Pan African weighs going deep at Evander

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 Johannesburglisted company’s production.

Some analysts cautioned that Pan African was falling into a classic mistake gold miners around the world make of starting capital-intensive projects on the back of a higher price.

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, which 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 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 gold price of R550,000/kg, 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,” Loots said.

“There are 1-million ounces of gold 1.9km below surface and within 3km of the recently refurbished 7 Shaft.”

“We will ring-fence the funding,” Loots said.

The study would be completed by October.