Pan African Resources: Gold and platinum pioneers

Production, project development, exploration and a dividend too. It doesn't get much better than that in the world of the junior miner. 

From zero revenues just four years ago, Pan African Resources (LON:PAF, JSE:PAN) turned in gross revenue of almost £80 million in the year ending June 2011, giving them attributable earnings of over £17 million, and headline earnings of 1.2p per share enabling a dividend of over a ha'penny a share. 

The catalyst for the change was the acquisition via a reverse takeover - completed in July 2007 - of a 74% interest in the Barberton Mines, previously owned by Metorex.

Two years later, Pan African's black empowerment partner, Shanduka Resources, exchanged its 26% direct holding in the Barberton mine complex for a 21% slice of Pan African's share capital, and Pan African acquired the 100% interest it still holds today.  

Shanduka then bought an additional 5% of Pan African’s share capital, taking its total holding in the Company to 26%.

The Barberton Mines comprise Sheba, Fairview and New Consort, and are located in sediments and metavolcanics comprising part of the well-understood Barberton Greenstone Belt in Mpumalanga province in South Africa, 300km east of Johannesburg. Discovered back in the 1870s, the mines have produced gold more or less continuously ever since. Although the steeply dipping underground orebodies at all three mines are relatively small, grades are high, and the mines still have an average forecast life of well over 15 years, based on a reserve report which was upgraded by 51% earlier this year. 

The total current resource at Barberton is 2.7 million ounces at 6.64 g/t, of which 2.050 million ounces is in the measured and indicated categories.

Well over half of these 2.7 million ounces - located in the Fairview mine - report double figure grades of up to 14.28 g/t. On the reserve front, a further million ounces is in the Proven and Probable categories, grading from 5 g/t in the Sheba orebody to 13.35 g/t in the Fairview mine.

Underground exploration and development regularly turns up bonanza grades of up to 225 g/t over short intervals of 2-3 metres in all three orebodies. 

Little wonder, then, that the mines last year - in spite of strike action and some precautionary shut downs to correct poor rockwall conditions in the most productive section of the Fairview mine - produced over 92k ounces of gold at a cash cost of $781 per ounce, which was sold on average for $1,366 per ounce.

The rising gold price has opened up still further the revenue vs. costs gap during 2011, in spite of a significant increase in cash costs over the previous period. 

One unusual aspect of the Barberton operation is the processing technology in use.

The underground orebodies are largely refractory sulphides, which traditionally present recovery problems, as it is difficult to liberate the gold from the sulphide matrices within the ore.

There are several successful pre-processing techniques to overcome this, but at Barberton, the BIOX (Biological Oxidation) bacteriological oxidation process developed by Gold Fields is in use, before the ore passes through a standard CIL process.

In fact, Barberton Mines is often referred to as the birthplace of BIOX, which is an environmentally friendly process of releasing the gold from the sulphide that surrounds it, using organisms that perform this process naturally. 

Concentrates from all three underground mining operations are run through the BIOX® plant and currently recoveries of up to around 98% of the contained gold are being achieved, leading to overall recoveries in the region of 91%.  

As with all well-established mines, in-mine and on-mine exploration is a permanent feature of the annual work programme, and Pan African drove a further 7km of development during the year, aimed at opening up new mining targets and improving access and underground productivity.

Above ground, further progress was made on the evaluation of the Bramber tailings retreatment project, which will exploit tailings from the Fairview mine, and will utilise a stand-alone process plant.

Already mined and milled, the tailings are a low-cost, at-surface project, with a measured and indicated resource of 147,500oz (3.128Mt @ 1.47g/t in situ) and a proved and probable reserve of 76,000oz (3.128Mt @ 0.76g/t based on tested CIL recoveries of 52%). The design contract has been awarded, and construction is expected to commence in January next year, with first gold production approximately 12 months later.

An initial mine life of 3 years is anticipated, but with several more Barberton  dumps in the immediate vicinity, the capital cost of £22.5 million should see a healthy return and a growing low-cost production profile in future years.  

This focus on growing shallow low-cost resources - which can be brought swiftly to account - is further illustrated by the exploratory work planned for the current financial year to the south of the Fairview mine, where a geophysical survey has delineated near-surface mineralisation with a potential footprint equal in size to the current mined areas of Fairview.

Given that Fairview has produced more than 4 million ounces in its life, that target certainly deserves the drilling it will shortly receive!  

A further project rapidly nearing fruition is one which represents a departure from Pan African’s gold-focused operations: the wholly-owned Phoenix Platinum project.

Located on the southern portion of the Western Limb of the Bushveld Igneous Complex, Phoenix owns the rights to exploit tailings and some current arisings from the mining of the Middle and Lower Group chromite reefs which lie beneath the main PGM-bearing reefs – the Merensky and UG2 – and which also carry significant grades of platinum.

Whilst the on-reef PGM grades are not high enough in the MG and LG reefs to mine economically on a stand-alone basis, once the ore has been processed and the main payable metal – chrome – removed, the resulting tailings carry a concentrated PGM grade which makes them very a worthwhile PGM resource.

Total resources spread over Phoenix’s three tailings locations are 4,646,000 tonnes at an average grade of 3.15g/t for 469,000 ounces of PGM 4E – platinum, palladium, rhodium and gold.  

The recoverable proven and probable reserve element is some 210k ounces, giving an initial life for the project of around 17-20 years. Analysis demonstrates a prill split heavily weighted in favour of platinum, which accounts for 60% of the metal content, and will improve the “basket price” that the concentrate can command. 

The project will comprise a 240,000 tpa Chrome Tailings Retreatment Plant, to be built at the Lesedi Mine operated by International Ferro Metals, which will generate PGM concentrates from chrome tailings at three locations where Phoenix has acquired exploitation rights: the IFM Tailings Dams and Current Arisings, located on the farm Buffelsfontein; the Elandskraal Dumps and Pits, and the Kroondal dump.  

The retreatment of chromite mine tailings for the extraction of the contained PGMs is well understood in the region, and is currently being undertaken by a consortium of platinum companies, including Sylvania Platinum and Aquarius Platinum, whose CTRP is based at Kroondal and has provided a useful knowledge base for the development of the highly-efficient Phoenix plant. 

Processing is simple, and is akin to that used by the platinum miners – initial washing and grinding followed by rougher flotation and three cleaning stages to produce a clean PGM concentrate which can then be sold to a smelter/refinery where further processing will isolate the constituent metals.

Pan African are currently negotiating an offtake agreement with one of the major miners who also operate smelters – the most likely candidates being Anglo Platinum or Impala Platinum. 

The capital expenditure requirement for the CTRP is low at only £8.5 million, and it’s expected that cash operating costs will be approximately $400 per ounce of 4E in concentrate before smelting and refining costs are taken into account.

Plant construction is well underway, stockpiling of re-mined tailings feedstock has begun, and the first concentrate is expected to be shipped ahead of schedule, by the end of December 2011.

In the meantime, Phoenix will be seeking to expand their chrome tailings resource base by acquiring further rights, with the aim of increasing production and generating further additions to the Pan African Group’s bottom line.

Which will make Pan African the first mid-tier miner in South Africa to be profitably producing both gold and platinum. Unusual to say the least, as the two metals do not coexist – other than in very small amounts – and the geographical location, the geological setting and the techniques for mining and processing are all very different from each other!

This is not lost on the market, as unlike many junior producers, Pan African have been able to keep Barberton running consistently and are steadily exploiting further resources of precious metals – which means their share price chart over the last few years is refreshing to observe!  

Even the last few months of roller-coaster rides for the sector have failed to make too much of a dent, and with a p/e of less than 10, and two more projects nearing completion which will contribute to group profits and ensure that dividend, Pan African Resources still (surely) has a way to go.