Pan African sets about finance for R750m Egoli project as Loots upbeat about SA risk

Cobus Loots, CEO, Pan African Resources

PAN African Resources issued an upbeat assessment of its growth options saying naming the R750m Egoli project as a potential iron in the fire.

Cobus Loots, CEO of Pan African Resources, said in a review of the firm’s interim figures today that Egoli – set in South Africa’s Mpumalanga province – had been found by a recent feasibility study to be viable¬†“… with compelling economic returns”.

The next step was to finance the project.¬†“The group is exploring several non-dilutive funding options for Egoli which will enable Pan African Resources to continue its strategy of de-gearing its balance sheet and increasing dividends,” said Loots.

Pan African reported a decline in net debt to $123.7m as of December 31 from $131.1m a year earlier. This was achieved on the back of strong interim numbers in which revenue was about a third higher to some $132.7m.

Adjusted EBITDA increased to $44.2m, an 83.4% improvement taking profit for the six months to $21.9m, 125% higher. The outcome at the share earnings level was a 128% increase to 1.14 US cents compared to 50c/share for the 2018 half year.

Gold is in the third year of a bull run which is being sustained by trade concerns and uncertainty created by the coronavirus outbreak. Mining executives from Anglo American Platinum, Kumba Iron Ore and Glencore have said this week it is still too early to call the impact of the virus on world trade.

Set against this market backdrop – and with the local market still adjusting to the news that AngloGold Ashanti is quitting the country after selling its last gold mine to Harmony Gold – Loots said the country was a good place for the company to invest, especially as it was familiar with its risks.

“Despite some challenges, including electricity supply constraints and illegal mining, Pan African Resources has demonstrated the ability to operate successfully in South Africa,” said Loots in his review. Problems related to load-shedding and illegal mining were being “…successfully mitigated by employing pre-emptive risk management initiatives and by Pan African Resources’s pro-active management approach”.

The Egoli project is an extension of Evander Gold Mines and is therefore an organic development which is more favourably viewed by banks than greenfields developments. But it received some criticism last year owing to the 1.8km depth of the project.

Loots commented in September that getting the project past shareholders would take “a lot of hard work”, although he added that the Elikhulu gold retreatment project had also met with scepticism by investors.

Elikhulu made its first meaningful contribution to Pan African’s numbers with production of 29,301 ounces, roughly a third of total interim production of 90,602 oz (2018: 79,765 oz). The company said annual guidance of 185,000 oz was intact at an all-in sustaining cost (AISC) of below $1,000/oz for the year which compares to AISC of $1,113/oz some 14% higher than the $975/oz recorded in the previous interim period.