PAN African Resources (Pan African) forecast a 5% reduction in gold production to 176,000 ounces for its 2020 financial year which ends on June 30 assuming its surface re-treatment operations remained at full capacity.
Commenting in a market update today, the company also said that assuming the current gold price until the remainder of the year it would have reduced net debt R500m, a 28% reduction from its June 30, 2019 position.
Pan African had guided production at 185,000 oz for this year compared to 171,706 oz in its 2019 financial year. However, the 21-day lockdown announced by the South African government in March, aimed at stemming the spread of COVID-19, and the subsequent relaxed lockdown, has kept underground production at 50% of capacity.
Cobus Loots, CEO of Pan African, said it was crucial the South African economy was restarted although he also praised the government’s “practical approach”. In acknowledging the firm’s employees, he added: “We expect that we still have a long battle ahead against COVID-19”.
The company had been able to offset lower production from its underground mining operations by increased output of surface toll treatment and production from its low grade surface stockpile, although at a reduced margin.
Its Elikhulu Tailings Retreatment Plant and Barberton Tailings Retreatment Plant had been operating at full production rates since the beginning of the month. The operations would contribute 80,000 oz of its 175,000 oz in gold output with the balance comprising Barberton underground (64,000 oz) and 31,000 oz of gold from Evander Mines.
No mention was made in the update of making a change to the firm’s dividend which was re-introduced in September. The gold market is, however, supportive: the current rand gold price is just over R1m per kilogram, 40% higher since the beginning of the year and therefore helpful in improving Pan African’s balance sheet.
But the company still has to see out hedged gold totalling 71,820 oz between May and December. The average floor price for 21,820 oz of hedged gold for the remainder of the 2020 financial year is R683,226 per kilogram with a ceiling price of R847,109/kg. Some 50,000 oz has been hedged in the first half of the 2021 financial year at a floor price of R708,000/kg and a R925,829/kg ceiling.
The company is unhedged from January 2021.
In April, Pan African said it had agreed to defer the settlement of a loan with Rand Merchant Bank (RMB) in terms of which $7.8m (R148m) worth of gold – equal to 5,000 ounces – will now be paid to the bank in the first quarter of the 2021 calendar year.
In July, Pan African said it had entered into a 12-month agreement in which it would sell RMB 20,000 oz, equal to about 12% of its total production, for R394m in upfront cash. It said at the time that the strong gold price had provided a good opportunity to do the deal.
The prevailing price of the gold was about R633,000 per kilogram ($1,414/oz) which Pan African said at the time was an opportunity to lock in a good margin.
