Numis Securities remains upbeat on Pan African Resources PLC (LON:PAF) following positive news earlier this week on the group’s plans to build a new tailings plant at Elikhulu.
After a definitive feasibility study confirmed it was viable, Pan African announced on Monday that Elikhulu will be built on the site of the existing Evander mine.
In a note to clients, published today, Numis analysts said although Elikhulu is “relatively modest in scale” it carries on Pan African's “hitherto successful approach of developing low technical risk tailings re-treatment projects.”
READ: Pan African to open new tailings plant
They added that “that at a group level should smooth out the more variable production from Evander and Barberton mines.”
Pan African said the Elikhulu project can add 56,000 ounces per year or 25% to its annual gold production over eight years with the potential for this to rise to thirteen years.
First gold may come as soon as the first quarter of 2018 if construction gets underway in January with the plant set to be up and running fully by the end of that year.
Upfront capital costs are estimated at R1.74 billion (US$120mln) with the project forecast to return 23.1% at a gold price of US$1180/oz.
The Numis analysts pointed out that the positive feasibility study offset the negative news of a reduction by Pan African of its full-year 2017 guidance.
They said: “We have increased our NAV by 7.5% to US$838 million following the inclusion of Elikhulu but have decreased our 2017E EPS from 3.87p/share to 2.76p/share to take account of the production downgrade.”
Numis repeated a ‘buy’ recommendation on Pan African shares with a target price of 35p. Pan African shares held steady at 16.75p today.
Topping and tailing
Cobus Loots, Pan African’s chief executive, said on Monday that low cost tailings plants have become an important business for Pan African.
Pan African is already making good money out of tailings from the Evander and Barberton mines, Coots added, and it will use experience gained here on the new plant.
However, separately, Loots said production in the first of the current year had been disappointing and affected by operational problems and the difficult environment in South African mining at present.
Overall, Pan African has trimmed its gold output forecast for the current year to 195,000 ounces from 200,000 ounces with the second half to be the stronger of the two.