Mid-tier gold producer, Pan African Resources, has called for a general meeting next month to effect a capital reduction to correct accounting errors for the period 2019 to 2023.
The general meeting has been slated for June 10, and relates to an exercise on “capital reduction to enable the company to pay future dividends.
It will also address the payment of certain past distributions by the company by way of dividends, and “in respect of certain share buy backs as well as the resultant” related party transactions.
“The company now understands that these past distributions have apparently been paid otherwise than in accordance with the Companies Act 2006,” Pan African Resources said on Friday.
Keith Spencer, non executive chairperson of Pan African Resources said that the act required that a public limited company may only pay a dividend if it can satisfy the Net Assets Test.
Pan African paid dividends for the years ended 30 June 2019, 2020, 2021, 2022 and 2023 amounting to an aggregate value of $93.3 million (R1.7billion).
Additionally, Pan African undertook a share buyback program in 2022 for R50.3m.
Spencer said the company had discovered that the Net Assets Test was required to be performed on the presentation currency amounts and not the functional currency amounts.
Since 2019, when the presentation currency was changed to the US dollar, the rand has depreciated by 34% over the five years ending 30 June 2023.
Translation of the company’s accounts resulted in its foreign currency translation reserve which, as at 30 June 2023 stood at $171m exceeding its retained income of $47m.
“The company should not have made the relevant Distributions because doing so breached the Net Assets Test,” explained Spencer.
Edison Investments said on Friday that Pan African may have been in technical breach of the net asset, although there “is a relatively simple remedy that involves a court sanctioned capital reduction process via a clever reserve juggling” act.
“There will be no change to the number of Pan African shares in issue. However, it will require shareholder assent, which is the reason for Pan African’s announcement,” it said.
Pan African said it was possible for a company to cancel its share capital, share premium account, and other reserves, with the sums resulting from such reduction applicable to distributable reserves.
This will then be treated as distributable for the purposes of making future returns to shareholders.
As at June 30 2023, Pan African Resources had a share premium account with credit of $235m, which it intends to reduce in full.
“The share premium account is a statutory reserve in respect of which the Court has the power to sanction the reduction or cancellation,” added Spencer.
“The Capital Reduction, if approved, will provide the Company with the flexibility to continue with its existing progressive dividend policy and will allow the rectification of the relevant distributions which have been paid otherwise than in accordance with the Act.”
Pan African has a production capacity in excess of 200 000 ounces of gold per year.
It owns and operates a portfolio of high-quality, low-cost operations and projects, which are located in South Africa.
With all of its revenue arising from trading in South Africa, the day-to-day accounting of the company is recorded in rand, which stands as its functional currency.
BUSINESS REPORT