Pan African weighs R2bn Mintails extension as gold powers on

Cobus Loots, CEO, Pan African Resources

PAN African Resources said the improvement in the gold price would result in a doubling in returns for its R2.5bn Mintails project, due to be commissioned in December.

Commenting in a production update on Thursday, the London- and Johannesburg-listed gold miner also said it was studying a $113m (R2.1bn) extension of Mintails.

Assuming a gold price of $2,200/oz, the inflation adjusted internal rate of return for Mintails is 41.7%. This compares to an IRR of 20.1% which was estimated in a definitive feasibility study for the project.

In addition, payback on the project would be reduced to two years compared to three-and-a-half years estimated in the DFS which assumed a lower gold price of $1,750/oz.

Mintails, gold dumps located near Krugersdorp west of Johannesburg, will add 50,000 ounces to Pan African’s annual gold production once it is fully commissioned. Group production for the current financial year ended June was refined to between 186,000 and 190,000 oz compared to previous guidance of 180,000 to 190,000 oz.

Production would have been more than 200,000 oz for the year had not the company decided to close surface mining from Evander Gold Mines in Mpumalanga province. Cobus Loots, CEO of Pan African said this production had become sub-economic, even at the higher gold prices bathing South Africa’s gold sector currently.

It’s not often South African gold shares have enjoyed such an upswing in fortunes following seemingly unstinting gains it the gold price, currently trading at $2,315/oz.

In rand terms, gold miners are receiving R1.38m for each kilogram produced – just off the highest ever price received in mid April of R1.4m/kg. Based on all-in sustaining cost guidance of between $1,325 to $1,350/oz, Pan African would expect to report an average operating margin of between 70% and 80%.

Cobus Loots, CEO of Pan African said in today’s update that the company could produce “excellent results” for the year, but didn’t provide further details. However, shares in Pan African are 39% higher year-to-date, valuing the company at more than R10bn, and factoring in the prospect of record numbers.

Mintails extension

The extension of Mintails that Pan African is assessing would expand production to 60,000 oz/year over 21 years. This followed an internal prefeasibility study of the ‘Soweto Cluster’ which contains 110 million tons of mined ore.

An investment decision would be made “in due course”. In the meantime, it would begin the process of permitting and defining the servitudes required for the project.

“Our MTR (Mintails) project remains on schedule and on budget, and we look forward to commissioning it later in 2024,” said Loots. “We have now demonstrated that the addition of the Soweto Cluster resources further improves the economic attractiveness of this world class project,” he said.