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Tailings tailwind bolsters Pan African as rand gold price falls

Tailings tailwind bolsters Pan African as rand gold price falls

Wed Feb 13 2018


The tailings retreatment tailwinds blowing strongly into Pan African Resources are poised to ameliorate the blow that the low rand gold price is delivering to the company's more cost-intensive underground operations.


Coming in brilliantly ahead of schedule and below budget is the Elikhulu tailings retreatment project, which will ensure that more than a third of Pan African's yearly gold production arises from low-cost, low-risk tailings businesses, which have long lives ahead of them.


The Evander Tailings Retreatment Plant (ETRP), which paid for its initial capital outlay in less than three years and produces 20 000 oz/y and still has 14 years ahead of it, may be folded into Eiikhulu, which will begin churning out 56 000 oz a year from August for the first eight years. On its initial capital estimate of R1.74-billion, Elikhulu's payback is forecast at four years post commissioning.


In addition, a regrind mill being installed at the Barberton Tailings Retreatment Plant, which achieved 18-month payback of initial capital outlay and which has 14 years ahead of it, is set to take the plant back to 20 000 oz of gold a year at an all-in sustaining cost (AISC) of $650/oz.


This adds up to the London- and Johannesburg-listed gold-mining company producing 100 000 oz of gold a year from the tailings operations, at an AISC of below $700/oz, which is exceptional.


Globally, the AISC in 2016 for primary gold mines covered by S&P Global Market Intelligence, remained relatively flat on 2015 and was quoted as $879/oz, which makes the Pan African tailings retreatment businesses highly competitive.


Moreover, folding the ETRP into Elikhulu would take the ETRP's AISC down to below $700/oz as well, from the current $735/oz, which is attractive.


Meanwhile, massive attention is being given to the underground operations at Evander and Barberton to cope with a rand gold price that has fallen below R500 000/kg and which is placing huge strain on the South Africa's gold mining industry as a whole and not just Pan African.


"To our shareholders we're saying that our current operations are receiving all of our focus and attention," Pan African CEO Cobus Loots told Creamer Media's Mining Weekly Online after the company presented financial results for the six months to December 31.


A total of 85 282 oz were produced in the six months, 6.9% down on the 91 613 oz in the corresponding period of 2016, primarily as a result of operational problems at Barberton Mines, which has been positioned for an improved performance in the second half of the financial year.


The company reported improved overall operational and financial performance from Evander Mines and improved safety from both Barberton Mines and Evander.


Barberton Mines' Royal Sheba project's feasibility study will be completed in the 2018 financial year, with this project having the potential of increasing Barberton Mines' production by 30 000 oz/y.


The mining feasibility study has been completed for the Evander Mines' Egoli project, previously referred to as the 2010 Pay Channel project, showing a 46% pre-tax internal rate of return and a net present value of R1.74-billion.


The group's earnings before interest, taxation, depreciation and amortisation (Ebitda) decreased to R185.6-million and post-tax profit to R58.2-million compared with R249.8-million in the corresponding period of last year.


Earnings per share fell to 3.23c and revenue to R1 462.9-million.


Owing to the lower gold production, cash cost per kilogramme increased to R473 187/kg and cash cost per ounce to $1 099/oz.


AISC per kilogramme increased to R545 908/kg and net debt remained at R653-million.


FD Deon Louw reported group capital expenditure of R697-million for the half-year, made up mainly of R512-million spent at Elikhulu and R105-million on the sub-vertical shaft project at Barberton.


The company's debt has been projected over the next 18 months using R520 000/kg as the gold price.


"Obviously, under the current gold price environment this is a major concern to all mining companies and we've spent a great deal of time analysing our cash flows and our projected cash flows," said Louw.


Debt is forecast to increase until the Elikhulu facility is commissioned, whereafter it decreases over the next nine months.


Even at peak forecast debt levels, the debt-to-equity ratio is expected to remain below 0.6 times, which, although historically high, is still at a comfortable level given the operational risk associated with Elikhulu.


"Throughout the forecast period, we remain covenant compliant in all respects. Although the debt-to-Ebitda ratio is breached at a level of 2.5 times during the course of the 2018 financial year, it is only measured from 2019 for compliance purposes," said Louw.


Pan African group metallurgical manager Jonathan Irons said the company anticipated that Elikhulu would have a higher recovery rating than the ETRP, where 1.6 MW second-hand regrind mills would be installed to improve recoveries, which the company had identified in conjunction with project company DRA.


The mill would be installed at a cost of R50-million, it would provide a higher throughput rate of coarse material and with the regrinding of the material, better recoveries can be expected.