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Pan African Resources PLC well established as mid-tier producer

Pan African Resources has built a solid and stable mid-tier gold producer on the back of two key assets in South Africa
Pan African Resources PLC well established as mid-tier producer
Gold production is running at over 200,000 ounces per year

It’s more than a decade now since Pan African Resources PLC (LON:PAF) listed on Aim as a virtual cash shell with an interest in Mozambican refractory gold.

The business has changed markedly since then.

Several deals later and the company is firmly ensconced in the ranks of the mid-tier gold producers, having produced at or around the 200,000 ounces mark for the past few years.

The company’s production is split fairly evenly between two main operations in South Africa, the Evander mine, which used to be owned by Harmony Gold (JSE:HAR), and the Barberton mines, which are some of the oldest and most historic gold mines in the country.

The latest numbers show that together the mines continue to produce at around an annualised 200,000 ounces per year at all-in sustaining costs of US$908 per ounce, which stacks up well against an average gold price received of US$1,110 per ounce.

Head grades at Evander ran at 5.8 grams of gold per tonne, while head grade at Barberton ran at 10.9 grams per tonne.

Evander has also been the subject of expansion, as a new tailings re-treatment facility came on stream and contributed 3,708 ounces of gold during its first six months of production. But what was especially nice was that recoveries came in much higher than expected, at 49% as against the 42% that had been anticipated.

For its part, Barberton remains a central pillar of the company, with twenty years’ worth of reserves still ahead of it. Barberton was acquired when Pan African bought Metorex back in 2007, at which time it was averaging production of around 100,000 ounces per year.

Pan African initially acquired a 74 per cent stake in Barberton, to comply with South Africa’s Black Economic Empowerment laws.

But Metorex’s black economic empowerment partner at the time, Shanduka, remains to this day Pan African’s black empowerment partner.

And the strength of the relationship that was created back then is clear from more recent developments: the current Pan African chief executive Cobus Loots is drawn from Shanduka’s ranks.

Even more recently still, Pan African agreed to acquire a stake in Shanduka itself.

This cross-holding arrangement is somewhat unusual but it speaks of a company that is at ease with its social and commercial responsibilities and more than able to combine the two into a workable solution, in what is not always an easy political environment.

Workers at both Barberton and Evander are unionised but haven’t shown a greater tendency to industrial action than any other workers in the sector, and Cobus Loots has worked hard to ensure that Pan African enjoys relatively stable industrial relations.

The company also has a platinum tailings re-treatment operation at Phoenix, in close proximity to a chrome mine controlled by International Ferro Metals Limited (LON:IFL).

This is a smaller scale operation that is designed to produce 211,000 ounces over a 17 year life, but which has been held back somewhat by recent weakness in platinum and platinum group metals prices.

Platinum now looks like it might be about to turn around and start to follow the upward trajectory that gold has set since the beginning of 2016. If that turns out to be the case then Phoenix will at last come into its own and add significant cashflow and value to the company.


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