Pan African to buy R200m Shanduka coal mine

[miningmx.com] – PAN African Resources is to buy the Uitkomst thermal coal export mine from Shanduka Resources for R200m in a move that signals an appetite for “opportunistic” deal-making.

“The acquisition of the Uitkomst colliery does not change our precious metals focus,” said Cobus Loots, CEO of Pan African. He added, however, that the company’s strong balance sheet would enable it to “… take advantage of selective opportunities within South Africa that we believe can be immediately earnings accretive to shareholders”.

In a sign that Pan African means business in the current commodity downturn, the company increased its revolving credit facility to R1.1bn from R600m. The margin and fees on the structure were consequently lowered.

The acquisition, which would be funded through debt and from internal cash flow, would not affect Pan African’s progressive dividend policy, said Loots. Uitkomst would be immediately earnings and cash flow accretive to Pan African, he added.

The company disclosed in a trading statement regarding its full-year figures for the 2015 financial year today that it would report 40% to 60% lower share earnings and headline share earnings. Share earnings in the 2014 financial year came in at 24.75 cents/share.

It also said that net debt had been reduced to R315m from the R459m reported on December 31, 2014. Pan African’s 2015 financial year ends on June 30.

Uitkomst, which is situated in the Utrecht coalfields in KwaZulu Natal, currently yields and sells approximately 400,000 tonnes of coal a year to the export market, but it also has potential for an underground mine. Although a thermal coal mine, the coal quality gives it metallurgical type coal applications.

It contains a coal mineral resource of 25.7 million tonnes of which 22.1 million tonnes can be classed as measured or indicated. The area also has additional exploration potential, Pan African said in a statement.

“Current operations at the colliery demonstrate that underground extraction of the mineral resource is viable and that the run-of-mine coal can readily be beneficiated to produce excellent yields of high grade coal suitable for export or local metallurgical markets,” Pan African said.

“Pan African therefore believes there are opportunities to increase production and improve the operational performance of the mine with a view to improve the long term productivity and economics” it said.

The mine is currently owned by Oakleaf Investments Holding 109 Proprietary Limited and Shanduka Resources which last week formalised a merger with Pembani Group to create a R9bn black-owned, pan-African industrial group.

The decline in Pan African’s full-year share earnings was largely owing to Evander Gold Mines where mining ought to have moved into higher grade sections and more profitable gold mining. However, high grade mining has only just started instead of February as previously guided by the company.

Production at Evander was also exacerbated by Eskom power interruptions and a Department of Mineral Resources section 54 stoppage issued by the South African government in the event of a mine accident.

The company also disclosed it was considering “the merits of progressing the Evander South brownfield project to the level of a preliminary economic assessment”. The project aims at mining Kimberley reef at shallow depths from 300m below surface.

An ‘Elikhulu’, a tailings retreatment plant which would treat slimes at a capacity of up to 12 million tonnes a year was also being assessed at Evander, it said.

“The 2015 financial year has been extremely challenging for Pan African, and even though we are disappointed that Evander Mines’ turnaround has not happened more rapidly, the operation is now established in higher grade mining areas,” said Loots.

“Having implemented corrective strategies, the Group is well positioned to deliver an improved performance in 2016,” he said.