Pan African weighs return to Evander underground mining
SA’s lowest-cost listed gold producer Pan African Resources is considering whether to return to large-scale underground mining at Evander, a decision CEO Cobus Loots concedes is likely to be considered sceptically by its shareholders.
Pan African plans to make full use of a gold price above R700,000/kg to grow the company, repay debt and invest in its Barberton mines, the bedrock of the London- and Johannesburg-listed company’s production.
Some analysts cautioned that Pan African was falling into a classic mistake gold miners around the world make of starting new capital-intensive projects on the back of a higher price.
Pan African Resources has returned to paying dividends after doubling full-year profit. Business Day TV spoke to the gold miner's CEO Cobus Loots about its decision to reward shareholders rather than reduce debt.
However, Loots defended the decision, arguing the Egoli project was a “clean slate” and would not repeat the mistakes of its previous 8 Shaft at Evander that it closed in 2018.
Egoli, which will use the neighbouring 7 Shaft, could cost R650m-R862m. The mine will generate low-cost production of 100,000oz a year.
Pan African produced 171,706oz of gold in the year to end-June at an all-in sustaining cost of R450,564/kg. More than a third of its gold came from tailings retreatment operations.
At a gold price of R700,000/kg, the internal rate of return of Egoli had a 53% return, “making it a very juicy project if the gold price keeps up its recent good performance”, said Rene Hochreiter from Noah Capital. At a R550,000/kg gold price, the project would return 34%.
Pushed by analysts during the company’s annual results presentation on the cost, risk and whether Pan African would be prepared to bring in a partner, Loots said the company would be willing to share the cost and operational risk by bringing in a second party.
“I can see some people shaking their heads when we speak of Egoli as a growth project. Clearly there’s a lot of scepticism around underground gold mining in SA. We’ll have to do a lot of work convincing all our shareholders and other stakeholders that Egoli is the right thing for us to do,” Loots said, adding the study would be completed by October.
There are 1-million ounces of gold 1.9km below surface and within 3km of the recently refurbished 7 Shaft. “Anywhere else in the world, with these grades and these ounces, it would be a separately listed company and have an attractive market capitalisation,” Loots said.
“We will ring fence the funding,” Loots said. It would protect Pan African’s balance sheet and dividends to shareholders.