PAN African Resources CEO, Cobus Loots, would consider a rights offer to fund at least part of the balance of its R1.74bn Elikhulu project at its Evander Gold Mines in South Africa’s Mpumalanga province.
“I am not ruling out a small fund raiser from shareholders,” said Loots in response to an analyst question at the firm’s half year figures presentation today.
“This is the sort of project that stabilises and reduces the all-in sustaining cost (AISC) at Evander. In terms of shareholder returns it speaks for itself,” said Loots.
When completed – in the final quarter of the 2018 calendar year – Elikhulu will yield 50,000 ounces a year of gold boosting Pan African’s production 25% to about 250,000 oz/year.
However, the expansion comes with hefty capex bill of which R1bn will be financed through a loan with RMB. The group said in its half-year figures today that the balance had not yet been arranged.
As of December 31, Pan African had R565m in net debt.
Said Loots: “We won’t over-gear the company. Mining firms should not have too much debt and it’s a worry that I could do without”. He added that if the company issued shares it wouldn’t be able to do so at more than a 10% discount as set down in the company’s mandate with shareholders.
Shareholders would enthusiastically support funds for Elikhulu, said Loots. “The share price has held up well since we announced Elikhulu which is an indication the market is excited by what we have planned,” he said.
Shares in Pan African were flat in mid-afternoon trade on the Johannesburg Stock Exchange after having fallen about 4% earlier in the day. For the year-to-date, the share is nearly 13% higher.
Pan African posted a 33% increase in interim share earnings of 16.58 cents per share partly owing to a solid performance from its tailings business and its Uitkomst thermal coal mine.
But there were operational problems at its Barberton Mines where community unrest and safety-related stoppages cost the mine 14 days of production whilst underground mining at Evander was affected by the under-performance of infrastructure.
Gold sold was consequently down 10% to 91,613 oz in the period.
Loots said he expected an improved performance at Barberton but at Evander a decision had been made to “no longer put a plaster on the engineering side of things”. As a result, underground mining at Evander has been suspended for 55 days in order to re-engineer infrastructure at the mine.
Gold production was consequently guided downwards to 181,000 ounces for the 2017 financial year down from 195,000 oz that was previously guided.
“We have addressed the geology at Evander and we have addressed the mining. Now we have to get the infrastructure solved so we can have all-in costs at Evander closer to the $1,100/oz mark,” said Loots. AISC was $1,310/oz in the half-year.
