Growth plans for Pan African?

While the miner is cur­rently work­ing on a new sur­face tail­ings plant, what other op­por­tu­ni­ties ex­ist for ex­pan­sion?

Finweek English Edition - - THE WEEK - Editorial@fin­week.co.za

pan African Re­sources said it was un­likely to hedge gold as part of its plans to fund the Elikhulu sur­face tail­ings re­treat­ment plant – a R1.65bn project for which it re­cently raised R705m through an is­sue of shares, with the bal­ance to be funded through a R1bn debt pack­age with Rand Mer­chant Bank (RMB).

“We are still work­ing through the legals with RMB, but I don’t think hedg­ing makes sense,” said Pan African CEO Cobus Loots.

“Elikhulu is in the low­est-cost quartile and it would be eas­ily out of the money if we were to hedge it,” he said.

Once Elikhulu is com­pleted, Pan African will pro­duce 250 000 ounces of gold of which 40% will be from the sur­face.

As the seven-year loan with RMB is not re­payable for the first two years, Pan African will also be able to zero its R565m in net debt (as of 31 De­cem­ber), which will give it some much­needed breath­ing space in these volatile times. The strength­en­ing of the rand last year knocked R50 000 per kilo­gram off gold com­pany rev­enues, only for that amount to be re­versed fol­low­ing the now in­fa­mous Cab­i­net reshuf­fle by Pres­i­dent Ja­cob Zuma on 30 March.

The ques­tion now for Pan African is how the com­pany CEO of Pan African in­tends to grow af­ter Elikhulu, if at all.

Pan African Re­sources was founded with strong in­sti­tu­tional sup­port on the ba­sis of es­tab­lish­ing a no-frills fo­cus on prof­itable gold min­ing. Its Bar­ber­ton gold mines achieve this, but a wan­der into the merger and ac­qui­si­tion realm saw it buy up Evan­der Gold Mines from Har­mony Gold. Evan­der is a deep op­er­a­tion and be­set with tech­ni­cal chal­lenges that have wor­ried the com­pany.

Loots be­lieves a re­cent R40m re-en­gi­neer­ing of two shafts at Evan­der Gold have re­solved its prob­lems with min­ing enough ore, but he’s not in the mood for more new in­vest­ment in un­der­ground min­ing.

“I think we’re done with un­der­ground min­ing. We’ve been through a tough time, but the re­fur­bish­ment at Evan­der is on sched­ule,” he said in an in­ter­view. “We will look at other op­por­tu­ni­ties.”

The ques­tion is where these op­por­tu­ni­ties will oc­cur, es­pe­cially as South Africa is not blessed with many open­cast gold min­ing op­por­tu­ni­ties. Loots also be­lieves fur­ther op­por­tu­ni­ties for tail­ings re­treat­ment in the coun­try are far and few.

The an­swer is that Pan African is look­ing into the rest of Africa as an op­tion. “If we can find a de­cent open-cast ore­body at the right value, it might make more sense,” he said.

That might be eas­ier said than done.

It’s now about a year since Har­mony Gold an­nounced plans to add about 400 000 to 500 000 ounces of gold pro­duc­tion to its 1.1m ounce base by buy­ing up a num­ber of prof­itable or near-pro­duc­tion gold mines in the rest of Africa... with­out much suc­cess so far.

Cobus Loots

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