Pan African CEO bullish on gold demand
The gold market continues to hold up well given an uncertain global environment. The gold price has been above $2,000/oz for some time with the weak rand to the dollar supporting players like Pan African Resources. Business Day spoke to its CEO Cobus Loots to reflect on this.
Q: How are the supplydemand fundamentals looking in the year ahead?
A: As you point out, the gold price both in dollars and rand is very attractive. Pan African is in the fortunate position that our operations are relatively low cost, with an average all-in sustaining cost of about $1,300/oz, which gives us a decent margin at prevailing prices.
There is a lot of research supporting a stronger longerterm gold price. The fact that interest rates are expected to come down in the year ahead should also provide support.
Over the past decade, gold producers globally have generally been disciplined with capital investments and new projects, which means there is limited new supply coming into the market. The investment case for gold over the past few decades has been compelling, and it appears as though this situation may continue.
We are, however, not banking on a sustained higher gold price but rather using the windfall to develop attractive and long-life projects like Mintails, reinvesting into our existing operations to ensure sustainability and paying great dividends to our shareholders.
Q: Pan African suffered operational setbacks in the previous financial year and was not able to fully capitalise on elevated gold prices. How is the production profile looking?
A: Production was a bit lower last year, but no train smash. We generated very attractive profits and maintained our industry-leading dividend payout to shareholders. We believe one of Pan African’s competitive advantages is the ability to be agile and move quickly. In the past year we implemented a continuous operations cycle at Barberton Mines, which improved productivity, as well as continued capital investments in new infrastructure. With these interventions, we have seen a steady improvement in underground production volumes while the infrastructure optimisation will allow improved efficiencies and underground logistics.
Q: Your share price has done well on the JSE over the past five years. Do you think at today’s levels it better reflects the true potential of your underlying assets? If not, why do you think that is the case?
A: Yes, we were number nine on the Sunday Times Top 100 last year, which means that long-term shareholders have been rewarded with attractive returns on their investment in Pan African, both in terms of capital appreciation and dividends. Despite this achievement, we believe our shares are still undervalued, especially when compared with our international peers. This view is supported by analysts that independently value our business. If we deliver on our goals in the year ahead, which we are well positioned to do, I would be surprised if we did not see a share price that reflects these efforts and achievements.
Q: Tell us about Mintails, which is under construction and is expected to be a game changer to your production profile. At the sod-turning event in July 2023, some community members disrupted activities to demand jobs and contracts. Have their concerns been addressed?
A: You are on the mark with the Mintails project being a game changer. It is one of the largest investments for Gauteng in recent times, with a project value of about R2.5bn that will inject a boost for the local economy of the area for the next 20 years, which is the life of mine for the project.
Mintails is on time and within budget for commissioning in the latter half of this year and will add about 50,000 lowcost ounces to our annual production — increasing the total by about 25% and positioning us in the upper range category of mid-tier producers.
The protests at the sodturning event were unfortunate and carried out by a small group of “rent seekers”, whom we have successfully interdicted through the courts. Pan African engaged extensively with local stakeholders comprising local businesses and community structures prior to commencement of operations. The workforce on site is over 90% local and services from local businesses are prioritised. Pan African’s work on this project has had and will continue to have a massive positive effect on the area. It will also bring environmental benefits for the local communities, and work undertaken has already seen these in terms of cleaning up historical spillages, removal of derelict pipelines, eradication of alien vegetation and wetlands remediation.
Q: Illegal mining is part of SA’s reality. How should it be dealt with effectively?
A: We have extensive measures in place to protect our employees and assets against illegal mining at all our operations. We have state-ofthe-art security measures and have to be constantly vigilant in our efforts. We believe that the support of the government and law enforcement agencies will be most effective in eradicating illegal mining. Successful rehabilitation measures on old mining sites also go a long way to solving the problem.
Q: It appears load-shedding will continue for some time. You announced renewable energy projects to alleviate the challenge. How are those coming along?
A: Pan African was the first mining company to commission a utility scale 10MW solar energy plant at our Evander mine in 2022, and we are seeing the benefits of this facility in terms of lowering our greenhouse gas emissions and reduced costs of production. We are looking at a feasibility study to increase this facility by a further 12MW and are making excellent progress with the new 8.75MW solar plant at our Barberton Mines operations, expected to be commissioned during June. At Mintails, a feasibility study is in progress for a 10MW renewable energy plant. We also have power purchase agreements in place for a further 40MW of wheeled renewable energy that will commence construction this year. We are investigating further opportunities to source renewable energy from solar, wind and battery storage solutions.
Q: What do you foresee as one of the biggest risks/opportunities in the year ahead?
A: Our biggest opportunity will be successfully commissioning the Mintails Project on time and within budget, which will elevate the company into the next tier of global gold producers. We saw a positive effect on our share price when we successfully commissioned our Elikhulu tailings retreatment plant in 2018, and we expect a similar value uplift with Mintails, as this will increase the group’s high-margin production profile. Our investment into the Evander underground over the past few years will also now produce dividends. The risks continue to stem from electricity supply disruptions this year and managing all our stakeholders in what remains a challenging operating environment. Our team is very excited about the year ahead.