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Pan African Resources plc: THE INVESTMENT CASE

Gold miner Pan African Resources to raise US$120mln in equity and debt to fast-track tailngs project

Pan African hopes to be in production at Elikhulu in the final quarter of next year.
The first gold should be poured late next year

Gold miner Pan African Resources plc (LON:PAF) today said it is raising US$123mln via an issue of equity and debt to fast-track the build of the Elikhulu Tailings Project in South Africa.

The company confirmed late on that it had successfully raised US$51mln of that total via a placing of around 291mln new ordinary shares at 14p each, a modest discount to last night’s closing price. In late afternoon trading, the shares were around 3%, or 0.5p lower at 15.5p.

In a statement confirming the placing success, Cobus Loots, Pan African’s chief executive officer, said: “We are grateful for the support we have received from new and existing investors for the Placing.

“The Elikhulu project is expected to deliver a robust return on investment and diversify the Company’s production portfolio.”

WATCH: Pan African boss on "very attractive" Elikhulu project ...

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Aside from the placing cash Pan African said it has also agreed in principle a US$72mln, seven-year debt facility with Rand Merchant Bank.

The US$120mln development, near its Evander operation in Mpumalanga province, will produce 56,000 ounces of gold a year in the first eight years and 45,000 a year for remaining five.

The yellow metal will be mined at an all-in sustaining cost of US$523 an ounce – which puts on the very bottom of the international cost curve.

Key milestone 

Pan African hopes to be in production at Elikhulu in the final quarter of next year.

“The completion of the proposed equity portion of the Elikhulu funding package and subsequent construction of the project will represent another key milestone for the group,” said chief executive Cobus Loots.

“Elikhulu is expected to deliver low-risk and low-cost gold production within a relatively short timeframe. 

“This initiative, together with our recently announced coal disposal, is consistent with our strategy of pursuing and executing value accretive opportunities both within and outside of South Africa.” 

Mineral estimate

The mineral resource estimated to be contained over three dumps is put at 1.8mln ounces in the ‘indicated’ category, with another 244,000 ounces inferred.

A definitive feasibility study Elikhulu came up with a net present value for the project of just under US$76mln at 9% discount rate and a gold price of US$1,180 an ounce. The post tax internal rate of return is put at 34.3%.   

At 11.25am, Pan African shares were down 5% at 15.25p.

Two pillars

The company’s current production is split fairly evenly between two main operations; 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 despite disruptions at Evander and Barberton hitting production slightly, the two projects are still on track to produce an annualised 180,000oz or so of gold for the full-year.

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.

Platinum an extra kicker

The company also has a platinum tailings re-treatment operation at Phoenix, in close proximity to a chrome mine controlled by the struggling 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 weakness in platinum and platinum group metals prices over the past couple of years.

Platinum has been on a rally recently though, with prices adding more than 20% over the past 12 months or so to around US1,000 per ounce. At one point last summer, that price was up to the US$1,100 level.

As Pan African often tells investors, gold is the group’s key focus, but having a platinum side project that helps to boost the coffers is an added bonus.

 -- Updates with placing results --

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