Wrap Text
Results of definitive feasibility study for the Elikhulu Tailings Project and Group production update
Pan African Resources PLC
(Incorporated and registered in England and Wales under
Companies Act 1985 with registered number 3937466 on 25 February 2000)
AIM Code: PAF
JSE Code: PAN
ISIN: GB0004300496
(“Pan African” or “Group”)
RESULTS OF DEFINITIVE FEASIBILITY STUDY FOR THE ELIKHULU TAILINGS PROJECT AND GROUP PRODUCTION UPDATE
Pan African is pleased to announce positive results for the independent Definitive Feasibility Study (“DFS”) for
its Elikhulu Tailings Project (“Elikhulu” or “the Project”). The Pan African board of directors (“Board”) has
approved the construction of the Project, subject to finalisation of the Project financing package.
The Project DFS results indicate excellent recovered grades and gold production, attractive financial returns
and a low execution risk, with the DFS results surpassing expectations of previous technical and financial
assessments of the Project. The DFS was undertaken by DRA Projects SA Proprietary Limited who has
reviewed and approved the information contained in this announcement in writing.
DFS highlights and key assumptions
- The planned commencement date of the Project is January 2017, with first gold forecast for the final
quarter of the 2018 calendar year and full commissioning in December 2018.
- Annual recoverable gold production of approximately 56,000 ounces for its initial eight years of operations
and 45,000 ounces of gold for the remaining five years thereafter.
- Current arisings and inferred gold resource could extend Project life beyond the DFS estimated life of 13
years.
- Optimal plant capacity for the Project allows 12-million tonnes per annum throughput.
- The Project is expected to add approximately 25% to the Group’s current production profile and reduce
the Group’s all-in sustaining cost (“AISC”) profile.
- Initial capital cost is forecast at approximately R1.74 billion (US$119.9 million).
- The Project internal rate of return (“IRR”) (real, post-tax) of 23.1% (30.6% nominal) with a payback period
of less than four years, based on assumed gold price of US$1180/oz (R17,110/oz).
- Return on equity (real, post-tax) of 34.3% (42.5% nominal)
- Project net present value (“NPV”) of R1.1bn (US$75.9 million).
- AISC of US$523/oz over the life of the Project.
- Cash outflow per ounce over the life of the operation is sub $650/oz, inclusive of debt servicing, and
amounts to approximately $805/oz, inclusive of debt servicing, over the five year debt redemption term.
- Average gold recovery rate over the life of the Project of 47.77%.
- Environmental Impact Assessment (“EIA”) and Water Usage Licence (“WULA”) processes are underway,
with both approvals expected by late 2017.
DFS economic assumptions:
- Gold price assumption: US$1,180/oz.
- Rand/US Dollar exchange rate: ZAR/US$:14.50.
- NPV discount rate: 9% real.
- Debt to equity ratio: 115%, debt to total capital ratio of 53%.
- Long term South African inflation rate of 6.1%.
Return on investment
Pan African endeavours to invest only in projects positioned in the lower half of the cost curve, and only when
the project execution and construction risk is within Pan African’s capability. The experience gained in the
construction and operation of the Barberton Tailings Retreatment Plant (“BTRP”) and the Evander Tailings
Retreatment Plant (“ETRP”) positions Pan African to successfully execute the construction and operation of the
Elikhulu project. The Board is satisfied that the Project meets the Group’s investment criteria and that the
Group’s track record of successfully operating three tailings plants, all of which were constructed on time and
on budget, will be invaluable in the construction and operation of the Elikhulu Project.
Project funding
Pan African funds its capital programmes and acquisitions with conservative debt levels that are appropriate
for the specific project, and the Group’s overall level indebtedness. The Project’s execution and operational
risk is deemed to be low, and the robust nature of the Project’s cash flow generation allows for a relatively
high level of debt funding.
Rand Merchant Bank, a division of First Rand Bank Limited, has provided Pan African with all necessary
approvals for a R1bn underwritten five-year debt facility on competitive terms (“RMB Facility”). This facility will
be dedicated to the funding of the Project’s development and will be repaid from the Project’s cash flows,
generated during the initial five years of production. This facility is in addition to the Group’s current Revolving
Credit Facility (“RCF”) of R800 million (US$55.2 million), which can be extended to R1.1 billion (US$75.9
million), conditional on approval from the RCF lenders.
The Group is evaluating a number of funding proposals to fund the balance of the initial Project capital and,
given its strong financial position and access to debt facilities, does not foresee difficulty in securing the
balance of the funding on competitive terms.
The RMB Facility’s repayment profile is matched to the Project’s cash flow generation and is not expected to
impact Pan African’s existing dividend policy, which provides for a pay-out ratio of 40% of annual free cash
flow.
Cobus Loots, Pan African’s CEO, said:
“We are pleased to announce the positive findings of the independent Definitive Feasibility Study. Operating
low cost tailings plants has become an important business for Pan African in recent years, and we now intend
to proceed with construction of the Elikhulu tailings retreatment project. This project is expected to materially
enhance our Group’s production profile and support Pan African’s continued focus on low-cost, high-margin
gold ounces. The substantial capital investment required demonstrates our commitment to the South African
mineral sector and our shared responsibility of creating employment and alleviating poverty in the Evander
community.
Our primary consideration in any capital allocation decision is our ability to successfully execute the designated
project and to generate the required returns over the investment horizon. The attractive returns already being
earned on the capital invested in the BTRP and ETRP bear testimony to our previous success and will serve as
invaluable experience in completing the Project.
Elikhulu is expected to firmly establish Pan African as a leader in long-life, low-cost tailings retreatment, and
possibly unlock other opportunities in the sector. We expect the Project to reduce the Group and Evander cost
profiles and generate robust cash flows and attractive returns for our shareholders.”
Scope of the project
The Project entails establishing facilities and infrastructure at Evander Gold Mining (Proprietary) Limited
(“Evander”), owned and operated by Pan African, to retreat gold plant tailings at a rate of 1-million tonnes per
month. This is in addition to the existing production from the ETRP which will continue to operate
independently of the Project for the next 13 years. Three existing tailings storage facilities will be reclaimed, in
the following order: Kinross, Leslie and Winkelhaak. Post processing, these will be consolidated into a single
enlarged Kinross tailings facility, contributing to reducing Evander’s environmental footprint and associated
environmental impact.
The Project is expected to yield approximately 56,000oz of gold per annum for the initial eight years of
production (while treating the Kinross and Leslie tailings storage facilities), and then approximately 45,000oz a
year for the Project’s remaining five years from processing the Winkelhaak tailings storage facility. These
production figures exclude an inferred resource of 244,398oz of gold delineated in the soil material beneath
the existing tailing dumps.
The average gold recovery over the life of the project is forecast at 47.77%. Using modelled recoveries, the
gold dissolution value estimated for Kinross is 51.38%, Leslie 48.29% and Winkelhaak 53.77%.
Project capital:
Construction capital Construction capital Life of operation
Phase 1 Phase 2 Phase 3 All Phases
2017 2018 2021 2026 Total
R US$ R US$ R US$ R US$ R US$
million million million million million million Million million million million
Pre-construction 24.5 1.7 - - - - - - 24.5 1.7
Process plant 273.3 18.8 409.9 28.3 - - - - 683.2 47.1
Tailings storage facility 283.1 19.5 424.7 29.3 138.4 9.5 - - 846.2 58.3
Overland piping 30.3 2.1 45.5 3.1 29.8 2.1 48.0 3.3 153.6 10.6
Hydraulic mining 22.6 1.6 34.0 2.3 125.9 8.7 58.4 4.0 240.9 16.6
Contingency 94.7 6.5 96.5 6.7 19.0 1.3 6.6 0.5 216.8 15.0
Total 728.5 50.2 1,010.6 69.7 313.1 21.6 113.0 7.8 2,165.2 149.3
Phase 1 capital relates to the initial capital required to construct the plant and associated infrastructure. This
capital of R1.74 billion (US$119.9 million) includes a contingency of R191.2 million (US$13.2 million) to account
for potential cost overruns and additional plant design requirements.
Phase 2 and 3 capital of R313.1 million (US$21.6 million) and R113.0 million (US$7.8 million), respectively,
which is required to re-establish the hydro-mining infrastructure to the Leslie and Winkelhaak tailing dumps,
will be funded from Project-generated cash flows.
Mineral reserve estimate
Probable reserve tonnes Probable reserve grade Probable Au content
Tailings facility
(M) (g/t) (Moz)
Kinross 47.0 0.31 0.47
Leslie 70.1 0.32 0.71
Winkelhaak 70.0 0.24 0.55
Total 187.1 0.29 1.73
The mineral reserve estimate is a probable 187.1Mt and comprises the Kinross (47.0Mt), Leslie (70.1Mt) and
Winkelhaak (70Mt) tailings storage facilities at Evander. The combined 187.1Mt will provide feed material to
the existing ETRP at 200,000 tonnes per month, and to the Project process plant at a rate of 1-million tonnes
per month (of which 40,000 tonnes per month will be from run-of-mine tailings).
The combined mineral reserve contains an estimated 1.73Moz of gold of which an estimated 688,700oz of gold
will be recovered over the life of the Project. This estimate excludes the inferred resource 244,398oz of gold
leached into the soil beneath the existing tailing dumps, which could potentially increase the Project life.
The mineral reserve estimate assumes a non-selective mining method whereby the whole of mineral deposit is
mined in a predetermined sequence. The mining method allows for a 100% extraction of the target mineral
deposit. Hydraulic mining has been selected as the preferred mining method as it is proven technology, cost
effective and operationally well understood.
Competent person
Mr Barry Naicker, the group mineral resource manager, has signed-off the mineral reserve information
contained in this announcement, following his review and approval. He is a member of the South African
Council for Scientific Professions (400234/10). Mr Naicker has 15 years of experience in economic geology and
mineral resource management. He is based at 1st Floor, The Firs, corner Cradock and Biermann Avenues,
Rosebank 2196, Gauteng.
Timeline to production
Phase 1 of the hydraulic mining at the Kinross tailings storage facility is scheduled to commence in the fourth
calendar quarter of 2018 and for the Project to reach full commercial production December of that year. Phase
2 at the Leslie tailings storage facility is scheduled for the end of the third quarter of 2021 and Phase 3 at
Winkelhaak in the third calendar quarter of 2026.
Cost profile
The Project is expected to be a low cost producer with a cash cost of US$440/oz and an AISC of US$523/oz
over the life of the Project. Cash costs for Phase 1 are however lower at US$398/oz, due to the lower re-mining
costs of the Kinross tailings dump. The Phase 2 and 3 cash costs are expected to be US$448/oz and US$504/oz,
respectively.
Environmental impact
The EIA process for the Project is underway and Department of Mineral Resources’ (“DMR”) approval is
expected to be granted by late 2017. The WULA process has also commenced with Department of Water
Affairs’ approval expected in late 2017. Water will be sourced from the existing Evander underground
workings and the Leeuwpan evaporation dam, which is owned and operated by Evander. The Leeuwpan dam is
situated approximately 10km south west of the Kinross tailings storage facility and, based on the Project’s
overall water balance, there is sufficient water to support the Project through its life.
Financial evaluation
The project benefits from a short commissioning period and is highly cash generative from inception, which
enables the Project to be funded with a relatively high level of gearing. The Project’s all-in cash outflow per
ounce, inclusive of debt instalments, is US$636 per ounce over the life of operation, and US$805 per ounce
during the 5 year debt redemption period, which illustrates the economic robust nature of the Project. With a
real IRR of 23.1% (nominal 30.6%), and a payback period of less than four years, the project generates
distributable cash flow from inception and should enhance Pan African’s ability to continue declaring sector
leading dividends to shareholders.
The Project’s estimated real post tax cash flows and pre-debt instalments, over the initial four years of
production are illustrated hereunder:
Dec-19 Dec-20 Dec-21 Dec-22
R US$ R US$ R US$ R US$
million million million million million million million million
Revenue 1,062.0 73.2 1,032.0 71.2 982.0 67.7 978.0 67.4
Operating costs (333.0) (23.0) (336.0) (23.2) (339.0) (23.4) (337.0) (23.2)
Capital costs (64.0) (4.4) (169.0) (11.7) (273.0) (18.8) (64.0) (4.4)
Taxation and royalties (1.0) (0.1) (1.0) (0.1) (47.0) (3.2) (176.0) (12.1)
Post tax cash flows 664.0 45.7 526.0 36.2 323.0 22.3 401.0 27.7
Further information on the Project
A presentation with further Project detail is available on the Pan African website
(www.panafricanresources.com). The complete DFS is also available for review at Pan African’s corporate
office.
PRODUCTION UPDATE
Mining and tailings operations
Interim Period
ending Barberton Mines Evander Mines Uitkomst
Phoenix Platinum
31 December and BTRP and ETRP Colliery
(PGE ounces)
(Gold ounces) (Gold ounces) (Coal tonnes)*
Actual 2015 56,447 45,350 - 4,493
Forecast 2016 49,000 42,000 330,000 4,900
Percentage (13.2%) (7.4%) 100.0% 9.1%
*Uitkomst Colliery was acquired on 31 March 2016, and the coal tonnes forecast includes approximately
200,000 tonnes from the underground mining operation and 130,000 acquired coal tonnes for processing and
blending.
Gold mining operations production update
The Group previously guided gold production of approximately 200,000oz for the 2017 financial year. In light
of challenges experienced with its operating environment and underground operations in recent months, the
Group now considers it appropriate to revise this guidance down to approximately 195,000oz of gold
production for the 2017 financial year, with gold production in the 2 nd half of the financial year exceeding 1 st
half performance.
In addition to the operational challenges detailed below, community unrest in the Barberton area and DMR
safety stoppages (“Section 54 regulatory notices”) severely affected gold production in the current reporting
period. Pan African is actively engaging with all stakeholders in this regard, in order to ensure that operations
are allowed to operate at steady-state and in a sustainable manner.
Cobus Loots, Pan African’s CEO, said:
“Operational performance from our underground operations during the 1 st half of the 2017 financial year has
been disappointing. Pan African’s mines are not exempt from the political and social unrest that is prevailing in
South African society at present. The current state of affairs is clearly unacceptable and our management team
will not relent until the previous operational form has been restored. All stakeholders have to work together in
this regard, the Group will use all means at our disposal to ensure we protect and increase value for our
stakeholders“.
The decreased production guidance is principally due to the following factors:
Evander Mines
Operational:
- Evander Mines’ 7 Shaft, which is used to hoist ore from underground mining operations to surface for
processing, is undergoing critical maintenance following the dislodgement of a steel shaft guide which
damaged the shaft infrastructure. Even though primary repairs have been completed, 7 Shaft’s
hoisting speed is curtailed until the full maintenance programme is completed. The shaft is expected
to resume normal hoisting speed in early January 2017.
- Evander Mines experienced a material increase in DMR initiated safety stoppages during the past five
months. The operation was issued with four Section 54 regulatory notices, which resulted in 13 lost
production days (Comparable period: three Section 54 regulatory notices resulting in 2 lost
production days). The majority of the lost production days related to the 7 Shaft incident.
Barberton Mines
Industrial relations and community protests:
- Three separate community protests relating to unrest as a result of poor government service delivery
in the area and competing recruitment interests from lobby groups was experienced, which resulted
in 6 days of lost production.
- Union related demands resulted in workers embarking on a go slow which adversely affected
productivity.
Operational:
- Fairview mine experienced flexibility issues, specifically at its very high grade 11-block. Work is
underway to develop a new production platform. Further flexibility improvements will be achieved via
a new decline under development. In addition, a new refrigeration plant will improve working
conditions in this area.
- Six Section 54 regulatory notices, which resulted in 8 lost production days. (Comparable period: one
Section 54 regulatory notice resulting in 3 lost production days). Barberton Mines and Pan African
continue to engage with all stakeholders, including the DMR, in order to reduce the impacts of these
notices in future.
Uitkomst Colliery
Production and performance for the period has remained in line with expectations. Uitkomst Colliery has also
bought-in additional coal from neighbouring mining operations to optimise its washing plant’s operations. If
the current favourable coal price environment continues, the payback period for this acquisition is expected to
be less than the four years previously forecast.
Phoenix Platinum
Phoenix Platinum processing capacity has increased from 25,000 tons per month to 30,000 tonnes per month,
following the installation of a scrubber in July 2016. The operation has experienced water constraints due the
persistent drought conditions during October and November 2016. Despite these challenges, production is
expected to increase by 9.1% to 4,900oz for the 31 December 2016 reporting period.
Forward looking statements
Any forward looking statements made throughout this announcement regarding the future financial
performance of the Group have not been reviewed or audited by the Group’s external auditors. The Board
accepts full responsibility for the accuracy of the information contained in this announcement.
Pan African is not obliged to publicly update any forward-looking statements included in this announcement,
or revise any changes in events, conditions or circumstances on which any such statements are based,
occurring after the publication date of this announcement, other than as required by regulation.
Johannesburg
5 December 2016
Contact information
Corporate Office Registered Office
The Firs Office Building Suite 31
1st Floor, Office 101 Second Floor
Cnr. Cradock and Biermann Avenues 107 Cheapside
Rosebank, Johannesburg London
South Africa EC2V 6DN
Office: + 27 (0) 11 243 2900 United Kingdom
Facsimile: + 27 (0) 11 880 1240 Office: + 44 (0) 207 796 8644
Facsimile: + 44 (0) 207 796 8645
Cobus Loots Deon Louw
Pan African Resources PLC Pan African Resources PLC
Chief Executive Officer Financial Director
Office: + 27 (0) 11 243 2900 Office: + 27 (0) 11 243 2900
Phil Dexter John Prior / Paul Gillam
St James's Corporate Services Limited Numis Securities Limited
Company Secretary Nominated Adviser and Joint Broker
Office: + 44 (0) 207 796 8644 Office: +44 (0) 20 7260 1000
Sholto Simpson Matthew Armitt / Ross Allister
One Capital Peel Hunt LLP
JSE Sponsor Joint Broker
Office: + 27 (0) 11 550 5009 Office: +44 (0) 207 418 8900
Julian Gwillim Lorna Cobbett
Aprio Strategic Communications Bell Pottinger PR
Public & Investor Relations SA Public & Investor Relations UK
Office: +27 (0)11 880 0037 Office: + 44 (0) 203 772 2564
Jeffrey Couch/Neil Haycock/Thomas Rider
BMO Capital Markets Limited
Joint Broker
Office: +44 (0) 207 236 1010
www.panafricanresources.com
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