Pan African's CEO Nelson expects security costs to fall significantly

Security costs are set to fall significantly at Pan African Resources (LON:PAF) in the coming year, according to chief executive Jan Nelson who also revealed the Fairview Tailings Project could add a further 25,000 low cost ounces of gold to the production.

Fairview is part of the historic Barberton Mine complex in South Africa, which is on target to churn out around 100,000 ounces of the precious metal this financial year.

However it has also been the subject of illegal mining. While a clampdown has eradicated the problem, this has come at a cost.

In the first half Pan African shelled out 18.2 million rand, which is expected to rise to around 35 million rand for the 12 months.

However, the figure is expected to drop to around 20 million on annualised basis going forward, Nelson pledged.
All of this should contribute to taking the cash cost of extracting the gold below the target 165,000 rand per kilogram. Indeed in the second quarter of PAF’s financial year, the cash cost was 157,000 rand.

“We are not going to drop the ball on this but we don’t need to spend the capital we have been spending (on security),” Nelson said.

He was speaking after a set of solid interim results, which showed the group had been tenacious in tackling costs.
The results are a good pointer to the group paying a dividend at the full-year, Nelson said.

Turning to Fairview, the chief executive has been heartened by progress in turning the tailings into a commercially viable project.

“If it is viable this could improve Barberton’s production by 25,000 ounces per annum within the next year for very little capital costs to us,” the Pan African CEO said.

“We wouldn’t need to come to the market. This is a very exciting project at Barberton. This is what our new business team together with mine management is focusing on.

“We believe there are more dumps in the area we can consolidate to get us to about six million tonnes.  So we could see a life here of six years at one million tonnes a year.”

Nelson said the group was also looking to expand by acquiring projects, though the focus is narrowing somewhat to just one country – South Africa. However the Pan African team will look at precious metals opportunities, rather than just gold. 

“We have refocused ourselves in terms of South Africa,” Nelson added.

“We see wonderful opportunities in South Africa. We have infrastructure here. If you want to build a mine, South Africa is the place to be.

“We are seeing a lot of opportunities opening up.....We are precious metals focused. Phoenix opened the door for us....our focus will remain gold and platinum.”

Phoenix is a platinum project in South Africa’s Northwest Province. Nelson revealed today it is on schedule to go into production in September, hitting full production in January next year. Crucially, the capital costs are likely to be below budget.

Finally at Manica in Mozambique the company has completed a pre-feasibility study on the first phase, while a PFS on the underground will be completed “in the next three months”, Nelson added.

Earlier Pan African posted a strong rise in first half earnings despite a sharp hike in its cost base.

The company unveiled attributable profit of £7.58 million, a rise of 70 per cent on the year earlier, as sales advanced by almost a third to £38.33 million.

The company’s financial progress was underpinned by the soar-away value of gold with the spot price received rising to US$1,286 an ounce from US$1,032. Production of the precious metal, meanwhile, advanced 1.5 per cent to 46,655 ounces as it was hit by strike action.

PAF is a rare commodity in the world of gold mining having been one of the few to make the transformation from promising explorer to cash generating producer.

It is the culmination of several years of drilling at the company’s Barberton Mines in South Africa.