Precious metals miner Pan African Resources, which reported a rise in earnings for the year to end June, may consider further regional consolidation prospects over-and-above its current move to acquire Harmony Gold’s Evander operation, in Mpumalanga.
The company reported a 68.33% increase in earnings a share to 2.02p and revenue growth of 27.65% to £101.1-million for the financial year.
CEO Jan Nelson stressed that the company’s immediate focus was on concluding its current transactions and projects. But he indicated that there might still be further consolidation opportunities in the medium term.
“There are a number of other players around Barberton who we have been in discussion with to determine if it would make sense to consolidate operations,” Nelson said.
He attributed the earnings improvement to an over 60% increase in gold price (in rand per kilogram terms), as well as cost management at the company’s Barberton Gold Mines (BGM), in Mpumalanga.
During the year, the group realised an average gold price of $1 694/oz (R422 215/kg), an increase of 24.01% from $1 366/oz (R306 757/kg).
"Production at BGM has been consistent at 94 449 oz of gold and at a consistently high head grade in excess of 10 g/t, and we started construction on our tailings retreatment plant at Barberton,” Nelson added.
BGM’s production rose 4% to 308 000 t from 296 000 t, while grade was slightly down from 10.55 g/t to 10.45 g/t.
The group’s operating costs rose a modest 2%, from £45-million to £46-millon.
Earnings before interest, taxation, depreciation and amortisation increased by 57.89% to £45-million, from £28.5-million in the previous year. Headline earnings a share grew by 69.17% to 2.03p and Pan African’s profit margin rose by 57.19% to $918/oz, up from the previous year’s $584/oz.
The company’s gold resource inventory increased slightly by 4.41% to 5.92-million ounces during the reporting period, while its gold reserve inventory increased by 16.0% to 1.16-million ounces.
“We have discovered quite a number of orebodies at Barberton with grades ranging from 30 g/t to 60 g/t,” he noted.
As for the Barberton tailings retreatment project, capital expenditure of about £23.2-million had been approved for the project, with commissioning planned for July 2013. “Construction is going as planned and we are still on schedule to start production in June next year,” Nelson noted.
The £116.2-million, or R1.5-billion, acquisition of Evander would be "game changing" for the company, setting it on a path to midtier production status, Nelson enthused.
With an anticipated life of mine of more than ten years, Evander had an
expected yearly production profile of about 100 000 oz.
Upon completion of the transaction the group would increase its underground reserves from 3.9-million tons at 8 g/t to 39.5-million tons at 6.94 g/t. Its underground resource would grow from 8.3-million tons at 9.22 g/t, to 177-million tons at 6.08 g/t.
Nelson said the acquisition would potentially allow Pan African to double its current gold production profile. “Evander’s grades are higher than that of Barberton and it generates the same profits,” he told Mining Weekly Online.
Besides the condition to enter into a new electricity supply agreement with State-owned power utility Eskom, which was expected before October 31, and obtaining consent from the Department of Mineral Resources in terms of Section 11 of the Mineral and Petroleum Resources Development Act, all other conditions could only be fulfilled upon shareholders' approval of the transaction.
Nelson said shareholder approval was expected at the end of November or December.
It had been agreed with Harmony that Pan African would pay a break fee of £3.87-million (R50-million), payable in two separate tranches. The fee would be deducted from the purchase price when the transaction was implemented.
Pan African would fund the transaction through a combination of third-party debt, current cash reserves and through the issue of new ordinary shares. The company was currently moving to secure additional debt financing not exceeding £46.5-million (R600-million).
Nelson said recovery at Pan African’s Phoenix surface platinum operations that were commissioned in April had improved to between 25% and 30% during the reporting period.
The operation produced 3 384 oz of platinum-group metals during the year.
The ramp-up phase was completed by July and production was expected to reach steady state in the next year. “We are still 200 t below target, but we do have plans to address this,” Nelson assured.
The project was expected to produce 211 000 oz at a plant recovery rate of 45% over the 17-year life with a planned yearly retreatment capacity of 240 000 t.
Edited by: Terence Creamer