PAN AFRICAN RESOURCES PLC
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 283.1 19.5 424.7 29.3 138.4 9.5 - - 846.2 58.3
facility
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
Tailings Probable reserve Probable reserve Probable Au
facility tonnes (M) grade (g/t) content (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 (333.0) (23.0) (336.0) (23.2) (339.0) (23.4) (337.0) (23.2)
costs
Capital (64.0) (4.4) (169.0) (11.7) (273.0) (18.8) (64.0) (4.4)
costs
Taxation (1.0) (0.1) (1.0) (0.1) (47.0) (3.2) (176.0) (12.1)
and
royalties
Post tax 664.0 45.7 526.0 36.2 323.0 22.3 401.0 27.7
cash
flows
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
Interim Mining and tailings operations
Period
ending Barberton Evander Uitkomst Phoenix
31 December Mines and Mines and Colliery Platinum (PGE
BTRP ETRP (Coal ounces)
(Gold (Gold tonnes)*
ounces) ounces)
Actual 2015 56,447 45,350 - 4,493
Forecast 49,000 42,000 330,000 4,900
2016
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 2nd half of the financial year exceeding 1st 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 1st 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 Office: + 27 (0) 11 243
2900 2900
Phil Dexter John Prior / Paul Gillam
St James's Corporate Services Limited Numis Securities Limited
Company Secretary Nominated Adviser and
Office: + 44 (0) 207 796 8644 Joint Broker
Office: +44 (0) 20 7260
1000
Sholto Simpson Matthew Armitt / Ross
One Capital Allister
JSE Sponsor Peel Hunt LLP
Office: + 27 (0) 11 550 5009 Joint Broker
Office: +44 (0) 207 418
8900
Julian Gwillim Lorna Cobbett
Aprio Strategic Communications Bell Pottinger PR
Public & Investor Relations SA Public & Investor
Office: +27 (0)11 880 0037 Relations UK
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
Pan African Resources plc published this content on 05 December 2016 and is solely responsible for the information contained herein.
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