JSE- and Aim-listed Pan African Resources will host a general meeting in London on June 10 to discuss a proposed capital reduction programme.

Additionally, the company expects a court hearing to confirm the legality of its capital reduction plans by July 2, before the capital reduction becomes effective on July 3.

The capital reduction efforts will ensure the company’s ability to return value to shareholders in future through dividends and share buybacks, it states in a release issued on May 24.

Unless a capital reduction is approved at the general meeting and in court, it will not take effect and Pan African may elect to make claims against recipient shareholders, including directors, for recovery of payment of certain distributions.

Pan African produces more than 200 000 oz/y of gold from its operations in South Africa.

The company explains that it should have made certain distributions owing to rand and US dollar currency factors.

The capital reduction, if approved, will provide the company with the flexibility to continue with its existing dividend policy and allow for the rectification of certain distributions which have been paid otherwise than in accordance with the Companies Act.

Between May 9, 2022 and April 1 this year, the company repurchased in aggregate 11.8-million ordinary shares for a total consideration of R50.3-million, which was, at the time, equivalent to about £2.55-million and $3.22-million.

The consequence of the relevant distributions being made otherwise than in accordance with the Act is that the company may have a claim against all shareholders (former or present) who received any such distribution (up to the maximum value of cumulative distributions received by each shareholder from the relevant distributions, as well as a claim against all directors (former or present, individually or in aggregate), who approved the making of the relevant distributions, up to the total aggregate value of $93.3-million in respect of the relevant dividends and in respect of $3.22-million in respect of share buybacks.

The court may require measures to be put in place for the protection of creditors amid the capital restructure should it proceed.

Notably, there will be no change in the number of ordinary shares in issue following the implementation of a capital reduction, and the capital reduction itself will not involve any distribution or repayment of capital or share premium by the company. It will also not reduce the underlying net assets of the company.

Rather, Pan African explains, the distributable reserves arising on the capital reduction will, subject to the discharge of any undertakings required by the court, support the company’s ability to pay dividends, should circumstances in the future make it desirable to do so, and the appropriation of profits to ratify relevant accounting entries.