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Pan African Resources Plc. – Arrowhead BID 1 AIM: PAF; JSE: PAN

Due Diligence and Valuation Report See important disclosures on page 24 of this report.

Due Diligence and Valuation Report

Arrowhead Code: 19-02-07

Coverage initiated: 10 May 2010

This document: 11 April 2013

Fair share value bracket: GBP0.31 to GBP0.43i

Share price on date: GBP0.16ii

Company: Pan African Resources Plc.

Ticker: AIM: PAF, JSE: PAN

Headquarters: Johannesburg, South Africa

Non-executive Chairman: Keith Cousens Spencer

Website: www.panafricanresources.com

Analyst Team

Vishal Pasari Mohanarangam Purushothaman

[email protected] [email protected]

Market Data

52-Week Range: GBP 0.12 – GBP 0.21iii

Average Daily Volume: 2,743,732iv

Market Cap. on date: GBP 286.86MMv

Financial Forecast Data (in GBP)

‗13E ‗14E ‗15E 16E ‗17E 18E ‗19E

High profit/ (loss) MM

89 120 120 125 128 129 130

High EPS (pence)

4.9 6.6 6.6 6.8 7.0 7.1 7.1

Low profit/ (loss) MM

63 82 81 86 88 89 90

Low EPS (pence)

3.5 4.5 4.5 4.7 4.9 4.9 4.9

Fiscal Year (FY) 1st July – 30th June

Summary

Pan African Resources Plc (Pan African) is a

precious metals firm with its assets based in

South Africa. The company‘s asset portfolio

includes production and near-production projects,

including Barberton Gold Mines, the Phoenix

Platinum Project, and Evander Gold Mines.

The company plans to grow both organically and

inorganically. It has recently completed the

acquisition of Evander Gold Mines for a total

consideration of GBP 116.2MM. In 1H 2013, the

company generated a revenue of GBP 49.4MM

and an attributable profit of GBP 12.4MM.

The company‘s flagship Barberton Mines Project

consists of three operating mines – Fairview, New

Consort, and Sheba – with an estimated mine life

of 17 years. The project contains SAMREC-

compliant mineral resource of 2.95Moz gold and

mineral reserves of 1.16Moz gold. In 1H 2013,

gold sales from Barberton Gold Mines decreased

4.26% to 44.926koz. The decline was primarily

due to shutdown of the Biox plant and mechanical

failure at the Sheba Mine. The company has also

started construction on the Barberton Tailing

Retreatment Project (BTRP). The project,

scheduled to be commissioned in July 2013, has

an estimated mine life of six years, and is likely to

increase the production at Barberton Mines by

20koz per year. The project has an estimated

capital expenditure of ZAR 305.8MM, of which

ZAR 138.5MM was spent as of 2012.

The Phoenix Platinum Project has SAMREC-

compliant resource of 493koz Platinum Group

Metals (PGM) 4Es (4.853MMT ore at 3.16g/t PGM

4Es). Platinum-group elements (PGE) sales from

the mine in 1H 2013 were 3,136oz. The PGE

production was lower than management‘s

expectations, primarily due to a lower head grade

and reduced recoveries, resulting from an

increase in oxidized material content. Over its 17-

year mine life, the project is likely to produce

211koz PGM 6E‘s.

The Evander Gold Mines, acquired by the

company in February 2013, has a resource of

28.74Moz gold and a reserve of 7.66Moz gold. Its

key operational mine Evander 8 shaft is expected

to produce 85-100koz gold annually over its mine

life of more than 10 years. The company plans to

focus on Evander 7 and Evander 9 shafts to

increase the production profile. It also plans to

explore strategic partnership opportunities for the

completion of the bank feasibility study (BFS) at

Evander South and Poplar.

Given the due diligence and valuation estimations

based on intrinsic revenue capacity of existing

assets, Arrowhead believes that Pan African‘s fair

share value lies in the GBP 0.31 to GBP 0.43vi

bracket. This value is based on continuing

production from Barberton Mines, the Phoenix

Platinum Project, Evander Gold Mines, and the

BTRP, which are likely to contribute significantly

to the top line in the coming years.

mailto:[email protected]



Table of Contents

Company Presentation ...................................................................................................... 3

News ................................................................................................................................. 5

Listing Information ........................................................................................................... 6

Contacts ............................................................................................................................ 6

Major Shareholders ........................................................................................................... 6

Management and Governance ........................................................................................... 7

Assets and Projects ........................................................................................................... 8

Technologies and Markets ............................................................................................... 15

Project Risk Profile Analysis ............................................................................................ 17

Risk Parameters – Definition ........................................................................................... 18

Peer Valuation and Risk Profile ....................................................................................... 18

Value ............................................................................................................................... 20

Analyst Certifications & Important Disclosures ............................................................... 24

Valuation ......................................................................................................................... 25

Notes and References ..................................................................................................... 26



Company Presentation

Pan African Resources Plc. (Pan African) was incorporated in February 2000 in England and Wales, with

all of production, development, and appraisal assets in South Africa. After transforming itself into a full-

fledged gold production company and continuing to focus on low costs and high margins, the company

entered production of Platinum Group Metals (PGM) in FY 2012. Pan African has categorized its assets

based on the stage of development, with each of its projects managed through its subsidiaries.

Pan African‘s revenue in 1H 2013 decreased 3% to GBP 49.4MM (1H 2012: GBP 51.1MM), primarily due

to a 7% decline in gold sales to 47.5MM. During the period, the company‘s attributable profit decreased

14% to GBP 12.4MM (1H 2012: GBP 14.4MM), due to a decrease in revenue, an increase in cash costs,

and a one-off transaction cost related to the acquisition of Evander Gold Mines. The capital expenditure

during the period was GBP 9.0MM. As of December 31, 2012, the company had a cash balance of GBP

48.3MM.

In January 2013, the company raised ZAR703MM through a rights offer. As part of the offer, 370MM

ordinary shares were issued at a subscription price of ZAR1.90 (GBP 0.14) per rights offer share. The

proceeds of the rights offer will be used to partly fund the Evander Mines acquisition.

The company has explored both organic and inorganic growth opportunities by constructing the

Barberton Gold Tailings Retreatment Project and acquiring the Evander Gold Mines, respectively. On

February 15, 2013, the company announced it had fulfilled the last condition precedent to the

transaction, following which it completed the acquisition of Evander Mines on February 28, 2013. The

company expects the acquisition to double its gold production to 200koz and to rise further to 220koz by

July 2013 after the completion of the Barberton Tailings Retreatment Project. It also plans to focus on

Evander 7 and Evander 9 shafts to increase the production profile and explore strategic partnership

opportunities for the completion of BFS at Evander South and Poplar.

For more detail on Assets, see the Assets and Projects section of this report.

Company’s Portfolio and Premiums

Pan African has progressed from being a precious metals explorer to a producer, and is enhancing its

production and operational capacity through acquisitions (Evander) as well as growing organically

(BTRP). Arrowhead believes that the current pace of both managing mining operations and developing

growing projects should position the company from a junior exploration company to a mid-tier company

in the medium-to-long term.

Developed precious metals projects: Pan African has established itself as a precious metals miner

producing about 200koz of gold and 12koz of PGM annually. Gold production is primarily carried from

Barberton Mines. Production at the Phoenix Platinum Project began in November 2011, and subsequently

a ramp up was completed in July 2012. The company is also working towards enhancing its production

profile at Barberton Mines through the BTRP, which is likely to push the annual production by 20koz to

25Koz from FY 2013 onwards.

Low-cost producer: Pan African is one of the lowest cash-cost producers in the South African mining

industry — its Barberton mine‘s cash cost was US$856/oz in 1H 2013. The company expects to be one of

the lowest cash cost producers of PGMs in South Africa.

Benefits of extraction from tailings: This process is a proven technical concept with low mining risks.

From a commercial perspective, the economics are compelling, as it requires only a small plant footprint

(50m X 50m). Additionally, it constitutes a low-cost, a low-risk, and a high-margin process. Pan African

has adopted the same methodology of extraction for BTRP where it would reclaim surface tailings that

require no underground mining, hence, placing it on the lower end of the cost curve.

Synergies from the acquisition of Evander: The acquisition of a 100% stake in Evander is a move

towards the company‘s strategic objective of acquiring a high-grade, high-margin asset on the low end

of the cost curve. This deal will help Pan African to double its annual gold production to 200koz. The

acquisition is likely to reduce the overall operational risk of the company. Pan African considers Evander

to match the margin yielding capability of Barberton, with the Evander 8 shaft ore-body possessing gold



grades in excess of 14g/T in the Measured and Indicated (M&I) resource category. The company targets

production of 100koz gold from Evander mines.

Experienced management team: Pan African management team‘s strong mining background has been

the main force behind the company‘s progress. The Evander Mines acquisition is also expected to bring

along an experienced management team and workforce, besides good infrastructure.

For more details, please refer to the Management and Governance section

Company’s Portfolio and Risks

Concentration risk: Despite achieving significant progress in its current mining and development

projects, Pan African remains exposed to concentration risk arising from sole dependence on gold and

PGM. Additionally, its operations are focused in South Africa, which exposes it to the risks emanating

from regional concentration and no global exposure.

Financial risk: As on March 13, 2013, Pan African had a operational cash balance of ZAR 157.4MM. The

company recently acquisition of Evander Mines which was funded through proceeds from rights offer of

ZAR 703MM, and utilizing ZAR 350MM from a revolving credit facility of ZAR 600MM. We believe that a

further equity financing will likely dilute shareholdings, and an additional debt financing may involve

restrictions on financing and operating activities.

For a detailed risk assessment, please refer to the Risk profile analysis section.

Company’s Corporate Strategy

Pan African continues to focus on achieving significant growth potential, low-cost base, high margin

productivity, and improving efficiency.

Change in investment criteria: Disappointing results from early stage exploration projects have pushed

Pan African to invest in projects that are at or near pre-feasibility. The current investment criteria

include low cost, high profit margin, significant resource growth, and at or near production. The recent

acquisition of a 100% interest in Evander Gold Mines also demonstrates this strategy.

Growth Strategy: Pan African‘s focus is on identifying and evaluating gold and platinum projects in Africa

that are at the near-term production or advanced stages such as mine development, construction or

production. Acquisition of Evander will enhance the production profile contributing to its current gold

production at Barberton mines with the extension of the reserve life of the portfolio.

Project strategic overview: Pan African aims to continue producing gold at Barberton at the lowest

possible cash cost and bring the Phoenix Platinum production to 12koz annually. It also plans to start

constructing a 1.2Mtpa BTRP.



News

– Completion of Evander Mines acquisition: On March 14, 2013, the company announced it has

completed acquisition of Evander Gold Mines on February 28, 2013 and has settled the transaction

purchase consideration in full. Payment of the purchase consideration was funded through a

combination of cash resources and bank funding. As on March 13, 2013, Pan African group had

operational cash resources available of ZAR157.4MM.

– Resignation of Chief Executive Officer: On February 27, 2013, the company announced

resignation of Mr Jan Nelson as the Company‘s Chief Executive Officer and as a member of the board

of directors. The resignation will be effective from March 1, 2013. The Board has appointed Mr. Ron

Holding and Mr. Cobus Loots as joint interim CEO‘s of the company.

– Acquisition of Evander Gold Mines Limited becomes unconditional: On February 15, 2013, the

company announced that the last remaining condition precedent to the transaction had been

fulfilled, and the transaction is now unconditional. The company will assume effective control over

Evander on February 28, 2013.

– Publication of interim results: On February 13, 2013, the company published interim results for

the half-year period ending December 31, 2012. Revenue during the period marginally declined 3%

yoy to GBP 49.5MM, while net profit after taxes declined 14% yoy to GBP12.3MM.

– Completion of rights offer: On January 14, 2013, the company announced the completion of its

ZAR 703MM rights offer implemented by issuing 370MM new ordinary shares at a subscription price

of ZAR1.90 (GBP 0.14) per rights share. The rights offer closed on January 11, 2013. The company

received subscription applications for a total of about 646MM rights shares, equating to 175% of the

available rights shares. Pan African will use the rights offer proceeds to acquire Evander Gold Mines

Limited.

– Publication of annual report: On November 6, 2012, the company published the annual report for

fiscal year ending June 30, 2012. The company‘s mining profit increased 67% yoy to GBP 51.5MM,

while profit after tax increased 70% yoy to GBP 29.2MM.

– Disposal of Manica Gold Project: On August 29, 2012, the company announced that it entered

into an agreement on August 28, 2012 to dispose of 100% of its Manica Gold Project to Auroch

Minerals Mozambique (Pty) Ltd, a wholly owned subsidiary of Terranova Minerals NL, for a total

potential purchase consideration of AUD 6MM (GBP 4MM/ZAR 52.4MM) payable in cash and

96,666,668 shares in Terranova, subject to certain terms and conditions. Pan African shall receive

the first portion of purchase consideration comprising AUD 2MM (GBP 1.3MM/ZAR 17.5MM) and

25MM shares in Terranova subject to conditions precedent to the transaction. The remaining portion

of the purchase consideration shall only become payable in tranches upon achievement of milestones

by Manica during the four-year period after the completion of the transaction.

– Evander Gold Mines acquisition update: On August 17, 2012, the company announced the

procurement of approximately 57% irrevocable shareholder support in respect of the proposed

acquisition of 100% of Evander Gold Mines Limited From Harmony Gold Mining Company Limited.

According to CEO Jan Nelson, ―Subject to shareholder approval, Pan African will issue approximately

25% of new share capital in new equity to fund a cash generative business that will double annual

gold production to some 200koz per annum and add significant reserves and resources.‖

– Pan African to acquire 100% of Evander: On May 30, 2012, the company announced that it

entered into an agreement with Harmony Gold Mining Company Limited to acquire the entire issued

share capital of and claims against Evander from Harmony for a total purchase consideration of

R1.5B. Pan African shall pay to Harmony an amount of no less than R1B upon the fulfillment or

waiver of all the conditions, other than consent, and pay the remainder of R500MM in cash upon the

fulfillment of the consent condition. The funding is expected to be done through a mix of debt (to an

extent of R600MM), cash reserves, and issue of equity.

– Pan African strengthens board by appointing Hester Hickey: On April 12, 2012, the company

announced the appointment of Hester Hickey as a non-executive director with immediate effect.



Listing Information

Pan African Resources Plc. is a listed equity on JSE Limited (Ticker: PAN, Date of Re-Listing – 1

December 2009) and AIM (Ticker PAF, Date of Re-Admission – 31 July 2007).

Contacts

Company Secretary and Investor

Relations (UK) Administrative office in South Africa

Address

St James's Corporate Services Limited 6 St James's Place, London SW1A 1NP

United Kingdom

Office 101, First Floor, The Firs Cnr Cradock and Biermann Avenues Rosebank, Johannesburg

South Africa

Telephone + 44 (20) 7499 3916 + 27 11 243 2900

Facsimile + 44 (20) 7491 1989 + 27 11 880 1240

E-mail [email protected] [email protected]

Major Shareholdersvii

Equity Holder No. of Shares Held (MM) Percentage Holding

Shanduka Gold (Pty) Limited 436.36 23.96%

Coronation Fund Managers 125.27 6.88%

Allan Gray Investment Council 116.64 6.41%

Investec Asset Management (South Africa) 109.31 6.00%

Afena Capital 99.88 5.49%

Investec Asset Management (UK) 79.42 4.36%

Prudential Portfolio Managers 58.05 3.19%

Public Investment Corporation 55.26 3.03%

Citibank NA 28.96 1.59%

Sunvest Corporation Limited 25.70 1.41%



Management and Governance

Pan African‘s management and governance team is composed of a balance of experienced mining

engineers and geologists with established careers in gold exploration, mining and geological valuation.

In February 2013, Mr. Jan Nelson resigned as the company‘s Chief Executive Officer and as a member of

the board of directors. The Board has appointed Mr. Ron Holding and Mr. Cobus Loots as joint interim

CEO‘s of the company.

Personnel Designation Work Experience

Keith Cousens Spencer

Non-Executive Chairman

Keith Cousens Spencer is a qualified mining engineer with 35 years of mining experience. In 1984, Keith was appointed as General Manager of Greenside Colliery and moved to Kloof Gold Mine as General Manager in 1986. He also served as MD of Driefontein Consolidated, chairman and MD

of Deelkraal Gold Mine, and a board member of all gold mines belonging to Gold Fields of South Africa.

Cobus Loots

Non-Executive Director, and

Joint Interim CEO

Mr. Loots was appointed Joint Interim CEO on March 1, 2013. Prior to joining Pan African Resources, he worked in Sentula Mining and Macquarie

Africa (Investment Banking). In 2008, he became a principal at Shanduka Coal. Loots is a chartered accountant.

Ron Holding

Chief Operating

Officer and Joint Interim CEO

Mr. Holding was appointed Joint Interim CEO on March 1, 2013. He has

been an employee of Phoenix Platinum Mining (Proprietary) Limited and Pan African since 2001.

Busi Sitole Finance Director

Busi Sitole is a chartered accountant. In December 2007, she joined Shanduka Group, where she was responsible for sourcing and execution, including raising capital and monitoring the company‘s investments. Prior

to joining Shanduka Group, she was a financial manager at RMB Treasury Agency Businesses, new treasury products marketer at Absa Capital, and finance manager at Standard Bank Structured Finance. At Standard Bank,

she completed her 3-year articleship as a trainee accountant.

Phuti Mahanyele

Non-Executive Deputy Chairman

Phuti is the CEO of Shanduka Group Ltd. She joined Shanduka in 2004 as

the managing director of Shanduka Energy Ltd, the Group‘s subsidiary, which focuses on electricity, oil, and gas in Africa. Prior to joining Shanduka, she was the head of the Project Finance South Africa unit at the Development Bank of Southern Africa.

Rob Still Non-Executive

Director

Rob Still has vast experience in mining, with specialization in mining finance. Prior to joining Pan African Resources, he was a partner at Ernst & Whinney. He co-founded Rhombus Exploration Limited and held executive and non-executive directorships in listed companies across South Africa,

Australia, Canada, and the UK. He has also participated in evaluation and development of mining projects — Rhovan, Ticor Titanium, Pangea Gold

Fields Limited, Southern Mining Corporation Limited, Great Basin Gold Limited, and Zimbabwe Platinum Mines Limited.

Hester Hickey

Non-Executive Director

Hester Hickey is a chartered accountant by profession and is currently a director of Omnia Limited, Afdawn Limited, and AGRE Insurance Company Limited. She has been a director of Glenrand MIB Limited and Metorex Limited since the past 5 years. Hester, also a member of audit committee,

has a lot of experience in corporate governance and audit. She has worked as a trustee and audit committee chairman for a variety of major resources companies in South Africa.



Assets and Projects

Overview

Pan African has progressed from being a precious metals explorer to producer and is enhancing its

production and operational capacity organically and through acquisitions. The company‘s asset portfolio,

located entirely in South Africa, consists of three key projects — the Barberton Mines Project, the

Phoenix Platinum Project, and the Evander Mines Project.

Company’s Asset Portfolio

The company‘s primary asset is the Barberton Gold Mines that produces approximately 100koz gold a

year. The company‘s other projects include the Phoenix Platinum Project (commissioned in April 2012)

and the Evander Gold Mines (acquisition completed in February 2013).

Project location Project overview

Source: Company filings Source: Company filings

Barberton Mines Project

Company’s interest in the Project: 100%

Asset Summary: The Barberton Mining

Operations consists of three production-stage

mines — Fairview, New Consort, and Sheba —

having a mine life of 17 years. Gold production

from these mines in FY 2012 and 1H 2013 was

94.5koz and 44.93koz, respectively. Post the

commissioning of the BTRP project, annual gold

production is likely to increase by ~20koz.

Target commodity: Gold

Location: 25km southeast of Nelspruit, in the

Mpumalanga province in South Africa.

Barberton Mines – tenement description

South Africa

Primary / Flagship Projects

•Barberton Mines Project - 100% interest; Gold

South Africa

Secondary Projects

•Phoenix Platinum Project - 100% interest; Platinum Group Elements (primarily Platinum, Palladium, and Rhodium)

•Evander Gold Mines project - 100% interest; Gold



Regional geology: The Barberton Greenstone

Belt is a large, triangular-shaped remnant of

metavolcanic and metasedimentary rocks

surrounded and intruded by granitoid bodies. The

structure consists primarily of northeast trending

shear zones separating upright to recumbent

syncinal folds. Most of the known occurrences of

gold within the Barberton Greenstone Belt are

localized in the James and Sheba Hills to the

north and north east of the Barberton and the

Moodies Hills to the immediate south west.

Barberton Mines – Regional Geology

1H 2013 Performance: In 1H 2013, gold sales

from the Barberton Gold Mining Operations

decreased 4.26% to 44.926koz (1H 2012:

46.927koz). The decline was primarily due to a

shutdown in the Biox plant, and mechanical

failure at the Sheba Mine. Total ore milled and

the overall recovery during the period were

relatively constant at 156KT and 90%,

respectively (1H 2012: 155KT and 89%,

respectively).

Production Statistics for the past five years

Though the total cash costs in 1H 2013 increased

9% to US$856/oz (1H 2012: US$786/oz), the

cash costs were significantly lower than the

average gold price of US$1,685/oz. Salaries

contributed 47% to cash cost, followed by mining

(13%) and processing (10%) expenditures.

Cash cost v/s Gold price trend

Total capital expenditure increased significantly in

1H 2013 to GBP 121.6MM (1H 2012:

GBP55.1MM), of which GBP 83.1MM was spent on

the BTRP. The remaining was spent on

maintenance and development capital.

Potential mineralization: Barberton Mining

Operations Resources is estimated to contain

2.9Moz gold (17.14MMT ore at an average grade

of 5.35g/t). Approximately 58% of the total

resources are located in Fairview Mine, followed

by Sheba (31%) and New Consort (11%) mines.

Resource Summary – June 2012

Tonnage

(KT) Grade (g/t)

Gold (MT)

Gold (koz)

Measured 3,200 8.18 26.2 840

Indicated 10,030 3.87 38.8 1,250

Inferred 3,910 6.82 26.7 860

Total 17,140 5.35 91.7 2,950

Source: Annual Report 2012

Total reserves in Barberton Mines are estimated

to be 1.16Moz Gold (11.34MMT ore at an average

grade of 3.17g/t). Approximately 63% of the

resources are located in Fairview Mine, followed

by Sheba (31%) and New Consort (6%) mines.

Reserve Summary – June 2012

Tonnage

(KT) Grade (g/t)

Gold (MT)

Gold (koz)

Proved 1,570 7.49 11.7 380

Probable 9,770 2.49 24.3 780

Total 11,340 3.17 36.0 1,160




Recent Developments: In 1H 2013, 8,443.5m

of exploration drilling and 5,946.3m of

development drilling were completed.

Fairview Mine

Company’s interest: 100%


Regional geology: The Fairview property is

located along the central and southern portions of

Eureka Syncline and Ulundi Synclinorium. These

synforms are separated by the Sheba Fault and

bounded to the north by the Lily Fault and to the

south by the Barbrook Fault. These structures

were subsequently arcuated about a north-west

axis that resulted in the formation of most of the

mineralized shears.

Fairview Mine – cross section

Potential mineralization: Total resources in

Fairview Mine are estimated to be 4.8MMT ore at

an average grade of 13.60 g/t, (including

Measured and Indicated Resources of 3.32MMT

ore at 11.83g/t). Total reserves in the mine are

estimated to be 2.50MMT ore at an average grade

of 11.17g/t.

Recent developments: In FY 2012, the 54-level

Rossiter Orebody project was completed and the

indicated resource block was converted to a

measured resource (50g/t over 3.8m). In 1H

2013, about 1,688.8m of exploration drilling and

1,871.4m of development was completed in the

mine.

Sheba Mine



Regional geology: The Swartkoppie Formation

at the Onverwacht Group is represented by well-

developed schist and green schists associated

with banded black and white chert, which is host

to gold mineralization. The Fig Tree Group

consists of pelitic sediments banded with

interlayered siliceous chemical sediments. The

Moodies Group consists primarily of clastic

sediments comprising conglomerates, quartzites,

and calcareous sandstones

Sheba Mine – cross section


Sheba Mine are estimated to be 2.57MMT ore at

5.70 g/t (including Measured and Indicated

Resources of 1.60MMT ore at 6.47g/t). Total

reserves in the mine are estimated to be

1.23MMT ore at an average grade of 5.05g/t.

Recent developments: In the Zwartkoppie (ZK)

area, a mineable block has been delineated. The

company plans to commence stoping and conduct

exploration drilling to delineate various cross

fractures. In the Edwin Bray, Thomas and Joe‘s

Luck area, incline development towards the high-

grade surface borehole intersections was carried

out in FY 2012 and additional infill exploration

drilling is likely to continue in FY 2013. In 1H

2013, ~2,871m of exploration drilling and

2,297.2m of development drilling were completed

in the mine.

New Consort Mine



Regional geology: The ore bodies are subjected

to higher-grade metamorphism, and contact between the talc-biotite-amphibole schist and

intercalated leptite group and the metapelites is



marked by a sheared and highly siliceous

mylonite known as the new consort bar. The

rocks of the bar are strongly laminated and highly

siliceous with alternating layers in shades of

green and brown due to the varying content of

the mica.

New Consort Mine – cross section


New Consort Mine is estimated to be 0.91MMT

ore at an average grade of 9.60g/t (including

Measured and Indicated Resources of 0.61MMT

ore at 9.91g/t). Total reserves in the mine are

estimated to be 0.24MMT ore at an average grade

of 8.04g/t.

Recent developments: In FY 2012,

development to the east through the pegmatite

was successful, and development on the shale is

expected to continue in FY 2013. Further,

exploration drilling from strategic points is

expected to determine the extent of

mineralization. A station was successfully

established on the 52nd level and the shaft

decline is expected to be developed to the 53rd

level in FY 2013. In 1H 2013, ~3,884.2m of

exploration drilling and 1,777.7m of development

drilling were completed in the mine.

Barberton Tailing Retreatment Project


Asset summary: The construction for the BTRP

project commenced on April 2012 and is expected

to be commissioned by July 2013. The project has

an estimated mine life of six years, and is

expected to increase the production in Barberton

Mines by 20koz per year.


Regional geology: Geostatistical modeling

indicates 74,600oz (758KT @ 3.06g/t in situ) for

the BIOX® section and 72,900oz (2.369Mt @

0.96g/t in situ) for the concentrator/flotation

section. This represents a total resource of

147,500oz (3.130Mt @ 1.47g/t in situ).

Recent developments: On 4th April 2012, the

company commenced bulk earthworks entailing

bulk excavations. The project is expected to be

commissioned in July 2013, with an estimated

capital expenditure of ZAR 305.8MM, of which

ZAR138.5MM had been spent as of December

2012.

Capital Expenditure

FY 2012 ZAR 55.417MM

1H 2013 ZAR 83.141MM

Historical Capital Expenditure (Dec 2012)

ZAR 138.558MM

Forecasted Capital expenditure ZAR 167.220MM

Total Capital Expenditure ZAR 305.778MM

Potential mineralization: The BTRP comprises

a total resource of ~654koz gold (13.7MMT ore at

an average grade of 1.38g/t) and a reserve of

~248koz gold (13.7MMT ore at an average grade

of 0.56g/t). The company expects annual gold

production of 20koz gold.

Project schedule: The company expects

construction to be completed by April 2013, and

expects cold commissioning by May 2013. The

following table details the project schedule before

hot commissioning in July 2013:

Event Status Target date

Plant Construction

Civil Construction In Progress Mar-2013

Mechanical / Structural / E&I Construction

In Progress Mar-2013

Commissioning To commence June-2013

Major Infrastructure

Water Reticulation Completed in Oct-2012

Electrical Reticulation In Progress Mar-2013

Environmental Impact Assessment

EIA In Progress Completed in Nov-2012

Water Use License Completed in Jul-2012

Tailings Storage Facility

Design Completed in Jul-2012

Construction To Commence Apr-2013



Phoenix Platinum Project


Asset summary: The project recovers PGMs

from tailings dumps, dams, and current arisings

through mineral rights agreements pertaining to

Buffelsfontein Dams and current arisings — the

Elandskraal dumps and pits and the Kroondal

dump — located in the north-west province of

South Africa. The tailings, dumps, and current

arisings are covered through various agreements

and are the feed source for 240 ktpa CTRP plant.

Phoenix Platinum –Corporate Structure

Target commodities: Platinum (56.5%),

Palladium (27%), Rhodium (16%), and Gold

(0.5%)

Location: Northwest province in South Africa,

between the towns of Rustenburg and Britsin.

Phoenix Platinum– tenement description

Regional geology: The Bushveld Complex is the

largest layered igneous complex in the world. It is

host to the world‘s largest deposits of PGM 4Es,

chromium, and vanadium. The Proterozoic complex is divided into the lower Rustenburg

Layered Suite of ultramafic/mafic rocks, the

Lebowa Granite Suite, and the felsic extrusive

rocks of the Rashoop Granophyre Suite.

Throughout the complex, the reefs extend

laterally over hundreds of square kilometers,

resulting in extensive mineral resources, where

continuity has been established over many years

of exploration and mining.

Phoenix Platinum – regional geology

Historical developments: The company has

entered into a formal Chrome Tailings

Retreatment Plant (CTRP) agreement with

International Ferro Metals SA (Pty) Ltd (IFM) to

construct and commission the CTRP on IFM‘s

Lesedi Mine property. The CTRP was designed to

treat sulphide material from the Lesedi Mine.

Potential mineralization: The project has

SAMREC-compliant resource of 493koz PGM 4Es

(4.853MMT ore at 3.16g/t PGM 4Es). Over its 17-

year mine life, the project is likely to produce

211koz PGM 6Es (at a recovery rate of 45%) with

a planned annual retreatment capacity of 240KT.

Recent developments: In 2012, IFM has

reduced the sulphide mining and has started

mining lower-cost, open-cast oxidized material.

This has led to a decrease in PGM concentrate

production in 2012, owing to the mixing of

oxidized tailings into the Phoenix feedstock. To

address the issue, the company plans to complete

the construction of an additional tailings storage

facility to bypass oxide tailings by July 2013. It also plans to increase feedstock (to increase PGE

6E production), reduce operating costs, and



explore ways to increase recoveries from oxide

material.

1H 2013 Performance: Sales in 1H 2013 were

3,136oz PGE. The PGE production was lower than

management expectations, primarily due to a

lower head grade of 3.75g/t (Budgeted: 4.50g/t),

and lower recoveries of 19% (Budgeted: 33%).

The decrease is primarily due to an increased

share of oxidized material. The total cash cost of

production and basket price during the period

were US$861/oz and US$1,013/oz, respectively.

Buffelsfontein (IFM’s Lesedi Mine)

In 2008, the company acquired the PGM 4Es

mineral rights in the IFM tailings dams and

Current Arisings situated on the farm

Buffelsfontein. There are four tailings dams on

IFM‘s Lesedi Mine, which are currently used on a

rotational deposition plan.

Potential mineralization: The resources and

reserve summary of the Buffelsfontein Tailings

Dams, as on June 30, 2012, is as follows:

Resource Summary (Tailings Dams) – June 2012

Tonnage

(KT)

PGM Grade

4E (g/t)

PGM Metal (kg)

PGM Metal (koz)

Measured 218 3.66 797 26

Indicated 208 3.39 704 23

Inferred

Total 426 3.52 1,501 49


Reserve Summary (Tailings Dams) – June 2012

Tonnage

(KT)

PGM Grade

4E (g/t)

PGM Metal (kg)

PGM Metal (koz)

Proved 218 1.65 359 12

Probable 208 1.52 317 10

Total 426 1.59 676 22


The resources and reserve summary of the

Buffelsfontein Current Arisings, as on June 30,

2012, is as follows:

Resource Summary (Current Arisings) – June 2012

Tonnage

(KT)

PGM Grade

4E (g/t)

PGM Metal (kg)

PGM Metal (koz)

Measured 1,597 3.66 5,845 188

Indicated 443 3.66 1,621 52

Inferred 641 3.66 2,348 75

Total 2,681 3.66 9,814 315


Reserve Summary (Current Arisings) – June 2012

Tonnage

(KT)

PGM Grade

4E (g/t)

PGM Metal

(kg)

PGM Metal

(koz)

Proved 1,597 1.65 2,630 85

Probable 443 1.65 730 23

Total 2,040 1.65 3,360 108


Elandskraal

The chrome tailings are scattered around the

Elandskraal farm in a number of pits, old tailings

dams and tailings dumps. Phoenix Platinum

entered into an agreement with Minco Reduction

Works to remove and treat 946.33KT of chrome

tailings from the Minco‘s mining area on

Elandskraal for PGM recovery.

Potential mineralization: The resources and

reserve summary of the mine, as on June 30,

2012 is as follows:


Tonnage

(KT)

PGM Grade

4E (g/t)

PGM Metal (kg)

PGM Metal (koz)

Measured 1,149 2.45 2,813 90

Indicated 145 2.04 296 9

Inferred 42 2.00 84 3

Total 1,336 2,39 3,193 102



Tonnage

(KT)

PGM Grade

4E (g/t)

PGM Metal (kg)

PGM Metal (koz)

Proved 1,149 1.10 1,266 41

Probable 145 0.92 133 4

Total 1,294 1.08 1,399 45


Kroondal Dump

The company acquired common law rights to the

PGM 4Es contained in the Kroondal dump from GB

Mining. The rights to chrome content are owned

by Xstrata Chrome.

Potential Mineralization: The resources and reserve summary of the mine, as on June 30,

2012, is as follows:




Tonnage

(KT)

PGM Grade

4E (g/t)

PGM Metal (kg)

PGM Metal (koz)

Measured 260 2.00 520 17

Indicated 30 2.00 60 2

Inferred 120 2.00 240 8

Total 410 2.00 820 27



Tonnage

(KT)

PGM Grade

4E (g/t)

PGM Metal (kg)

PGM Metal (koz)

Proved 260 0.90 234 8

Probable 30 0.90 27 1

Total 290 0.90 261 9


Evander Gold Mines project

Company’s interest in Project: 100%

Asset summary: Evander Gold Mines was

acquired by Pan African Resources in February

2013. Evander operations comprise the operating

Evander 8 shaft and several significant

development projects. The operational mine,

Evander 8 shaft, has an expected mine life of

more than 10 years.


Location: Mpumalanga in South Africa

Evander Gold Mines – Tenement description

Acquisition: On May 30, 2012, the group

entered into an agreement with Harmony Gold

Mining Company Limited to acquire Evander Gold Mines for a total purchase consideration of

GBP116.2MM. On February 15, 2013, the

company announced that the transaction with

Harmony has become unconditional following the

consent of the Minister of Mineral Resources in

accordance with section 11 of the MPRDA, the last

remaining condition precedent to the transaction.

It completed the acquisition of Evander Gold

Mines on February 28, 2013.

Potential mineralization: Evander's total

underground resource represents 28.74Moz

(110MMT ore at 8.16g/t) and a reserve of

7.66Moz (28MMT ore at 8.45g/t). The Evander 8

shaft, the operational mine, has an expected

mine life of more than ten years and is expected

to produce between 85-100Koz annually.

Evander Gold Mines – Resources

Evander Gold Mines – Reserves

Recent developments: After the acquisition, the

company plans to focus on the Evander 7 Shaft to

increase the production profile, explore the

Evander 9 Shaft to access the recommencement

of mining activities, and explore ways to increase

the current mine life. The group also plans a

strategic partnership for the completion of a BFS

at Evander South and Poplar.



Technologies and Markets

Platinum Group Metals (PGM)

Chemistry and properties

The Platinum Group Metals comprise six metallic

elements clustered together in the periodic table,

including ruthenium, rhodium, palladium,

osmium, iridium, and platinum.

Production and supply: Platinum supplies are

mainly concentrated in South Africa, with the

largest reserves located in the Bushveld Complex

in South Africa. Platinum is susceptible to

fluctuations in supplies and price variations due to

labor unrest/strikes and shortages of electrical

power in South Africa, which interrupt mining

output. Uncertainties also persist on the flow of

supplies from Russia.

The supply of platinum has revived after falling

10% in 2008, reporting a 6% yoy growth in 2011.

During 2012, platinum supply decreased 10% yoy

to 5.840koz due to lower production from South

Africa and fell substantially due to mining

disruptions in South Africa and the closure of

operations, coupled with lower recycling.

Platinum Supply (Moz)

Source: Johnson Matthey

Demand: The demand for Platinum declined 3%

and 15% yoy in 2008 and 2009, respectively,

recovering to grow 16% and 2% in 2010 and

2011, respectively. During 2012, platinum

demand was relatively constant at 8.070Moz

compared with the 2011 levels of 8.095Moz. The

worldwide demand for PGMs is expected to grow

moderately due to the strong demand for

responses to pollutants, particularly automotive

pollutants.

Historically, the demand for Platinum has

outpaced supply over most of the last decade.

However, the platinum market was expected to

be in deficit of 400koz in 2012, compared with a

surplus of 195koz in 2011.

Platinum Demand (Moz)


Applications: PGMs are used in a wide variety of

industries, including as autocatalysts, jewelry and

fuel cells.

Demand by application


Market trends: Prices and drivers

According to market trends, platinum prices are

sensitive to shifts in both the Japanese and U.S.

markets, and increasingly in the Chinese

economy. Seasonally, platinum prices tend to

increase during the first quarter of the year as

industrial production tends to be strong during February and March. Prices also tend to dip during

the August-September period as the biggest rush



of auto production, the leading industrial

consumer of platinum, is completed for the new

model year.

Platinum prices declined to US$1,391/oz in July

2012, after reaching US$1,728/oz in February

2012. However, prices have been rising in 2H

2012 due to supply concerns and labor

disruptions in South Africa.

Platinum Prices (US$/oz)


Gold

Chemistry and properties

Gold is the most widely accepted and applied

precious metal, with the chemical symbol ‗Au‘ and

the atomic number ‗79‘. It is dense, soft, shiny

and the most malleable and ductile pure metal.

Applications

Gold, due to its properties, has been a highly

sought-after precious metal for coinage, jewelry

and other arts since the beginning of recorded

history. It has been mainly used for jewelry

(48%), investments (40%) and technological

purposes (12%).

Demand and supply

The global demand for gold in 2012 decreased

marginally to 4.41KT, (2011: 4.07KT) due to

declines across jewelry, investments and the

technology sector. However, the annual gold

demand was higher than the past five-year

average. India and China together constitute

around 51% of the demand. The demand for gold

is expected to increase mainly for investment

purposes, triggered by gold‘s inflation-hedging

properties and an increase in global inflation due to central banks‘ focus on growth, globally.

Gold production involves relatively long lead

times, with new mines taking up to 10 years to

come on stream. As a result, its output is

relatively inelastic to changes in the price outlook.

Gold supply in 2012 decreased 1.4% yoy to

4.45KT, primarily due to lower supply from

recycling.

Market Drivers

The demand for gold is mainly driven by the need

for value preservation, which largely depends on

the economic situation (money supply, inflation,

interest rates, debt, equity markets, etc.). The

demand generally rises during weak economic

conditions as gold is considered a safe haven for

investments.

Another important driver is the fabrication

demand from downstream sectors, predominantly

jewelry. Also, a structural shift in central banks‘

policy towards gold in recent times is driving

demand. Further, China, one of the largest buyers

of U.S. Treasuries, reduced its holdings in US

treasuries and is increasing gold reserves by

around 30% a year.

Gold price trends

The gold price has been rising since 2001, when

the price was around US$250/oz. It reached

record levels in early 2011, due to an increase in

money supply in the US.

In 1H 2012, the gold price fell primarily due to

lower imports from India and tight credit

conditions arising from the Eurozone debt crisis.

However, the price rose in 2H 2012, backed by an

increase in demand from India and monetary

easing by the US Fed.

Gold Price trend in last five years

Source: Bloomberg



Project Risk Profile Analysis

In comparison to its peers, Pan African Plc has a

low risk profile, as the advanced and operational

stages of its projects mitigate any potential

financing risk in the near-to medium term.

Peer risk analysis

We have evaluated the risk profile of Pan African

Resources compared with other peer companies.

We identified the risk as Low/Medium/High and

assigned a score of 1/2/3 respectively based on

the risk profile of the major projects pursued by

the companies. The important risk categories

considered for the study include:

– Project Maturity Risk: LOW - Near feasibility;

HIGH - Proof of concept/production stage

– Financing Risk: LOW - Near negotiations /

lower exploration capex; HIGH - Funding need

for exploration/ no well-known funding

sources

– Operational / execution Risk: LOW - Advanced

stages of production and stable grade

extraction; HIGH - Early development stages

and volatile grade extraction or more

– Key Man Risk: LOW - All key operations /

decisions do not depend on a few people;

HIGH - few decision makers whose presence

is critical for decision making

The individual risk parameters and the underlying

rationale for the scores are discussed in the

subsequent sections.

Peer risk profile

Ticker

Total

Risk

Score

Project

Stage

Risk

Financing

Risk

Operational

Risk

Key Man

Risk

PAF 1.2 1.0 1.0 1.5 1.3

AVM 1.7 1.5 2.0 2.0 1.5

AMA 2.1 2.5 2.0 2.0 1.5

GRL 2.7 3.0 2.5 3.0 2.0

GFI 1.2 1.0 1.3 1.5 1.0

South African Projects

Project stage risk – LOW

– Pan African Resource‘s asset portfolio consists

primarily of operational stage projects –

Barberton Mines Operations and the Phoenix Platinum Project. The recent acquisition of

Evander Gold Mines is also expected to boost

the company‘s production profile. The

company‘s Barberton Tailing Retreatment

Project is currently under development, and is

scheduled to be commissioned in July 2013.

– We believe that the advanced stages of its

current projects significantly reduce

uncertainty regarding the sustainability of the

project. Hence, we believe the project has a

low project stage risk.

Financing/capex Risk – LOW

– Pan African completed the Evander acquisition

in February 2013, which was funded through

proceeds from ZAR703MM rights offer and

ZAR350MM from the revolving credit facility

(RCF). As on March 13, 2013, the company

has operational cash of ZAR157.4MM, along

with an unutilized RCF of ZAR250MM.

– We believe that through its operational

projects, Pan African Resources will be able to

generate sufficient cash flow to service its

debt and meet its capex requirements. We

estimate the company to have a medium

financing risk profile in the near to medium

term, though we believe that any future debt

financing may involve restrictions on financing

and operating activities.

Operational risk – LOW

– The company‘s assets in its Barberton Mine

Project – Fairview Mine, New Consort Mine

and Sheba Mine – are operating mines with a

mine life of approximately 17 years. In the

BTRP project, construction commenced on

April 2012 and the project is expected to be

commissioned by July 2013. Also, the

production in the Phoenix Platinum Project

commenced during FY 2012, and a ramp-up

phase was completed in July 2012.

– As the company‘s current projects are in the

near production/production stage, we believe

the company has a low operational risk.

Key man risk – LOW

– Pan African‘s management team has a strong

mining background. The Evander Mines

acquisition is also expected to bring along an

experienced management team and

workforce. Hence, we believe the company to have a low key man risk.



Risk Parameters – Definition

Project stage risk

The different stages in a project are:

Early stage exploration: In this stage, the

exploration location is decided using

combination of various techniques such as,

samplings, drilling, geophysics, and other

extensive geological and exploration services.

Pre-feasibility study: A preferred base case

option will be identified from the possible

options available to the company. The

preferred base case option will provide some

level of confidence in the production capacity,

ore grades, metal recovery, capital and

operating costs, project schedule, and project

risks / opportunities. A financial analysis will

also be carried out in order to assess the

economic viability of the project.

Feasilbility study: This includes a collection

of more detailed information, additional

designs, and project-specific cost information

to refine the project cost and schedule. This

will also address information gaps, issues of

concern, risks, and opportunities identified in

the advanced exploration stage.

Detailed engineering: Detailed designs

based on the project scope, concept designs

and purchase of key plant equipment will be

completed.

Site construction: Site construction starts as

per the field engineering designs and is

expected to confirm adherence to appropriate

quality control practices.

Commissioning and start of operations:

After completion of construction, operability

testing and acceptance, the owner will be

asked to confirm whether the project

construction and performance is as designed

and meets the required plant performance

and safety requirements. The final operating

control programs will be completed, installed,

and tested for functional efficiencies.

We consider a project to carry lower risk profile if

feasibility study is complete and detailed

engineering has been conducted as the

uncertainty regarding the sustainability of the

project reduces significantly.

Project financing risk

initial stages of exploration, development and

production require high levels of capital

investment. Investments will be riskier when

done in exploration stage as the economic

viability of deposit is not determined. The risk

level of the capital reduces as it advances through

the various exploration stages.

Initial stages of exploration and development of

the project attracts high-risk-capital investors. As

the project stages proceed, they have varied

options like equity (IPO), debt financing, etc.


the exploration capital expenditure is low and the

company has secured financing to fund its capital

expenditure.

Operational risk

Mining machinery, transport and new

technologies are used for operations in areas

which have complicated geological and climatic

conditions. There are increased risks of flooding,

pit slope and rim slide, accidents caused by the

use of mining transport equipment due to adverse

weather conditions and problems in power supply

facilities and recovery plants. These risks could

result in delayed ore production and recovery,

increased costs, health, safety and environmental

issues and affect the company‘s production

activities. Additionally, the quality of ore reserves,

and the method used for extraction also

contribute to the operational risk.


the company is in the advanced stages of its

operations and extracts fairly stable grades.

Key man risk

The company is run by its management who

brings prior experience and knowledge to the

table. Also, it is important that a company does

not rely heavily on very few individuals who have

vast experience in the field.

We consider a project to be of lower risk profile if

the management team is highly qualified, has

good number of years of experience in oil and gas

field and has lesser dependability on few people.

Peer valuation and risk profile

We have also evaluated the companies based on

the value per resource and the risk profile. Enterprise Value per Resource has been

evaluated. GBP/oz unit has been used as a proxy

for the valuation measure.



The risk profile has been assessed as a weighted

blended score based on the project maturity risk

(30% weightage), financing risk (30%),

operational risk (20%) and key man risk (20%).

The individual risk score have been provided in

the risk profile table in the peer risk profile table

in the previous section.

Valuation vs risk profile

Company

Ticker

Total Risk

Score

Enterprise

Value/

Resource

(GBP/oz)

Enterprise

Value (GBP MM)

Total

Resource (Moz)

PAF 1.2 68.1 279.8 4.1

AVM 1.7 2.9 23.5 8.1

AMA 2.1 12.4 57.3 4.6

GRL 2.7 15.1 6.1 0.4

GFI 1.2 74.6 5,362.9 71.9

The analysis clearly indicates our assertion that

Pan African Resources Plc commands a premium

compared to its peers, considering the low risk

profile and advanced stage of its projects.

Valuation vs risk profile chart



Value

The fair market value for Pan African Resources Plc‘s shares stands between GBP 555.89MM and GBP

780.64MM.

The fair market value for one of Pan African Resources Plc‘s publicly traded shares stands between GBP

0.31 and GBP 0.43.

Pan African Resources Plc balance sheet forecast

CONSOLIDATED BALANCE

SHEET

all figures in '000 GBP ‘000, unless

stated differently

Low bracket estimates

year ending June 30 2013E 2014E 2015E 2016E 2017E 2018E 2019E

Total Current Assets 82,720 153,138 213,835 286,765 376,364 466,467 557,079

Total Non-Current Assets 230,320 232,798 235,153 229,409 223,950 218,763 213,832

TOTAL ASSETS 313,039 385,936 448,988 516,174 600,315 685,230 770,911

Total Current Liabilities 35,420 49,375 49,513 49,651 49,790 49,930 50,069

Total Non-current Liabilities 60,501 41,554 27,343 13,132 13,132 13,132 13,132

TOTAL LIABILITIES 95,921 90,929 76,856 62,784 62,923 63,062 63,202

Total Shareholders Equity 217,118 295,007 372,132 453,389 537,392 622,167 707,709

TOTAL LIABILITIES and EQUITY 313,039 385,936 448,988 516,173 600,315 685,230 770,911

Important information on Arrowhead methodology

The principles of the valuation methodology employed by Arrowhead BID are variable to a certain extent

depending on the subsectors in which the research is conducted, but all Arrowhead valuation research

possesses an underlying set of common principles and a generally common quantitative process.

With Arrowhead commercial and technical due diligence, Arrowhead extensively researches the

fundamentals, assets and liabilities of a company, and builds solid estimates for revenue and

expenditure over a coherently determined forecast period.

Elements of comparison such as multiple analyses may be to some limited extent integrated in the

valuation on a project-by-project or asset-by-asset basis. In the case of this Pan African report, there

are no multiple analyses integrated in the valuation.

Arrowhead BID fair market value bracket

The Arrowhead Fair Market Value is given as a bracket. This is based on quantitative key variable

analysis, such as key price analysis for revenue and cost drivers or analysis and discounts on revenue

estimates for projects, especially relevant to those projects estimated to provide revenue near the end

of the chosen forecast period. Low and high estimates for key variables are produced as a tool for

valuation.

In principle, an investor who is comfortable with the high-brackets of our key variable analysis will align

with the high-bracket in the Arrowhead Fair Value Bracket, and likewise in terms of low estimates. The

investor will also take into account the company intangibles – as presented in the first pages of this

document in the analysis on strengths and weaknesses and on other essential company information.

These intangibles serve as supplementary decision factors for adding or subtracting a premium in the

investor‘s own analysis.

The bracket should be understood as a tool provided by Arrowhead BID for the reader of this report and

the reader should not solely rely on this information to make his decision on any particular security. The

reader must also understand that on one hand, global capital markets contain inefficiencies, especially in

terms of information, and that on the other hand corporations and their commercial and technical

positions evolve rapidly: this present edition of the Arrowhead valuation is for a short to medium-term



alignment analysis (one to twelve months). The reader should refer to important disclosures on page 25

of this report.

Information on the Pan African Resources Plc valuation

Pan African Resources Plc valuation methodology: The Arrowhead fair valuation for Pan African

Resources Plc is based on the discounted cash flow (DCF) method. Valuation is based on its Barberton,

Phoenix Platinum, and Evander, and the BTRP Projects.

Time horizon: The Arrowhead fair valuation for Pan African Resources Plc is based on a DCF method.

The time period chosen for the valuation is ~112 months (2013-2022). While revenue is expected to

ramp up significantly during the 2014-2018, the later years are heavily discounted and have a marginal

effect on valuation, which are included primarily to present a full project cycle situation.

Underlying business plan: Pan African Resources is a company focused on precious metals with

operational assets in South Africa. The company aims to invest in projects that are at or near pre-

feasibility, and have a significant resource growth potential. The company aims to grow organically as

well as through acquisitions, as demonstrated by planned acquisition of 100% interest in the Evander

Gold Mines.

Terminal value: Terminal Value is estimated to depend on a terminal growth rate of 2%, representing

steady production at Barberton and increase in production at Phoenix Platinum.

Prudential nature of valuation: It should be noted that this Arrowhead Fair Value Bracket estimate is

a relatively prudential estimate, as it also discounts the eventuality of any of Pan African‘s projects and

assets other than Barberton, Phoenix Platinum, BTRP, coming to market and producing revenue before

2022. Arrowhead has also considered revenue contribution from Evander starting FY2014.



Key variables in Pan African Resources Plc revenue estimations

Forecast price of platinum for 2013-2022

Arrowhead believes that demand for platinum will recover as the automobile industry rebounds in the

Western markets and in Asia and as demand for jewelry in China, Japan and the United States

increases. Prolonged labor and power problems in South Africa are also expected to result in platinum

prices witnessing upward tensions. On average, platinum prices should remain in the current range or

increase slightly in the decade ahead.

Based on this forecast and on hypothesis for an average of price stability, Arrowhead forecasts that a

comfortably low estimate for 2013 prices of platinum should be US$1,500/oz, whereas a prudent high

estimate should be US$1,700/oz. The price should grow through 2013-2022 at a +0.30% CAGR.

Price (US$/oz)

Low 1,500

High 1,700

Forecast price of palladium for 2013-2022

Arrowhead believes that demand for palladium should rise faster than demand for platinum as more

palladium is used to compensate for higher platinum prices, and producers tend to focus on the platinum

elements of combined deposits or on comparatively platinum-rich deposits over comparatively

palladium-rich deposits. Also, as palladium prices rise, so does its desirability and intrinsic susceptibility

to be used in jewelry, which should help sustain price growth.


comfortably low estimate for 2013 prices of palladium should be US$650/oz, whereas a prudent high

estimate should be US$700/oz. The price should grow through 2013-2022 at a +0.30% CAGR.

Price (US$/oz)

Low 650

High 700

Forecast price of gold for 2013-2022

Arrowhead believes that the forecasted ―slow recovery‖ of the general economy and the equity and debt

markets in 2012 will leave some room for gold as a value refuge for investors. Conservatively, in the

medium-term, gold is expected to settle in the high ends of the last decade‘s bracket.


comfortably low estimate for 2013 prices of gold should be US$1,500/oz, whereas a prudent high

estimate should be US$1,600/oz. The price should grow through 2013-2022 with a +0.30% CAGR.

Price (US$/oz)

Low 1,500

High 1,600

Forecast price of rhodium for 2013-2022

Predominant use of rhodium in catalytic converters for automobiles, no substitute in case of diesel

engines and with no pure rhodium mines in existence, Rhodium prices are very volatile. Additionally, the

recent power shortage in South Africa has forced mining companies to decrease production, which can

cause sharp deficits in the supply/demand dynamics in the rhodium market.


comfortably low estimate for 2013 prices of rhodium should be US$1,400/oz, whereas a prudent high

estimate should be US$1,900/oz. The price should grow through 2013-2022 at a +0.30% CAGR.



Price (US$/oz)

Low 1,400

High 1,900

Hypothesis for production rates for 2013-2022

Barberton Mines: Gold Production

Pan African has provided estimates of potential production rates and timing milestones. The

management disclosed a planned production of 125,000 oz of gold for 2011, 2012 and 2013, which is

expected to remain steady thereafter. The company has announced an increase in its 2P reserves to

1Moz in 2011 from 661Koz in 2010; life of mine increasing to 17 years from the previously 10 years.

Arrowhead has remained conservative and has capped the company‘s production to 115,000 oz in the

long term.

Oz 2013-2014 2015-2022

Low estimate 95,000 100,000

High estimate 100,000 115,000

Phoenix Mines: Platinum, Palladium, Rhodium & Gold Production (PGM 4E’s)

Phoenix mines produced its first PGM in November 2011. We expect the production to be in the range of

8,000oz -10,000oz of PGM 4E‘s, which is more or less expected to remain stable thereafter. The content

is estimated to be as follows: Platinum - 56.5%, Palladium – 27%, Rhodium – 16%, and Gold – 0.5%.

Arrowhead has remained conservative and estimated relatively lower production in the initial years.

Oz 2013-2022

Low estimate 8,000

High estimate 9,000

Evander Gold Mines Limited: Gold

Production at the Evander Gold Mine (Shaft 8) is estimated to be in the range 85-100Koz annually.

Oz 2013-2022

Low estimate 85,000

High estimate 100,000

The Barberton Tailing Project (BTRP): Gold

Production at the Barberton Trailing is estimated to be in the range 18,000oz to 20,000oz per year over

an estimated mine life of six years.

Variable 6 – ZAR/US$ exchange rates

Since Pan African‘s forecast revenues are extremely sensitive to the forecasted international prices of

gold and PGM 4E‘s, which are priced in US$, and since Pan African is listed in the UK and has operations

in South Africa, the currency factor is of high importance.

2013-2022

Low 9.2

High 9.7



Analyst Certifications & Important Disclosures

Analyst Certifications

I, Mohanarangam Purushothaman, certify that all

of the views expressed in this research report

accurately reflect my personal views about the

subject security and the subject company.

I, Vishal Pasari, certify that all of the views

expressed in this research report accurately

reflect my personal views about the subject

security and the subject company.

Important Disclosures

Arrowhead Business and Investment Decisions,

LLC received fees in 2011-13 from Pan African

Resources Plc for researching and drafting this

report and for a series of other services to Pan

African Resources Plc, including distribution of

this report and networking services. Neither

Arrowhead nor its principals or employees own

any long or short positions in Pan African

Resources Plc.-related securities.

Aside from certain reports published on a periodic

basis, the large majority of reports are published

by Arrowhead BID at irregular intervals as

appropriate in the analyst‘s judgment.

Any opinions expressed in this report are

statements of our judgment to this date and are

subject to change without notice.

This report was prepared for general circulation

and does not provide investment

recommendations specific to individual investors.

As such, any of the financial or other money-

management instruments linked to the company

and company valuation described in this report,

hereafter referred to as ―the securities‖, may not

be suitable for all investors.

Investors must make their own investment

decisions based upon their specific investment

objectives and financial situation utilizing their

own financial advisors as they deem necessary.

Investors are advised to gather and consult

multiple information sources before making

investment decisions. Recipients of this report are

strongly advised to read the information on

Arrowhead Methodology section of this report to

understand if and how the Arrowhead Due

Diligence and Arrowhead Fair Value Bracket

integrate alongside the rest of their stream of

information and within their decision taking

process.

Past performance of securities described directly

or indirectly in this report should not be taken as

an indication or guarantee of future results. The

price, value of, and income from any of the

financial securities described in this report may

rise as well as fall, and may be affected by simple

and complex changes in economic, financial and

political factors.

Should a security described in this report be

denominated in a currency other than the

investor‘s home currency, a change in exchange

rates may adversely affect the price of, value of,

or income derived from the security.

This report is published solely for information

purposes, and is not to be considered as an offer

to buy any security, in any state.

Other than disclosures relating to Arrowhead

Business and Investment Decisions, LLC, the

information herein is based on sources we believe

to be reliable but is not guaranteed by us and

does not purport to be a complete statement or

summary of the available data.

Arrowhead Business and Investment Decisions,

LLC is not responsible for any loss, financial or

other, directly or indirectly linked to any price

movement or absence of price movement of the

securities described in this report.

Pan African Resources Plc. – Arrowhead BID 25 AIM: PAF; JSE: PAN.


Valuation

WACCviii Risk-free rate 2.20%

Variable 1 Variable 2 Variable 3

Beta 0.87

Risk premium 8.7% Max

value Please refer to the Key Variable Section Additional Risk Premium 10.0%

Cost of Equity 18.5% Min

value Terminal Growth Rate 2%

FCFE (High) Time Period->

0.33

1.33

2.33

3.33

4.33

5.33

6.33

7.33

8.33

2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E

Net cash from operating

activities 114,889 136,730 124,701 129,269 131,903 132,581 133,265 123,843 126,779

Capital Expenditure (32,729) (13,191) (13,191) (5,000) (5,000) (5,000) (5,000) (4,500) (3,500)

Net Debt Addition 46,500 - - - - - - - -

Free Cash Flow to Equity 128,659 123,538 111,510 124,269 126,903 127,581 128,265 119,343 123,279

Discount Factor 0.95 0.80 0.67 0.57 0.48 0.40 0.34 0.29 0.24

Present Value of FCF 121,585 98,527 75,056 70,591 60,838 51,619 43,797 34,392 29,982

FCFE (Low) Time Period->

0.33

1.33

2.33

3.33

4.33

5.33

6.33

7.33

8.33

2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E

Net cash from operating

activities 85,120 97,125 88,250 92,084 94,544 95,046 95,555 88,154 90,502

Capital Expenditure (32,978) (13,398) (13,398) (5,000) (5,000) (5,000) (5,000) (4,500) (3,500)

Net Debt Addition 46,500 - - - - - - - -

Free Cash Flow to Equity 98,642 83,726 74,852 87,084 89,544 90,046 90,555 83,654 87,002

Discount Factor 0.95 0.80 0.67 0.57 0.48 0.40 0.34 0.29 0.24

Present Value of FCF 93,218 66,775 50,382 49,468 42,928 36,432 30,921 24,107 21,159

In the model, the valuation is continued to the year 2022, from which point the terminal value is established. For all data see reference table

below:

GBP Value Contribution by Key Variables

ARROWHEAD FAIR VALUE BRACKET

High Low

Terminal Value (TV) 766,415 540,989

Present Value of TV 157,308 111,039

Present Value of FCF + TV 769,127 544,380

+ Cash 11,509 11,509

Equity Value Bracket 780,636 555,890

Shares Outstanding (in '000) 1,821,334 1,821,334

Fair Value Bracket GBP 0.43 GBP 0.31

Current Market Price GBP 0.16 GBP 0.16

Current Market Capital 286.86 286.86

Target Market Capital 780.64 555.89



Notes and References

i Arrowhead Business and Investment Decisions Fair Value Bracket - AFVBTM. See information on valuation on pages 20-25 of this report and important disclosures on page 24 of this report.

ii Source: Bloomberg extracted 11-Apr-2013

iii Bloomberg as on 11-Apr-2013

iv 3 months average daily volume from Bloomberg as on 11-Apr-2013

v Bloomberg as on 11-Apr-2013

vi Arrowhead Business and Investment Decisions Fair Value Bracket - AFVBTM. See information on valuation on pages 20-25 of this report and important disclosures on page 24 of this report.

vii As on 25-Jan-2013

viii Bloomberg as on 19-Feb-2013

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