Mining Weekly

JOHANNESBURG (miningweekly.com) – Johannesburg- and London-listed Pan African Resources, which entrenched itself as a cash-pumping surface operator in the 12 months to June 30, is going all out to squeeze more gold out of its Evander underground gold mine using existing infrastructure.

Expenditure of capital on new infrastructure in the current precious metals bear market is being avoided.

The company’s platinum dump material treatment plant generated R30-million cash in the last year, in spite of its issue with International Ferro Metals being in business rescue, and the Barberton tailings plant, which paid for itself in 18 months, is producing gold at a cost of under $450/oz. (Also watch attached Creamer Media video).

“Key for us is to get Evander to work as it should and I think then you’ll see a bit of a rerating as far as our valuation per ounce is concerned,” Pan African CEO Cobus Loots told Creamer Media’s Mining Weekly Online in an interview, after the precious metals mining company told of its gold earnings being knocked back by the lower-grade mining cycle at the Evander mine, in Mpumalanga province.

Optimisation plans are being rolled out for the Evander underground mine that should result in Pan African securing more gold ounces from what is a decline-and-belt-conveyor intensive environment.

Conveyor belt availability, involving 11 conveyors over 4.7 km from 25 level at Evander, is currently at 80% availability, up from 60% to 70% before, which constrained the transportation of ore to surface; the improvement has been brought about by R13-million expenditure on conveyor maintenance and 4 km of old belting being replaced with new belting.

Currently, Evander is developing down to 26 level to give the operation sufficient flexibility to allow it to continue to mine higher grades.

Evander 8 Shaft’s face grades of 14 g/t present a positive grade for Evander for the next three years.

Increased Section 54 safety stoppages at both Evander and Barberton lost the company six production days.

At Barberton that represented more than 2% of production capacity and at Evander more than 3% of the mine’s total capacity.

“Our approach to Section 54 stoppages is not to blame the Department of Mineral Resources, even though they can be very heavy handed at times”, Loots told the results presentation conference in which Creamer Media’s Mining Weekly Online participated.

The company’s pulsating surface performance saw Phoenix lifting platinum group element production 42% to 10 245 oz in the 12 months to June 30 and the Barberton tailings retreatment plant selling a 6%-higher 24 283 oz of gold.

The third plus on surface is the newly built Evander tailings treatment plant hitting steady state in February.

In Evander Pan African has a resource base of more than 30-million ounces of gold and there is a lot of value in that, even though it is not recognised at the moment given the bearish nature of the precious metals market.

“We’re very happy with the performance of our surface assets,” Loots told Mining Weekly Online, adding that it was fair to say that Pan African was now firmly established as a surface tailings operator and miner.

As 80%-plus of the costs of underground mining are fixed costs, the focus is to ensure that the maximum number of gold ounces are extracted out of the underground mines.

Studies already completed highlight the potential benefits of eliminating the decline system and belt conveyors underground at Evander.

“But we can’t spend capital. We have to prove to the market that we’re making money and then we’ll have a licence to do a lot of other things, but I’d be crazy to go and ask people for hundreds of millions of rands in the current bearish environment,” Loots said in relation to infrastructure needs at Evander.

DOGGED DIVIDEND DECLARATIONS

Through thick and thin, the company remains intent on being an attractive dividend payer.

“Our shareholders have come to expect a very attractive dividend form Pan African. At the moment the dividend yield is close on 8%, which is industry leading.

“We can continue to pay the dividend. If you look at the cash from operations we’re comfortable to generate cash,” Loots said.

The company, with higher net debt of R321-million, reduced the final dividend to R0.11466 a share while assuring that an interim dividend would be considered in the 2016 financial year.

Group headline earnings for the 12 months to June 30 were 53% down on the R452-million of last year, coming in just above R213-million.

Loots sees the company as well positioned to deliver an improved performance in 2016 against the background of the successful commissioning of the Evander tailings treatment plant and Phoenix’s profitability ramp-up.

Output from Phoenix soared 42.2% to 10 245 oz in the 12 months to June 30, when Barberton Tailings Retreatment Plant sold 6.1% more gold at 24 283 oz.
 
The average Barberton undergound head grade fell to 10.9 g/t from 11.5 g/t last year and gold sold from the mine decreased 5.2% to 105 776 oz; kilogramme costs jumped 16.4% to R278 859/kg on a 10.3% increase in the cost of production and lower sales.

All-in sustaining cash cost a kilogramme increased 17.5% to R332 151/kg.

Capital expenditure incurred was at a lower at R112.6-million.

Mine life increased to 20 years owing to the down dip extension of the high grade 11 Block by a further 170 m, which has resulted in a yearly increase in Barberton’s mineral reserves to 236 162 oz.

Evander sold 8.5% less gold at 70 081 oz and kilogramme cash costs rose 18.7% to R455 896/kg.

All-in sustaining cash kilogramme costs rose 14% to R507 980/kg and mine life decreased to 16 years from 17 years before.

Pan African has a production capacity of more 200 000 oz gold and 12 000 oz of platinum-group elements a year.

Barberton aims to improve levels of production by focussing on recoveries, increased tonnages and cost containment to avoid margin erosion.

The Sheba and New Consort tailings dams will provide potential future sources of tailings.

At this stage, Phoenix is not in a position to assess fully the impact of the business rescue of International Ferro Metals, from which it draws discard material for reprocessing.

The company has taken steps to acquire the Uitkomst colliery from Oakleaf and Shanduka for R200-million, which it expected to be earnings and cash flow accretive.

The colliery contains a resource of 25.7-million tonnes of coal in an area that has additional exploration potential.

Current 400 000 t/y operations demonstrate that the colliery can readily produce yields of coal suitable for export or local metallurgical markets.

The company remains focused on creating stakeholder value through unlocking the potential of its organic surface and brownfield development projects.

Initiatives to extend the life of assets include ongoing exploration at the Fairview gold mine in Barberton, a preliminary economic assessment of the Elikhulu tailings retreatment and an assessment of the merits of developing Evander South, which has more than five-million ounces at a shallow 300 m below surface.