Pan African targets higher profit margins

[] –PAN African Resources’ (Pan African’s) strategy was to focus on organic growth backed up by projects aimed at cutting costs to improve profit margins.

CEO Jan Nelson told financial media in Johannesburg on Thursday that the share prices of many junior exploration and mining companies which had yet to deliver their projects were way overvalued in comparison with Pan African, which was already mining profitably and paying dividends.

Pan African recently announced a 51% increase in the in situ underground mineral reserve at its Barberton Gold Mines in Mpumalanga to 1 million ounces of gold (3.383 million tonnes of ore at 8.12 g/t).

The company on Thursday announced favourable results from a drilling programme on the Bramber tailings dam at Barberton Mines.

This indicated a resource of 148,000 oz of gold (3.13mt at 1.47g/t in situ) in the tailings dam, where initial metallurgical test work had also indicated likely recoveries of between 45% and 55%.

Pan African was now looking at a project to build a carbon-in-leach plant at a cost of R120m which would treat this resource at a rate of 1.2 mt/year over a three-year life.

An additional 9 mt of dump material was also being investigated, which could increase the life of the project from three to 10 years. If shown to be viable, the project could increase production from Barberton Mines by another 20,000 oz/year over the life of the project.

Barberton currently produces around 100,000 oz/year from its underground operations.

Nelson said: “The increase in the underground reserve pushes Barberton’s estimated life out to 18 years. All the surface material is on top of that. “

Nelson added that Pan African was also about to build a 15 kW solar power plant at a cost of some R600,000 in collaboration with a multinational group to test the technology.

If it proves viable, the plan is to build a 15 MW solar power plant at a cost of between R500m and R600m in collaboration with the multinational, so splitting the cost.

This would meet Barberton Mines’ total power requirements – which currently amount to about 12 MW – making it independent of Eskom.

Nelson said: “Our strategy is to focus on profit margins rather than how many ounces of gold in the ground we own, and this is the kind of project we are looking at to improve our margins.

He said: “The tailings project offers serious profit margins. The project at a 10% real discount rate yields a net present value of approximately R350m, with an internal rate of return of approximately 85% assuming a gold price of R300,000/kg. “

The writer owns shares in Pan African.