[miningmx.com] – THE benefits of having bought Evander Gold Mines was evident in Pan African Resources’ full-year results with the Mpumalanga province mine contributing a fifth of R735m in pretax earnings, a 33% increase year-on-year.
A so-called ‘bargain purchase gain’ of R322.4m was also calculated on the R1.3bn acquisition which took taxed earnings to R558.9m, 55.7% higher year-on-year. The bargain purchase gain is based on the assumption that Pan African bought Evander for less than its fair market valuation.
Evander’s contribution to earnings represents only four months on the Pan African’s books. Revenue registered by Pan African from when it was operating the mine to consummating the sale was returned to the seller, Harmony Gold.
The long-term impact of Evander Gold is to double Pan African’s production to 200,000 ounces a year. In the short-term, however, the group said it would mine lower grade ounces at the operation until the 2015 financial year.
As a result, Pan African had set about ameliorating the lower expected revenue by starting a number of organic projects at the mine including a sweeping and vamping project and a decline reopening at Evander No. 7 shaft, as well as re-mining some 203 million tonnes of surface tailings at the greater Evander Mines complex.
The latter had been identified as a ‘quick value’ project – known as the Evander Tailings Treatment Project (ETRP) – which would require upgrading of the existing Evander Mines plant.
Pan African has dovetailed underground production with re-mining of surface tailings before in the form of its Barberton Tailings Retreatment Project (BTRP) and Phoenix Platinum Mining, a platinum retreatment endeavour – both commissioned in the year under review.
Pan African said the ETRP would cost less than the R273m it had spent on BTRP and would be commissioned in about 18 months.
Pan African is also dusting off the long-standing Poplar, Evander South, and Rolspruit projects, unmined gold ounces that Gengold once studied in the Nineties. Pan African said it had retained SRK to assess the financial viability of previous pre-feasibility studies on the deposits. It would “… consider options of progressing these projects in a manner that will benefit the group and its shareholders,” it said.
“Evander Mine’s acquisition and the commissioning of the new BTRP have positioned Pan African Resources to produce approximately 200,000 profitable ounces of gold a year,” said Ron Holding, the newly appointed CEO of Pan African following the shock resignation earlier this year of Jan Nelson.
“There is also further growth potential through the exploitation of other near term organic projects,” Holding said.
Using the World Gold Council’s All-In Sustaining Costs, which require complying gold mining companies to include non-mining costs such as exploration and some corporate related costs, all-in costs increased nearly 30% to R343,949/kg.
Given that Pan African has agreed a wage increase of 8%, inflation sits at about 6%, and a fall in the gold price received (currently to R413,216/kg versus an average price received of R440,824/kg previously), there will be pressure on Pan African’s margin in the current financial year.
Nonetheless, the company paid out R240m in dividends, equal to 0.1314 cents per share.
Cash and equivalents fell to R71.6m after accounting for capital expenditure and total payments of R184.8m into the firm’s revolving credit facility of about R400m. Net debt stood at R93.6m as of the year-end.
