Pan African lifts dividend, targets 2021 gold output increase as capital programs take shape

Cobus Loots, CEO, Pan African Resources

PAN African Resources has targeted 190,000 ounces of gold production for the 2021 financial year after registering a strong performance for the 12 months to end-June, culminating in the announcement of a R312m ($18.7m) final dividend, equal to 14 South African cents per share ($0.836c/share).

The company also concluded R1.2bn worth of debt finance with Rand Merchant Bank for Egoli, a brownfields project – effectively an extension of its Evander Gold Mines in Mpumalanga province – which will contribute 72,000 oz/year of gold some 20 months after construction begins.

“This operational performance was achieved despite the impact of the Covid-19 pandemic and the resultant restrictions imposed to curb the spread of the virus,” said Pan African CEO, Cobus Loots, echoing the comments of other executives in the South African gold sector which has emerged from the lockdown period remarkably well.

That’s thanks mostly to the gold price which reflected strongly in Pan African’s 2020 financial year, $12m in realised gold hedging losses notwithstanding. Pan African booked an average gold price of $1,574/oz, an increase year-on-year of 24.3%. (A further $10m unrealised loss was recognised on the 50,000 oz balance remaining in the hedge book).

The outcome was a one fifth increase in revenue on the back of 4.1% higher gold production of some 179,457 oz after final refinery adjustments. Taxed profit increased 16.6% to $44.3m. Headline earnings were 93% higher at some $44.2m.

Pan African cut debt considerably during the 12 months. Net senior debt was 51.9% lower as of June 30 at some $62m as previously guided in a trading statement. “At current gold prices we would expect to be debt-free by the end of 2021,” said Deon Louw, CFO of Pan African during an investor presentation.

Louw added that the company may consider dispensing with the group’s hedging strategy in the current year. “We hedged at a specific time and given a set of circumstances. If we deleverage (close net debt) I see no reason to hedge to the same extent, if at all,” he said.

In addition to production from Evander Mines, where the company is mining out a remnant pillar (8 Shaft) as a discrete project, the company also mines underground at Barberton Gold Mines and processes surface gold dumps through its Elikhulu and Barberton Tailings Retreatment Plant operations.

Loots said the focus this year would be on tackling costs which were higher on an all-in sustaining cost (AISC) by some 16.1% at $1,147/oz. In addition to the Egoli and 8 Shaft project at Evander, the company was developing fresh sources of gold production from a the New Consort mine, an extension of its Barberton Mines.

The lift in increases was partially down to Eskom electricity costs which increased 24% to $22.7m and engineering and technical costs, up 23% to $13.9m following “… extensive work performed on securing and repairing pipelines at Elikhulu as well as replacing stolen pipelines,” Pan African said.

The Evander and Barberton regions have been victim to community discontent as well as illegal mining and theft activities. The company spent $6.3m on security costs in the 12 month period, a year-on-year decline of 12.5%.

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