 9,699,282 873,481 – – 3,480,338 – – 3,480,338 (3,456,007) (311,870) (287,539) (249,773) – – – 4,567,974 – 4,567,974 (4,279,735) (148,733) 139,506 233,905 Corporate ofﬁ ce and growth projects GBP – – – – – – – – (5,867,371) – Funding Company GBP Consolidated GBP – 161,312,220 3,480,338 – 4,567,974 – – (956,709) – 168,403,823 – (108,223,082) – (10,456,129) 49,724,612 – (12,182,895) 80,775 – – – – (2,450,505) – – (332,918) – – – – (16,524) – – – – – – – – (2,799,947) 30,468,946 13,380 (6,048) 30,476,278 (8,492,721) 10,239,845 27,840 (7,383) 10,260,302 (757,683) (537,312) 448 (489) (537,353) 118,266 356,887 8,823 – 365,710 226,037 (5,867,371) 79,755 (7) (5,787,623) 701,414 80,775 312,370 (1,434,811) (1,041,666) (29,144) 34,741,770 442,616 (1,448,738) 33,735,648 (8,233,831) 21,983,557 9,502,619 (419,087) 591,747 (5,086,209) (1,070,810) 25,501,817 (1,439,394) (331,029) (1,137,529) (750,800) (107,226) 79,849 (65,734) 7,489 2,749,883 (135,868) – 1,130,359 – – 20,213,134 7,614,290 (446,464) 533,502 (2,472,194) 59,549 25,501,817 Revenue Gold sales1 Platinum sales Coal sales Realisation costs On-mine revenue Cost of production Depreciation Mining proﬁ t Other (expenses)/income2 Loss from associate Loss on disposal of associate/ asset held for sale Impairment costs Royalty costs Net income/(loss) before ﬁ nance income and ﬁ nance costs Finance income Finance costs Proﬁ t/(loss) before taxation Taxation Proﬁ t/(loss) after taxation before inter-company charges Inter-company transactions Management fees Inter-company interest charges Proﬁ t after taxation after inter-company charges 1 All gold sales were made in the Republic of South Africa and the majority of revenue (more than 90%) was generated from South African ﬁ nancial institutions through its Funding Company. 2 Other expenses exclude inter-company management fees and dividends. 128 Pan African Resources integrated annual report 2016 ANNUAL FINANCIAL STATEMENTS 6. Segmental analysis continued Year ended 30 June 2015 Barberton Mines GBP Evander Mines GBP Phoenix Platinum GBP Corporate ofﬁ ce and growth projects GBP Funding Company GBP Consolidated GBP Revenue Gold sales1 Platinum sales Coal sales Realisation costs On-mine revenue Cost of production Depreciation Mining proﬁ t Other (expenses)/income2 Loss from associate Loss on disposal of associate/asset held for sale Impairment costs Royalty costs Net income/(loss) before ﬁ nance income and ﬁ nance costs Finance income Finance costs Proﬁ t/(loss) before taxation Taxation Proﬁ t/(loss) after taxation before inter-company charges Inter-company transactions Management fees Inter-company interest charges Proﬁ t after taxation after inter- company charges 81,609,692 – – (534,421) 81,075,271 (50,434,360) (4,008,467) 26,632,444 (966,703) – – – (1,595,802) 24,069,939 109,514 (246,094) 23,933,359 (5,956,861) 54,001,744 – – (156,117) 53,845,627 (56,210,295) (5,963,752) (8,328,420) 5,057,581 – – – (51,495) (3,322,334) 167,047 (918,923) (4,074,210) 2,270,046 – 5,465,447 – – 5,465,447 (3,768,530) (364,992) 1,331,925 (163,390) – – – – 1,168,535 11,186 (1,136) 1,178,585 (336,438) – – – – – – – – (3,676,779) (127,950) (139,970) (58,424) – (4,003,123) 53,290 (13,164) (3,962,997) (89,033) – – – – – – – – (933) – 135,611,436 5,465,447 – (690,538) 140,386,345 (110,413,185) (10,337,211) 19,635,949 249,776 (127,950) – – – (139,970) (58,424) (1,647,297) (933) 7,922 (1,278,970) (1,271,981) (20,503) 17,912,084 348,959 (2,458,287) 15,802,756 (4,132,789) 17,976,498 (1,804,164) 842,147 (4,052,030) (1,292,484) 11,669,967 (1,666,667) (57,776) (1,248,661) (1,230,251) (152,777) (4,605) 3,068,105 (16,450) – 1,309,082 – – 16,252,055 (4,283,076) 684,765 (1,000,375) 16,598 11,669,967 1 All gold sales were made in the Republic of South Africa and the majority of revenue (more than 90%) was generated from South African ﬁ nancial institutions through its Funding Company. 2 Other expenses exclude inter-company management fees and dividends. Pan African Resources integrated annual report 2016 129 Notes to the consolidated and separate Annual ﬁ nancial statements continued for the year ended 30 June 2016 6. Segmental analysis continued Year ended 30 June 2016 Barberton Mines GBP Evander Mines GBP Phoenix Platinum GBP Uitkomst Colliery GBP Corporate ofﬁ ce and growth projects GBP Funding Company GBP Consolidated GBP Segmental assets Total assets excluding goodwill Segmental liabilities Goodwill Net assets (excluding goodwill) Capital expenditure 56,651,503 146,201,423 48,372,120 27,035,796 – 21,000,714 97,829,303 29,615,707 7,179,831 6,513,408 9,991,120 883,249 – 9,107,871 316,726 15,034,211 4,545,415 – 10,488,796 40,251 3,180,048 5,154,888 – 632,954 231,691,259 15,725,303 101,716,771 21,000,714 (1,974,840) (15,092,349) 129,974,488 14,097,166 46,950 – – Year ended 30 June 2015 Barberton Mines GBP Evander Mines GBP Phoenix Platinum GBP Corporate ofﬁ ce and growth projects GBP Funding Company GBP Consolidated GBP Segmental assets Total assets excluding goodwill Segmental liabilities Goodwill Net assets (excluding goodwill) Capital expenditure 55,423,588 21,528,152 21,000,714 33,895,436 6,258,248 146,705,365 52,987,201 – 93,718,164 13,231,962 10,850,893 933,751 – 9,917,142 31,355 2,454,933 1,973,835 – 481,098 32,791 932,707 12,777,774 – (11,845,067) – 216,367,486 90,200,713 21,000,714 126,166,773 19,554,356 130 Pan African Resources integrated annual report 2016 ANNUAL FINANCIAL STATEMENTS 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: Consolidated Separate Year ended 30 June 2016 GBP Year ended 30 June 2015 GBP Year ended 30 June 2016 GBP Year ended 30 June 2015 GBP 175,799 400,054 575,853 195,374 536,793 732,167 123,307 100,947 – – – – – – – 82,639 Not later than one year Later than one year and no later than ﬁ ve years 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. The majority of the group’s lease arrangements relate to the copier machines leased at the mining operations. The only material operating lease relates to the corporate ofﬁ ce. During the prior year the existing lease agreement for the corporate ofﬁ ce was renewed under a separate group entity and has the following terms as at 30 June 2016: Duration of lease Commencement of lease Remaining lease term Escalation rate Tenant Landlord 5 years 1 April 2015 45 months 8% Pan African Resources Management Services Company Proprietary Limited Investec Property Fund Limited Monthly lease payments GBP9,496 Pan African Resources integrated annual report 2016 131 Notes to the consolidated and separate Annual ﬁ nancial statements continued for the year ended 30 June 2016 8. Other (expenses)/income Dividends received – subsidiary Dividends received – other investments Management fees Foreign exchange (loss)/gain Operating leases Non-mining depreciation Non-executive directors’ emoluments Executive directors’ emoluments Equity-settled share option expense (refer to note 34) Cash-settled share option expense (refer to note 28) Auditors’ fees Salaries corporate ofﬁ ce Investor and public relations New business Legal fees Community projects (Losses)/proﬁ ts arising from realised and unrealised ﬁ nancial instruments (refer to note 30) Proﬁ t/(loss) on disposal of assets Rehabilitation trust fund fair value adjustments Rehabilitation provision adjustment Other net (expense)/income Consolidated Separate Year ended 30 June 2016 GBP Year ended 30 June 2015 GBP Year ended 30 June 2016 GBP Year ended 30 June 2015 GBP – 45,370 41,042 (5,115) (123,307) (36,617) (196,960) (763,329) – (5,274,697) (177,158) (1,348,966) (91,228) (164,223) (74,685) (980,537) (5,307,692) 2,767 414,955 1,780,288 77,197 (12,182,895) – 34,969 – (41,266) (100,947) (49,094) (139,508) (1,042,762) (184,064) (294,627) (164,003) (683,902) (162,945) (278,418) (104,582) (1,154,892) 2,486,608 (149) 1,827,253 – 302,105 249,776 13,892,774 45,370 – (1,677) – – (196,960) – – – (70,204) – (2,188) 12,358 (12,359) – – – – – (245,561) 13,421,553 54,709,384 34,969 – (2,282) (82,639) – (139,508) – – – (61,024) – (39,768) (165,541) (57,565) – – – – – (315,079) 53,880,947 132 Pan African Resources integrated annual report 2016 ANNUAL FINANCIAL STATEMENTS 9. Finance income/(costs) Interest received – bank Interest received – other Interest income – rehabilitation trust fund Interest expense – bank Interest expense – SARS Interest expense – rehabilitation provision Interest expense – other Net ﬁ nance (expense)/income 10. Proﬁ t before taxation Management fee (income)/expense – Shanduka (refer to note 35) Equity-settled share option expense (refer to note 34) Cash-settled share options expense (refer to note 28) Mining depreciation Impairment costs Staff costs Royalty costs (Losses)/proﬁ ts arising from realised and unrealised ﬁ nancial instruments (refer to note 30) New business Operating leases Consolidated Separate Year ended 30 June 2016 GBP Year ended 30 June 2015 GBP Year ended 30 June 2016 GBP Year ended 30 June 2015 GBP 423,004 6,260 13,352 442,616 (1,441,307) (47) – (7,384) (1,448,738) (1,006,122) 205,249 87,222 56,488 348,959 (1,278,970) (34,748) (1,094,191) (50,378) (2,458,287) (2,109,328) 76,396 3,359 – 79,755 (6) – – – (6) 79,749 53,290 – – 53,290 (13,165) – – – (13,165) 40,125 Consolidated Separate Year ended 30 June 2016 GBP Year ended 30 June 2015 GBP Year ended 30 June 2016 GBP Year ended 30 June 2015 GBP – – 5,274,697 10,456,129 – 48,490,571 2,799,947 (5,307,692) 164,223 123,307 240,480 184,064 294,627 10,337,211 58,424 50,601,799 1,647,297 2,486,608 278,418 100,947 – – – – – – – – (12,358) – – – – – 58,424 – – – 165,541 82,639 Pan African Resources integrated annual report 2016 133 Notes to the consolidated and separate Annual ﬁ nancial statements continued for the year ended 30 June 2016 11. Auditors’ remuneration Fees payable to the company’s auditors for the audit of the company’s annual ﬁ nancial statements 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 Total audit fees Other services rendered by the auditors External auditors Internal auditors Total non-audit fees Consolidated Separate Year ended 30 June 2016 GBP Year ended 30 June 2015 GBP Year ended 30 June 2016 GBP Year ended 30 June 2015 GBP 1,049 49,139 119,697 7,273 177,158 9,336 61,360 70,696 1,167 45,758 110,122 6,956 164,003 16,689 39,017 55,706 1,049 49,139 – 20,016 70,204 9,336 – 9,336 1,167 45,758 – 14,099 61,024 16,689 – 16,689 All audit fees were paid within South Africa with the exception of GBP50,300 (2015: GBP42,500) which was paid in the United Kingdom. 12. Staff costs Consolidated Separate Year ended 30 June 2016 GBP Year ended 30 June 2015 GBP Year ended 30 June 2016 GBP Year ended 30 June 2015 GBP 43,693,897 4,796,674 48,490,571 45,098,239 5,503,560 50,601,799 – – – – – – Consolidated Year ended 30 June 2016 Average Year ended 30 June 2016 Closing Year ended 30 June 2015 Average Year ended 30 June 2015 Closing 14 2,150 3 114 1,705 3,986 184 275 459 4,445 14 2,144 3 115 1,716 3,992 175 274 449 4,441 14 2,247 3 – 1,675 3,939 192 203 395 4,334 14 2,239 3 – 1,692 3,948 190 188 378 4,326 Their aggregate remuneration comprised: Salaries and wages Other retirement costs (refer to note 31) Operating cost employees were: Corporate Evander Mines Phoenix Platinum Uitkomst Colliery Barberton Mines Capital employees Barberton Mines Evander Mines Total number of employees 134 Pan African Resources integrated annual report 2016 ANNUAL FINANCIAL STATEMENTS 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% Taxation rate differential Exempt income Non-deductible expenses (Overprovision)/underprovision – prior year Tax effect of utilisation of tax losses Taxation expense for the year Effective taxation rates South African statutory rate Taxation rate differential Exempt income Non-deductible expenses/(exempt income) (Overprovision)/underprovision – prior year Tax effect of utilisation of tax losses Effective taxation rate Consolidated Separate Year ended 30 June 2016 GBP Year ended 30 June 2015 GBP Year ended 30 June 2016 GBP Year ended 30 June 2015 GBP 9,723,940 (92,806) 5,456,327 (86,758) (1,397,303) 8,233,831 33,735,648 9,445,982 (1,298,697) – 179,352 (92,806) – 8,233,831 % 28.00 (3.85) – 0.53 (0.28) – 24.4 (1,236,780) 4,132,789 15,802,756 4,424,772 122,889 – (344,288) (70,584) – 4,132,789 % 28.00 0.78 – (2.18) (0.45) – 26.15 33,810 – – 33,810 13,501,302 3,780,365 – (3,745,330) – – (1,225) 33,810 % 28.00 – (27.74) – – (0.01) 0.25 24,306 – – 24,306 53,594,728 15,006,524 – (14,983,971) – – 1,753 24,306 % 28.00 – (27.96) – – – 0.04 There are no signiﬁ cant unrecognised temporary differences associated with undistributed proﬁ ts of overseas subsidiaries. South African income 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 these deductions 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. At year-end the group has the following unredeemed capital expenditure carried forward and deductible against future proﬁ ts, held within Phoenix Platinum and Evander Mines (due to the expenditure on the ETRP and other projects). Phoenix Platinum Evander Mines At year-end the group has the following assessed losses carried forward Evander Mines Phoenix Platinum Total Consolidated 30 June 2016 GBP 30 June 2015 GBP 5,008,780 13,515,292 18,524,072 4,967,775 16,684,726 21,652,501 – 75,348 75,348 4,565,108 77,222 4,642,330 Pan African Resources integrated annual report 2016 135 Notes to the consolidated and separate Annual ﬁ nancial statements continued for the year ended 30 June 2016 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. Dilutive earnings per share is calculated by adjusting the weighted average number of ordinary shares in issue on the assumptions of conversion of all potentially dilutive ordinary shares. Potential ordinary shares shall be treated as dilutive when, and only when their conversion to ordinary shares would decrease earnings per share or increase loss per share from continuing operations. Year ended 30 June 2016 Basic earnings per share Dilutive potential ordinary shares Diluted earnings per share Year ended 30 June 2015 Basic earnings per share Dilutive potential ordinary shares Diluted earnings per share Weighted average number of shares3 Earnings per share Pence Net proﬁ t GBP 25,501,817 – 25,501,817 1,811,427,377 489,558 1,811,916,935 11,669,967 – 11,669,967 1,830,422,160 545,106 1,830,967,266 1.41 – 1.41 0.64 (0.00) 0.64 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: Year ended 30 June 2016 Earnings as reported Adjustments1: Impairment costs (Proﬁ t)/loss on sale of property, plant and equipment and mineral rights Loss on disposal of associate/asset held for sale Headline earnings per share2 Dilutive potential ordinary shares Diluted headline earnings per share Year ended 30 June 2015 Earnings as reported Adjustments1: Impairment costs (Proﬁ t)/loss on sale of property, plant and equipment and mineral rights Loss on disposal of associate/asset held for sale Headline earnings per share2 Dilutive potential ordinary shares Diluted headline earnings per share Weighted average number of shares3 Earnings per share Pence Net proﬁ t GBP 25,501,817 1,811,427,377 1.41 – (2 767) – 25 499 050 – 25 499 050 – – – 1,811,427,377 489,558 1,811,916,935 – – – 1.41 – 1.41 11,669,967 1,830,422,160 0.64 58,424 149 139,970 11,868,510 – 11,868,510 – – – 1,830,422,160 545,106 1,830,967,266 – – 0.01 0.65 (0.00) 0.65 1 The adjustments accounted for did not have any taxation impact to the group. 2 Headline earnings per share is required to be disclosed in terms of the Listings Requirements of the JSE Limited. 3 The shares take into account a reduction of the treasury shares of 436,358,085 only for 24 days to 30 June 2016, in the weighted average calculation. 136 Pan African Resources integrated annual report 2016 ANNUAL FINANCIAL STATEMENTS 14. Earnings per share continued Net asset value per share Tangible net asset value per share1 Consolidated 30 June 2016 Pence 30 June 2015 Pence 10.02 5.83 8.04 3.56 1 Total assets less goodwill, non-current assets held for sale, non-current liabilities, current liabilities and mineral rights and mining property. 15. Dividends Historical dividends The group paid a ﬁ nal dividend of ZAR210 million or GBP9.7 million (2014: ZAR258 million or GBP15.8 million) on 24 December 2015 relating to the 2015 ﬁ nancial year, equating to ZAR0.11466 or 0.53 pence (2014: ZAR0.14100 or 0.82 pence). Proposed dividend for approval at the AGM The board has proposed a dividend of ZAR300 million or GBP16 million, equating to ZAR0.15438 per share or 0.82338 pence per share. This dividend is subject to approval at the AGM, which will take place on Friday, 25 November 2016. Assuming the dividend is approved by the shareholders, the following salient dates would apply: Currency conversion date Wednesday, 11 October Last date to trade on the exchanges Tuesday, 6 December Ex-dividend date on the JSE Wednesday, 7 December Ex-dividend date on the LSE Thursday, 8 December Record date Payment date Friday, 9 December Thursday, 22 December • The GBP proposed ﬁ nal dividend was calculated based on 1,943,206,554 total shares in issue and an illustrative exchange rate of ZAR18.75:1. Shareholders on the London register should note that a revised exchange rate will be communicated prior to approval at the AGM. • No transfers between the Johannesburg and London registers between the commencement of trading on Monday, 5 December 2016 and close of business on Friday, 9 December 2016 will be permitted. • No shares may be dematerialised or rematerialised between Wednesday, 7 December 2016 and Friday, 9 December 2016, both days inclusive. The South African dividend tax rate is ﬁ fteen percent per ordinary share for shareholders who are liable to pay the dividends tax, resulting in a net dividend of ZAR0.13122 per share for these shareholders. Foreign investors may qualify for a lower dividend tax rate, subject to completing a dividend tax declaration and submitting it to Computershare Limited or Capita PLC who manage the SA and UK register, respectively. The company’s South African income tax reference number is 9154588173 and it has 1,943,206,554 shares currently in issue. Following the approval of the ﬁ nancial statements, the company released an announcement on 13 October 2016 conﬁ rming that the exchange rate for conversion of the ZAR dividend into GBP will be ﬁ xed at a rate of ZAR17.5787. Pan African Resources integrated annual report 2016 137 Notes to the consolidated and separate Annual ﬁ nancial statements continued for the year ended 30 June 2016 16. Property, plant and equipment and mineral rights Group Cost Balance at 30 June 2014 Transfer to intangibles Transfer from exploration assets Transfer from assets under construction Additions Disposal Foreign currency translation reserve Balance at 30 June 2015 Acquired from Uitkomst Colliery Transfer to asset held for sale Transfers Additions Disposal Foreign currency translation reserve Balance at 30 June 2016 Accumulated depreciation and impairment Balance at 30 June 2014 Charge for the year2 Disposal Transfers Foreign currency translation reserve Balance at 30 June 2015 Charge for the year2 Disposal Transfers Foreign currency translation reserve Balance at 30 June 2016 Carrying amount At 30 June 2015 At 30 June 2016 Mineral rights and mining property4 GBP Land1 GBP Exploration assets3 GBP 1,969,970 – – – – – (131,672) 1,838,298 – – 85,745 – – (44,609) 1,879,434 – – – – – – – – – – – 41,192,425 – 6,758,500 – – – (3,208,512) 44,742,413 7,675,739 – – – – (591,572) 51,826,580 (7,755,450) (1,248,676) – – 602,478 (8,401,648) (1,396,679) – – 85,962 (9,712,365) 32,899,922 – (6,758,500) – – – (1,743,774) 24,397,648 – – – – – (592,056) 23,805,592 – – – – – – – – – – – 1,838,298 1,879,434 36,340,765 42,114,215 24,397,648 23,805,592 1 Details of land are maintained in a register held at the ofﬁ ces of Barberton Mines, Evander Mines and Phoenix Platinum, 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. 2 A total depreciation and amortisation charge of GBP10,456,129 has been recognised in the statement of proﬁ t or loss (2015: GBP10,337,211) and includes direct mining depreciation of GBP10,384,476 (2015: GBP10,185,964) as per below: 3 Exploration assets comprise Evander South, Rolspruit and Poplar arising from the acquisition of Evander Mines for which the technical feasibility and commercial viability of extracting a mineral resource are not yet demonstrable. 4 Surface tailings relate to long-term inventory tailings upon purchase of the Harper tailing storage facility located at Fairview in Barberton Mines. The surface tailings will be amortised once remining occurs through the BTRP. 138 Pan African Resources integrated annual report 2016 ANNUAL FINANCIAL STATEMENTS Building and infrastructure GBP Plant and machinery GBP Capital under construction GBP Shafts and exploration GBP Surface tailings4 GBP Other GBP Total GBP 28,657,037 – – – 1,172,467 – (1,994,393) 27,835,111 62,828 (66,873) – 208,460 – (653,827) 27,385,699 (2,629,295) (1,647,040) – – 286,682 (3,989,653) (1,551,111) – – (34,142) (5,574,906) 69,307,094 (141,946) – 23,551,820 1,872,635 (1,389) (6,335,389) 88,252,825 1,374,990 – (85,745) 5,855,853 (28,860) (1,562,568) 93,806,495 (14,110,617) (5,940,068) 602 17,525 1,342,032 (18,690,526) (6,104,087) 11,929 – (59,361) (24,842,045) 16,894,645 – – (23,588,815) 13,231,962 – (431,615) 6,106,177 – – – 4,162,905 – 203,289 10,472,371 (181,173) (280,229) – – 30,985 (430,417) (422,681) – – (25,242) (878,340) 27,657,907 – – – 3,241,897 – (2,067,003) 28,832,801 – – – 3,797,567 – (379,060) 32,251,308 (9,162,258) (1,065,115) – – 684,149 (9,543,224) (907,139) – – 154,925 (10,295,438) 555,247 – – – – – (37,112) 518,135 – – – – – (12,574) 505,561 – – – – – – – – – – – 208,341 – – 36,995 9,655 – (17,068) 237,923 – – – 55,133 (456) (1,158) 291,442 (127,827) (40,076) – (17,525) 12,345 (173,083) (25,252) – – 2,146 (196,189) 219,342,588 (141,946) – – 19,528,616 (1,389) (15,966,538) 222,761,331 9,113,557 (66,873) – 14,079,918 (29,316) (3,634,135) 242,224,482 (33,966,620) (10,221,204) 602 – 2,958,671 (41,228,551) (10,406,949) 11,929 – 124,288 (51,499,283) 23,845,458 21,810,793 69,562,299 68,964,450 5,675,760 9,594,031 19,289,577 21,955,870 518,135 505,561 64,840 95,253 181,532,780 190,725,199 Pan African Resources integrated annual report 2016 139 Notes to the consolidated and separate Annual ﬁ nancial statements continued for the year ended 30 June 2016 16. Property, plant and equipment and mineral rights continued Company Cost Balance at 30 June 2014 Sale of assets and liabilities to subsidiary1 Foreign currency translation reserve Balance at 30 June 2015 Accumulated depreciation and impairment Balance at 30 June 2014 Sale of assets and liabilities to subsidiary1 Foreign currency translation reserve Balance at 30 June 2015 Carrying amount At 30 June 2015 At 30 June 2016 Mineral rights and mining property GBP Land GBP Exploration assets GBP – – – – – – – – – – – – – – – – – – – – – – – – – – – 1 At the beginning of the prior year the company sold its assets and liabilities at book value to PAR Management Services. Depreciation on property, plant and equipment and mineral right Amortisation on intangible assets Non-mining depreciation Total mining depreciation Non-mining amortisation Direct mining depreciation 17. Other intangible assets Consolidated 30 June 2016 GBP 30 June 2015 GBP 10,406,949 85,797 (36,617) 10,456,129 (71,653) 10,384,476 10,221,204 165,101 (49,094) 10,337,211 (151,247) 10,185,964 Software costs Balance at the beginning of the period Reclassiﬁ cation of software costs from property, plant and equipment and mineral rights (refer to note 16) Sale of assets and liabilities to subsidiary Additions Current year amortisation Foreign currency translation reserve Balance at the end of the period Consolidated Separate 30 June 2016 GBP 30 June 2015 GBP 30 June 2016 GBP 30 June 2015 GBP 202,488 214,330 – – 17,248 (85,797) (10,704) 123,235 141,946 – 25,740 (165,101) (14,427) 202,488 – – – – – – – 23,108 – (23,008) – – (100) – 140 Pan African Resources integrated annual report 2016 ANNUAL FINANCIAL STATEMENTS Building and infrastructure GBP Plant and machinery GBP Capital under construction GBP Shafts and exploration GBP Surface tailings GBP Other GBP Total GBP – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 195,986 (195,160) (826) – (125,036) 124,509 527 – 195,986 (195,160) (826) – (125,036) 124,509 527 – – – – – 18. Goodwill Goodwill acquired in a business combination is allocated at acquisition to the cash-generating units (CGUs) that are expected to beneﬁ t from that business combination. All the group’s goodwill has been allocated to Barberton Mines CGU. Consolidated Separate 30 June 2016 GBP 30 June 2015 GBP 30 June 2016 GBP 30 June 2015 GBP Opening and closing balance 21,000,714 21,000,714 – – The group tests the Barberton Mines goodwill carrying amount annually for impairment, or more frequently if there are indications that goodwill may be impaired. The goodwill carrying amount is not considered to be 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 year. Management estimates the discount rate using post-tax rate of 10.7% (2015: 7.36%) for Barberton Mines, which reﬂ ects the current market assessments of the time value of money and the risks speciﬁ c to the CGU to the extent not already reﬂ ected in the cash ﬂ ows being discounted, an average gold price of ZAR580,000/kg (2015: ZAR460,000/kg over the life of projects. The life of mine was estimated at 22 years (2015: 20 years) for Barberton Mines at the end of the ﬁ nancial year. 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. Pan African Resources integrated annual report 2016 141 Notes to the consolidated and separate Annual ﬁ nancial statements continued for the year ended 30 June 2016 19. Investments in subsidiaries and investments in associate At 30 June 2016 the company and group held the following shares in subsidiaries and associate: Name of company Barberton Mines8 Evander Gold Mining Proprietary Limited8 Evander Gold Mines Proprietary Limited (Evander Mines) Phoenix Platinum Funding Company1 Emerald Panther Investments 91 Proprietary Limited (Emerald Panther)2 Pan African Resources Management Services Company Proprietary Limited (PAR Management Services)3 Nyambose Proprietary Limited Pan African Resources Coal Holdings Proprietary Limited (PAR Coal Holdings)5 Uitkomst Colliery Proprietary Limited PAR Gold Proprietary Limited (PAR Gold) previously known as Shanduka Gold Proprietary Limited6 Listed investment7 Other investments Country of incorporation Principal activity South Africa South Africa South Africa South Africa South Africa South Africa South Africa South Africa South Africa South Africa South Africa Gold mining Gold mining Gold mining PGE remining Treasury services Holding company Services company Other Holding company Coal mining BEE company Other Mining Investment reconciliation Opening balance Loss in associate Impairment of investment in Auroch Minerals NL Loss on disposal of associate Proceeds from sale of investment in Auroch Minerals NL4 Purchase of shares in the available for sale investment Purchase of shares in Pan African Resources Coal Holdings Proprietary Limited Fair value adjustment on the available for sale investment Foreign currency translation reserve Closing balance Consolidated Separate 30 June 2016 GBP 30 June 2015 GBP 30 June 2016 GBP 30 June 2015 GBP 904,818 – – – – – – 388,188 (23 778) 1,269,228 1,009,545 (127,950) (58,424) (139,970) (277,732) 1,037,677 – (70,679) (467,649) 904,818 122,911,964 – – – – – 924,193 388,188 (23,670) 124,200,675 123,016,683 (127,950) (58,424) (139,970) (277,732) 1,037,677 – (70,679) (467,641) 122,911,964 1 Funding Company was established for the purpose of providing funding and treasury services to the group. 2 Emerald Panther is a company acquired to facilitate the acquisition of Evander Mines from Harmony Gold Mining Company Limited, and therefore holds the investment in Evander Mines. Emerald Panther holds 100% of Evander Gold Mines Limited and Evander Gold Mining Proprietary Limited, which are both incorporated in South Africa, and operate in mining. 142 Pan African Resources integrated annual report 2016 ANNUAL FINANCIAL STATEMENTS Consolidated Separate Holding effectively held by company for consolidation purposes Economic beneﬁ t derived by the group Carrying amount 30 June 2016 GBP Carrying amount 30 June 2015 GBP Carrying amount 30 June 2016 GBP Carrying amount 30 June 2015 GBP 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 97.5% 3.4% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 3.4% – – – – – – – – – – – – – – – – – – – – – – 45,770,663 – – 4,209,696 263 72,026,632 – – 924,193 – – 45,770,663 – – 4,209,696 263 72,026,632 – – – – – 1,269,228 – 1,269,228 904,710 108 904,818 1,269,228 – 124,200,675 904,710 – 122,911,964 Statutory holding 95% 100% 95% 100% 100% 100% 100% 100% 100% 100% 50.5% 3.4% 3 PAR Management Services, was internally transferred within the group. Ordinary shares previously held by Evander Gold Mining Proprietary Limited were transferred to Pan African Resources. This company was acquired to function as a management and other services provider and administrator to the group. At the beginning of the prior ﬁ nancial year, Pan African Resources sold its assets and liabilities to PAR Management Services at book value, with the exception of the investments in subsidiaries, current taxation assets and liabilities, and trade receivables and payables directly for the account of the company as a group holding company. Refer below for assets and liabilities sold: Summary of assets and liabilities sold Property, plant and equipment Other non-current assets Deferred tax asset Current assets Trade and other receivables Cash Non-current liabilities Long-term liabilities Current liabilities Trade and other payables Net assets sold See footnotes 4, 5, 6, 7 and 8 on next page. 30 June 2015 ZAR 30 June 2015 GBP 1,693,944 93,659 6,601,879 365,023 400,699 69,147 22,155 3,823 (12,870,005) (711,592) (13,034,623) (17,138,959) (720,694) (947,626) Pan African Resources integrated annual report 2016 143 Notes to the consolidated and separate Annual ﬁ nancial statements continued for the year ended 30 June 2016 19. Investments in subsidiaries and investments in associate continued 4 Pursuant to a share sale and purchase agreement, dated 27 August 2012, relating to the sale of Manica Gold Projects, certain terms were amended between the contract parties and as a result the company made a decision to sell its investment in Auroch Minerals (42% shareholding) for a total consideration of AUD2,000,000. During the prior year, Pan African Resources concluded the sale of its investment in Auroch Minerals NL and derecognised the investment from the statement of ﬁ nancial position by recognising in the statement of proﬁ t and loss an impairment of GBP58,424, a loss in associate of GBP127,950 and a loss on sale of investment of GBP139,970. Impairment arose due to continued challenges experienced within the mining environment and reducing gold prices which led to Auroch’s share price dropping to AUD0.03 at the date of sale. Proceeds received during the current year and attributable to the sale of investment were as follows. Proceeds received on 3 July 2014 Proceeds received on 21 November 2014 Opening balance 1 July 2014 Loss in associate Carrying value before impairment Impairment Foreign currency reserve Carrying value before sale Proceeds Loss on disposal of associate Balance at year-end Consolidated and separate AUD 150,000 350,000 500,000 ZAR 1,513,623 3,307,797 4,821,420 Consolidated and separate ZAR GBP 10,556,778 (2,291,239) 8,265,539 (1,014,239) – 7,251,300 (4,821,420) (2,429,880) – 1,009,429 (127,950) 881,479 (58,424) (405,353) 417,702 (277,732) (139,970) – 5 PAR Coal Holdings was acquired during the current year with all its issued shares subscribed for by Pan African Resources. This company was acquired as a strategic holding company to the group’s coal business. PAR Coal Holdings is the main shareholder in the Uitkomst Colliery (previously known as Emerald Panther Investments 107 Proprietary Limited). Refer to note 40 for the purchase price allocation of the Uitkomst Colliery acquisition. 6 Towards the end of the ﬁ nancial year the group ﬁ nalised a share buyback transaction in which 49.9% of the shares issued in PAR Gold were purchased through the group’s wholly owned subsidiary, Funding Company. The transaction translated to a share buyback as PAR Gold has as its sole investment a 23.8% stake in Pan African Resources on 3 June 2016 (at 30 June 2016 the shareholding diluted to 22.46% following the share issue on 3 June 2016), and deriving only dividends linked to the shareholding as income. Refer to note 41. 7 During the prior year, the company purchased 1,750,850 shares in a listed entity for an amount of ZAR18.9 million. The entity is an exploration, development and gold mining company focused on Southern Africa. At year-end the investment remains a 3.4% holding and therefore carried at fair value as per the applicable accounting standard. Consolidated and separate 30 June 2016 ZAR 30 June 2016 GBP 30 June 2015 ZAR 30 June 2015 GBP Dividends received from listed investment 973,179 45,371 629,448 34,969 8 A portion of shares in the investment was issued to employees via an ESOP transaction scheme described in note 39. The substance of the transaction renders Pan African Resources retaining full control of the investment and therefore consolidating 100% of the investment. 144 Pan African Resources integrated annual report 2016 ANNUAL FINANCIAL STATEMENTS Barberton Mines GBP 2,106,866 41,770 252,537 (160,646) 2,240,527 1,849 57,454 (49,364) 2,250,466 Evander Mines GBP 13,351,425 14,718 1,574,716 (999,461) 13,941,398 11,503 357,501 (307,160) 14,003,242 Total GBP 15,458,291 56,488 1,827,253 (1,160,107) 16,181,925 13,352 414,955 (356,524) 16,253,708 20. Rehabilitation trust fund Funds held in trust fund (refer to note 27) Opening balance as at 30 June 2014 Interest earned on the rehabilitation fund Fair value adjustment Foreign currency translation reserve Closing balance as at 30 June 2015 Interest earned on the rehabilitation fund Fair value adjustment Foreign currency translation reserve Closing balance as at 30 June 2016 The funds available from contributions are held within Pan African Resources Group Rehabilitation Trust. The amounts are invested in a number of instruments, including interest-bearing short-term deposits, medium-term equity-linked notes issued by commercial banks, equity share portfolios managed by asset managers. The Evander Mines rehabilitation trust fund was transferred from Harmony Gold Mining Company Limited (Harmony). Refer to note 27 for the associated rehabilitation provision disclosure. 21. Inventories Consumable stores Mineral stocks Coal inventory Short-term portion of long-term inventory Provision for obsolete stock Long-term Inventory1 Consolidated Separate 30 June 2016 GBP 30 June 2015 GBP 30 June 2016 GBP 30 June 2015 GBP 3,060,766 934,306 456,620 31,850 (84,729) 4,398,813 186,861 4,585,674 3,102,272 483,044 – – (82,747) 3,502,569 – 3,502,569 – – – – – – – – – – – – – – – 1 During the year tailings stock (Elandskraal) of approximately 1.28 million tonnes was purchased to increase Phoenix Platinum feed sources. Elandskraal was purchased for ZAR4.5 million and the tailings were treated from September in the current year. The nature of this inventory is long term as it is expected to be processed over a period in excess of 12 months from the reporting date. Pan African Resources integrated annual report 2016 145 Notes to the consolidated and separate Annual ﬁ nancial statements continued for the year ended 30 June 2016 22. Trade and other receivables Trade receivables Provision for doubtful debtors Other receivables and prepayments VAT receivable Consolidated Separate 30 June 2016 GBP 30 June 2015 GBP 30 June 2016 GBP 30 June 2015 GBP 10,233,634 (44,233) 1,247,281 2,605,675 14,042,357 5,731,102 (30,504) 1,519,648 2,338,764 9,559,010 – – 23,949 33,990 57,939 – – 21,557 19,974 41,531 The group’s credit risk is primarily attributable to its trade receivables. The amounts presented in the statement of ﬁ nancial position are net of allowances for doubtful debtors relating to other receivables, estimated by the group’s management based on the current economic environment and individual debtor circumstances. The credit risk on liquid funds is limited because the counterparties are dealt with in accordance with the group’s credit policy. Financial institutions are the major customer that represents more than 5% of the trade receivables balance for the individual gold mining subsidiaries (Barberton Mines and Evander Mines), and Western Platinum Limited (subsidiary of Lonmin PLC) is the one major customer that represents more than 5% of the trade receivables balance of Phoenix Platinum. ArcelorMittal Newcastle is a major customer that represents more than 5% of the trade receivables balance of Uitkomst Colliery. The average credit period is: Number of days Trade receivables Revenue Consolidated 30 June 2016 30 June 2015 17.0 10,233,634 169,360,532 18.0 5,731,102 141,076,883 The ageing of trade receivables remained materially unchanged even with the introduction of Uitkomst Colliery into the group at a trade receivables balance of GBP2.8 million. This was due to continued improved cash collections on gold sales from the treasury function. No interest is charged on trade receivables. 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 creditworthy customers and large institutions within South Africa. The fair value of trade receivables is not materially different from the carrying value presented. Receivables have been pledged as security, in terms of the revolving credit facility. 146 Pan African Resources integrated annual report 2016 ANNUAL FINANCIAL STATEMENTS 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. Cash and cash equivalents 2,658,947 3,328,850 77,660 888,498 Consolidated Separate 30 June 2016 GBP 30 June 2015 GBP 30 June 2016 GBP 30 June 2015 GBP Included in cash and cash equivalents is restricted cash for an amount of ZAR12.9 million. This amount represents guarantees to Transnet SOC Limited and the Department of Mineral Resources, and currently owed to Uitkomst Colliery by Brandywine Valley Investments Proprietary Limited (previous owner of Uitkomst Colliery). Cash and cash equivalents also include an overdraft of ZAR50 million drawn at Funding Company level at year-end. Credit facilities The group has the following credit facilities: Nedbank Limited revolving credit facility1 Rand Merchant Bank revolving credit facility1 Absa Bank Limited revolving credit facility1 Absa Bank Limited overdraft facility1 Rand Merchant Bank overdraft facility1 Absa Bank Limited credit card facilities Guarantee2 USD trading facility3 13,481,631 13,481,631 13,481,631 2,527,806 2,527,806 75,834 3,381,275 4,802,831 53,760,445 13,816,926 13,816,926 13,816,926 2,590,674 2,590,674 77,720 2,794,398 4,922,279 54,426,523 – – – – – 50,556 – – 50,556 – – – 51,813 – – 51,813 1 The group has secured a ﬁ ve-year revolving credit facility with Nedbank Limited, Absa Bank Limited and Rand Merchant Bank (refer to note 28). The facility carries an interest rate of the monthly JIBAR rate plus 2.5% margin, and is secured against Barberton Mines, Evander Mines and Phoenix Platinum’s property, plant and equipment. The revolving credit facility was utilised during the current year, and at year-end, there was an outstanding amount of GBP15.7 million (2015: GBP12.7 million) payable in relation to the facility and an unutilised amount of GBP24.8 million (2015: GBP29.0 million). The Absa Limited overdraft facility was fully utilised during the year and Rand Merchant Bank overdraft facility remains unsecured and unutilised at year-end. The overdraft facilities attract interest that is linked to prime in South Africa. 2 The guarantees relate to GBP1,243,332 (2015: GBP1,274,254) for Eskom (electricity utility), GBP1,028,237 (2015: GBP724,809) for the Department of Mineral Resources (DMR), other ﬁ nancial guarantees GBP776,036 (2015: GBP795,336) and GBP333,670 relating to Transnet SOC Limited. 3 The USD trading facility relates to trading facilities held by Barberton Mines for the purposes of trading USD for ZAR on USD gold sales. Pan African Resources integrated annual report 2016 147 Notes to the consolidated and separate Annual ﬁ nancial statements continued for the year ended 30 June 2016 24. Share capital Issued Consolidated Separate 30 June 2016 GBP 30 June 2015 GBP 30 June 2016 GBP 30 June 2015 GBP Number of ordinary shares issued 1,943,206,554 1,831,494,763 1,943,206,554 1,831,494,763 Treasury shares (436,358,058) – – – 1,506,848,496 1,831,494,763 1,943,206,554 1,831,494,763 Ordinary shares issued of GBP0.01 each 19 432 065 18,314,947 19 432 065 18,314,947 The following cash issue of shares was made during the year: • On 3 June 2016 111,711,791 shares were issued as part of the rights issue at 14.4 pence per share, in relation to the acquisition of the Shanduka Gold share buyback transaction. During the prior ﬁ nancial year: • On 19 March 2015 1,500,000 shares were issued at 5 pence per share to Mr KC Spencer’s family trust (Strode Trust) upon exercising historical share options. Current number of equity-settled share options outstanding at 30 June 2016 is 1,122,000 (2015: 1,122,000), excluding the new issue of equity options disclosed in note 34. 25. Trade and other payables Trade and other payables Accruals and other payables VAT payable Total trade and other payables The average credit period is: Number of days Consolidated Separate 30 June 2016 GBP 30 June 2015 GBP 30 June 2016 GBP 30 June 2015 GBP 9,980,679 8,390,553 372,003 8,945,258 7,514,861 338,924 – – 257,837 213,861 – – 18,743,235 16,799,043 257,837 213,861 Consolidated 30 June 2016 30 June 2015 32 31 Creditors days have remained materially constant, remaining marginally in line with debtors days indicating improved collection from debtors to settle short-term obligations. The fair value of trade payables is not materially different from the carrying value presented. 148 Pan African Resources integrated annual report 2016 ANNUAL FINANCIAL STATEMENTS 26. Current tax Current tax asset Current tax liability Consolidated Separate 30 June 2016 GBP 30 June 2015 GBP 30 June 2016 GBP 30 June 2015 GBP 848,946 541,794 827,298 503,784 8,469 141,574 – – Current taxes payable and receivable by the group relate to the South African Revenue Service (SARS). 27. Long-term provisions Consolidated Separate Decom- missioning and rehabilitation GBP 12,033,167 1,094,191 (877,991) 12,249,367 386,580 (1,780,288) (422,673) 10,432,986 Total GBP 12,033,167 1,094,191 (877,991) 12,249,367 386,580 (1,780,288) (422,673) 10,432,986 Decom- missioning and rehabilitation GBP – – – – – – – – Total GBP – – – – – – – – Balance at 30 June 2014 Provided during the year Foreign currency translation reserve Balance at 30 June 2015 Acquired from Uitkomst Colliery Net release during the year Foreign currency translation reserve Balance at 30 June 2016 Rehabilitation provision The provision includes the estimate of the costs of decommissioning and the cost of environmental and other remedial work such as reclamation costs, close down and restoration and pollution control. Estimates 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 decommission and rehabilitate environmental disturbances caused by mining operations. These costs are expected to be incurred over the following life of mine and rates. The current year movement in the group’s rehabilitation liability has been largely inﬂ uenced by the changes to the closure costs estimate. Barberton Mines BTRP Evander Mines ETRP Phoenix Platinum1 Uitkomst Colliery 30 June 2016 30 June 2015 Life of mine Years Risk-free rate % Life of mine Years Risk-free rate % 22 14 16 16 9 22 11.31 9.85 9.73 9.73 9.02 11.31 20 15 16 16 28 – 8.74 8.67 8.67 8.67 8.61 – 1 The change in the life of mine is attributed to the exclusion of the mineral reserves from the Lesedi Mine current arisings. Pan African Resources integrated annual report 2016 149 Notes to the consolidated and separate Annual ﬁ nancial statements continued for the year ended 30 June 2016 28. Long-term liabilities Cash-settled share options Opening balance Sale of assets and liabilities to PAR Management Services Expense for the year Payments during the year Foreign currency translation reserve Closing balance Current portion Long-term portion Post-retirement beneﬁ ts Opening balance Utilised for the year Foreign currency translation reserve Closing balance Revolving credit facility Opening balance Drawdowns Finance costs incurred1 Repayments of capital Repayments of ﬁ nance costs Foreign currency translation reserve Closing balance Current portion Long-term portion Consolidated Separate Year ended 30 June 2016 GBP Year ended 30 June 2015 GBP Year ended 30 June 2016 GBP Year ended 30 June 2015 GBP 1,313,721 1,579,923 – 5,274,697 (1,324,924) 277,857 – 294,627 (428,512) (132,317) 5,541,351 1,313,721 (2,738,123) 2,803,228 (933,152) 380,569 78,535 (11,009) (2,835) 64,691 90,832 (6,677) (5,620) 78,535 12,732,505 – 38,061,147 27,898,927 1,317,577 1,271,063 (36,807,033) (14,299,642) (1,074,513) (1,337,774) 1,464,254 (800,069) 15,693,937 12,732,505 (1,452,109) (1,118,559) 14,241,828 11,613,946 – – – – – – – – – – – – – – – – – – – – – 714,603 (711,592) – – (3,011) – – – – – – – – – – – – – – – – 1 Finance costs incurred exclude GBP127,572 (2015: GBP7,907), relating to the new general banking facilities, which are separately disclosable from the RCF. 150 Pan African Resources integrated annual report 2016 ANNUAL FINANCIAL STATEMENTS 28. Long-term liabilities continued Gold loan Opening balance Gold loan repayments Fair value adjustment Foreign currency translation reserve Closing balance Current portion Long-term portion Total Consolidated Separate Year ended 30 June 2016 GBP Year ended 30 June 2015 GBP Year ended 30 June 2016 GBP Year ended 30 June 2015 GBP 7,235,699 11,225,365 (2,747,333) (3,396,717) – (351,325) (120,490) (472,459) 4,137,041 7,235,699 (2,790,479) (2,995,767) 1,346,562 4,239,932 18,451,276 16,312,982 – – – – – – – – – – – – – – – – The gold loan has been designated as an instrument to be measured at amortised cost. Consolidated Separate Year ended 30 June 2016 GBP Year ended 30 June 2015 GBP Year ended 30 June 2016 GBP Year ended 30 June 2015 GBP Current and non-current portions of long-term liabilities Current portion 6,980,711 5,047,478 Non-current portion – capital to be paid on maturity 18,456,309 16,312,982 25,437,020 21,360,460 – – – – – – Pan African Resources integrated annual report 2016 151 Notes to the consolidated and separate Annual ﬁ nancial statements continued for the year ended 30 June 2016 28. Long-term liabilities continued Terms of the revolving credit facility Facility amount ZAR800,000,000 Accordian option ZAR300,000,000 exercisable with two years at the inception of the revolving credit facility Lenders Borrower Interest rate Rand Merchant Bank (a division of FirstRand Bank Limited), Absa Limited, Nedbank Limited Pan African Resources Funding Company Proprietary Limited JIBAR (quoted at 5.958% at year-end), at a monthly payment selection period Interest rate margin 2.5% Commitment fee 35% of the margin per annum, calculated on a day-to-day basis on the undrawn portion of the maximum available commitment Term of loan Five years from (17 June 2015) Repayment period Full repayment of the outstanding amount at the end of ﬁ ve years Final repayment date 17 June 2020 Financial covenant limits The ratio of the net debt to equity must be less than 1:1 (measured on a semi-annual basis) The interest cover ratio (refer to note 30) must be greater than four times (measured on a semi-annual basis) The ratio of net debt to EBITDA (refer to note 30), as deﬁ ned in the agreement, must be less than 2.5:1 (measured on a semi-annual basis) Bonds as security for revolving credit facilities The following bonds were entered into by the group: Continuing covering mortgage bond B1534/2013 –Barberton Mines/Bowwood and Main No. 40 Proprietary Limited Continuing covering mortgage bond B1740/2013 – Evander Mines/Bowwood and Main No. 40 Proprietary Limited Special notarial bond BN6785/2013 – Barberton Mines/Bowwood and Main No. 40 Proprietary Limited Special notarial bond BN6912/2013 – Evander Mines/Bowwood and Main No. 40 Proprietary Limited General notarial bond BN7075/2013 – Barberton Mines/Bowwood and Main No. 40 Proprietary Limited General notarial bond BN6592/2013 – Evander Mines/Bowwood and Main No. 40 Proprietary Limited Ceded rights as security for the revolving credit facility Bank accounts Debts1 Insurance2 Insurance proceeds The above listed rights are ceded whether actual, prospective or contingent, direct or indirect, whether a claim to payment of money or to the performance of any other obligation, and whether or not the said rights and interest were within the contemplation of the parties at signature date. 1 All claims which the cedent has or may in future have in respect of agreements entered into or to be entered into by the cedent pursuant to which goods and/or services are provided (or to be provided) to or by the cedent, including but not limited to book debts against trade debtors from time to time. 2 All contracts and policies of insurance and reinsurance of any kind which are effected and maintained by or on behalf of the cedent. 152 Pan African Resources integrated annual report 2016 ANNUAL FINANCIAL STATEMENTS 28. Long-term liabilities continued Terms of the gold loan In May 2014, a gold loan transaction of ZAR200 million was entered into with Absa Bank Limited as a counterparty. The purpose of this gold loan was to provide funds for the ETRP constructed at Evander Mines. The gold loan is repaid quarterly in gold ounces produced from the Evander Mines operation, with the repayments having commenced in July 2014 to end in October 2017. Refer to terms below. Effective delivery price per ounce Effective delivery price per kg Repayment period Final repayment date Financial covenant limits ZAR12,694 ZAR408,129 1.5 years 31 October 2017 The ratio of the net debt to equity must be less than 1:1 (measured on a semi-annual basis) The interest cover ratio (refer to note 30) must be greater than four times (measured on a semi-annual basis) The ratio of net debt to EBITDA (refer to note 30), as deﬁ ned in the agreement, must be less than 2.5:1 (measured on a semi-annual basis) Security of gold loan Security of the gold loan is included in the revolving credit facility security package Gold loan repayment schedule Delivery date 29 July 2016 31 October 2016 31 January 2017 28 April 2017 31 July 2017 31 October 2017 Ounces delivered 1,105,94 1,093,96 1,081,14 1,067,07 1,055,50 1,042,69 6,446,30 As repayment of the loan is made in physical ounces of gold, revenue is recognised on physical delivery to Absa Bank Limited. Group cash-settled share options On 9 May 2011, the company established a cash-settled share appreciation rights programme entitling selected executives and employees of the group, as approved by the board of directors and the remuneration committee of the company, to be allocated notional shares in the group. These notional shares confer the conditional right on the participant to be paid a cash settlement equal to the appreciation in the company share price from the date of allocation to the date of surrender or deemed surrender of notional shares. Participation in the share appreciation programme is subject to the agreement of a selected participant and acceptance by said participant of the rules and regulations governing the share appreciation programme. The share appreciation settlement is determined no later than the sixth anniversary of the date that the notional shares are allocated. However the participant can elect, subject to approval by the company’s remuneration committee, to surrender his/her notional shares and receive the share appreciation settlement at a date prior to the sixth anniversary date. The share appreciation settlement is regarded as remuneration for income tax purposes and thus subject to the deduction of pay-as- you-earn (PAYE) and all other taxes and contributions via the payroll of the company or the relevant subsidiary. These taxes are for the account of the participant. Pan African Resources integrated annual report 2016 153 Notes to the consolidated and separate Annual ﬁ nancial statements continued for the year ended 30 June 2016 28. Long-term liabilities continued Group cash-settled share options continued No share appreciation rights settlements can be made until after the period, calculated from the date the notional shares were allocated, of: Initial issue • Two years has elapsed, in which event not more than 25% of the total number of notional shares allocated can be surrendered • Three years has elapsed, in which event not more than 50% of the total number of notional shares allocated can be surrendered • Four years has elapsed, in which event all of the notional shares allocated can be surrendered. Top-up issues • One year has elapsed, in which event not more than 25% of the total number of notional shares allocated can be surrendered • Two years has elapsed, in which event not more than 50% of the total number of notional shares allocated can be surrendered • Three years has elapsed, in which event not more than 75% of the total number of notional shares allocated can be surrendered • Four years has elapsed, in which event all of the notional shares allocated can be surrendered • Or any lesser amount of notional shares may be surrendered. Notional shares which a participant is entitled to surrender are referred to as “surrenderable notional shares”. Remco may, by resolution, amend and postpone any of these vesting periods, with the consent of the participant concerned. The participant is entitled, within a period of 60 days after the date of resignation, to surrender all his/her surrenderable notional shares and request the payment of the share appreciation bonus in respect thereof. If the participant is subject to retirement (including early retirement approved by the company after the age of 55 in terms of company policy), retrenchment, death or permanent disability, the participant or the participant’s estate is entitled, within a period of six months after the termination date, to surrender all his/her surrenderable notional shares and request the payment of the share appreciation settlement in respect thereof. Details of the share options outstanding during the year, in relation to this scheme, are as follows: Group cash-settled share options 30 June 2016 30 June 2015 Weighted average exercise price ZAR Number of options 1.61 1.67 1.53 – 58,439,090 50,509,449 (14,646,951) – 1.65 94,301,588 Weighted average exercise price ZAR 1.92 1.18 2.20 2.37 1.61 Number of options 53,275,980 18,715,657 (10,456,992) (3,095,555) 58,439,090 Outstanding at 1 July Granted during the year Exercised during the year Forfeited in the year Outstanding and exercisable at 30 June Cash-settled share options are valued annually at fair value. The weighted average share price on redemptions was ZAR2.93 (2015: no redemptions). 154 Pan African Resources integrated annual report 2016 ANNUAL FINANCIAL STATEMENTS 28. Long-term liabilities continued These fair values were calculated using the binomial pricing model. The inputs in the model were as follows: Weighted average share price Weighted average exercise/strike price Exercise price Expected volatility Expected life Weighted average remaining life Risk-free rate Expected dividend yield 30 June 2016 30 June 2015 R3.44 R2.12 R2.04 R2.15 R1.15 – R3.04 R1.15 – R2.67 30.00% 30.00% 3 – 6 years 3 – 6 years 3.5 years 4.2 years 7.56 – 8.48% 6.94 – 7.89% 4.00% 4.00% Expected volatility includes the following factors: • Implied volatility from traded share options on the entity’s shares, or other traded instruments of the entity that include option features (such as convertible debt), if any • The historical volatility of the share price over the most recent period that is generally commensurate with the expected term of the option (taking into account the remaining contractual life of the option and the effects of expected early exercise) • The length of time an entity’s shares have been publicly traded. A newly listed entity might have a high historical volatility, compared with similar entities that have been listed longer. Participation in share-based and other long-term incentive schemes is restricted to employees and directors as described above. The group recognised an expense of GBP4,291,500 (income in 2015: GBP340,996) relating to cash-settled share-based payment transactions during the year, as a result of the share price increasing. During the prior year, the group entered into an employee share ownership scheme transaction at Barberton Mines level and during the current year a similar scheme was entered into at Evander Mines level. The group recognised an expense of GBP586,305 in relation to the employee share ownership scheme. Refer to note 39. Chief Executive Ofﬁ cer long-term incentive To incentivise the Chief Executive Ofﬁ cer and align the interests of the Chief Executive Ofﬁ cer with that of the group, and to ensure retention during the three year contract term, the following long-term incentive was put in place on 28 February 2015. The Chief Executive Ofﬁ cer no longer participates in the group share appreciation scheme other than historic holdings: • Cash or equity-settled payment at the end of the three-year contract term of 4,000,000 Pan African Resources shares, issued for no consideration, vesting only at the end of the Chief Executive Ofﬁ cer’s contract term • Cash or equity-settled payment of a maximum number of a further 4,000,000 Pan African Resources shares, issued for no consideration, vesting only at the end of the Chief Executive Ofﬁ cer’s contract term. These shares will only be issued upon meeting certain pre- deﬁ ned Remco criteria, which are determined annually • The Chief Executive Ofﬁ cer will therefore be eligible for a minimum number of 4,000,000 Pan African Resources shares and maximum number of 8,000,000 Pan African Resources shares at the end of his contract term. At year-end this incentive scheme was treated as a cash-settled share option scheme and a liability of GBP396,892 (2015: GBP71,977) was recognised in the statement of ﬁ nancial position. Subsequent to year-end, the incentive scheme for both the Chief Executive Ofﬁ cer and the Financial Director was amended, as detailed in the remuneration policy. Pan African Resources integrated annual report 2016 155 Notes to the consolidated and separate Annual ﬁ nancial statements continued for the year ended 30 June 2016 28. Long-term liabilities continued Vesting schedule 2016 Description Grant date Vesting period years Vesting period days Tranche 1 Tranche 2 Tranche 3 Tranche 1 Tranche 2 Tranche 3 Tranche 1 Tranche 2 Tranche 3 Tranche 1 Tranche 2 Tranche 3 Tranche 1 Tranche 2 Tranche 3 Tranche 1 Tranche 1 Tranche 2 Tranche 3 Tranche 1 Tranche 2 Tranche 3 Tranche 1 Tranche 2 Tranche 3 Tranche 1 Tranche 2 Tranche 3 Tranche 1 Tranche 2 Tranche 3 Tranche 4 Tranche 1 Tranche 2 Tranche 3 Tranche 1 Tranche 2 Tranche 3 Tranche 1 Tranche 2 Tranche 3 Tranche 1 Tranche 2 Tranche 3 Tranche 4 Tranche 1 Tranche 2 Tranche 3 Tranche 1 11 May 2011 11 May 2011 11 May 2011 1 March 2013 1 March 2013 1 March 2013 13 July 2012 13 July 2012 13 July 2012 1 April 2013 1 April 2013 1 April 2013 1 June 2013 1 June 2013 1 June 2013 1 August 2013 1 August 2013 1 August 2013 1 August 2013 27 September 2013 27 September 2013 27 September 2013 13 November 2013 13 November 2013 13 November 2013 1 April 2014 1 April 2014 1 April 2014 1 May 2014 1 May 2014 1 May 2014 1 May 2014 27 May 2014 27 May 2014 27 May 2014 1 March 2015 1 March 2015 1 March 2015 30 July 2015 30 July 2015 30 July 2015 30 July 2015 30 July 2015 30 July 2015 30 July 2015 16 May 2016 16 May 2016 16 May 2016 28 February 2015 2 3 4 2 3 4 2 3 4 2 3 4 2 3 4 2 2 3 4 2 3 4 2 3 4 2 3 4 1 2 3 4 2 3 4 1 2 3 2 3 4 1 2 3 4 2 3 4 3 731 1,096 1,461 731 1,096 1,461 731 1,096 1,461 731 1,096 1,461 731 1,096 1,461 549 731 1,096 1,461 731 1,096 1,461 731 1,096 1,461 731 1,096 1,461 366 731 1,096 1,461 731 1,096 1,461 366 731 1,096 731 1,096 1,461 366 731 1,096 1,461 731 1,096 1,461 1,096 156 Pan African Resources integrated annual report 2016 Vesting date 11 May 2013 11 May 2014 11 May 2015 1 March 2015 29 February 2016 28 February 2017 13 July 2014 13 July 2015 13 July 2016 1 April 2015 1 April 2016 1 April 2017 1 June 2015 1 June 2016 1 June 2017 1 February 2015 1 August 2015 1 August 2016 1 August 2017 27 September 2015 27 September 2016 27 September 2017 13 November 2015 13 November 2016 13 November 2017 1 April 2016 1 April 2017 1 April 2018 1 May 2015 1 May 2016 1 May 2017 1 May 2018 27 May 2016 27 May 2017 27 May 2018 1 March 2016 1 March 2017 1 March 2018 30 July 2017 30 July 2018 30 July 2019 30 July 2016 30 July 2017 30 July 2018 30 July 2019 16 May 2018 16 May 2019 16 May 2020 28 February 2018 Valuation ZAR Options granted Options expected to vest 2.07 2.07 2.07 1.12 1.12 1.12 1.36 1.36 1.36 1.25 1.25 1.25 1.24 1.24 1.24 1.35 1.35 1.35 1.35 1.21 1.21 1.21 1.09 1.09 1.09 1.30 1.30 1.30 1.39 1.39 1.39 1.39 1.06 1.06 1.06 1.41 1.41 1.41 1.70 1.70 1.70 1.70 1.70 1.70 1.70 1.06 1.06 1.06 1,281,784 1,281,784 2,563,561 733,057 733,057 1,466,114 570,195 570,195 1,140,390 728,111 728,111 1,456,222 555,284 555,284 1,110,568 1,000,000 1,000,000 1,000,000 2,000,000 166,136 166,136 332,272 126,845 126,845 253,691 545,709 545,709 1,091,418 1,525,170 1,525,170 1,525,170 1,525,170 312,000 312,000 624,000 1,538,173 1,538,173 1,538,634 2,119,207 2,119,207 4,238,415 10,277,892 10,277,892 10,277,892 10,277,892 230,263 230,263 460,527 8,000,000 94,301,588 1,281,784 1,281,784 2,563,561 733,057 733,057 1,466,114 570,195 570,195 1,140,390 728,111 728,111 1,456,222 555,284 555,284 1,110,568 1,000,000 1,000,000 1,000,000 2,000,000 166,136 166,136 332,272 126,845 126,845 253,691 545,709 545,709 1,091,418 1,525,170 1,525,170 1,525,170 1,525,170 312,000 312,000 624,000 1,538,173 1,538,173 1,538,634 2,119,207 2,119,207 4,238,415 10,277,892 10,277,892 10,277,892 10,277,892 230,263 230,263 460,527 8,000,000 94,301,588 28. Long-term liabilities continued Vesting schedule 2015 Description Grant date Vesting period years Vesting period days Tranche 1 Tranche 2 Tranche 3 Tranche 1 Tranche 2 Tranche 3 Tranche 1 Tranche 2 Tranche 3 Tranche 1 Tranche 2 Tranche 3 Tranche 1 Tranche 2 Tranche 3 Tranche 1 Tranche 2 Tranche 3 Tranche 1 Tranche 2 Tranche 3 11 May 2011 11 May 2011 11 May 2011 1 March 2013 1 March 2013 1 March 2013 1 April 2013 1 April 2013 1 April 2013 1 May 2013 1 May 2013 1 May 2013 1 June 2013 1 June 2013 1 June 2013 1 July 2013 1 July 2013 1 July 2013 1 August 2013 1 August 2013 1 August 2013 Tranche 1 27 September 2013 Tranche 2 27 September 2013 Tranche 3 27 September 2013 Tranche 1 13 November 2013 Tranche 2 13 November 2013 Tranche 3 13 November 2013 Tranche 1 Tranche 2 Tranche 3 Tranche 1 Tranche 2 Tranche 3 Tranche 1 Tranche 2 Tranche 3 Tranche 1 Tranche 2 Tranche 3 Tranche 1 1 April 2014 1 April 2014 1 April 2014 27 May 2014 27 May 2014 27 May 2014 1 July 2014 1 July 2014 1 July 2014 1 March 2015 1 March 2015 1 March 2015 28 February 2015 2 3 4 2 3 4 2 3 4 2 3 4 2 3 4 2 3 4 2 3 4 2 3 4 2 3 4 2 3 4 2 3 4 2 3 4 1 2 3 3 Vesting date 10 May 2013 10 May 2014 10 May 2015 1 March 2015 29 February 2016 28 February 2017 1 April 2015 31 March 2016 31 March 2017 1 May 2015 30 April 2016 30 April 2017 1 June 2015 31 May 2016 31 May 2017 1 July 2015 30 June 2016 30 June 2017 1 August 2015 31 July 2016 31 July 2017 731 1,096 1,461 731 1,096 1,461 731 1,096 1,461 731 1,096 1,461 731 1,096 1,461 731 1,096 1,461 731 1,096 1,461 731 27 September 2015 1,096 26 September 2016 1,461 26 September 2017 731 13 November 2015 1,096 12 November 2016 1,461 12 November 2017 731 1,096 1,461 731 1,096 1,461 731 1,096 1,461 366 731 1,096 1,096 31 March 2016 31 March 2017 31 March 2018 26 May 2016 26 May 2017 26 May 2018 30 June 2016 30 June 2017 30 June 2018 29 February 2016 28 February 2017 28 February 2018 28 February 2018 ANNUAL FINANCIAL STATEMENTS Valuation ZAR Options granted Options expected to vest 3,572,511 3,572,511 7,145,023 859,828 859,828 3,572,511 3,572,511 7,145,023 859,828 859,828 1,719,653 1,719,653 850,121 850,121 850,121 850,121 1,700,241 1,700,241 871,859 871,859 871,859 871,859 1,743,713 1,743,713 563,864 563,864 563,864 563,864 1,127,727 1,127,727 245,455 245,455 490,909 1,500,000 1,500,000 3,000,000 221,515 221,515 443,030 126,845 126,845 253,691 727,612 727,612 245,455 245,455 490,909 1,500,000 1,500,000 3,000,000 221,515 221,515 443,030 126,845 126,845 253,691 727,612 727,612 1,455,224 1,455,224 391,250 391,250 782,500 1,525,170 1,525,170 3,050,339 1,538,173 1,538,173 1,538,634 8,000,000 391,250 391,250 782,500 1,525,170 1,525,170 3,050,339 1,538,173 1,538,173 1,538,634 8,000,000 58,439,090 58,439,090 0.91 0.91 0.91 0.39 0.39 0.39 0.46 0.46 0.46 0.54 0.54 0.54 0.46 0.46 0.46 0.46 0.46 0.46 0.52 0.52 0.52 0.45 0.45 0.45 0.39 0.39 0.39 0.51 0.51 0.51 0.39 0.39 0.39 0.57 0.57 0.57 0.59 0.59 0.59 – Pan African Resources integrated annual report 2016 157 Notes to the consolidated and separate Annual ﬁ nancial statements continued for the year ended 30 June 2016 29. Deferred taxation Consolidated Separate 30 June 2016 GBP 30 June 2015 GBP 30 June 2016 GBP 30 June 2015 GBP Note Arising from temporary differences relating to: Property, plant and equipment Provisions Investment in rehabilitation trust Other Net deferred tax liabilities Reconciliation of deferred tax liabilities: Net deferred liabilities at the beginning of the year Acquired from Uitkomst Colliery Deferred tax charge for the year Foreign currency translation reserve Net deferred liabilities at the end of the year Arising from temporary differences relating to: Provisions Other Reconciliation of deferred tax assets: Net deferred assets at the beginning of the year Sale of assets and liabilities to subsidiary Deferred tax credit for the year Foreign currency translation reserve Net deferred assets at the end of the year 47,689,097 (4,555,564) 2,726,840 (5,244,036) 40,616,337 39,288,059 2,818,212 (662,080) (827,854) 40,616,337 1,143,692 (26,600) 1,117,092 327,748 – 735,223 54,121 1,117,092 46,253,745 (4,407,102) 3,283,461 (5,842,045) 39,288,059 43,353,577 – (1,252,133) (2,813,385) 39,288,059 328,127 (379) 327,748 366,567 – (15,353) (23,466) 327,748 40 13 13 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 366,567 (365,023) – (1,544) – Assessed loss carried forward Unredeemed capital carried forward Total 30 June 2016 GBP 30 June 2015 GBP 30 June 2016 GBP 30 June 2015 GBP 30 June 2016 GBP 30 June 2015 GBP Phoenix Platinum Evander Mines 75,348 – 75,348 77,222 4,565,108 4,642,330 5,008,780 13,515,292 18,524,072 4,967,775 16,684,726 21,652,501 5,084,128 13,515,292 18,599,420 5,044,997 21,249,834 26,294,831 Deferred tax assets have been raised on the basis that the individual group companies will, in the future be able to generate taxable economic beneﬁ ts to utilise current deductible temporary differences. Deferred taxation rates applied within the group: The deferred tax rate used to calculate deferred tax is based on the current estimate of future proﬁ tability when temporary differences will reverse. Deferred taxation rates applied within the group: Barberton Mines Evander Mines Phoenix Platinum Uitkomst Colliery Other companies 158 Pan African Resources integrated annual report 2016 Consolidated 30 June 2016 % 30 June 2015 % 28 25.5 28 28 28 28 26.5 28 28 28 ANNUAL FINANCIAL STATEMENTS 30. Financial instruments The group manages its capital to ensure that it will be able to continue as a going concern while maximising the sustainable return to shareholders through the optimisation of the debt and equity ratios. The group’s overall strategy remains unchanged from the prior year. Components of capital and ﬁ nancial covenants: Cash and cash equivalents Interest-bearing debt/Gold loan Net interest-bearing liabilities/(assets) Equity Consolidated Separate 30 June 2016 GBP 30 June 2015 GBP 30 June 2016 GBP 30 June 2015 GBP (2,658,947) (3,328,850) 77,660 888,498 19,830,978 17,172,031 19,968,204 16,639,354 – – 77,660 888,498 150,975,202 147,167,487 168,765,155 147,925,939 Net debt to equity ratio (ratio)1 0.11 0.11 Finance costs of the revolving credit facilities 1,317,577 1,271,063 0.00 – 0.01 – Earnings before interest and taxation 34,741,770 17,912,084 13,421,553 53,554,603 Interest cover ratio Adjusted EBITDA is represented by earnings before interest, taxation, depreciation and amortisation, loss on disposal of associate, impairments and loss on disposal of assets held for sale 26 14 – – 45,197,899 28,447,689 13,421,553 53,752,997 Net debt to adjusted EBITDA 0.38 0.58 0.01 0.02 Financial covenant limits: The ratio of the net debt to equity must be less than 1:1 (measured semi-annually). The interest cover ratio must be greater than four times (measured semi-annually). The ratio of net debt to adjusted EBITDA must be less than 2.5:1 (measured semi-annually). Categories of ﬁ nancial instruments: Financial assets2: Cash and cash equivalents Listed available-for-sale investment Rehabilitation trust fund Receivables Financial liabilities: Trade and other payables Long-term liabilities Financial instrument liabilities Current portion of long-term liabilities 2,658,947 3,328,850 77,660 1,269,228 904,710 1,269,228 16,253,708 16,181,925 10,233,634 5,731,102 – – 888,498 904,710 – – 18,371,232 16,460,119 257,837 213,861 25,437,020 21,360,460 5,945,399 6,980,711 – 5,047,478 – – – – – – 1 Net debt is calculated on cash and cash equivalents less interest-bearing debt. 2 At year-end the group did not have trade receivables that are past overdue and not impaired. Pan African Resources integrated annual report 2016 159 Notes to the consolidated and separate Annual ﬁ nancial statements continued for the year ended 30 June 2016 30. 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 any ﬁ nancial derivatives is approved by the board of directors, who also on a continuous basis provide guidance on managing 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. Exposure limits are 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 ﬁ nancial position are net of allowances for doubtful receivables of GBP44,233 (2015: GBP30,504) relating to other receivables, estimated by the group’s management based on the current economic environment and individual debtor circumstances. The credit risk on liquid funds is limited because the counterparties are dealt with in accordance with the group’s credit policy. Financial institutions are a major customer that represents more than 5% of the trade receivables balance for the individual gold mining subsidiaries (Barberton Mines and Evander Mines), and Western Platinum Limited (subsidiary of Lonmin PLC) is the one major customer that represents more than 5% of the trade receivables balance of Phoenix Platinum. ArcelorMittal, Calcial is a major customer that represents more than 5% of the trade receivables balance of Uitkomst Colliery. Customers above 5% Financial institutions Western Platinum Limited (subsidiary of Lonmin PLC) ArcelorMittal Provision for doubtful debtors Consolidated 30 June 2016 GBP 30 June 2015 GBP 6,332,277 896,151 843,476 4,233,646 1,497,456 – 8,071,904 5,731,102 44,233 30,502 Market risk The group’s activities expose it primarily to the ﬁ nancial risks of changes in foreign currency exchange rates, commodity prices and investments . 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. Investment risk is managed by reviewing the portfolio’s constitution, risk proﬁ le and returns on an annual basis. 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. The group speciﬁ cally ensures USD receipts are converted into ZAR as efﬁ ciently as possible. Commodity price and foreign exchange rate risk The group may enter into forward contracts to hedge its exposure to ﬂ uctuations in commodity prices and exchange rates on speciﬁ c transactions. The contracts are matched with anticipated future cash ﬂ ows from sales receipts. Interest rate and liquidity risk Fluctuations in 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. 160 Pan African Resources integrated annual report 2016 ANNUAL FINANCIAL STATEMENTS 30. Financial instruments continued Currency and commodity price risk Currency and gold spot price GBP/ZAR exchange rate USD/ZAR exchange rate USD gold spot price (USD/oz) received Foreign currency/gold price sensitivity 2016 2015 30 June 2016 30 June 2015 Closing rate Average rate Closing rate Average rate 19.78 14.78 21.45 14.51 19.30 12.28 18.00 11.45 Consolidated 30 June 2016 30 June 2015 1,164 1,212 Impact of 10% currency or gold price movement on proﬁ t GBP 11,983,681 9,936,378 The pound sterling carrying amount of the group’s foreign currency denominated monetary assets and liabilities at statement of ﬁ nancial position date is as follows: 2016 Assets Liabilities 2015 Assets Liabilities Impact of 10% currency movement on translation reserve GBP1 21,949,063 32,211,139 19,953,694 29,282,854 17,217,727 22,350,305 15,652,479 20,318,459 1 The functional currency within the group is ZAR therefore the sensitivity details the effect of the ZAR/GBP exchange rate on the foreign currency translation reserve. Pan African Resources integrated annual report 2016 161 Notes to the consolidated and separate Annual ﬁ nancial statements continued for the year ended 30 June 2016 30. Financial instruments continued Commodity zero cost collar The group entered into two zero cost collar gold transactions during the year, similar to transactions that were undertaken in the prior year. During the current ﬁ nancial year, the group realised a loss of GBP5,307,692 upon agreeing to realise one contract and measuring the other contract as ﬁ nancial liability at year-end. Financial instruments (derivatives) Opening balance Financial instruments during the year Fair valuing of ﬁ nancial instruments Financial instruments realised during the year Foreign currency translation reserve Closing balance Cost collar derivative proﬁ ts Losses unrealised from fair value measurement Cash proﬁ ts realised on the statement of comprehensive income Consolidated Separate 30 June 2016 GBP 30 June 2015 GBP 30 June 2016 GBP 30 June 2015 GBP – (5,307,692) – (180,996) (456,711) (5,945,399) – 2,486,608 – (2,486,608) – – – – – – – – – – – – – – Consolidated 30 June 2016 30 June 2015 (5,482,517) 174,825 (5,307,692) – 2,486,608 2,486,608 162 Pan African Resources integrated annual report 2016 ANNUAL FINANCIAL STATEMENTS 30. Financial instruments continued Commodity zero cost collar continued Terms of the zero cost collar gold transaction: 30 June 2016 30 June 2015 Contract one Contract two Contract one Contract two Contract three 28 July 2015 4 March 2016 30 September 2014 30 September 2014 1 July 2014 Gold Gold Gold Gold Gold 25,000 ounces (776 kilograms) Asian 10,000 ounces (311 kilograms) Asian 22,500 ounces (700 kilograms) Asian 40,000 ounces (1,244 kilograms) Asian 70,000 ounces (2,177 kilograms) Asian Call Call Call Call Call FirstRand Bank Limited From and including 1 October 2016, to and including 30 September 2017 (1 year) ZAR505,000 per kilogram Nedbank Limited Absa Bank Limited From and including 7 March 2016, to and including 30 June 2016 (4 months) ZAR694,000 per kilogram From and including 1 October 2015, to and including 30 September 2016 (1 year) ZAR435,000 per kilogram FirstRand Bank Limited From and including 1 October 2014, to and including 30 September 2015 (1 year) ZAR484,000 per kilogram FirstRand Bank Limited From and including 1 July 2014, to and including 30 June 2016 (2 years) ZAR529,008 per kilogram 28 July 2015 4 March 2016 30 September 2014 30 September 2014 1 July 2014 Gold Gold Gold Gold Gold 50,000 ounces (1,555 kilograms) Asian 10,000 ounces (311 kilograms) Asian 45,000 ounces (1,400 kilograms) Asian 40,000 ounces (1,244 kilograms) Asian 70,000 ounces (2,177 kilograms) Asian Put Put Put Put Put FirstRand Bank Limited From and including 1 October 2016, to and including 30 September 2017 (1 year) ZAR450,000 per kilogram (5,482,517) Nedbank Limited Absa Bank Limited From and including 7 March 2016, to and including 30 June 2016 (4 months) ZAR600,000 per kilogram 174,825 From and including 1 October 2015, to and including 30 September 2016 (1 year) ZAR435,000 per kilogram 922,719 FirstRand Bank Limited From and including 1 October 2014, to and including 30 September 2015 (1 year) ZAR425,000 per kilogram 966,667 FirstRand Bank Limited From and including 1 July 2014, to and including 30 June 2016 (2 years) ZAR440,015 per kilogram 597,222 Call option terms: Trade date Commodity Total notional quantity Option style Option type Commodity option buyer Option term Strike price per unit Put option terms: Trade date Commodity Total notional quantity Option style Option type Commodity option buyer Option term Strike price per unit Realised and unrealised (losses)/proﬁ ts1 1 Financial losses incurred during the year were not settled by year-end. Settlements will commence from October 2016. Proﬁ ts realised during the year were redeemed during the 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. Pan African Resources integrated annual report 2016 163 Notes to the consolidated and separate Annual ﬁ nancial statements continued for the year ended 30 June 2016 30. Financial instruments continued Interest rate sensitivity The group has, at year-end, drawn down on its revolving credit facility, which is quoted on JIBAR rates (refer to note 28). Refer below for revolving credit facility loan sensitivity on interest rate variations. Interest rate variation impact on the revolving credit facility loan 10% decrease in interest rates 5% decrease in interest rates Revolving credit facility 5% increase in interest rates 10% increase in interest rates ZAR GBP 310,383,474 310,404,778 310,426,082 310,447,386 310,468,690 15,691,783 15,692,860 15,693,937 15,695,014 15,696,092 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. This framework involves constant weekly monitoring of the group’s cash position, cash ﬂ ow forecast, and matching maturity proﬁ les of ﬁ nancial assets and liabilities to enable management of the liquidity risk by maintaining adequate reserves, banking facilities and reserve borrowings facilities. The group has access to ﬁ nancing facilities from the revolving credit facility and the general banking facilities, through the Funding Company, of which GBP15,672,396 (2015: GBP12,694,301) relating to the revolving credit facility was drawn down and GBP2,527,806 (2015: nil) relating to the general banking facility was drawn down as at year-end. A gold loan of GBP4,137,041 (30 June 2015: GBP7,235,699) was outstanding at year-end (refer to note 28). The group expects to meet its other obligations from operating cash ﬂ ows and proceeds of maturing ﬁ nancial assets. Liquidity risk analysis The following table indicates the group’s remaining contractual maturity from its ﬁ nancial liabilities: Group 2016 Trade and other payables Long-term liabilities (non-interest bearing) Long-term liabilities (interest-bearing) Financial instrument liabilities Other short-term liabilities 2015 Trade and other payables Long-term liabilities (non-interest bearing) Long-term liabilities (interest-bearing) Other short-term liabilities Separate 2016 Trade and other payables Long-term liabilities Other short-term liabilities 2015 Trade and other payables Long-term liabilities Other short-term liabilities 164 Pan African Resources integrated annual report 2016 Weighted average interest rate % Less than 12 months GBP 1 – 5 years GBP Total GBP – – 9.60 – – – – 8.46 – – – – – – – 18,371,232 5,528,602 1,452,109 5,945,399 – 16,460,119 3,928,919 1,118,559 – – 4,214,481 14,241,828 – – – 4,699,036 11,613,946 – 18,371,232 9,743,083 15,693,937 – – 16,460,119 8,627,955 12,732,505 – 257,837 – – 213,861 – – – – – – – 257,837 – – 213,861 – – ANNUAL FINANCIAL STATEMENTS 30. Financial instruments continued Fair value of ﬁ nancial instruments The directors consider that the carrying amounts of ﬁ nancial assets and liabilities recorded approximate their fair values. Fair value hierarchy The following is an analysis of the ﬁ nancial instruments that are measured at fair value. They are grouped into levels I to 3 based on the extent to which fair value is observable. The levels are classiﬁ ed as follows: Level 1 – fair value is based on quoted prices in active markets for identical ﬁ nancial assets or liabilities Level 2 – fair value is determined using inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (i.e. prices) or indirectly (i.e. derived from prices) Level 3 – fair value is determined on inputs not based on observable market data. 30 June 2016 Financial assets1 Rehabilitation trust fund2 Cash-settled share option liability3 ESOP transactions liabilities4 Derivative ﬁ nancial liabilities5 30 June 2015 Financial assets1 Rehabilitation trust fund Cash-settled share option liability3 ESOP transactions liabilities4 Level 1 GBP Level 2 GBP Level 3 GBP Total GBP 1,269,228 16,253,708 – – (5,945,399) 904,710 16,181,925 – – – (5,260,208) – – – (1,304,343) – – – – (281,143) – – – (9,378) 1,269,228 16,253,708 (5,260,208) (281,143) (5,945,399) 904,710 16,181,925 (1,304,343) (9,378) 1 The fair value of the listed investment is treated as level 1 of the fair value hierarchy, as its market share price is quoted on a stock exchange. 2 The rehabilitation trust fund is treated as level 1 of the fair value hierarchy as the contributions are invested in a number of market-related instruments, including market- related interest-bearing short-term deposits, medium-term equity-linked notes issued by commercial banks, equity share portfolios managed by asset managers. 3 Cash-settled share option liability is valued on a mark-to-market basis according to the company’s quoted share price. Refer to note 28 for further inputs. 4 The group’s ESOP liability is accounted on a cash-settled share option basis (refer to note 39 for further description and terms of the transactions). The valuation of the liability relates to the group’s gold operations, Evander Mines and Barberton Mines, and was performed by ZAQ consultants and actuaries. The liability was valued as a European call option with the following assumptions used: Loan amount at issue Barberton Mines ZAR99,500,000 Evander Mines ZAR146,000,000 Spot price (model provided by management) Determined using discounted cash ﬂ ow model Determined using discounted cash ﬂ ow model Strike price Remaining option life Volatility Risk-free interest rate Annual dividend yield (continuously compounding) Final valuation (refer to note 39 for complete reconciliation) preference share + preference dividend – dividends preference share + preference dividend – dividends 8 years 40% Swap curve based 12% GBP123,812 9 years 40% Swap curve based 12% GBP16,127 At year-end Evander Mines ESOP liability includes a trickle dividend to the employees which was accrued but not paid. Management determines fair value based on observable market data (in case of listed assets and liabilities) or discounted cash ﬂ ows (and other valuation methods) using assumptions considered to be reasonable and consistent with those that would be applied by a market participant for unquoted assets and liabilities. Where discounted cash ﬂ ows are used and other valuation techniques, the determination of the assumptions used in assessing the fair value of identiﬁ able assets and liabilities is subjective and the use of different valuation could have a signiﬁ cant impact on ﬁ nancial results. Therefore management follows a particular process in determining reasonable assumptions for the valuation of identiﬁ able assets and liabilities. Pan African Resources integrated annual report 2016 165 Notes to the consolidated and separate Annual ﬁ nancial statements continued for the year ended 30 June 2016 30. Financial instruments continued Fair value hierarchy continued 4 Note 4 continued: Sensitivity on changes in volatility Volatility at 10% Volatility at 20% Volatility at 30% Volatility at 40% Sensitivity on changes in risk-free rate Risk-free rate -1% Risk-free rate +1% Sensitivity on discount to share price 0% discount 10% discount 20% discount Barberton Mines GBP Evander Mines GBP 3,539 34,580 78,261 123,812 115,420 132,457 123,812 101,517 80,738 – 113 3,640 16,127 280,000 362,000 319,000 246,000 183,000 30 June 2016 1,318.40 625,251.64 Zero-coupon bond 3-months 19.272% 5 The derivative ﬁ nancial liability is treated as a level 1 of the fair value hierarchy due to the following market-related inputs used in the valuation: USD gold price ZAR gold price Risk-free rate Historical volatility 31. Post-retirement beneﬁ t information The majority of employees are required to be members of either the Barberton Pension Umbrella Fund, Sentinel Retirement Fund, 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 GBP4,796,674 (2015: GBP5,503,560) at group level and nil (2015: nil) at company level represent employer contributions payable to the schemes by the group and company 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. The balance of post-retirement medical beneﬁ ts were GBP64,690 (2015: GBP78,535). 32. Commitments, contingent liabilities and guarantees Commitments The group had outstanding open orders contracted for at year-end of GBP641,876 (2015: GBP1,182,823). Authorised commitments for the new ﬁ nancial year not yet contracted for totalled GBP17,489,848 (2015: GBP14,046,896). Contingent liabilities The group had no contingent liabilities in the current ﬁ nancial year or prior year. Guarantees The group had guarantees of GBP1,243,332 (2015: GBP1,274,254) in favour of Eskom, GBP1,028,237 (2015: GBP724,809) in favour of the Department of Mineral Resources, other ﬁ nancial guarantees of GBP776,036 (2015: GBP795,336) and GBP333,670 relating to Transnet SOC Limited at year-end. Company There were no commitments, contingent liabilities and guarantees for the company for the year ended 30 June 2016 (2015: nil), except for the operating lease commitments disclosed in note 7. 166 Pan African Resources integrated annual report 2016 ANNUAL FINANCIAL STATEMENTS 33. Directors’ emoluments The key management personnel for which remuneration has been disclosed below are considered to be the executive directors, non-executive directors, RA Holding and prescribed ofﬁ cers: Executive directors Emoluments Share options exercised Total Non-executive directors Emoluments Share options exercised Total Total remuneration Consolidated Separate Year ended 30 June 2016 GBP Year ended 30 June 2015 GBP Year ended 30 June 2016 GBP Year ended 30 June 2015 GBP 724,634 38,695 763,329 196,960 – 196,960 960,289 747,100 295,662 1,042,762 139,508 110,845 250,353 1,293,115 – – – – – – 196,960 – 196,960 196,960 139,508 110,845 250,353 250,353 Share option taxable beneﬁ t GBP Basic remune- ration GBP Retire- ment fund GBP Life and disability plan GBP Allow- ances GBP Other remune- ration GBP Bonuses6 GBP Total 30 June 2016 GBP Total 30 June 2015 GBP 38,695 – – 38,695 144,428 128,205 – 272,633 8,978 – – 8,978 1,372 – – 1,372 10,767 1,204 – 11,971 – – – – 250,769 178,911 – 429,680 455,009 308,320 – 763,329 421,961 51,869 568,932 1,042,762 Share option taxable beneﬁ t GBP – – – – – – Basic remune- ration GBP Retire- ment fund GBP Life and disability plan GBP Directors’ fee7 GBP Other remune- ration GBP Bonuses GBP Total 30 June 2016 GBP Total 30 June 2015 GBP – – – – – – – – – – – – – – – – – – – 59,697 47,455 45,754 44,054 196,960 – – – – – – – – – – – – – 59,697 47,455 45,754 44,054 196,960 27,788 152,554 27,676 24,607 17,728 250,353 Executive Mr JAJ Loots3 Mr GP Louw4 Mr RA Holding2 Total Non-executive Mrs P Mahanyele1 Mr KC Spencer8 Mrs HH Hickey Mr T Mosololi Mr RM Smith5 Total 1 Directors’ fees accruing are paid by the company to Shanduka Group Proprietary Limited. 2 Mr RA Holding resigned as Chief Executive Ofﬁ cer with effect from 1 March 2015. 3 Mr JAJ Loots was appointed Chief Executive Ofﬁ cer with effect from 1 March 2015. 4 Mr GP Louw was appointed as Financial Director with effect from 1 March 2015. 5 Mr RM Smith was appointed as a non-executive director from 8 September 2014. See notes 6, 7 and 8 on next page. Pan African Resources integrated annual report 2016 167 Notes to the consolidated and separate Annual ﬁ nancial statements continued for the year ended 30 June 2016 33. Directors’ emoluments continued Share option taxable beneﬁ t GBP Basic remune- ration GBP Retire- ment fund GBP Life and disability plan GBP Allow- ances GBP Other remune- ration GBP Bonuses GBP Total 30 June 2016 GBP Total 30 June 2015 GBP Prescribed ofﬁ cers Mr A van den Bergh Mr A Karigeni Mr C Strydom Mr M da Silva (resigned on 23 April 2015) Mr BFM Malunga Mr B McLeod 143,655 27,137 187,529 117,831 109,258 106,917 4,874 17,826 12,359 – 2,226 – 2,738 4,459 3,848 – – 20,140 – 101,536 65,397 – 12,418 10,205 – – 1,274 – 8,392 2,485 – – – – – – 103,026 108,728 74,176 372,124 269,634 384,829 189,816 170,180 154,225 – 62,354 78,977 – 184,700 178,478 129,978 15,046 102,169 6 At the end of the ﬁ nancial year executive directors had the following bonuses accruing but not yet paid: Executive Mr JAJ Loots Mr GP Louw Transactional bonus GBP 186,480 93,240 279,720 These bonuses arose a result of executive directors’ stewardship in ﬁ nalising and concluding the Shanduka Gold transaction (refer to note 41). 7 At the end of the ﬁ nancial year non-executive directors had the following additional fees accruing but not year paid: Non-executive Mr KC Spencer Mrs HH Hickey Mr T Mosololi Mr RM Smith Additional fees GBP 20,979 20,979 20,979 20,979 83,916 The additional fees arose as a result of extra time and detailed consideration required from the non-executive directors, during the negotiation and ﬁ nalisation of the Shanduka Gold transaction deal (refer to note 41). 8 Mr KC Spencer’s remuneration in the prior year includes GBP110,845 relating to taxable share option beneﬁ t for the exercise of equity-settled share options. 168 Pan African Resources integrated annual report 2016 ANNUAL FINANCIAL STATEMENTS 33. Directors’ emoluments continued No changes occurred during the year in respect of director appointments and resignations. No retirement fund contributions are currently made by the company on behalf of non-executive directors. 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: 30 June 2016 Board of directors Remuneration committee Audit committee (Mrs HH Hickey as Chairperson) SHEC committee Nominations committee Retainer Additional director fees (refer to note above) Mr KC Spencer (Chairman) GBP 28,906 – – 5,101 2,380 2,331 20,979 59,697 Mrs HH Hickey GBP Mr T Mosololi GBP Mr RM Smith GBP 13,263 – 5,101 3,401 2,380 2,331 20,979 47,455 13,263 3,401 3,400 – 2,380 2,331 20,979 45,754 13,263 5,101 – – 2,380 2,331 20,979 44,054 Mr KC Spencer (Chairman) GBP Ms P Mahanyele (Deputy Chairperson) GBP Mrs HH Hickey GBP Mr T Mosololi GBP Mr JAJ Loots GBP 35,506 21,999 17,754 17,754 13,692 – 5,789 – 3,859 3,859 30 June 2015 Board of directors Remuneration committee (Deputy Chairperson as Chairperson) Audit committee (Mrs HH Hickey as Chairperson) SHEC committee Nominations committee – 5,789 – 41,295 – – – 27,788 Options granted/ (exercised) during the period 5,789 3,859 – 27,402 3,859 – – 25,472 Grant/ (exercise) date Grant/ (exercise) price pence Trans- ferred out Total options outstanding 1 July 2014 Grant date Strike price pence Mr KC Spencer 1,500,000 21 July 2008 5,2 (1,500,000) Mr RA Holding Mr JAJ Loots 1,500,000 1 September 2013 1,150,000 1 September 2013 – – (1,500,000) (1,150,000) Total 4,150,000 (4,150,000) 19 March 2015 28 February 2015 28 February 2015 – – – – – – – – – – 17,551 Total options 30 June 2015 – – – – Pan African Resources integrated annual report 2016 169 Notes to the consolidated and separate Annual ﬁ nancial statements continued for the year ended 30 June 2016 33. Directors’ emoluments continued Directors’ dealings in shares Financial year 30 June 2016 There were no director dealings in securities during the year. Financial year 30 June 2015 On 19 March 2015 1,500,000 shares were issued at 5 pence per share to Mr KC Spencer’s Strode Trust, upon exercising historical share options. At 30 June 2015 the Strode Trust held a total of 3,000,000 shares (2014: 1,500,000). During the year under review Mr T Mosololi participated in the following transactions in the company’s shares: • On 6 March 2015, purchased 2,000 shares at ZAR2.04 per share • On 9 March 2015, purchased 28,000 shares at ZAR2.07 per share. At 30 June 2015 Mr T Mosololi held a total of 30,000 shares (2014: nil). Cash-settled options Total options outstanding 1 July 2015 Grant date Strike price pence Options granted/ (exercised) during the period Grant/ (exercise) date Grant/ (exercise) price pence Options forfeited Total options 30 June 2016 Listed per grant/ exercise Mr JAJ Loots Mr GP Louw Mr C Strydom1 Mr C Strydom1 Mr C Strydom1 Mr A van den Bergh1 Mr A van den Bergh1 Mr A van den Bergh1 Mr A Karigeni1 Mr A Karigeni1 Mr B Malunga1 Mr P Human1 Mr P Human1 Mr RA Holding Mr RA Holding 9 May 2011 1 May 2014 5,000,000 29 August 2013 1 March 2015 4,614,979 9 May 2011 2,325,000 1 May 2014 1,268,206 – 1,812,590 2,460,399 – 2,910,448 – – – 9 May 2011 1,935,000 9 May 2011 5,127,134 1,000,000 29 August 2013 28,453,756 1 April 2014 0.13 0.12 0.11 0.12 – 0.11 0.12 – 0.13 – – 0.11 0.11 0.13 0.12 (1,000,000) – (2,325,000) – 3,764,929 (1,812,590) – 3,762,889 (727,612) 3,007,647 4,801,829 2,501,368 (1,935,000) – – 10,038,460 18 March 2016 30 July 2015 18 March 2016 30 July 2015 18 April 2016 30 July 2015 30 July 2015 30 July 2015 18 March 2016 0.13 – 0.11 0.08 0.11 – 0.08 0.13 0.08 0.08 0.08 0.11 – – 0.10 – – – – – – – – – – – – – – – – 4,000,000 4,614,979 – 1,268,206 3,764,929 – 2,460,399 3,762,889 2,182,836 3,007,647 4,801,829 2,501,368 – 5,127,134 1,000,000 38,492,216 1 Highest paid non-directors. 170 Pan African Resources integrated annual report 2016 ANNUAL FINANCIAL STATEMENTS 34. Equity-settled 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: • 33.33% of the total number of shares allocated after one year has elapsed from the grant date by the participant of the grant • 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 • The balance of the shares allocated after three years have elapsed from the grant date by the participant of the grant • 25% of the total number of shares allocated after one year has elapsed from the grant date by the participant of the grant • 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 • 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 • 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’s 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 resignation, retirement, redundancy or disability of the option holder. During the 2014 ﬁ nancial year, an equity-linked incentive was implemented for the then newly appointed executive directors. The terms of the scheme are as follows: Total number of potential shares Grant date Vesting date Vesting period Exercise price 2,650,000 1 September 2013 28 February 2015 18 months nil Market conditions to be met In the event that the 30-day volume weighted average price (VWAP) JSE share price of Pan African Resources has outperformed the JSE gold index by 10% or more during the 18-month period starting 1 September 2013, 1,750,000 ordinary shares of Pan African Resources will be issued by the vesting date, or alternatively cash settled. In the event that the 30-day VWAP JSE share price of Pan African Resources has outperformed the JSE gold index by 25% or more during the 18-month period starting 1 September 2013, further 900,000 ordinary shares of Pan African Resources will be issued by the vesting date, or alternatively cash settled. The remuneration committee may elect to settle the obligation in cash, should it be unable to issue shares, provided that the beneﬁ ciary is in a net neutral position, after taking account of taxes and other costs. During the prior year, the above mentioned equity-linked incentives vested and were redeemed through a cash consideration by the respective directors. Pan African Resources integrated annual report 2016 171 Notes to the consolidated and separate Annual ﬁ nancial statements continued for the year ended 30 June 2016 34. Equity-settled share options continued The transaction was treated as an equity-based share option transaction by the group, throughout the vesting period and settled by cash on exercise date. Refer below: Opening balance equity reserve 30 June 2013 Equity expense for the year Closing balance 30 June 2014 Equity expense for the year Cash settlement on redemption Closing balance 30 June 2015 The number and weighted average exercise price of share options is as follows: ZAR – 2,008,779 2,008,779 3,313,149 (5,321,928) – GBP – 119,003 119,003 184,064 (303,067) – Outstanding at 1 July Granted during the year Forfeited Exercised during the year Outstanding 30 June 30 June 2016 30 June 2015 Weighted average exercise price Number of options Weighted average exercise price 1.9p – – – 1.9p 1,122,000 – – – 1,122,000 5.3p – – 1.7p 1.9p Number of options 5,272,000 – – (4,150,000) 1,122,000 30 June 2016 30 June 2015 Vested Unvested Vested Unvested Total number share options at year-end 1,122,000 – 1,122,000 – 172 Pan African Resources integrated annual report 2016 ANNUAL FINANCIAL STATEMENTS 34. Equity-settled share options continued The fair value of services rendered for share options granted is based on the fair value of share options granted, measured by using a Black Scholes model for all issues prior to 20 March 2010 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 FTSE/JSE SA Gold Mining Index at grant date Risk-free interest rate Last fair value measurements 30 June 2014 30 June 2010 30 June 2008 2.06 Nil 30% 18 months 1,304,10 6.03% ZAR0.68 ZAR0,.68 58.61% 3 – 6 years n/a 8.15% ZAR0.62 ZAR0.70 72.39% 1 – 3 years n/a 5.31% A company dividend rate has not 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 except the share options issued during the 2014 ﬁ nancial year. The group recognised total expenses of nil (2015: GBP184,064) related to equity-settled share-based payment transactions during the reporting period. Participation in share-based and other long-term incentive schemes is restricted to employees and directors. Pan African Resources integrated annual report 2016 173 Notes to the consolidated and separate Annual ﬁ nancial statements continued for the year ended 30 June 2016 35. Related party transactions The group entered into the following transactions and held year-end balances with related parties: 30 June 2016 Statement of comprehensive income transactions Dividends received from Barberton Mines Management fee Finance charges – inter-company Gold purchases from Evander Gold Mines Limited Cost of gold production income invoiced to Evander Gold Mines Limited Statement of ﬁ nancial position Pan African Resources receivables Pan African Resources payables Funding Company receivables Funding Company payables PAR Management Services receivables PAR Management Services payables Payables to Shanduka Pan African Resources Coal Holding receivables Barberton Mines receivables Evander Gold Mining Proprietary Limited payable 30 June 2015 Statement of comprehensive income transactions Dividends received from Barberton Mines Management fee Management fee – Shanduka Directors’ fees expense to Shanduka Finance charges – inter-company Gold purchases from Evander Gold Mines Limited Cost of gold production income invoiced to Evander Gold Mines Limited Statement of ﬁ nancial position Pan African Resources receivables Pan African Resources payables Funding Company receivables Funding Company payables PAR Management Services receivables PAR Management Services payables Payables to Shanduka Pan African Resources Coal Holding receivables Barberton Mines receivables Evander Gold Mines Limited receivables Evander Gold Mines Limited payable Evander Gold Mining Proprietary Limited payable Pan African Resources GBP Funding Company GBP PAR Management Services GBP 13,892,774 – – – – 51,716,563 (7,038,314) – – – – – – – – 54,709,384 – – (27,788) – – – 31,369,774 (7,213,541) (181) – – 1,060,195 – – – – – – – – 1,130,359 – – (19,019,040) – 8,926,860 (2,373,966) – – – – – – – – – 1,309,082 – – – 181 12,029,355 (155,440) – 243,782 – – – – – – – 2,749,883 (135,868) – – (87,504) – (2,782,018) 3,820,393 – 111,862 – – – – 3,068,106 (177,778) (16,450) – – (1,060,195) – (243,782) 2,712,694 (1,303,977) (170,831) – – – – – 1 Evander Gold Mines Limited and Evander Gold Mining Proprietary Limited are collectively referred to as Evander Mines due to an interim-mining arrangement in place since 1 March 2013, until such time that the inter-company mining right transfer occurs. Refer to investment in subsidiaries and investment in associate (note 19) for the nature of relationships of the related parties to the company. Refer to directors’ emoluments (note 33), for key management remuneration under related parties. In addition to the related party transactions identiﬁ ed above, the acquisition of Uitkomst Colliery and PAR Gold were identiﬁ ed as related party transactions. Refer to notes 40 and 41. 174 Pan African Resources integrated annual report 2016 ANNUAL FINANCIAL STATEMENTS Pan African Resources Coal Holding GBP Phoenix Platinum GBP Uitkomst Colliery GBP Barberton Mines GBP Evander Gold Mining Proprietary Limited1 GBP Evander Gold Mines Limited1 GBP Emerald Panther GBP Evander subsidiaries GBP – – – – – (3,033,367) – (13) – – – (4,853,387) – – – – – – – – – – – – – – – – – – – – (107,226) 79,849 – – (7,027,516) – 2,373,966 (137,550) – – – – – – (152,778) – (4,605) – – (7,202,293) – 155,440 (162,435) – – – – – – 2,212,476 – (65,734) 7,490 – – (13,892,774) (1,439,394) (331,029) – – – (1,137,529) (750,800) (54,211,073) 53,674,330 – – – 54,211,073 (53,674,330) – – (775,498) – (236,876) – – – – – – 2,499,505 (4,288,073) – (1,917,383) – – 4,853,387 25,634 (48,128,871) (22,549,136) – (1,081,258) – (1,528,584) – – – (25,634) 48,128,871 – 4,531,387 – – – – – – – – – – – – – – – – – – – – – – – – – – (54,709,384) (1,666,667) (62,702) – (1,248,661) – – – – (57,776) – – (1,230,251) (54,916,954) 54,373,221 – 54,916,954 (54,373,221) – 2,561,669 (699,055) – (865,285) – – – – – – (23,107,286) – (11,080,476) – (1,684,974) – – – – – – (50,032,949) – 4,644,085 (5,861) – – – – – – 153,566 6,596,733 47,820,473 – – – – – – 7,422 – – – – – – – – – – – – – – – 7,606 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – (153,566) 6,596,733 – Pan African Resources integrated annual report 2016 175 Notes to the consolidated and separate Annual ﬁ nancial statements continued for the year ended 30 June 2016 36. Non-current asset held for sale The carrying value of non-current assets held for sale on 30 June 2016 is as follows: Opening balance Building and infrastructure Closing balance Consolidated Separate 30 June 2016 GBP 30 June 2015 GBP 30 June 2016 GBP 30 June 2015 GBP – 66,873 66,873 – – – – – – – – – An offer to purchase was signed on 28 June 2016 with a third party for the purchase of the building property, situated at 36 Gemsbok Avenue, Newcastle. The purchase price agreed upon is ZAR1.3 million. The building property came with the acquisition of Uitkomst Colliery, and is currently used an administrative ofﬁ ce for the coal operation. 37. Events after the reporting period No material subsequent events were noted after the reporting period. 38. Reconciliation of proﬁ t before taxation to cash generated by/(used in) operations Proﬁ t before taxation Adjusted for: Impairment Equity and cash-settled share options costs Net ﬁ nance income – bank Net ﬁ nance income – rehabilitation trust fund Net ﬁ nance income – other Net ﬁ nance income – provision for rehabilitation Net ﬁ nance income – SARS Loss/(proﬁ t) on disposal of assets Royalty costs Loss on disposal of associate/sale of asset held for sale Loss on associate Financial instruments Decrease in provision for environmental rehabilitation Fair value adjustment on gold loan Fair value adjustment on rehabilitation trust fund Non-mining depreciation Mining depreciation Gold loan amortisation Non-cash items Other Operating cash ﬂ ows before working capital changes Working capital changes Decrease/(increase) in inventories (Increase)/decrease in trade and other receivables (Decrease)/increase in trade and other payables Non-cash items Consolidated Separate 30 June 2016 GBP 30 June 2015 GBP 30 June 2016 GBP 30 June 2015 GBP 33,735,648 21,521,444 – 5,274,697 1,018,303 (13,352) 1,124 – 47 2,767 2,799,947 – – 5,482,517 (1,780,288) – (414,955) 36,617 10,456,129 (2,747,333) 1,424,824 (19,600) 55,257,092 (4,200,122) 134,804 (3,847,888) (117,539) (369,499) 15,802,756 9,765,769 58,424 478,691 1,073,721 (56,488) (36,844) 1,094,191 34,748 149 1,647,297 139,970 127,950 – – (120,490) (1,827,253) 49,094 10,337,211 (3,352,833) – 118,231 25,568,525 3,285,395 1,838,559 2,137,370 (420,706) (269,828) 13,501,302 (79,749) – – (79,749) – – – – – – – – – – – – – – – – – 13,421,553 25,860 – (16,408) 43,976 (1,708) 53,594,728 286,219 58,424 – (40,125) – – – – – – 139,970 127,950 – – – – – – – – – 53,880,947 112,308 – (3,260) 130,948 (15,380) Cash generated by operations 51,056,970 28,853,920 13,447,413 53,993,255 Income taxes paid Royalties paid Net ﬁ nance costs/income Dividend paid (9,998,969) (2,916,283) (652,680) (9,024,833) (6,129,666) (1,945,421) (1,130,429) (14,283,924) 101,573 – 76,390 (9,024,833) (26,218) – 40,125 (14,283,924) Net cash from operating activities 28,464,205 5,364,480 4,600,543 39,723,238 176 Pan African Resources integrated annual report 2016 ANNUAL FINANCIAL STATEMENTS 38. Reconciliation of proﬁ t before taxation to cash generated by/(used in) operations continued Consolidated Separate 30 June 2016 GBP 30 June 2015 GBP 30 June 2016 GBP 30 June 2015 GBP Taxation paid during the year: Taxation charge per the statement of comprehensive income Less: Deferred taxation Taxation payable/(receivable) at the beginning of the year Taxation (payable)/receivable at the end of the year Foreign currency translation Taxation paid during the year Royalty paid during the year: Royalty costs (receivable)/payable at the beginning of the year Royalty costs receivable at the end of the year Royalty costs charge for the year Foreign currency translation Royalty paid during the year 8,233,831 1,397,303 9,631,134 215,072 (205,941) 358,704 9,998,969 (538,586) 594,498 2,799,947 60,424 2,916,283 4,132,789 1,236,780 5,369,569 891,435 (215,072) 83,734 6,129,666 (291,089) 538,586 1,647,297 50,627 1,945,421 33,810 – 33,810 (141,574) 8,469 (2,278) (101,573) 24,306 – 24,306 (147,911) 141,574 8,249 26,218 39. ESOP transactions Barberton Mines ESOP Transaction On 1 June 2015 Barberton Mines entered into an agreement with the Barberton Mines BEE Company Proprietary Limited and Barberton Mines BEE Trust. The agreement concluded Barberton Mines would issue 5% of its authorised share capital for ZAR99.5 million to Barberton Mines BEE Company Proprietary Limited which is 100% held by the Barberton Mines BEE Trust. The beneﬁ ciaries of the Barberton Mines BEE Trust are all the Barberton Mines employees of a Paterson Grading C level and below. The share issue was vendor ﬁ nanced by Barberton Mines against preference share capital issued by Barberton Mines BEE Company for ZAR99.5 million. Evander Mines ESOP Transaction On 1 June 2015 Evander Gold Mining Proprietary Limited entered into an agreement with the Evander Gold Mining BEE Company and the Evander Gold Mining BEE Trust. The agreement concluded Evander Gold Mining Proprietary Limited would issue 5% of its authorised share capital for ZAR146 million to Evander Gold Mining BEE Company which is 100% held by the Evander Gold Mining BEE Trust. The beneﬁ ciaries of the BEE Trust are all the Evander Gold Mining Proprietary Limited employees of a Paterson Grading C level and below. The issue was vendor ﬁ nanced by Evander Gold Mining Proprietary Limited against preference share capital issued by Evander Gold Mining BEE Company for ZAR146 million. Preference share capital funding arrangement terms: Real interest rate: Two percent per annum Vesting period of the BEE scheme: 10 years The payment terms of the funding arrangement allow for a portion of the dividends issued by the gold operations to be retained for settlement of the funding arrangement. Pan African Resources integrated annual report 2016 177 Notes to the consolidated and separate Annual ﬁ nancial statements continued for the year ended 30 June 2016 39. ESOP transactions continued The retention percentage applied to dividends for repayment is summarised as follows: Year 1 % Year 2 % Year 3 % Year 4 % Year 5 to 10 % Percentage of dividends withheld for payment of funding arrangement Percentage of dividends accruing to the BEE Trust Total dividends 50 50 100 50 50 100 60 40 100 70 30 100 80 20 100 The dividends are calculated based on 80% of the mines’ net cash generated during the year subject to compliance with the Companies Act requirements of liquidity and solvency. The transaction is classiﬁ ed under IFRS 2 as a cash-settled share option scheme (refer to note 28) and has been summarised as follows: The ESOP cash-settled share option liability for the gold operation was valued by independent actuaries at 30 June 2016. Barberton Mines Evander Mines Barberton Mines Evander Mines 30 June 2016 ZAR 30 June 2015 ZAR 30 June 2016 ZAR 30 June 2015 ZAR 30 June 2016 GBP 30 June 2015 GBP 30 June 2016 GBP 30 June 2015 GBP Statement of ﬁ nancial position ESOP cash-settled share options liability Opening balance Dividend accrued Dividend paid IFRS 2 revaluation expense FCTR Closing balance Statement of comprehensive income ESOP IFRS 2 expense 181,000 – 7,196,232 6,504,337 (7,196,232) (6,504,337) 2,268,000 181,000 – – 2,449,000 181,000 – 3,112,000 – – – 3,112,000 – – – – – – 9,378 335,489 (319,061) 105,734 (7,728) 123,812 – 361,352 (368,568) 10,056 6,538 9,378 – 145,082 – – 12,249 157,331 (9,464,232) (6,685,337) (3,112,000) – (441,223) (371,408) (145,082) – – – – – – – 178 Pan African Resources integrated annual report 2016 ANNUAL FINANCIAL STATEMENTS 40. Acquisition of Uitkomst Colliery The group completed the acquisition of the Uitkomst Colliery by acquiring it from Oakleaf and Shanduka Resources Proprietary Limited for a ﬁ nal net cash consideration of ZAR148 million on 31 March 2016. Uitkomst Colliery is located close to the town of Utrecht in KwaZulu-Natal, South Africa, and is a high grade thermal export quality coal deposit with metallurgical applications. Uitkomst is an existing operation containing a coal resource of 25.7 million tonnes, of which 22.1 million tonnes can be classed as measured or indicated, in accordance with the South African code for the reporting of exploration results, mineral resources and mineral reserves. Uitkomst Colliery also has additional exploration and expansion potential. The ultimate effect of the transaction effectively resulted in the group purchasing the assets and liabilities from Blue Falcon 232 Trading Proprietary Limited (Blue Falcon) through a wholly owned subsidiary, Emerald Panther Investments 107 Proprietary Limited (renamed to Uitkomst Colliery Proprietary Limited). Therefore Blue Falcon remained a statutory company still belonging to its previous owners outside of the group. The transaction was settled on revised terms as per below: Original agreed upon cash consideration Revised cash consideration Effective cash distribution to shareholders Net purchase consideration Cash acquired with the acquisition Net cash consideration Net purchase consideration outﬂ ow Shanduka Resources Proprietary Limited Oakleaf Investments Holdings 109 Proprietary Limited ZAR GBP 200,000,000 176,000,000 (28,054,944) 147,945,056 (27,931,627) 120,013,429 88,000,000 59,945,056 147,945,056 9,499,608 8,359,655 (1,332,555) 7,027,100 (1,326,698) 5,700,402 4,179,828 2,847,272 7,027,100 In accordance with the acquisition method of accounting, the acquisition cost has been allocated to the underlying assets acquired and liabilities assumed, based on their estimated fair values at the date of acquisition. BDO Corporate Finance was used to assist the group in determining the fair value of the mining rights and property, plant and equipment acquired. Pan African Resources integrated annual report 2016 179 Notes to the consolidated and separate Annual ﬁ nancial statements continued for the year ended 30 June 2016 40. Acquisition of Uitkomst Colliery continued Non-current assets Property, plant and equipment Building and infrastructure Mining right Other ﬁ nancial assets Current assets Inventories Trade and other receivables Cash and cash equivalents Total assets Liabilities Non-current liabilities Deferred tax Provisions Current liabilities Current tax payable Trade and other payables Total liabilities Net asset at fair value Purchase price Fair value at acquisition ZAR Fair value at acquisition GBP 191,872,281 28,948,352 1,322,750 161,601,179 66,951,519 25,641,259 13,378,633 27,931,627 9,113,557 1,374,990 62,828 7,675,739 3,180,066 1,217,909 635,459 1,326,698 258,823,800 12,293,623 (67,472,079) (59,333,216) (8,138,863) (43,406,665) (4,086,467) (39,320,198) (3,204,792) (2,818,212) (386,580) (2,061,731) (194,099) (1,867,632) (110,878,744) (5,266,523) 147,945,056 (147,945,056) 7,027,100 (7,027,100) 180 Pan African Resources integrated annual report 2016 ANNUAL FINANCIAL STATEMENTS 41. Shanduka Gold transaction On 7 June 2016, the group concluded the purchase of shares in Shanduka Gold Proprietary Limited (Shanduka Gold) renamed to PAR Gold Proprietary Limited. Shanduka Gold is Pan African Resources’ primary BEE shareholder, with its sole assets being a 22.5% interest in Pan African Resources’ issued share capital (post conclusion of the Shanduka Gold transaction) and a notional vendor loan of R558 million to its BEE shareholder, the Mabindu Business Development Trust, as at 30 June 2016. Following a merger between Shanduka Group Proprietary Limited and the Pembani Group Proprietary Limited in December 2015, Pan African Resources engaged with Shanduka Gold shareholders and concluded an agreement to assist in preserving the group’s BEE ownership in a meaningful and mutually beneﬁ cial manner by means of an acquisition of a material interest in Shanduka Gold. Prior to the transaction with Pan African Resources, Shanduka Gold’s shareholders were Standard Bank of South Africa Limited (16.9%), Jadeite Limited (33.6%) and the Mabindu Trust (49.5%). Pan African Resources acquired Standard Bank’s 16.9% and Jadeite Limited’s 33.6% interest in Shanduka Gold. Approximately 0.6% of the Shanduka Gold shares acquired from Jadeite Limited have been retained by Jadeite Limited for sale, at a future date, to an independent third party nominated by Pan African Resources. Pursuant to the transactions, Pan African Resources acquired a 49.9% direct interest in Shanduka Gold but consolidates the full interest in Shanduka Gold for accounting purposes. Prior to the purchase of shares, the direct shareholding in Shanduka Gold was held by the following entities: Jadeite Limited (an investment vehicle of the China Investment Corporation) (Jadeite) The Standard Bank of South Africa Limited (Standard Bank) The Mabindu Business Development Trust (Mabindu)1 Shareholding % Issued shares 33,6 16,9 49,5 100,0 104,424,000 52,487,000 153,778,000 310,689,000 The effect of the transaction was therefore a share buyback as the group acquired shares in a company that holds a 23.83% (22.46% as at 30 June 2016) investment in the group’s parent company as its only asset. The acquisition of the Shanduka Gold shares was conducted through one of the group’s wholly owned subsidiaries, Funding Company, and was funded as follows: Share issue of Pan African Resources ordinary shares (UK Shareholders)2 Share issue of Pan African Resources ordinary shares (SA Shareholders)2 Internally generated cash resources/funding facilities Funding company investment in Shanduka Gold Resources Costs capitalised to the Shanduka Gold investment in Pan African Resources3 Treasury capital reserve Effective shares acquired on a share buyback Effective price paid for the share acquired ZAR GBP 10,053,407 6,579,975 8,665,713 25,299,095 77,648 25,376,743 217,344,600 142,252,500 187,344,045 546,941,145 1,678,657 548,619,802 436,358,058 1,25 1 Mabindu’s 49.5% interest in Shanduka Gold was acquired through the creation of a notional loan, to be settled by Mabindu, with a notional value of ZAR536,039,493 as at 11 December 2015. The notional loan accrues notional interest linked to prime interest rate plus 5% and is required to be notionally settled on 11 December 2018. Whilst the notional loan is outstanding, 95% of the dividends payable to Mabindu are waived by Mabindu and the notional loan is notionally reduced by the aggregate value of all dividends paid and payable to Mabindu. Therefore from an accounting perspective Mabindu holds an option in Shanduka Gold, which results in Pan African Resource Funding Company receiving 97.5% of the economic beneﬁ ts derived by Shanduka Gold. The implementation of the transactions will result in Pan African Resources consolidating all the Pan African Resources shares (436,358,059 shares) held by Shanduka Gold for accounting purposes. This will also mean that Pan African Resources will receive the beneﬁ t of indirectly participating in dividends it declares to shareholders. 2 The group issued 111,711,791 ordinary shares in Pan African Resources to assist in raising funds for the Shanduka Gold transaction. 3 On consolidation the Shanduka Gold investment in Pan African Resources is eliminated to the group treasury capital reserve. Certain costs were capitalised into the investment, mostly relating to the taxation paid for the transfer of shares to the group. Pan African Resources integrated annual report 2016 181 SHAREHOLDERS’ INFORMATION Gold as an INVESTMENT Of all the precious metals, gold is the most popular as an investment as investors generally buy gold as a way of diversifying risk, hedging against infl ation, defl ation or currency devaluation. The gold market is subject to speculation and volatility as are other markets; however compared to other precious metals used for investment, gold has the most effective safe haven and hedging properties across a number of asset classes. Gold has been used throughout history as money and like most commodities, the price of gold is driven by supply and demand including demand from speculation. Given the huge quantity of gold stored above-ground compared to the annual production, the price of gold is mainly affected by changes in demand from speculators, through investment demand, rather than changes in annual production (supply). Central banks and the International Monetary Fund play an important role in the gold price. At the end of 2004 central banks and offi cial organisations held 19 percent of all above-ground gold as offi cial gold reserves. It is generally accepted that the price of gold is closely related to interest rates. As interest rates rise the general tendency is for the gold price, which earns no interest, to fall, and as interest rates dip, for the gold price to rise. As a result, the gold price can be closely correlated to central banks through the monetary policy decisions made by them related to interest rates. The price of gold can be infl uenced by a number of macro-economic variables which include the price of oil, the use of quantitative easing, currency exchange rate movements and returns on equity markets. The most traditional way of investing in gold is by buying bullion gold bars. In some countries, like Canada, Austria, Liechtenstein and Switzerland, these can easily be bought or sold at the major banks. Alternatively, there are bullion dealers that provide the same service. Bars generally carry lower price premiums than gold bullion coins. However larger bars carry an increased risk of forgery due to their less stringent parameters for appearance. Gold coins are a common way of owning gold. Bullion coins are priced according to their fi ne weight, plus a small premium based on supply and demand, The sizes of bullion coins range from one-tenth of an ounce to two ounces, with the one-ounce size being most popular and readily available. South Africa’s Krugerrand is the most widely held gold bullion coin, with 46 million troy ounces (1,400 tonnes) in circulation. http://www.randrefi nery.com/brochures/Rand%20Refi nery%20-%20The%20Story%20of%20Gold.pdf +1 +3 79 Au Gold 196.97 2-8-18-32-18-1 Shareholders’ analysis Register date: Issued share capital: 1,943,206,554 shares 30 June 2016 Shareholder spread 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 Distribution of shareholders Banks Brokers Close corporations Endowment funds Hedge funds Individuals Insurance companies Investment companies Medical aid schemes Mutual funds Nominees and trusts Other corporations Pension funds Private companies Public companies Total Public/non-public shareholders Non-public shareholders Director Strategic holder (more than 10%) Public shareholders Total Number of shareholders 718 1,914 1,836 504 202 5,174 Number of shareholders 309 18 46 21 2 3,915 42 1 6 160 331 56 165 88 14 5,174 Number of shareholdings 4 3 1 5,170 5,174 % 13.88 36.99 35.49 9.74 3.90 100.00 Number of shares 295,594 9,094,133 61,088,701 168,044,981 1,704,683,145 1,943,206,554 % 5.97 0.35 0.89 0.41 0.04 75.67 0.81 0.02 0.12 3.09 6.40 1.08 3.19 1.70 0.27 100,00 % 0.08 0.06 0.02 99.92 100.00 Number of shares 526,783,469 17,247,239 2,999,772 11,361,724 6,446,816 98,072,723 32,972,024 600,000 5,764,405 454,441,275 31,690,068 2,797,397 298,722,037 449,623,779 3,683,826 1,943,206,554 Number of shares 439,469,633 3,261,575 436,358,058 1,503,736,921 1,943,206,554 Beneﬁ cial shareholders holding of 3% or more Number of shareholders Number of shares % PAR Gold Proprietary Limited Allan Gray Investment Fidelity Worldwide Investment Trufﬂ e Asset Management Prudential Investment managers Old Mutual Group 184 Pan African Resources integrated annual report 2016 436,358,058 381,214,546 128,728,403 117,511,805 91,085,743 86,116,983 % 0.02 0.47 3.14 8.65 87.73 100.00 % 27.11 0.89 0.15 0.58 0.33 5.05 1.70 0.03 0.30 23.39 1.63 0.14 15.37 23.00 0.19 100.00 % 22.62 0.17 22.46 77.37 100.00 % 22.46 19.62 6.62 6.05 4.69 4.43 SHAREHOLDERS’ INFORMATION Notice of annual general meeting (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 Notice is hereby given that the 2016 annual general meeting (AGM) of Pan African Resources (the company) will be held at the ofﬁ ces of Numis Securities Limited, The London Stock Exchange Building, 10 Paternoster Square, London EC4M 7LT* on Friday, 25 November 2016 at 11:00 (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 2016. 2. 3. 4. 5. 6. 7. 8. 9. To approve the payment of a ﬁ nal dividend for the year ended 30 June 2016 of ZAR0.15438 per share. To re-elect Mrs HH Hickey as a director of the company (director), who retires by rotation pursuant to the articles of association of the company (Articles of Association). To re-elect Mr T Mosololi as a director of the company, who retires by rotation pursuant to the Articles of Association. To re-elect Mrs HH Hickey as a member of the audit committee. To re-elect Mr KC Spencer as a member of the audit committee. To re-elect Mr T Mosololi as a member of the audit committee. To endorse the company’s remuneration policy for the year ended 30 June 2016. To re-appoint Deloitte LLP as auditors of the company and to authorise the directors to determine their remuneration. Brief CVs of the directors mentioned in resolutions 3 and 4 above are contained on page 84 of this integrated annual report. Special business As special business, to consider and if thought ﬁ t, to pass the following resolutions of which resolution 10 will be proposed as an ordinary resolution and resolution 11 will be proposed as a special resolution: 10. That the directors be and are hereby authorised generally and unconditionally to exercise all the powers of the company to allot relevant securities (as deﬁ ned in section 551 of the Companies Act 2006): (a) up to a nominal amount of GBP6,477,355.18 (being one-third of the nominal value of the current issued share capital of GBP19,432,065.54) (b) comprising equity securities (as deﬁ ned in section 560(1) of the Companies Act 2006) up to a nominal amount of GBP12,954,710.36 (being two-thirds of the nominal value of the current issued share capital of GBP19,432,065.54) such amount to be reduced by any allotments made under paragraph (a) above in connection with an offer by way of a rights issue: • to ordinary shareholders in proportion (as nearly as may be practicable) to their existing holdings • to holders of other equity securities as required by the rights of those securities or as the directors otherwise consider necessary and so that the directors may impose any limits or restrictions and make any arrangements which they consider necessary or appropriate to deal with any treasury shares, fractional entitlements, record dates, legal, regulatory or practical problems in, or laws of, any territory or any matter. The authorities conferred on the directors to allot securities under paragraph (a) and (b) will expire on the date of the AGM of the company to be held in 2017 or on 31 December 2017 whichever is sooner, unless previously revoked or varied by the company and such authority shall extend to the making before such expiry of an offer or an agreement that would or might require relevant securities to be allotted after such expiry and the directors may allot relevant securities in pursuance of that offer or agreement as if the authority conferred hereby had not expired. 11. That the company be generally and unconditionally authorised for purposes of section 701 of the Act to make market purchases (as deﬁ ned in section 693(4) of the Act) of ordinary shares of the company on such terms and in such a manner as the directors shall determine, provided that: • the maximum aggregate number of ordinary shares which may be purchased is GBP971,603.27 (representing approximately 5 percent of the issued share capital of the company at the date of this notice) • the minimum price (excluding expenses) which may be paid for such ordinary share is 1pence • the maximum price (excluding expenses) which may be paid for such ordinary share (i) does not exceed 5 percent above the average closing price of such shares for the 5 business days on the London Stock Exchange prior to the date of purchase and (ii) that stipulated by Commission-adopted Regulatory Technical Standards pursuant to article 5(6) of the Market Abuse Regulation * Please note that as the AGM will be held at The London Stock Exchange all attendees will be required to show ID in order to gain entry. Pan African Resources integrated annual report 2016 185 Notice of annual general meeting continued • this authority shall expire at the conclusion of the next AGM of the company or on 31 December 2017, 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) • 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 the JSE Limited (JSE) (the Listings Requirements) pertaining to the general authority to repurchase securities for cash, which in summary provide as follows: – such repurchases are effected through the order book operated by the JSE trading system and done without any prior understanding or arrangement between the company and a counterparty, unless the JSE otherwise permits – the company and its subsidiaries are enabled by their Articles of Association to acquire such shares – such repurchases are made at a price no greater than 10 percent above the weighted average market price at which the company’s shares traded on the JSE over the ﬁ ve business days immediately preceding the date on which the transaction is effected – at any point in time, the company appoints only one agent to effect any repurchase on the company’s behalf – the directors will ensure that a resolution by the board of directors (the board) was taken authorising such repurchases, conﬁ rming that the company and its subsidiaries engaged in such repurchases have passed solvency and liquidity tests and conﬁ rming that since such tests were performed there have been no material adverse changes to the ﬁ nancial position of the group – such repurchases are not conducted during prohibited periods as deﬁ ned by the JSE Listings Requirements, unless the company has complied with the conditions set out in paragraph 5.72(h) of the JSE Listings Requirements. The other general information referred to in paragraph 11.26(b) of the JSE Listings Requirements regarding the company is contained elsewhere in this notice of AGM, as follows: • major shareholders on page 184 • company’s share capital, on page 148. Directors’ responsibility statement pages 84 and 85 of the group’s integrated annual report in which this notice is The directors of the company, whose names are given on incorporated, collectively and individually accept full responsibility for the accuracy of the information given in this notice, and certify that to the best of their knowledge and belief there are no facts that have been omitted which would make any statement false or misleading, and that all reasonable enquiries to ascertain such facts have been made and that this notice contains all information required by the JSE Listings Requirements. Material change The directors of the company conﬁ rm that there has not been any material change in the ﬁ nancial or trading position of the company and its subsidiaries that has occurred since the end of the last ﬁ nancial period. The intention of the directors is that the repurchase of the company’s shares will be effected within the parameters laid down by resolution 11 as well as by the Act, the JSE Listings Requirements and the board, as and when the directors of the company deem such repurchases to be appropriate, having regard for prevailing market and business conditions. The directors will ensure that the requisite prior resolution of the board has been taken authorising such repurchases, conﬁ rming that the company and its subsidiaries engaged in such repurchases have passed the solvency and liquidity test and conﬁ rming that since such tests were performed there have been no material adverse changes to the ﬁ nancial position of the group. After considering the effect of a general repurchase within the parameters set out above, the directors are of the view that for a period of at least 12 months after the date of the AGM referred to in this notice: • the company and the group would in the ordinary course of their business be able to pay their debts • the consolidated assets of the company and the group would exceed the consolidated liabilities of the company and the group respectively, such assets and liabilities being fairly valued and recognised and measured in accordance with the accounting policies used in the 2014 audited annual ﬁ nancial statements of the company and the group • the issued capital and reserves of the company and the group would be adequate for the purposes of the company and the group’s ordinary business • the company and the group’s working capital would be adequate for ordinary business purposes. Note The company will publish an announcement complying with the JSE Listings Requirements if and when an initial and successive 3 percent tranche(s) of its shares have been repurchased in terms of the aforementioned general authority. 186 Pan African Resources integrated annual report 2016 SHAREHOLDERS’ INFORMATION Approvals required for resolutions The ordinary resolutions contained in this notice of AGM require the approval of more than ﬁ fty percent (50%) of the total votes cast on the resolution by shareholders present or represented by proxy at the AGM. The special resolutions contained in this notice of AGM require the approval of at least seventy-ﬁ ve percent (75%) of the total votes cast on the resolutions by the shareholders present or represented by proxy at the AGM. By order of the board St James’s Corporate Services Limited Company Secretary 20 September 2016 Suite 31, Second Floor 107 Cheapside London England EC2V 6DN Explanatory notes to the notice of AGM 1. 2. 3. 4. 5. 6. Directors’ report and accounts (resolution 1) This resolution will be proposed as an ordinary resolution. The directors of the company (the directors) are required by the Act to present to the meeting, the directors’ and auditors’ reports and the audited accounts for the year ended 30 June 2016. The report of the directors and the audited accounts have been approved by the directors and the report of the auditors has been approved by the auditors, and a copy of each of these documents may be found in the integrated annual report and accounts of the company. Approval of ﬁ nal dividend (resolution 2) A ﬁ nal dividend can only be paid after it has been approved by the shareholders. A ﬁ nal dividend of ZAR0.15438 per share or approximately 0.82338 pence per share in respect of the year ended 30 June 2016 is recommended by the directors. Director re-election (resolutions 3 and 4) These resolutions will be proposed as ordinary resolutions. Article 123 of the Articles of Association states that at each AGM one-third of the directors (or, if their number is not a multiple of three, the number of directors nearest to but not greater than one-third, unless their number is fewer than three, in which case one director) shall retire from ofﬁ ce by rotation. Accordingly, Mrs HH Hickey and Mr T Mosololi retire by rotation and offer themselves for re-election under this provision. Biographical details of all of the directors are set out on pages 84 and 85 of the integrated annual report and accounts of the company. Audit committee members’ re-election (resolutions 5, 6 and 7) These resolutions will be proposed as ordinary resolutions. In accordance with good corporate governance practice, subject where it is necessary to their re-appointment as directors of the company in terms of the resolutions proposed in resolutions 3 and 4 above, to conﬁ rm by separate resolutions the appointment of the stated directors to the company’s audit committee for the period until the next AGM of the company. Endorsement of the remuneration policy (resolution 8) This resolution will be proposed as an ordinary resolution. This resolution will approve, by way of an advisory non-binding vote, the company’s remuneration policy as set out on of the King III principles. pages 94 to 103 of the integrated annual report for the year ended 30 June 2016, in terms Appointment and remuneration of auditors (resolution 9) This resolution will be proposed as an ordinary resolution. This resolution proposes the appointment of Deloitte LLP as the auditors of the company and, in accordance with standard practice, gives authority to the directors to determine their remuneration. Pan African Resources integrated annual report 2016 187 Notice of annual general meeting continued Explanatory notes to the notice of AGM continued 7. Authority to allot shares (resolution 10) This resolution will be proposed as an ordinary resolution. Resolution 10 enables the directors to allot equity securities (including new ordinary shares). The total nominal amounts are speciﬁ ed rather than the total number of shares in order that the resolution does not need to be amended if the company consolidates or sub-divides its shares. The nominal amount speciﬁ ed in part (a) of this resolution is one-third of the company’s issued ordinary share capital. Part (b) of this resolution allows the directors to allot ordinary shares in connection with a rights issue up to an aggregate nominal amount of two-thirds of the issued ordinary share capital. The resolution also gives authority to the directors to deal with practical issues that may arise from the allotment or take account of requirements relating to overseas shareholders due to local laws or regulations. 8. Authority to repurchase shares (resolution 11) This resolution will be proposed as a special resolution. The company’s Articles of Association contain a provision allowing the company to purchase its own shares subject to the prior authority of the members having been obtained. In accordance with the board’s previous practice, resolution 11 is for the purpose of seeking general authority to effect such purchases within the limits set out in the resolution. Purchases pursuant to the proposed authority would only be made after the most careful consideration, where the directors believed purchases were in the best interests of the company and its shareholders. The directors consider that it is prudent to obtain the proposed authority, although the board has no present intention of exercising this authority. The UK Companies Act permits companies to hold in treasury any shares acquired by way of market purchases, rather than having to cancel them. Treasury shares continue to exist as shares, but are owned by the company itself, and can only be sold by the company for cash as an alternative to listing new shares. Section 727 of the UK Companies Act permits a company at any time to sell shares from treasury for cash (subject to statutory pre-emption provisions), to transfer shares from treasury for the purposes of an employee share scheme, or to cancel them. If the company were to repurchase any of its own shares pursuant to the authority conferred by resolution 11, the company would consider at that time whether to hold those shares as treasury shares or to cancel them. However, the company would be likely to hold them as treasury shares unless there were some exceptional and unforeseen reasons at the time of purchase which meant that it would not be in the interests of the company to do so. This would give the company the ability to sell treasury shares quickly, with the proceeds of the sale (up to the amount which was initially paid for them by the company) being credited back to the company’s distributable reserves, and would provide the company with additional ﬂ exibility in the management of its capital base. Where considered appropriate, treasury shares may be issued or transferred for the purpose of the company’s employee share plans rather than issuing new shares or purchasing shares on the open market. No dividends will be paid on shares whilst held in treasury and no voting rights will be exercised in respect of treasury shares. The authority sought under resolutions 10 and 11 will expire at the earlier of the conclusion of the AGM of the company in 2017 or 31 December 2017. 188 Pan African Resources integrated annual report 2016 SHAREHOLDERS’ INFORMATION Notes Entitlement to attend and vote 1. In accordance with Regulation 41 of the Uncertiﬁ cated Securities Regulations 2001 (Uncertiﬁ cated Securities Regulations), only those members entered in the register of members of the company as at close of business on 23 November 2016, and in the case of an adjourned meeting, two days before such adjourned meeting, shall be entitled to attend, speak and vote at the AGM in respect of the number of shares registered in their name at that time. Changes to the register of members after the close of business on 23 November 2016, or if the AGM is adjourned, after close of business on the day two days before the adjourned meeting shall be disregarded in determining the rights of any person to attend, speak 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. 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. Any corporation which is a member of the company can appoint one or more corporate representative(s) who may exercise on its behalf all of its powers as a member provided that they do not do so in relation to the same shares. A member of the company may not use any electronic address provided either in this notice of meeting or any related documents (including the proxy form) to communicate with the company for any purpose other than those expressly stated. 4. 5. 6. 7. Appointment of proxy using hard-copy proxy form 8. 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 Asset Services, PXS, 34 Beckenham Road, Beckenham, BR3 4TU or Computershare Investor Services Proprietary Limited, Ground Floor, 70 Marshall Street, Johannesburg 2001, South Africa (PO Box 61051, Marshalltown 2107, Johannesburg, South Africa); no later than 11:00 on 23 November 2016. 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 9. 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 10. 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 Asset Services, PXS, 34 Beckenham Road, Beckenham, BR3 4TU or Computershare Investor Services Proprietary Limited, Ground Floor, 70 Marshall Street, Johannesburg 2001, South Africa (PO Box 61051, Marshalltown 2107, Johannesburg, South Africa). Pan African Resources integrated annual report 2016 189 Notice of annual general meeting continued Notes continued Changing proxy instructions continued 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 11. 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 Asset Services or Computershare Investor Services Proprietary Limited no later than 11:00 on 23 November 2016. 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 total voting rights 12. As at close of business on 19 September 2016, the company’s issued share capital comprised ordinary shares of 1p each. Each ordinary share carries the right to one vote at an AGM of the company and, therefore, the total number of voting rights in the company as at close of business on 19 September 2016 was 1,943,206,554. Directors’ interests and documents on display 13. 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, Sundays 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 14. 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 (available via www.euroclear.com). 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. 15. 16. 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 the speciﬁ cations of Euroclear UK & Ireland Limited (EUI) 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 11:00 on 23 November 2016 (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. CREST members and, where applicable, their CREST sponsors or voting service providers should note that EUI does not make available special procedures in EUI 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. The company may treat as invalid a CREST Proxy Instruction in the circumstances set out in Regulation 35(5)(a) of the Uncertiﬁ cated Securities Regulations. 190 Pan African Resources integrated annual report 2016 Form of proxy United Kingdom (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 notes 1 and 3) 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 (AGM) of Pan African Resources (the company) to be held at the ofﬁ ces of Numis Securities Limited, The London Stock Exchange Building, 10 Paternoster Square, London EC4M 7LT at 11:00 on 25 November 2016 and 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 of the company (the directors) and auditors thereon 2. To approve the payment of a ﬁ nal dividend for the year ended 30 June 2016 3. To re-elect Mrs HH Hickey as a director of the company 4. To re-elect Mr T Mosololi as a director of the company 5. To re-elect Mrs HH Hickey as a member of the audit committee 6. To re-elect Mr KC Spencer as a member of the audit committee 7. To re-elect Mr T Mosololi as a member of the audit committee 8. To endorse the company’s remuneration policy 9. To re-appoint Deloitte LLP as auditors of the company and to authorise the directors to determine their remuneration Special business: 10. To authorise the directors to allot equity securities 11. To approve market purchases of ordinary shares If this form is signed and returned without any indication as to how the proxy shall vote, he or she will exercise his or her discretion both as to how he or she votes (and whether or not he or she abstains from voting). * The ‘Voting 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. Print name: (BLOCK CAPITALS) Signature: Address: Dated this day of 2016 Notes 1. 2. 3. 4. 5. 6. 7. 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. This form is for use of shareholders only and will be used only in the event of a poll being directed or demanded. 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. To be effective, this form of proxy must be lodged at the company’s Registrars, Capita Asset Services, PXS, 34 Beckenham Road, Beckenham, BR3 4TU or Computershare Investor Services Proprietary Limited, Ground Floor, 70 Marshall Street, Johannesburg 2001, South Africa not later than 48 hours before the start of the meeting. 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. 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. 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. Pan African Resources integrated annual report 2016 191 Business Reply Plus Licence Number RLUB-TBUX-EGUC FDFDTTFATDDATADTTDFDFTDATADFAADFTADF Second fold PXS 1 34 Beckenham Road BECKENHAM BR3 4ZF Third fold and tuck in ﬂ ap l d o f t s r i F Form of proxy South Africa (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 notes 1 and 3) 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 (AGM) of Pan African Resources (the company) to be held at the ofﬁ ces of Numis Securities Limited, The London Stock Exchange Building, 10 Paternoster Square, London EC4M 7LT at 11:00 on 25 November 2016 and 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 of the company (the directors) and auditors thereon 2. To approve the payment of a ﬁ nal dividend for the year ended 30 June 2016 3. To re-elect Mrs HH Hickey as a director of the company 4. To re-elect Mr T Mosololi as a director of the company 5. To re-elect Mrs HH Hickey as a member of the audit committee 6. To re-elect Mr KC Spencer as a member of the audit committee 7. To re-elect Mr T Mosololi as a member of the audit committee 8. To re-appoint Deloitte LLP as auditors of the company and to authorise the directors to determine their remuneration Special business: 9. To authorise the directors to allot equity securities 10. To approve market purchases of ordinary shares If this form is signed and returned without any indication as to how the proxy shall vote, he or she will exercise his or her discretion both as to how he or she votes (and whether or not he or she abstains from voting). * The ‘Voting 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. Print name: (BLOCK CAPITALS) Signature: Address: Dated this day of 2016 Notes 1. 2. 3. 4. 5. 6. 7. 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. This form is for use of shareholders only and will be used only in the event of a poll being directed or demanded. 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. To be effective, this form of proxy must be lodged at the company’s Registrars, Capita Asset Services, PXS, 34 Beckenham Road, Beckenham, BR3 4TU or Computershare Investor Services Proprietary Limited, Ground Floor, 70 Marshall Street, Johannesburg 2001, South Africa not later than 48 hours before the start of the meeting. 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. 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. 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. Pan African Resources integrated annual report 2016 193 Second fold POSTAGE WILL BE PAID BY THE ADDRESSEE NO POSTAGE NECESSARY IF POSTED IN SOUTH AFRICA BUSINESS REPLY SERVICE LICENCE NO. J 5563 2107 MARSHALLTOWN Third fold and tuck in ﬂ ap l d o f t s r i F SHAREHOLDERS’ INFORMATION Glossary AGM Aids AIM Auroch B-BBEE Barberton Mines BIOX® the board Brownﬁ eld project BTRP Business rescue CEO CIL the Companies Act COO CSI CTRP the current year DMR Earnings-accretive acquisition Eskom ETRP Evander Mines Exco FD g/t GRI Harmony HDSA HIV HR IAS IBC IFL IFMSA IFRS IIRC IoDSA ISO JSE King III Report or King III km KPIs LSE LTIFR MCF Metanza Mining Charter MOI Annual general meeting Acquired Immune Deﬁ ciency Syndrome Alternative Investment Market, the London Stock Exchange’s international market for smaller growing companies Auroch Minerals NL, an Australian-listed company in which Pan African Resources had an investment Broad-based black economic empowerment Barberton Mines Proprietary Limited The Biological Oxidation (BIOX®) gold extraction process was developed at Barberton Mines. It is an environmentally friendly process of releasing gold from the sulphide that surrounds it by using bacteria pages 84 and 85 The board of directors of Pan African Resources, as set out on Project based on prior work or rebuilt from a previous one Barberton Tailings Retreatment Plant, a gold recovery tailing plant owned by Barberton Mines, which commenced production in FY2014 A process which gives a company in ﬁ nancial distress the opportunity to restructure and reorganise its affairs under the supervision of a business rescue practitioner Chief Executive Ofﬁ cer. Pan African Resources’ CEO is Cobus Loots (appointed 1 March 2015) Carbon-in-leach South African Companies Act 71 of 2008 (SA Companies Act) Chief Operating Ofﬁ cer Corporate social investment Chrome tailings retreatment plant The year ended 30 June 2016 Department of Mineral Resources An acquisition which increases earnings per share Electricity Supply Commission, South African electricity supplier Evander Tailings Retreatment Plant, commissioned in October 2015 Evander Gold Mines Limited and Evander Gold Mining Proprietary Limited Executive committee of Pan African Resources Financial Director Grams/tonne Global Reporting Initiatives Harmony Gold Mining Company Limited Historically disadvantaged South African Human Immunodeﬁ ciency Virus Human Resources International Accounting Standards Inside back cover (of this integrated annual report) International Ferro Metals (SA) Proprietary Limited, Phoenix Platinum concluded a formal CTRP agreement with IFL and operates from its Lesedi Mine South African subsidiary, International Ferro Metals (SA) Proprietary Limited International Financial Reporting Standards International Integrated Reporting Council Institute of Directors South Africa International Standards Organisation JSE Limited incorporating the Johannesburg Securities Exchange, the main bourse in South Africa King Report on Corporate Governance for South Africa, 2009 Kilometres Key performance indicators – a set of quantiﬁ able measures that a company or industry uses to gauge or compare performance in terms of meeting their strategic and operational goals London Stock Exchange Lost time injury frequency rate Mine call factor Metanza Mineral Processors, a BEE company which operates the CTRP at Phoenix Platinum plant under contract to Pan African Resources Charter to facilitate the sustainable transformation and development of the South African mining industry Memorandum of incorporation Pan African Resources integrated annual report 2016 195 Glossary continued Moz MPRDA MR&MR MRM Mt NIHL Nomad NUM Opsco PGE Phoenix Platinum Prescribed ofﬁ cers RCF Remchannel Remco RIFR ROM SA SAICA SAMREC Section 54 safety stoppages Shanduka or Shanduka group SHEQC SLP Sporotrichosis t TB the group or the company or Pan African Resources the previous year The UK Code the year or the year under review TIFR TMM UASA UK The UK Companies Act 2006 Financial terms AUD CPI EBITDA EPS FVTPL GBP HEPS JIBAR PPI ROI USD VWAP ZAR Million ounces Mineral and Petroleum Resources Development Act Mineral Resources and Mineral Reserves Report Mineral resource management Million tonnes Noise-induced hearing loss Nominated Adviser appointed in accordance with the London Stock Exchange’s AIM Rules for Companies National Union of Mineworkers Operations committee Platinum group elements, namely platinum, palladium, rhodium and gold Phoenix Platinum Mining Proprietary Limited, a subsidiary of Pan African Resources Anyone who fulﬁ ls the role of a director but is operating under a different designation Revolving credit facility Internet based remuneration survey providing data across a wide variety of industries in South Africa Remuneration committee of Pan African Resources Reportable injury frequency rate Run-of-mine South Africa South African Institute of Chartered Accountants South African Code for Reporting of Mineral Resources and Mineral Reserves In terms of section 54 of the Mine Health and Safety Act 29 of 1996, if an inspector of mines believes that an occurrence, practice or condition at a mine endangers or may endanger the health or safety of people at the mine, the inspector may give any instruction necessary to protect the health or safety of people at the mine, including instructing that operations at the mine or a part of the mine be halted Shanduka Group Proprietary Limited. Pan African Resources’ black empowerment partner, which has a 22.46% stake in the group Safety, health, environment, quality and community Social and labour plan A disease caused by a fungus infection Tonnes Tuberculosis Pan African Resources PLC, listed on the LSE’s AIM and on the JSE in the ‘Gold Mining’ sector The year ended 30 June 2015 UK Corporate Governance Code which sets out standards of good practice in relation to board leadership and effectiveness, remuneration, accountability and relationships with shareholders The year ended 30 June 2016 Total injury frequency rate Trackless mobile machinery United Association of South Africa United Kingdom An Act of the Parliament of the United Kingdom which forms the primary source of UK company law Australian Dollar The consumer price index of South Africa, a primary indicator of South Africa’s inﬂ ation Earnings before interest, taxes, depreciation and amortisation Earnings per share Fair value through proﬁ t and loss Pounds sterling Headline earnings per share Johannesburg Inter-Bank Acceptance Rate Producer price inﬂ ation Return on investment US Dollar Volume weighted average price South African rand 196 Pan African Resources integrated annual report 2016 Company information Corporate ofﬁ ce The Firs Ofﬁ ce Building 1st Floor, Ofﬁ ce 101 Cnr. Cradock and Biermann Avenues Rosebank, Johannesburg South Africa Ofﬁ ce: + 27 (0) 11 243 2900 Facsimile: + 27 (0) 11 880 1240 Registered ofﬁ ce Suite 31 Second Floor 107 Cheapside London, EC2V 6DN United Kingdom Ofﬁ ce: + 44 (0) 20 7796 8644 Facsimile: + 44 (0) 20 7796 8645 Directors Cobus Loots Pan African Resources Chief Executive Ofﬁ cer Ofﬁ ce: + 27 (0) 11 243 2900 Deon Louw Pan African Resources Financial Director Ofﬁ ce: + 27 (0) 11 243 2900 Company secretary Phil Dexter/Jane Kirton St James’s Corporate Services Limited Ofﬁ ce: + 44 (0) 20 7796 8644 JSE sponsor Sholto Simpson One Capital Ofﬁ ce: + 27 (0) 11 550 5009 Nominated adviser and joint broker John Prior/Paul Gillam/James Black Numis Securities Limited Ofﬁ ce: +44 (0) 20 7260 1000 Joint brokers Matthew Armitt/Ross Allister Peel Hunt LLP Ofﬁ ce: +44 (0) 20 7418 8900 Jeffrey Couch/Neil Haycock/Thomas Rider BMO Capital Markets Limited Ofﬁ ce: +44 (0) 20 7236 1010 Public and investor relations SA Julian Gwillim Aprio Strategic Communications Ofﬁ ce: +27 (0)11 880 0037 Public and investor relations UK Daniel Thöle Bell Pottinger PR Ofﬁ ce: + 44 (0) 20 3772 2500 www.panafricanresources.com Shareholders’ diary Financial year-end Preliminary annual results announcement Annual report posted Annual general meeting Interim results announcement 30 June 2016 21 September 2016 28 October 2016 25 November 2016 22 February 2017 www.panafricanresources.com

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