Pan African considering closures as rand hurts high cost shafts

Cobus Loots, CEO, Pan African Resources

PAN African Resources is staring down the barrel at further retrenchments and possible shaft or mine closures should the dollar price of gold stay at current levels and the rand strengthens further against the US dollar.

That message became obvious from today’s presentation of the Pan African interim results to investors in Johannesburg by CEO, Cobus Loots, who made a clear distinction between Pan African’s lower cost and higher cost operations.

There is a definite possibility that the rand will strengthen further depending on the outcome of the moves to get President Jacob Zuma out of office. The rand has already risen from around R14.5/$1 to current levels around R12/$1 since Cyril Ramaphosa was elected president of the ANC in December.

In a worst case scenario for the South African gold producers, for example, if the rand should go to R10 to the US dollar, then Pan African will have to rely overwhelmingly on its low cost dump retreatment operations to survive, but its Evander underground operations and the Consort mine near Barberton, in particular, look seriously at risk.

The current gold price of $1,328/oz is equivalent to a rand gold price of R560,947/kg at the current exchange rate of around $1/R12. Pan African’s overall all-in sustaining cost (AISC) for the six months to end-December was R545,908/kg making the company marginally profitable.

For the six months to end December, Pan African reported a mining profit of R103m (previous comparable period R316m) and a taxed profit of R58m (R250m).

The cost breakdown provided showed that the group’s lower cost operations – consisting of the dump retreatment operations plus the Barberton underground mine – had a total AISC of R373,184/kg. But the higher cost operations – the Consort mine plus the Evander underground operations – had a total AISC of R683,873/kg. Breaking that down further revealed Consort’s AISC was R761,562/kg with Evander underground at R673,444/kg.

Should the rand move to R11/$1, then the rand gold price at $1,328/oz will fall to R514,201/kg while at R10/$1, the rand gold price will decline to R467,456/kg.

Asked whether the Consort mine could be closed, Loots replied: “We have to be very careful in terms of commenting. What we have said is that we are engaging in terms of Section 189 with employees in both Evander and Barberton.

“We are not ruling out any initiative, but we have to work as a group with our labour, with the unions and with the government and get to where we need to be in terms of sustainable business. We are not unique. I can assure you the other South African gold producers are having similar discussions.”

Asked: ‘What happens to Pan African?’ if the rand goes to ten to the US dollar, Loots replied: “We have a plan. The low cost operations are the underpin. We have to make sure the mainstays of our business remain intact.

“That’s what we are focusing on at this point. We will do whatever we need to do to have a sustainable business. We can operate with the tailings operations and the Barberton underground at pretty much any gold price.

“We have to deal with the higher costs of operations. The wage discussions are going to be one hell of a thing this year. It’s not just us. If the rand continues to strengthen – in fact, even at this number – the entire South African gold industry is in deep trouble.”


  1. Dear Fellow Readers,

    Last year, i wrote the following about PAN :

    “The operational performance of PAN was atrocious for FY17. Furthermore, their FY18 target of 190Koz @ AISC= 250koz/yr OR is this the onset of mediocrity and hum-hum performance. The Gold hedge is also underwater by some R82Million!”

    For Evander Mines , i wrote the following :

    ” Since Purchase cum.OCF = -R268,6M Plus Purchase Price = -R1968,6M
    PAN has well and truly bloodied by these mines and has never gotten close to the said target of 85-95 koz/yr because it will just cost too much ORD capex. I see that they have implemented so called “Production Sustainability” measures. I hate to say this, but Evander Mines will deliver another nasty surprise on PAN…. despite its galant efforts. As a parting shot, the AISC = R916000/kg for FY17 with the gold price = R543000/kg …so it’s a longway to go to profitability for these mines!”

    Well , another report card is in so here are the Salient points:

    1. PAN delivered H1FY18 production of 85Koz (H1FY17 : 91,6Koz) , for an annualised circa 167Koz (FY18 initial guidance= 190Koz, now guiding 177-181 koz). This is lousy for a company which has invested so heavily ( 3,5 yr CapEx =R2,2Bn ) to maintain its potential run rate of ±250koz/yr. PAN is grossly underperforming. Now guidance
    2. With AISC = R545k/kg , at the current spot prices ( ±R520k/kg), urgent steps are required to safeguard the business because according to PAN it is “utilising debt facilities to fund operational and project CapEx”.
    3. Evander is a Dog of an Asset! I am skeptical about the “Egoli Project (2010 pay shoot) FS that indicate pre-Tax IRR =46% and NPV = R1,74Bn. My skepticism arise from the geology of the area being complex , and thus lending itself to high OpEx. It is NOT going to happen period!

    PAN is increasingly becoming marginal and has made numerous missteps ( dabbling in PGM & Coal) to its own detriment. Management attention was diverted from its core Barberton Mines. Now shareholders are told there has been a delay in accessing highgrade areas due to operational flexibility constraints ( read: lack of adequate ORD development).

    This co. management team is losing its way big time and something needs to give to correct the situation. Unsurprisingly, the MCap has fallen by some R2,5Bn ( ±50% ) in the < 6 months on June 2017 MCap =R5,3Bn. Thats what happens when investors start losing faith in management!

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