Back to the drawing board for Pan African's Royal Sheba plans
Pan African Resources sticks to its full-year gold target and raises the outlook for 2020 as it starts fresh underground mining at Evander
Pan African Resources said on Friday it had scaled back its expectations of its vaunted Royal Sheba prospect as it stuck to its 2019 full-year production target and raised its output level for the following year as a new R70m project delivered additional gold.
Pan African had spoken at length of the potential for a low-cost opencast mine at Royal Sheba near its Barberton underground mines, but in its latest update to the market it says the project doesn’t meet the financial criteria the company set for new ventures.
The hilly area where Royal Sheba is situated and the costs around establishing infrastructure to support a mine distorts the economics.
“Disappointingly, the Royal Sheba feasibility study has concluded that the deposit is not economic [for developing] as a standalone near-surface operation,” said Yuen Low, an analyst at Shore Capital Economics, noting it was “back to the drawing board” for Pan African to find another way to mine the deposit.
However, the project is not completely off the table as the company considers an underground option to extract the gold deposit, said CEO Cobus Loots.
Pan African, which is listed in Johannesburg and London, kept its production forecast for the 2019 financial year to end-June intact at 170,000oz and bumping output up to 185,000oz for 2020 as it realises gold from its new underground Evander pillar extraction project.
In the first nine months of its 2019 financial year, Pan African reported a 50% increase in gold output to 123,771oz as its Barberton underground and tailings projects stepped up production and the giant R1.7bn Elikhulu tailings retreatment project at Evander kicked into gear.
Elikhulu treated nearly 7-million tonnes of material between September and end-March, delivering almost 30,000oz of low-cost gold for the company. Pan African said the all-in sustaining cost of production was a better-than-expected $600/oz against the $650-$700/oz it had put into the market.
During the nine-month period, Pan African folded the existing Evander tailings operation into Elikhulu, giving it monthly processing capacity of 1.2-million tonnes from December 2018.
Pan African is revisiting underground mining at Evander after shutting its large-scale operations, which were unprofitable. The board agreed to a project to extract the shaft pillar, which is an unmined area left around a shaft to protect it.
The project, which has a total cost of R70m of which R40m is needed upfront, will start delivering gold from August and contribute 30,000oz a year over three years at an all-in sustaining cost of about R415,000/kg. The project is expected to pay for itself within a year.