Pan African banking on debt-free 2020, dividend expansion as gold price flies high

Cobus Loots, CEO, Pan African Resources

PAN African Resources would be net cash this year and intended to increase dividends assuming elevated rand gold prices, the company said in an operational update for the 2020 financial year.

Commenting on the numbers, in which gold production came in higher than revised guidance, CEO Cobus Loots said the firm’s strategic focus was on de-gearing the balance sheet. “We are especially please to report that the rate of de-gearing has exceeded previous guidance,” he said in review of the 2020 production year.

Net debt was reduced 49% to $62.5m as of June 30 compared to $123.7m on December 31. The firm’s ambition to be debt free did not, however, include debt it intended to raise for its Egoli project, said Loots in an e-mailed response to Miningmx.

Based on a feasibility study completed this year, the Egoli project would produce between 60,000 to 80,000 ounces a year of incremental gold production for a minimum of nine years. A detailed project scheduling was underway. “Non-dilutive funding options are currently being explored for the finance of the project,” the company said in its production report.

Shares in the company gained just over 2% at midday in Johannesburg taking the company’s valuation just short of its 12-month high achieved earlier this month. The firm is riding high on an improved dollar gold price and rand depreciation against the dollar.

The rand gold price touched all-time highs last month of about R1m per kilogram and remains at historically high levels. Analysts say the outlook is strong for South African gold producers. The gold price would hover around $1,800/oz this year increasing to $2,000/oz during 2021, according to a report this week by Renaissance Capital.

Pan African’s gold production came in at 179,575 oz for the 12-months ended June which was less than the 185,000 oz forecast at the beginning of 2020, owing to the impact of the COVID-19 pandemic, but higher than the revised guidance of 172, 442 oz.

Production for the current year has been put at about 190,000 oz assuming no interruptions as a result of disease infections. The forecast also incorporates new production from 8 shaft pillar, a project that reached steady-state in June. Gold output, estimated to be about 30,000 oz a year, would be maintained for three years.

The 8 shaft pillar project is remnant mining of Evander Gold Mines in Mpumalanga province and represents a strategy by Pan African to explore organic growth following missteps.

Loots’ Pan African was castigated by shareholders for losing operational focus when in 2017 the purchase of the Uitkomst coal mine in KwaZulu-Natal was sanctioned. The property was later sold for a profit. Another strategy to buy African gold mines did not materialise, sending Pan African closer to home where organic growth have proven far more successful.

The development of sections of New Consort, an extension of the firm’s Barberton Mines – also in Mpumalanga – is currently under consideration.

The company has also moved into surface mining. The development of the R1.7bn Elikhulu operation which treats mined ore from Evander contributed 59,579 oz of gold to 2020 total production, equal to about 33%. Including the Barberton retreatment facility, total gold re-mined as a percentage of total was about 44%.

Loots said the company intended to spend 10MW solar photovoltaic plant at Elikhulu on completion of a bankable feasibility study. A similar plant was being considered for Barberton as part of a broad strategy to cut input costs.