JOHANNESBURG (miningweekly.com) – Precious metals mining group Pan African Resources has posted a 62.8% drop in headline earnings to R102.6-million for the six months ended December 31, saying on Thursday that the six months were made “challenging” by a lower-grade mining cycle at Evander Mines, in Mpumalanga, contamination in the processing plant and Section 54 safety stoppages at the nearby Barberton Mines.

The midtier producer, which returned R258-million to shareholders in December after announcing a dividend payout of R0.14 a share, added in a statement that overall gold sold had dropped 13.5% to 86 675 oz for the period, largely as a result of the lower grades at Evander.

“It’s as tough a six months as we’ve had in the last few years,” FD Cobus Loots told shareholders in Johannesburg, adding that group revenue declined from R1.34-billion in the first six months of the prior year to R1.21-billion in the period under review.

While Pan African realised an average dollar gold price of $1 231/oz – a decrease of 6.1% from the $1 311/oz achieved in the prior period – the weakening of the rand against the dollar contributed to a higher rand gold price for the company of R434 403/kg.

Similarly, while the market platinum group elements (PGE) basket dollar price received dipped by 3.8% to $1 079/oz, the average rand PGE price received by the group for the half-year increased by 4.6% to R9 815/oz.

The group’s Phoenix Platinum tailings project, in the North West, realised a 4.1% contraction in average PGE price received to $894/oz, after taking into account the terms of its offtake agreement with Western Platinum.

“Despite a very challenging six-month period, we have now started seeing underground mining grades at Evander Mines improve as previously predicted.

“We are also encouraged by the completion of construction of the Evander Tailings Retreatment Plant (ETRP), where gold production has commenced and will increase Evander Mines’ gold output by an additional 10 000 oz a year,” added outgoing CEO Ron Holding.

EVANDER MINES
Gold sold by Evander had decreased by 21.8% to 33 733 oz as a result of the low-grade mining cycle, Section 54-imposed safety stoppages and unplanned power interruptions, while overall average recovery decreased by 4.1% to 93% owing to the additional surface stockpile processed. 

The low-grade mining cycle was expected to continue until the end of the month, whereafter the operation would return to higher-grade mining.

The mining operations were also affected by 19 instances of power interruptions over the six months, varying from between two to nine hours.

The total cost of production at Evander, including off-mine costs, increased by 14% to R487.8-million, largely as a result of the low-grade mining cycle, which resulted in lower gold sales.

Other cost contributors included salaries and wages, which increased by 7.3% to R237.5-million; mining costs, which increased by 6.3% to R45.7-million; processing costs, which increased by 104.3% to R52.7-million; engineering and technical services costs, which increased by 10.7% to R22.7-million; electricity costs, which increased by 8.8% to R97.4-million; and administration and other costs, which increased by 23% to R24.6-million owing to higher information technology costs as a result of migrating to a new accounting system.

Total capital expenditure (capex) at Evander Mines for the period was R157.6-million.

Pan African also completed the commissioning of the R200-million ETRP over the half-year, with the first gold recovered last month.

“The plant is going well and, by the end of June, we should have stabilised the metallurgy in the plant and reached maximum capacity,” said Holding, adding that the company forecast a four-year capex payback period.

BARBERTON MINES
Gold sold from Barberton Mines decreased by 9% to 52 942 oz as a result of a Section 54 stoppage, oil contamination at the biox plant and unplanned underground production interruptions.

The company notified shareholders in November that a Section 54 notice had been issued by the Department of Mineral Resources (DMR) after the department identified deviations from operating procedures and administrative processes pertaining to Barberton Mines' lamp room, self-rescuers and gas monitors.

“The stoppage resulted in five production days being lost at Barberton Mines.  The group, together with the operations' safety and health committees, have since corrected the deviations and action plans were presented to the DMR, which resulted in approval being granted to restart production,” the group outlined.

The mining operations were further affected by several power outages resulting from energy utility Eskom’s load shedding programme.

The underground head grade increased marginally to 11.6 g/t, while gold recoveries decreased to 89% as a result of a contamination at the plant.

The group noted that the operation “remained” a low-cost producer, spending R279 150 for every kilogram produced.

Meanwhile, gold sold from the BTRP increased to 11 710 oz  over the half-year, while the operation achieved plant recoveries of 51%.

PHOENIX PLATINUM TAILINGS
PGE sales increased 57.7% over the period to 4 711 oz, while plant recoveries improved to 34%.

Cash costs at Phoenix decreased to $621/oz over the six months, while the entire operation remained cash-generative and profitable – posting earnings before interest, taxes, depreciation and amortisation of R13.5-million.

“Phoenix is shaping up nicely…the main reason for the improvement is that the sulphur we are now sourcing contains little surface ash, so recoveries are good and we expect this to continue,” Holding remarked.

PROSPECTS
Looking ahead, Loots outlined that Pan African would look to maintain its good safety results and working relationship with the DMR.

It also planned to continue the schedule of tonnages from the centre of the pay-channel at Evander and maximise the feed of stockpiled and run-of-mine concentrates.

“Our focus in the next six months will be to deliver on volume and grade at our Evander and Barberton Mines, and to ensure the ETRP reaches steady-state production.

“We will also maintain our focus on generating cash flows from our asset base to ensure the continuation of future dividend payments,” Holding noted.

The company would meanwhile continue to manage its load-clipping schedule with Eskom – which saw it curtail up to 25% of its energy demand when requested to do so – in an effort to reduce the effect of potential load-shedding.

Pan African could not, at this point, outline the impact that load curtailment would have on future production.

Holding would retire as CEO with effect from March 1 and would be succeeded by Loots.

The company said in a statement this month that, to ensure that Holding’s experience and knowledge was retained by the group, an exclusive consulting agreement had been concluded that would see him being retained as nonexecutive director for one year.