Pan African Resources CEO Cobus Loots. Picture: MARTIN RHODES
Pan African Resources CEO Cobus Loots. Picture: MARTIN RHODES

Pan African Resources showed the scars of operational difficulties at key assets, leading to a fall in profit for the interim period, with analysts warning of more pain to come if the rand remains strong against the dollar.

Pan African tried to offset the bad news by outlining a host of projects to add extra low-cost ounces of gold from surface and underground resources.

The R1.7bn Elikhulu tailing retreatment project at Evander will reach steady state production in September 2018 and will give the company a low-cost base of 100,000oz of gold a year from three tailings projects to help ride out currency storms, said CEO Cobus Loots.

Pan African pulled the plug on talks to acquire the assets of ASA Resources, a company with gold and nickel mines in Zimbabwe, because of the rand, the fall in its own share price and the difficulties it was having in SA, Loots said.

Pan African’s taxed profit for the six months to December plunged to R58m from R250m, with a fall in gold sales and higher costs at its two mining operations at Evander and Barberton in Mpumalanga. Revenue dropped to R1.46bn from R1.6bn, with gold output falling 7% to 85,282oz because of industrial and operational problems at Barberton and lower output from the Evander tailings retreatment project offsetting an improved performance from the underground operations at Evander.

The received gold price in rand terms fell more than 2% to R551,506/kg, while the all-in sustaining cost ballooned by 12% to R545,908/kg, with refurbishment expenses at Evander, higher labour and electricity charges and processing costs feeding into the increase.

“In [the] light of the prevailing low rand gold price environment, to ensure the sustainable profitability of the group, we are reviewing our higher cost mining operations,” said Loots.

Analysts said this could mean a further revision to the already lowered full-year gold forecast to 177,000-181,000oz from an earlier target of 190,000oz.

“Ironically, should there be ‘good’ news for South Africa in the form of President Zuma announcing his resignation, [but] we would see this to be negative for Pan African in that we would expect the rand to strengthen further,” said Yuen Low, an analyst with Shore Capital.