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Title: EIA under way for new tailings dam – Phoenix Platinum Precious metals miner Pan African Resources has started an environmental impact assessment (EIA) amid plans to construct a long-term offsite tailings dam for its Phoenix Platinum chrome tailings retreatment plant (CTRP) in the North West province.
IFM initially started supplying Phoenix Platinum with a sulphide-rich feed source from its Lesedi underground operations in Buffelsfontein, north-west of Johannesburg, when the CTRP was completed in November 2011. However, the ferrochrome producer cut back drastically on operations at Lesedi in January 2012, owing to financial consi- derations. As a result, it moved mining operations to its low-cost opencast oxidised ore section. “The metallurgy of oxidised tailings negatively affects recovery and concen- trate grade, leading to poor PGE concentrate production,” says Pan African CEO Jan Nelson. The chemical changes to the oxidised orebody – which has been exposed to rain and oxygen in the atmosphere – affect the flotation response and efficiency of the ore in several ways. “The weathered and, thus, more friable ore results in excessive ultrafine material being generated during processing. This material becomes entrained in the froth and does not drain during the flotation process, resulting in lower-concentrate grades,” he says. To achieve target concentrate grades, the float cells have to be operated at deeper froth depths and lower air inputs, resulting in reduced platinum-group element (PGE) recovery. “Platinum-group metal (PGM) flotation is, essentially, a sulphide flotation process – the PGEs in the tailings are attached to or associated with metal sulphides,” explains Nelson. He adds that, when these sulphides are oxidised, their float response is much poorer, requiring higher reagent reac- tions and resulting in lower achievable recoveries. “The flotation process normally renders the silicate waste rock hydrophilic (attracted to water) and, thus, nonfloatable. However, the altered waste rock resulting from oxidation is more susceptible to becoming hydrophobic (repelled by water) and, thus, floatable,” he says. The result is that silicate gangue – which sometimes creates ‘sticky froth’ – attaches to the concentrate in conventional flotation dynamics and PGEs then become extremely difficult to recover. Nelson explains that the net effect is a reduction in PGE recovery and concentrates grades. He tells Mining Weekly that Phoenix Platinum will continue to accept IFM’s current arising tailings, as it is the main source of CTRP’s process water source. “Replacing the IFM current arisings with tailings dam material will only be possible once we have constructed our long-term offsite tailings dam,” he says. Meanwhile, the effect of last year’s PGM’s low basket price was noted by Phoenix Platinum and would have relieved some of the effects of the oxide-feed material, says Nelson. Moreover, despite signing a five-year PGM concentrate agreement with platinum major Lonmin’s operating subsidiary, Western Platinum, he stresses that last year’s violent strikes at the miner’s Marikana mine had no material effect on the CTRP’s operations. Phoenix Platinum is currently in a closed period and cannot yet disclose projected production for the 2012/13 financial year. The plant does, however, hope to reach a target of 1 000 oz/m during the following financial year. Nelson tells Mining Weekly that the CTRP’s management still plans to double throughput at the plant to 40 000 t/m by 2014 at an estimated capital expenditure of R92- million, but adds that this depends on both the PGM and chrome markets. “Phoenix Platinum is in a position to rapidly move ahead with the project at short notice,” he says, adding that construction of the expansion stream will take less than 12 months to complete. Further, Nelson cannot disclose what became of the proposed tender for addi-tional chrome tailings as the matter is “under confidentiality”. Being awarded this tender would allow Phoenix to operate at 40 000 t/m for the next 17 years. The company did, however, tell Mining Weekly in December 2011 that the Phoenix upgrade would proceed regardless of the tender outcome and that Pan African would try to secure more chrome tailings from other sources.
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Title: STREET DOG: Ten stock picks from Nedbank Private Wealth Stockbrokers IT WOULD have been easy to miss the Nedbank 2012 Xmas Stocking when it was first published at the end of last year. It hit the streets when most of us were in that mad scramble to get everything done in time to go away and do nothing. But missing the 10 stock picks that Nedbank Private Wealth Stockbroking recommends to its clients at the end of every year is indeed a pity. Had you invested in the companies included in the bank’s 2011 Xmas Stocking, for example, you would have been rewarded with a return in excess of 34% last year. "Which we are obviously very proud of," says . "Our challenge now is to present to you our top picks for 2013." "We start with Foschini," says Rogan. "Foschini, we do believe is cheap relative to its retail peers. It’s got a bit of catch-up to do in terms of store optimisation and that will have a direct impact on margin growth, so that is our pick in the retail sector. Next on the list is MTN. "We all know MTN. It recently released its new subscriber numbers and it is knocking on almost 25-million subscribers, obviously an African story and a great dividend payer." Moving on to Pan African Resources, he said: "We feel it necessary to have a resource counter in the stocking and this has direct exposure to gold so it’s a play on gold, and we like the management of this company and it is set to resume dividends in 2013, so that does talk to the strength of the balance sheet. "Ellies is a small company that is involved in renewable energy and consumable electrical products, so mainly import and distribute electrical products, but it is also a great African story and one that we believe has legs. "Clover is our next pick, a defensive play, a company that listed recently on the JSE but that really is moving into a growth phase. It’s moved away from just being involved in milk and is involved in other value-added products, and we are going to see the benefits of that counter. "We believe that it is going to be quite a tough year economically ... it’s important to look at some companies that are going to give you a sweetener when it comes to income, and we picked two property companies, Dipula and Ascension A. Both have good-quality books and, in fact, Ascension A has a guaranteed distribution so those two companies are both good for income. "Some of you may not have heard of Mpact. It was unbundled out of Mondi and is involved in paper and packaging, particularly cardboard boxes. A good defensive counter, trading at a 30% discount to its peers. "Then there’s Bidvest. We all know Bidvest, a massive global conglomerate, employing more than 100,000 people, but a very acquisitive company and we believe its earnings are sustainable going forward. "And finally, Iliad. It supplies building materials to the industry and again, it does look expensive relative to its peers, but if you look going forward, it is one of the cheapest counters in the sector." Anyone wanting to replicate the Nedbank portfolio — and it is as good a piece of investment advice as most of us are likely ever to get — will be wondering whether there is a significant premium on the price they would have paid at the beginning of the year, given that the all-share index, which started the year at 39,560, touched a high of 40,604 on Friday — an increase of 2.6% in three weeks. So we did the sums and here is what we found: assuming you would have been willing to spend up to R10,000 on each of the 10 counters at their opening price on January 2 (for example, you would have bought 45 Bidvest shares at R219 as opposed to 46, which would have cost R10,074), the Nedbank Xmas Stocking would have cost you a total of R99,545 at the start of the year. At close on Friday, the same portfolio would have cost R100,960 — an increase of 1.4%, with the contribution from the better performers in the pack being negated by the poorer performers. Ellies, the best performer to date, for example, having risen 17% from 785c to 920c a share, was negated by Foschini, the worst performer, whose price fell 12%, from R141 to R124 a share. The 15% increase in the Pan-African share price likewise was cancelled out by the drop in the Dipula (8%), Iliad (2%), MTN (1.5%) and Ascension (1%) share prices. Bidvest, meanwhile, remained unchanged at R22, leaving it up to Clover, which increased in price by 6%, to get the Nedbank picks off to a decent start.
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Title: Pan African one step closer to Evander acquisition JSE-listed Pan African Resources has secured financing of R703 million for the acquisition of Harmony’s Evander Gold Mine. The funds were raised through a share offer of 25.5 new shares for every 100 shares held. The purchase price for Evander has been set at R1.5 billion with the company already being financially sound for the acquisition. Pan African intends on completing the acquisition of Evander later this year. Pan African was pleased with Evander’s results last year as current owner, Harmony highlighted its performance in last year’s results. Evander operations reported an 18% increase in gold production and a 14% improvement in cash operating costs at R259 613/kg, which resulted in an operating profit of R141 million. Gold production for the quarter increased to 817 kg, due to a net increase of 8% in tonnes milled at 159 000 t as well as an increased grade to 5.14 g/t. Pan African is in the process of completing its agreement with Eskom for its electricity supply, which has to be completed by 30 June 2013. Investment research firm Edison forecasts that “the updated absolute valuation of Pan African, based on a maximum potential dividend flow discounted at 10% per annum, has increased by 43.6%, from 20.77pence(R2.92) per share to 29.83 pence per share currently”.
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Title: Edison Increases Target Price on Pan African from 20.77p to 29.83p – the shares at 21p are a buy Heck I know that this is commissioned research (i.e. paid for by the company) but analyst Charlie Gibson might be incredibly posh but he is no fool. He does know what he is talking about. And thus when I read his research I generally seem to think that his sums stack up. Today comes a note on Pan African Resources (LSE:PAF) in which Charlie increases his target price from 20.77p to 29.83p in light of the purchase of Evander. With the shares now at 21p, it is worth taking a look because Charlie also predicts a dividend of at least 0.34p per share for the year to June 30th 2013 – thus there is still upside of 43.66% on offer if he is right. And I do think he is right. To read my buy recommendation on Pan African (a stock I first tipped at 2.875p in my pre Nifty Fifty days at t1ps.com) click HERE. Over to Charlie who writes: Principal remaining condition precedents EGM effect on Pan African Valuation: Up 44% on updated gold price and ZAR Ends
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Title: Upheaval exposes pockets of JSE-listed mining value JOHANNESBURG (MINEWEB) - An unprotected and violent strike at Lonmin’s Marikana mine in August and the shooting of 34 protestors by police triggered a chain of labour action that idled platinum, gold and iron ore mines. That led to this month’s announcement by Anglo American Platinum (Amplats) that it would slash its production by closing shafts and no doubt played a role in Gold Fields’ decision to separate most of its South African assets into the soon to be listed Sibanye Gold. Of the mining shares, Assore was the star performer in the 12 months to January 13, up 102 %. DRD was the best performer of the gold plays with a rise of 43.9% and Harmony Gold, down 31.3%, presented the worst performance of the gold companies. Northam, unscathed by labour unrest, put in the best performance of the platinum group metal companies, rising 17.1% while Lonmin, after strikes and the resultant plunge in production, lost 25.1%. Amplats slipped 11.6%. Henk Groenewald, a portfolio manager at Coronation Fund Managers, says he "is invested in platinum companies rather than gold". "We definitely like platinum companies above gold. I think gold companies are long-term destroyers of value. "We hold the low cost platinum producers Northam and Impala, and not Anglo Platinum which is higher cost and faces other challenges. The fund also holds palladium and rhodium ETF’s". Daniel Sacks, an Investec resources portfolio manager, on the other hand, prefers the JSE-listed gold companies to platinum company shares. He does say, though, "We would buy platinum ETFs and hold Impala as it will benefit from the production cuts" by Amplats as the metal price heads higher "Gold company stocks have been beaten down, there has been a lot of bad news," he says. Sacks is interested to see how the new company, Sibanye, will perform when it lists in February. "In the short term there will be overseas sellers so there may be an overhang of the stock in the market. It will be interesting to see how the market prices it as a vehicle for mature, yet valuable assets," says Sacks. He says the reserves have a life of 16 years and if the grade and operating costs can be lowered the reserves could be extended. An upside is that the company says it is committed to paying a dividend," says Sacks. He holds DRD, Pan African Resources, Gold Fields and AngloGold. "We still like the gold price. [Further strength] cannot be written off yet. I don’t think anything has changed. I believe the gold price will perform nicely independent of anything that takes place in South Africa." Sacks maintains that any upside for the platinum companies will be as a result of supply woes and not because demand is pushing the price stronger. Although Groenewald is off gold he has made one exception; Pan African Resources which mines a high-grade, green stone deposit at its mine in Barberton. "The company has done really well by controlling costs and the high grade helps," he says. This is a view echoed by Sacks. Looking at the price-to-earnings ratio (PE) of five major JSE sub-indices the mining sector comes in bottom with the FTSE/JSE Africa Mining Index presenting a PE of 12.49 (on Jan 17). The PE for the JSE allshare stood at 13.84 with the PEs of the other key sectors all higher. The FTSE/JSE Africa Banks Index had a PE of 13.15, the FTSE/JSE Africa Industrial 25 Index a PE of 18.28 and the FTSE/JSE Africa General Retailers Index a PE of 19.06. Leading the way is the FTSE/JSE Africa Non-Cyclical Consumer Goods Index, which includes hospital and drug companies, with a PE of 21.84.
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Financial Mail
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Business Day
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Title: Pan African Resources acquisition to double gold output Pan African Resources had achieved significant milestones in the year to June, which included an agreement on the terms to acquire Evander Gold Mines from Harmony Gold for £116.2 million (R1.5 billion), chief executive Jan Nelson said yesterday. Nelson said this was “a game-changing acquisition for us and sets us on a path to mid-tier production status” as it would enable the group to double gold output. Pan African will fund the transaction through third party debt financing, cash reserves, cash generated from operations and potential strategic disposals of non-core assets by Pan African and Evander. It may also issue new shares. The deal is still subject to approvals, securing a new electricity supply deal with Eskom and consent from the Department of Mineral Resources. In the year to June revenue increased 28 percent to £101.1m and attributable profit gained 70 percent to £29.2m. The shares fell 0.41 percent to close at R2.40 yesterday. – Staff reporter
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Title: Pan African profits up 69.17% By: I-Net Bridge 2012-09-27 12:08 Gross revenue for gold sales increased by 27.65% to £101.1m (R1.2bn)‚ while its earnings before interest‚ taxation‚ depreciation and amortisation (Ebitda) increased by 57.89% to £45m (R598.05m). Attributable profit increased by 69.77% to £29.2m (R388m). CEO Jan Nelson said the group had produced an excellent set of financial results and achieved two significant corporate milestones. “Barberton mines produced a consistent 94 449oz gold at a consistently high head grade of 10g/t and we started construction on our tailings retreatment plant at Barberton. At Phoenix Platinum‚ we have seen significant improvement‚” he said. “We agreed terms to acquire Evander Gold Mines from Harmony‚ which is a game changing acquisition for us and sets us on a path to mid-tier production status. In addition‚ post year end we found the right opportunity for Manica in Terranova Minerals NL on the ASX‚” Nelson added. On May 30, 2012 the group entered into an agreement with Harmony Gold Mining Company to acquire Evander Gold Mines for £116.2m (R1.5bn)‚ subject to certain terms and conditions. “The impact on the year is a significantly improved profit margin up by 57.19% to $918/oz and a 27.65% increase in revenue at just over £101.1m (R1.2bn). This was due to an excellent gold price but also as a result of stringent cost management at the mine. The first quarter sees the business in excellent health and we are very excited at the prospects 2013 will bring‚" said Nelson. Looking ahead the company’s offer to acquire Evander Gold Mines from Harmony marks a significant milestone in the future growth of the company. On successful completion the transaction will allow the group to double gold production output and mineral reserves will increase from just over 1Moz to close to 9Moz ensuring a sustainable future. A pipeline of brownfield projects will become available around current mining areas that can be developed to unlock future value. Such development will be funded from internal cash flows without impeding on future dividend payments‚ it added. No major project development will be undertaken without shareholder approval and the group will continue through strategic partnerships to exploit further growth opportunities within the precious metals sector in SA. It believes that significant opportunities will become available in the gold and platinum sectors in SA as the major mining houses start divesting of their SA assets to gain a more international footprint‚ it said.
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Mineweb GRONINGEN (Mineweb) - As the gold price has risen and mines have got deeper, so many of these dumps have been re-drilled and reprocessed but, it is not just the landscape that is changing - the industry that gave birth to Africa's "city of gold" is changing right along with it. "The cynical among us might describe it as rearranging the deck chairs on the Titanic," says Bernard Swanepoel, Joint CEO of Village Main Reef, one of the new class of junior gold miners coming up in South Africa at the moment. Speaking to Mineweb from a sparse boardroom at Village's offices in Johannesburg, Swanepoel explains, "If you take the long view, then after 120 years, even if we talk about the next 30 years, it is clearly the last phase of the SA gold mining industry." Seemingly proving his point, the majors (AngloGold Ashanti, Harmony Gold and Gold Fields) while still active in the country, are increasingly focused on finding ounces in other parts of the world. And, while much of it has to do with diversifying their country risk, as the well-worn adage goes, if you want to hunt elephants, you need to go to elephant country and, for these big game hunters, the savannas of countries like Papua New guinea are looking more and more appealing from a trophy point of view. That is not to say the Witwatersrand Basin is not an elephant, indeed many would argue it remains the bull elephant in the global gold herd but, it is getting old. In 2011, the South African gold fields only produced around 6m troy ounces of the yellow metal, placing them fourth behind China, Australia and the US in the producer rankings. This is a far cry from the peak reached in 1971, when, according to the South African Chamber of Mines numbers, they produced 79% of the gold mined globally - a total of roughly 31m troy ounces and, to put it bluntly, there is no longer enough gold coming out of the country to satisfy the ever growling mills and refineries of the majors. The majors continue to manage their mines in South Africa very well, but their attention is elsewhere and this opens up new opportunities. Nick Holland, CEO at Gold Fields, told Mineweb earlier this year, there is a lot of potential around the Wits Basin and, there is beginning to a merge a mid-tier of companies able to bring this potential to account. "First of all they might be able to extract more value out of certain assets that other companies couldn't, take Evander for example that has been sold by Harmony; secondly they might have a very different approach to some of the higher risk exploration projects, unlike the majors who have probably got a lot of South African exposure already, like us for example." Pan African Resources CEO, Jan Nelson agrees, saying that, at the moment, the landscape is populated very much by majors and juniors. But, he says, a mid-tier is developing. "Juniors are going to have to consolidate, with the majors considering exiting the country and divesting their SA assets, who do they sell them to if there is only a bunch of juniors, there is a gap that needs to be filled." Swanepoel adds, that by definition a big mining company has to act like a big mining company, "They need big and fancy head offices and humongous overheads and only a certain type of ore body lends itself to that." So, he says, they need to have a set of players to whom they can hand down assets which no longer fit into a big mining company." "It is like dumping an old car into the hands of someone to whom it is a new car. It gets treated differently, washed twice a week etc. And so, I suspect the best thing for these assets is for them to be handed down to people who really want to own them who want to run them differently." He adds that the current high gold price has a role to play as well because, with the higher prices, has come an understanding that these still-operational assets are, under current prices, worth owning. " Those of us who were smart enough to buy some of them a year or two ago we look a bit smarter than even we like to think we are, because there is always a dose of very good luck in these sorts of things." Neal Froneman, CEO of Gold One International, whose Modder East mine is one of the newest on the reef agrees that there are significant changes underway within the industry. "The resources that are left for mining are really only medium grade, there are no real high grade resources left and you can only really mine these resources at medium and shallow depths. Because of that, the scale of these operations is significantly smaller than what would attract majors." He explains that depth, in particular, is a major issue; one that comes with costs and, with environmental, safety and, ultimately, political risk. "For the majors to operate on the scale they need to operate on," he says, "They have to go deeper and that is not commercially smart from an international perspective." Froneman points out that the political and operational risk attached to deep level mining in South Africa leads to larger discount rates and, because the risk of accidents rises exponentially the deeper one goes, it can also lead to perceptions of management incompetence on the international market. And, while he is quick to point out that such perceptions couldn't be farther from the truth as, he says, the South African majors are incredibly well managed, it can lead to a discount in their shareprices. A Second Chapter "I would really credit his visionary leadership at a point in time when, instead of shutting down assets and shafts that he could no longer make money out of or could no longer justify having in his portfolio he handed them down to Harmony and African Rainbow Minerals and when we merged Harmony and ARM to create what is today's Harmony, it was a very mutually beneficial relationship," he says. Swanepoel was, of course, the CEO of that newly enlarged Harmony Gold and spent a lot of his time at the company, doing what he doing now, making marginal assets work just a little bit harder. And, he points out one of the benefits of a century's worth of mining is that the country is full of infrastructure that often narrows the gap between cash costs and so-called ‘all-in' costs. This he says, is because firstly, a lot of the infrastructure is in place and, secondly, no further expansion or exploration is needed. Froneman too, acknowledges the merit of using existing infrastructure saying that it does indeed lower one's capital cost. But, he adds there are also valid reasons to build a new mine. "The problem with using some of the old infrastructure is that you duplicate the inefficiencies of the past mining systems, whereas a new mine can be purpose built for a new approach to the reefs. It can avoid historical water issues and use more modern mining methods." A third model, he says, is when you have extensive infrastructure, multiple shafts and plants but you can then identify secondary reefs which, at lower gold prices, are not viable but which, at current gold prices, are very attractive." "I think we will see an industry that migrates from its current depth to more of a medium depth industry, a bringing to account of a lot of these secondary reefs that have perhaps not been viable under previous gold prices," Froneman adds. "You might have the infrastructure but, if your ore body is running at 2 or 3 grams/tonne the moment you have even the slightest dip in the gold price you are underwater. So, primarily it has to be a good orebody. Just look at the platinum industry, just how much platinum is being produced at a cost higher than the price they are getting for it; it is the same with the gold sector. That is why we don't like marginal mines." "It depends on the asset and the ore body, first and foremost you have to find a good orebody, infrastructure helps but it doesn't wipe out the sins of a bad orebody." It's not inside, it's on top The oldest, still-listed stock on the Johannesburg Stock Exchange started life as Durban Roodepoort Deep and created many of the mine dumps that are now its life blood and, with the sale of the Blyvoorzicht mine to Village Main reef, the group disposed of its last remaining underground operation, to focus all of its attention on surface retreatment operations. Currently Pretorius says, the group can mine a resource as small as 0.22 grams per ton but, the one it is currently processing is between 0.28 and 0.36 grams per ton. He says, "We're mining an ore body that at this stage can be extracted at a cost of between $ 1 000 and 1 100 per ounce. So those are the resources that we're targeting. And at this stage, at the current gold price, those are the ones that come in at about one-third of a gram of gold per ton." But, he says, "what makes it viable, what makes it attractive and slightly less risky and volatile maybe, provided that the gold price stays above those levels is that your capital is spent up front and beyond that point your ongoing capital is relatively modest, so you can tolerate a higher cash cost." Part of the reason, DRDGold is able to re-mine the dumps is that milling and crushing technology has progressed such that they can expose more and more gold to the leeching process. And, Pretorius believes that technology's long march is likely to continue to sustain life on South Africa's reefs both above and below ground, especially if they are planning to go any deeper. "I think the unions are probably faced with the same sort of precarious balancing act that the Department of Mineral Resources has to follow and make no mistake, the unions and the leadership of the unions understand exactly what the commercial dynamics are of this industry." "For the mines to remain open they have to mechanise. I think we'll find that on the public stage they will oppose it vigorously but they know when the writing is on the wall, when people power, muscle power is simply no longer adequate, at a sustainable rate, to get ore out of the ground. They say that more than half of the gold, the original gold resource in South Africa, is still in the ground. People can't go underground four-and-a-half or five kilometres to go and dig it out, it's no longer feasible, it's not doable." But, he says, as long as there remains demand for gold, people will find a way. "Look at places where they pump oil from. Eventually they'll find a way, there's no doubt about that." Nelson, once again is slightly more pessimistic, "Except for one or two of AngloGold's mines and Gold Fields' South Deep operation, if you look at all the other mines they all have a life of mine of between 10 and 15 years and, the last five years probably won't happen so, that tells you most of the sector only has 10 years left unless something happens so that is quite concerning because we are going deeper, costs are going up and mining inflation is going up at 14% every year." Doubtful of going deeper He says while it is great to talk about millions of ounces lying at 4 and 5kms deep, he struggles to believe that we will ever rediscover the financial model with which to fund such a venture. "There is just no one left with the mindset to fund a project for 15 years, to see revenue in year 16 and get financial break even in year 25 except, maybe, in China. No one else, no fund manager, backs a project that doesn't show results next quarter so there is a mismatch between the funding model of the world and building new deep level gold mines in SA." Instead, he says, "I think we can take the existing infrastructure, the depth of infrastructure as a sort of a cut off. It is hard to foresee new tertiary shaft systems actually being put in place... If you take any mine's current deepest point as its cut off, then I think most of these ore bodies are about 75% mined out." That said, he is quick to point out that that should take about 30 years which is more than long enough to see him nicely to retirement, "you youngsters have your own problems."
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Sunday Times
GOLDFINGER: Pan African's Jan Nelson says it is a good time to buy 'Gold deposits are harder to mine and companies are forced to go down deeper for the ore' Most South African gold mines will close in as little as 10 years as deposits run out, said Jan Nelson, head of Pan African Resources. "Except for the big mining companies such as Anglo that still have high-grade deposits and can afford to go deeper and be more automated, gold mining in South Africa will definitely see a significant slowdown within the next 10 years." Gold deposits are getting harder to mine every year and companies are forced to go deeper in search of the ore, while trying to cope with average mining inflation of 14% a year and a challenging union environment, said Nelson. Nelson's strategy is to pick up high-grade assets that can be mined at low costs, which was behind his offer to buy Evander from Harmony Gold CEO Graham Briggs for R1.5-billion. "We have been nagging Graham for this asset for some time and I imagine he agreed because it made sense at a time when Harmony is looking to reduce its footprint in South Africa and develop Wafi Golpu in Papua New Guinea." The Evander mine in Mpumalanga boasts grades of between 8g and 14g a ton and its cash costs are in the lowest quartile. It has five years of life left. "I believe that this is one of the last quality ore bodies left in South Africa," said Nelson. Pan African also owns Barberton Mines, where gold was first produced in South Africa after the discovery of the first gold nugget by Edwin Bray. Barberton Mines have further life of between eight and 12 years. The operations still deliver exceptional grades of above 10g a ton and are in the lowest-cost quartile, with an average cash cost of about $45/oz. Nelson is not bullish on prices, which is why he believes in high-margin operations. "Eventually the gold price will go down or management will get it wrong, which is why it is important to make sure that you manage costs and that you have a good ore body." The Evander acquisition will position Pan African as one of the few mid-tier gold producers in South Africa and could see the company produce more gold than Niël Pretorius's DRDGold. The country's gold industry was dominated by the big mining houses until 1994, when some smaller start-ups came into play. Pan African started out as a "dot-com" company in 2000, named Viking Internet Solutions, which started acquiring mining exploration interests in Ghana, central Africa and Mozambique through a shell company dubbed White Knight. Nelson, who has a background in geology, joined the company about a year after it started exploring the world of mining. Since then, and with the involvement of Metorex chairman Rob Still, the company has sold off its exploration rights and moved into precious metals. Pan African also has a small interest in platinum through its Phoenix operation in North West. Nelson pointed out that even with platinum prices hovering just above $1400/oz Phoenix still makes money as cash costs are only about $340/oz. Nelson said Pan African would be interested in acquiring additional platinum assets, either by itself or through a partnership. "This is a good time to buy and I believe that there is also space for some mid-tier miners in platinum. The big thing is that we are not hung up on being the biggest - it is about being profitable and paying out to investors," said Nelson. The company has a dividend yield of around 3%. Nelson said the biggest threat to the South African mining industry was probably a growing tension between the National Union of Mineworkers and the up-and-coming Association of Mineworkers and Construction Union (Amcu). At Pan African, Amcu was able to gain the support of around 23% of workers at the Barberton operations. Nelson said Amcu's growing prominence promised to change the union landscape.
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MiningMX.com PAN African Resources will not dilute existing shareholders by more than 10% should it pursue a rights issue to help fund the R1.5bn acquisition of Evander from Harmony Gold. This would place the upper limit of an equity placement at around R280m in generated funds. Jan Nelson, Pan African’s CEO, told analysts and journalists on Thursday the company has not yet decided exactly how much money it would need from an equity placement. This came after the company said on Wednesday it would acquire Evander on its own after an initial joint attempt with Witwatersrand Consolidated Gold, for R1.7bn, failed to materialise. Around R500m of the R1.5bn purchase price would be funded by debt finance, ring- fenced to Evander with a requirement to hedge no more than 25% of the mine’s production. Another R500m would be paid for from the company’s current R250m cash pile, as well as income generated from existing operations until the October 31 closing date of the transaction. Importantly, all cash and profits generated by Evander from April 1 are for the benefit of Pan African, a figure which Nelson estimated would be in the region of between R200m and R250m. The remaining R500m would be generated from the sales of non-core assets, including the previously announced spin-off of the Manica Gold project in Mozambique, in addition to the rights issue. Nelson said the separate listing of Manica should be completed in the next two months. “It has taken us longer than we thought because the market is not that favourable,” Nelson said. “Still, we’re planning to get it away in the next two months.” While market conditions were counting against a listing of Manica, Nelson said the same wouldn’t apply to an equity placement for Pan African. “It is difficult if you want to list an exploration asset,” he said. “Evander is cash generating and highly value accretive. It totally changes the company. “If we do an equity raising it will be a rights issues for all our shareholders to take part in,” Nelson said, adding that non-participating shareholders would not be diluted by more than 10%. The company has a current market capitalisation of R2.87bn.
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MoneyWeb.co.za This interview is available as an MP3 audio file here. [3.2MB] HILTON TARRANT: Jan Nelson is chief executive of Pan African Resources. Jan, we spoke at the time, exactly four months ago, and you told us you’d been trying for the past three years to prise Evander out of Harmony’s hands. Last night an update, an announcement that you will acquire 100% of Evander gold Mines Limited from Harmony. Now, if we rewind four months, you were going to do this together with Wits Gold. Clearly you really, really wanted this. You are going at it alone? JAN NELSON: Yes, that’s absolutely right. It's an extremely high-grade, high-margin asset, generating over R500m in free cash flows, and it's got significant growth potential, a good management team. So those are the metrics we like. And that’s why we continue to pursue it. HILTON TARRANT: Let’s talk about the price. At the end of January the amount signalled to the market was R1.7bn. Yesterday’s announcement now puts the final price firmly at R1.5bn. What's responsible for that R200m swing? JAN NELSON: I think one if the things is that when we resubmitted our offer what was important I think from Harmony’s perspective was obviously they wanted the best price for the best deal certainty. And we've totally changed the structure of the offer. We thought that the R200m of agterskot payment, as it is called, made the whole process very tricky, also in terms of the debt that you would put on the asset. It made it very difficult for people to understand shareholders to understand – are you going to pay it, are you not going to pay it? So we proposed a totally new structure that’s very clean – R1.5bn. The first deposit of R1bn is payable to Harmony at 1 October – and that’s irrespective of whether Section 11 DMR consent has come through – and then the balance when Section 11 DMR comes through. And I think based on that the execution is faster and there’s very good certainty due to the fact that we are also getting irrevocables from 50% of our shareholders by the end of July. I think that is what made it more attractive for Harmony, even if that R200m is off in terms of the previous offer. HILTON TARRANT: You mentioned the shareholder approval there – what is the level that you need to be at for this deal to go through? JAN NELSON: Well, we need 75% of our shareholders to approve the transaction, and so by the end of July we want to get at least 50% of our major institutional shareholders to vote in favour. And then we will go round and also try and get more irrevocables from our smaller shareholders. HILTON TARRANT: Jan, you took us through the restructuring of the deal, which did change the price from R1.7bn to R1.5bn. How are you going to fund this now, given that you are doing this alone without the participation of Wits Gold? JAN NELSON: Well, first of all, we are going to put about R500m of debt on the Evander asset, and that will be ring-fenced on Evander. We already have firm term sheets from the bank on that, so that will take the price down to R1bn. Also remember that in the previous transaction all the profits would accrue to the consortium from 1 April; all the profits that Evander generates until closing, which we think will happen in October, come to us, and we believe that will reduce the purchase price by a further R250m. |
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Business Report JUNIOR gold mining companies had outperformed their counterparts at the top of the sector not only because they were “flexible”, but they were also easier to manage, Peter Major of Cadiz Corporate Solutions said last week. The junior mining houses had turned the corner from their disappointing showing a few years ago “because the little gold companies are cutting costs better”, he added. Last week DRDGold, which now focuses on the treatment of surface dumps, reported cash equivalents of R380 million at the end of the quarter to March. It also posted a 3 percent increase in production at its newly consolidated Ergo and Crown surface retreatment operations. Percy Takunda, an analyst at Imara SP Reid, said juniors were expected to outperform major firms this year. “Since January, DRDGold and Pan African Resources (share prices) have outperformed the majors. DRDGold still looks cheaper and is generating impressive cash flows while Pan African continues to do well. Both are paying better dividend yields than the majors.” But there were high risks for small groups, such as the performance of the gold price. “Pamodzi Gold would still be in operation today under the robust gold price environment,” he said. Pamodzi Gold’s assets at the Grootvlei and Orkney mines were liquidated in 2009. Subsequently, controversial junior gold company Aurora Empowerment Systems, whose directors included Khulubuse Zuma, Zondwa Mandela, and businessman Michael Hulley, became the preferred bidders for the assets in 2009. At the time the mines were fully operational, but Aurora failed to keep the mines running. Pan African, which is listed in London and Johannesburg and produces 100 000 ounces of gold a year, is a shining example of a well-performing junior mining house. “The management team at Pan African not only dealt with the problem of illegal mining, but it rationalised the company’s assets and the company (now) produces higher grades,” Takunda said. Pan African, with its partner Wits Gold, recently bought Harmony Gold’s Evander mine in the Free State for R1.7 billion. Pan African has focused on pursuing a low-cash-cost operating culture to exploit significant margins and mitigate the risk of a commodity price downturn. “At Pan African’s Barberton mine, total cash costs are less than $800 (R6 200) an ounce, making it one of the lowest-cost underground gold mines in South Africa,” the company said. |
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