Pan African eyes growth as new project is delivered

Gold producer Pan African Resources reports a strong increase in interim profits as its new, low-cost tailings retreatment project delivers cheaper gold, opening the way for the group to study new growth opportunities.

Pan African reported post-tax profit of R138m for the six months to end-December, up from R58m a year before.

Gold output from continuing operations, which excludes the Evander underground mine, increased to 81,014oz from 52,548oz, with the first gold from the giant R1.7bn Elikhulu tailings retreatment project at Evander starting to deliver its gold, replacing unprofitable underground production.

Pan African stopped full production at Evander underground because it was an unprofitable business.

For the full year, gold output was pegged at 170,000oz, with cost expected to fall as Elikhulu’s full production is felt during the final six months of the 2019 financial year to end-June, said CEO Cobus Loots.

Revenue grew to R1.38bn from R905m due to higher gold production, a 1% increase in the received gold price to R557,446/kg and lower costs as the all-in sustaining cost dropped by nearly 19% to R444,946/kg as Evander underground mining was removed.

Production is now evenly split between underground mining at Barberton and tailings retreatment operations, an improvement from 2018 when underground mining accounted for 76% of gold output.

Net debt in the group grew to R1.9bn from R653m the year before because of spending on the Elikhulu project, which is forecast to repay its capital investment within four years.

Withholding dividend

Pan African withheld its interim dividend. It noted its security costs have nearly doubled to R33m from R17m “with an increased focus on addressing illegal mining activities and once-off costs incurred during instances of community unrest”.

The Barberton complex, which includes a number of shallow underground mines and a tailings retreatment business, increased gold output to 50,556oz from 40,611oz the year before.

Elikhulu delivered 15,292oz. The project reached its capacity of 1-million tonnes a month in October and it has subsequently been combined with an existing, smaller tailings retreatment business at Evander, raising capacity to 1.2-million tonnes a month.

Pan African is busy with studies into extracting a high-grade underground area at Evander as well as a small, opencast mine at Royal Sheba at Barberton. However, there is a quicker project to mine a pillar, which is an area of ore left behind to stabilise the mining area. This could deliver 30,000oz of gold a year, using existing infrastructure and low upfront capital with a decision to be made in coming months, Loots said.

Asked by Arnold van Graan, a Nedbank mining analyst, during Wednesday’s results presentation about shareholder appetite for a return to deep-level underground mining in extracting the pillar and the high-grade area, Loots said there is no desire among the group’s shareholders to do so.

However, he pointed out the ore body is good with relatively high grades and it presents an opportunity, if done safely and at low cost, to deliver profitable gold. “But we need to tread very carefully,” he said.

Of Pan African’s 33-million ounces of gold resources, 27-million are underground at Evander and 4-million are underground at Barberton. The near-surface resource at Royal Sheba stands at 370,000oz, with deeper resources of nearly 400,000oz.

“We have the ore body, we have the infrastructure, we have to get going as soon as possible to the benefit of all stakeholders,” Loots said. Pan African has started further drilling to find potential satellite deposits that could be added to Royal Sheba.

seccombea@businesslive.co.za