PAN African Resources, a South African gold producer, hopes impact investors will take a shine to a gold dumps retreatment project that could cost up to R3bn to develop.
Cobus Loots, CEO of Pan African, said the firm was studying a green bond for Mintails, a project it was considering developing, but had not yet finalised. The capital cost of developing Mintails, estimated at R2bn to R3bn, would the largest undertaken by the company.
If it proceeds, Pan African will pay R50m to buy Mintails which consists of Mogale Gold and Mintails SA Soweto Cluster, west of Johannesburg and containing about 2.36 million ounces of gold.
Mintails would be ring-fenced which would enable Pan African to continue paying dividends. “Technically, Mintails can work, but we don’t want to put more debt on the balance sheet,” said Loots. “We would like to attract green or impact investors with a project bond with a market-related return,” he said.
The company is closer to finalising finance for its R1.2bn Egoli project, a brownfield underground development, scoped to produce 70,000 ounces annually – roughly a third of the 190,000 oz Pan African hopes to produce this year.
Egoli would also be ring-fenced. “Things would have to go disastrously wrong at Egoli where shareholders would suffer,” Loots said of the chances that even in the instance of limited recourse, shareholders would have to pay should the project fail to meet its operational targets.
“We personally want to increase the dividend this year. That’s the ambition,” he said. Pan African paid an R312m final dividend, equal to 14 South African cents per share.
Pan African Resources said in a trading update today it would report headline share earnings for the six months ended December of between $2.05 cents to $2.17c/share compared to $1.13c/share in the corresponding period last year – an increase of between 81% and 92%.
The year-on-year improvement in earnings is also likely to see the company become net cash this year.
Commenting on other growth options, Loots said it would be “… nice to do a deal outside of South Africa. We will look at our options once we have de-geared the balance sheet.” As of June 30, et senior debt decreased 51.9% to $62m.
The company, which is aiming to reach 250,000 oz a year in gold production by about 2022/23, was “happy” to remain in gold retreatment despite the elevated prices for platinum group metals (PGMs) where significant dumps material sits atop South Africa’s North West province.
“There’s more than enough for us to do in gold. The PGMs are mostly tied up by others,” said Loots.