Pan African Resources PLC Elikhulu Project

 
TIDMPAF 
 
Pan African Resources PLC 
 
            (Incorporated and registered in England and Wales under 
 
    Companies Act 1985 with registered number 3937466 on 25 February 2000) 
 
                                 AIM Code: PAF 
 
                                 JSE Code: PAN 
 
                              ISIN: GB0004300496 
 
                          ("Pan African" or "Group") 
 
 RESULTS OF DEFINITIVE FEASIBILITY STUDY FOR THE ELIKHULU TAILINGS PROJECT AND 
                            GROUP PRODUCTION UPDATE 
 
Pan African is pleased to announce positive results for the independent 
Definitive Feasibility Study ("DFS") for its Elikhulu Tailings Project 
("Elikhulu" or "the Project").  The Pan African board of directors ("Board") 
has approved the construction of the Project, subject to finalisation of the 
Project financing package. 
 
The Project DFS results indicate excellent recovered grades and gold 
production, attractive financial returns and a low execution risk, with the DFS 
results surpassing expectations of previous technical and financial assessments 
of the Project.  The DFS was undertaken by DRA Projects SA Proprietary Limited 
who has reviewed and approved the information contained in this announcement in 
writing. 
 
DFS highlights and key assumptions 
 
  * The planned commencement date of the Project is January 2017, with first 
    gold forecast for the final quarter of the 2018 calendar year and full 
    commissioning in December 2018. 
 
  * Annual recoverable gold production of approximately 56,000 ounces for its 
    initial eight years of operations and 45,000 ounces of gold for the 
    remaining five years thereafter. 
 
  * Current arisings and inferred gold resource could extend Project life 
    beyond the DFS estimated life of 13 years. 
 
  * Optimal plant capacity for the Project allows 12-million tonnes per annum 
    throughput. 
 
  * The Project is expected to add approximately 25% to the Group's current 
    production profile and reduce the Group's all-in sustaining cost ("AISC") 
    profile. 
 
  * Initial capital cost is forecast at approximately R1.74 billion (US$119.9 
    million). 
 
  * The Project internal rate of return ("IRR") (real, post-tax) of 23.1% 
    (30.6% nominal) with a payback period of less than four years, based on 
    assumed gold price of US$1180/oz (R17,110/oz). 
 
  * Return on equity (real, post-tax) of 34.3% (42.5% nominal) 
 
  * Project net present value ("NPV") of R1.1bn (US$75.9 million). 
 
  * AISC of US$523/oz over the life of the Project. 
 
  * Cash outflow per ounce over the life of the operation is sub $650/oz, 
    inclusive of debt servicing, and amounts to approximately $805/oz, 
    inclusive of debt servicing, over the five year debt redemption term. 
 
  * Average gold recovery rate over the life of the Project of 47.77%. 
 
  * Environmental Impact Assessment ("EIA") and Water Usage Licence ("WULA") 
    processes are underway, with both approvals expected by late 2017. 
 
    DFS economic assumptions: 
 
  * Gold price assumption: US$1,180/oz. 
  * Rand/US Dollar exchange rate:  ZAR/US$:14.50. 
  * NPV discount rate: 9% real. 
  * Debt to equity ratio: 115%, debt to total capital ratio of 53%. 
  * Long term South African inflation rate of 6.1%. 
 
Return on investment 
 
Pan African endeavours to invest only in projects positioned in the lower half 
of the cost curve, and only when the project execution and construction risk is 
within Pan African's capability.  The experience gained in the construction and 
operation of the Barberton Tailings Retreatment Plant ("BTRP") and the Evander 
Tailings Retreatment Plant ("ETRP") positions Pan African to successfully 
execute the construction and operation of the Elikhulu project. The Board is 
satisfied that the Project meets the Group's investment criteria and that the 
Group's track record of successfully operating three tailings plants, all of 
which were constructed on time and on budget, will be invaluable in the 
construction and operation of the Elikhulu Project. 
 
Project funding 
 
Pan African funds its capital programmes and acquisitions with conservative 
debt levels that are appropriate for the specific project, and the Group's 
overall level indebtedness. The Project's execution and operational risk is 
deemed to be low, and the robust nature of the Project's cash flow generation 
allows for a relatively high level of debt funding. 
 
Rand Merchant Bank, a division of First Rand Bank Limited, has provided Pan 
African with all necessary approvals for a R1bn underwritten five-year debt 
facility on competitive terms ("RMB Facility"). This facility will be dedicated 
to the funding of the Project's development and will be repaid from the 
Project's cash flows, generated during the initial five years of production. 
This facility is in addition to the Group's current Revolving Credit Facility 
("RCF") of R800 million (US$55.2 million), which can be extended to R1.1 
billion (US$75.9 million), conditional on approval from the RCF lenders. 
 
The Group is evaluating a number of funding proposals to fund the balance of 
the initial Project capital and, given its strong financial position and access 
to debt facilities, does not foresee difficulty in securing the balance of the 
funding on competitive terms. 
 
The RMB Facility's repayment profile is matched to the Project's cash flow 
generation and is not expected to impact Pan African's existing dividend 
policy, which provides for a pay-out ratio of 40% of annual free cash flow. 
 
Cobus Loots, Pan African's CEO, said: 
 
"We are pleased to announce the positive findings of the independent Definitive 
Feasibility Study.  Operating low cost tailings plants has become an important 
business for Pan African in recent years, and we now intend to proceed with 
construction of the Elikhulu tailings retreatment project. This project is 
expected to materially enhance our Group's production profile and support Pan 
African's continued focus on low-cost, high-margin gold ounces. The substantial 
capital investment required demonstrates our commitment to the South African 
mineral sector and our shared responsibility of creating employment and 
alleviating poverty in the Evander community. 
 
Our primary consideration in any capital allocation decision is our ability to 
successfully execute the designated project and to generate the required 
returns over the investment horizon. The attractive returns already being 
earned on the capital invested in the BTRP and ETRP bear testimony to our 
previous success and will serve as invaluable experience in completing the 
Project. 
 
Elikhulu is expected to firmly establish Pan African as a leader in long-life, 
low-cost tailings retreatment, and possibly unlock other opportunities in the 
sector.  We expect the Project to reduce the Group and Evander cost profiles 
and generate robust cash flows and attractive returns for our shareholders." 
 
Scope of the project 
 
The Project entails establishing facilities and infrastructure at Evander Gold 
Mining (Proprietary) Limited ("Evander"), owned and operated by Pan African, to 
retreat gold plant tailings at a rate of 1-million tonnes per month. This is in 
addition to the existing production from the ETRP which will continue to 
operate independently of the Project for the next 13 years. Three existing 
tailings storage facilities will be reclaimed, in the following order: Kinross, 
Leslie and Winkelhaak. Post processing, these will be consolidated into a 
single enlarged Kinross tailings facility, contributing to reducing Evander's 
environmental footprint and associated environmental impact. 
 
The Project is expected to yield approximately 56,000oz of gold per annum for 
the initial eight years of production (while treating the Kinross and Leslie 
tailings storage facilities), and then approximately 45,000oz a year for the 
Project's remaining five years from processing the Winkelhaak tailings storage 
facility. These production figures exclude an inferred resource of 244,398oz of 
gold delineated in the soil material beneath the existing tailing dumps. 
 
The average gold recovery over the life of the project is forecast at 47.77%. 
Using modelled recoveries, the gold dissolution value estimated for Kinross is 
51.38%, Leslie 48.29% and Winkelhaak 53.77%. 
 
Project capital: 
 
                      Construction capital            Construction capital           Life of 
                                                                                    operation 
 
                             Phase 1                 Phase 2         Phase 3       All Phases 
 
                      2017            2018            2021            2026            Total 
 
                    R      US$      R      US$      R      US$      R      US$      R      US$ 
                 million million million million million million Million million million million 
 
Pre-construction  24.5     1.7      -       -       -       -       -       -     24.5     1.7 
 
Process plant     273.3   18.8    409.9   28.3      -       -       -       -     683.2   47.1 
 
Tailings storage  283.1   19.5    424.7   29.3    138.4    9.5      -       -     846.2   58.3 
facility 
 
Overland piping   30.3     2.1    45.5     3.1    29.8     2.1    48.0     3.3    153.6   10.6 
 
Hydraulic mining  22.6     1.6    34.0     2.3    125.9    8.7    58.4     4.0    240.9   16.6 
 
Contingency       94.7     6.5    96.5     6.7    19.0     1.3     6.6     0.5    216.8   15.0 
 
Total             728.5   50.2   1,010.6  69.7    313.1   21.6    113.0    7.8   2,165.2  149.3 
 
Phase 1 capital relates to the initial capital required to construct the plant 
and associated infrastructure. This capital of R1.74 billion (US$119.9 million) 
includes a contingency of R191.2 million (US$13.2 million) to account for 
potential cost overruns and additional plant design requirements. 
 
Phase 2 and 3 capital of R313.1 million (US$21.6 million) and R113.0 million 
(US$7.8 million), respectively, which is required to re-establish the 

hydro-mining infrastructure to the Leslie and Winkelhaak tailing dumps, will be 
funded from Project-generated cash flows. 
 
Mineral reserve estimate 
 
Tailings         Probable reserve  Probable reserve  Probable Au 
facility         tonnes (M)        grade (g/t)       content (Moz) 
 
Kinross                47.0              0.31              0.47 
 
Leslie                 70.1              0.32              0.71 
 
Winkelhaak             70.0              0.24              0.55 
 
Total                  187.1             0.29              1.73 
 
The mineral reserve estimate is a probable 187.1Mt and comprises the Kinross 
(47.0Mt), Leslie (70.1Mt) and Winkelhaak (70Mt) tailings storage facilities at 
Evander. The combined 187.1Mt will provide feed material to the existing ETRP 
at 200,000 tonnes per month, and to the Project process plant at a rate of 
1-million tonnes per month (of which 40,000 tonnes per month will be from 
run-of-mine tailings). 
 
The combined mineral reserve contains an estimated 1.73Moz of gold of which an 
estimated 688,700oz of gold will be recovered over the life of the Project. 
This estimate excludes the inferred resource 244,398oz of gold leached into the 
soil beneath the existing tailing dumps, which could potentially increase the 
Project life. 
 
The mineral reserve estimate assumes a non-selective mining method whereby the 
whole of mineral deposit is mined in a predetermined sequence. The mining 
method allows for a 100% extraction of the target mineral deposit. Hydraulic 
mining has been selected as the preferred mining method as it is proven 
technology, cost effective and operationally well understood. 
 
Competent person 
 
Mr Barry Naicker, the group mineral resource manager, has signed-off the 
mineral reserve information contained in this announcement, following his 
review and approval. He is a member of the South African Council for Scientific 
Professions (400234/10). Mr Naicker has 15 years of experience in economic 
geology and mineral resource management. He is based at 1st Floor, The Firs, 
corner Cradock and Biermann Avenues, Rosebank 2196, Gauteng. 
 
Timeline to production 
 
Phase 1 of the hydraulic mining at the Kinross tailings storage facility is 
scheduled to commence in the fourth calendar quarter of 2018 and for the 
Project to reach full commercial production December of that year. Phase 2 at 
the Leslie tailings storage facility is scheduled for the end of the third 
quarter of 2021 and Phase 3 at Winkelhaak in the third calendar quarter of 
2026. 
 
Cost profile 
 
The Project is expected to be a low cost producer with a cash cost of US$440/oz 
and an AISC of US$523/oz over the life of the Project. Cash costs for Phase 1 
are however lower at US$398/oz, due to the lower re-mining costs of the Kinross 
tailings dump. The Phase 2 and 3 cash costs are expected to be US$448/oz and 
US$504/oz, respectively. 
 
Environmental impact 
 
The EIA process for the Project is underway and Department of Mineral 
Resources' ("DMR") approval is expected to be granted by late 2017. The WULA 
process has also commenced with Department of Water Affairs' approval expected 
in late 2017. Water will be sourced from the existing Evander underground 
workings and the Leeuwpan evaporation dam, which is owned and operated by 
Evander. The Leeuwpan dam is situated approximately 10km south west of the 
Kinross tailings storage facility and, based on the Project's overall water 
balance, there is sufficient water to support the Project through its life. 
 
Financial evaluation 
 
The project benefits from a short commissioning period and is highly cash 
generative from inception, which enables the Project to be funded with a 
relatively high level of gearing.  The Project's all-in cash outflow per ounce, 
inclusive of debt instalments, is US$636 per ounce over the life of operation, 
and US$805 per ounce during the 5 year debt redemption period, which 
illustrates the economic robust nature of the Project. With a real IRR of 23.1% 
(nominal 30.6%), and a payback period of less than four years, the project 
generates distributable cash flow from inception and should enhance Pan 
African's ability to continue declaring sector leading dividends to 
shareholders. 
 
The Project's estimated real post tax cash flows and pre-debt instalments, over 
the initial four years of production are illustrated hereunder: 
 
              Dec-19          Dec-20          Dec-21          Dec-22 
 
             R      US$      R      US$      R      US$      R      US$ 
          million million million million million million million million 
 
Revenue   1,062.0    73.2 1,032.0    71.2   982.0    67.7   978.0    67.4 
 
Operating (333.0)  (23.0) (336.0)  (23.2) (339.0)  (23.4) (337.0)  (23.2) 
costs 
 
Capital    (64.0)   (4.4) (169.0)  (11.7) (273.0)  (18.8)  (64.0)   (4.4) 
costs 
 
Taxation    (1.0)   (0.1)   (1.0)   (0.1)  (47.0)   (3.2) (176.0)  (12.1) 
and 
royalties 
 
Post tax    664.0    45.7   526.0    36.2   323.0    22.3   401.0    27.7 
cash 
flows 
 
Further information on the Project 
 
A presentation with further Project detail is available on the Pan African 
website (www.panafricanresources.com). The complete DFS is also available for 
review at Pan African's corporate office. 
 
PRODUCTION UPDATE 
 
Interim            Mining and tailings operations 
Period 
ending       Barberton   Evander  Uitkomst     Phoenix 
31 December  Mines and  Mines and Colliery  Platinum (PGE 
               BTRP       ETRP      (Coal      ounces) 
               (Gold      (Gold   tonnes)* 
              ounces)    ounces) 
 
Actual 2015   56,447     45,350       -         4,493 
 
Forecast      49,000     42,000    330,000      4,900 
2016 
 
Percentage    (13.2%)    (7.4%)    100.0%       9.1% 
 
*Uitkomst Colliery was acquired on 31 March 2016, and the coal tonnes forecast 
includes approximately 200,000 tonnes from the underground mining operation and 
130,000 acquired coal tonnes for processing and blending. 
 
Gold mining operations production update 
 
The Group previously guided gold production of approximately 200,000oz for the 
2017 financial year.  In light of challenges experienced with its operating 
environment and underground operations in recent months, the Group now 
considers it appropriate to revise this guidance down to approximately 
195,000oz of gold production for the 2017 financial year, with gold production 
in the 2nd half of the financial year exceeding 1st half performance. 
 
In addition to the operational challenges detailed below, community unrest in 
the Barberton area and DMR safety stoppages ("Section 54 regulatory notices") 
severely affected gold production in the current reporting period.  Pan African 
is actively engaging with all stakeholders in this regard, in order to ensure 
that operations are allowed to operate at steady-state and in a sustainable 
manner. 
 
Cobus Loots, Pan African's CEO, said: 
 
"Operational performance from our underground operations during the 1st half of 
the 2017 financial year has been disappointing. Pan African's mines are not 
exempt from the political and social unrest that is prevailing in South African 
society at present.  The current state of affairs is clearly unacceptable and 
our management team will not relent until the previous operational form has 
been restored.  All stakeholders have to work together in this regard, the 
Group will use all means at our disposal to ensure we protect and increase 
value for our stakeholders". 
 
The decreased production guidance is principally due to the following factors: 
 
Evander Mines 
 
Operational: 
 
  * Evander Mines' 7 Shaft, which is used to hoist ore from underground mining 
    operations to surface for processing, is undergoing critical maintenance 
    following the dislodgement of a steel shaft guide which damaged the shaft 
    infrastructure. Even though primary repairs have been completed, 7 Shaft's 
    hoisting speed is curtailed until the full maintenance programme is 
    completed. The shaft is expected to resume normal hoisting speed in early 
    January 2017. 
  * Evander Mines experienced a material increase in DMR initiated safety 
    stoppages during the past five months. The operation was issued with four 
    Section 54 regulatory notices, which resulted in 13 lost production days 
    (Comparable period: three Section 54 regulatory notices resulting in 2 lost 
    production days).  The majority of the lost production days related to the 
    7 Shaft incident. 
 
Barberton Mines 
 
Industrial relations and community protests: 
 
  * Three separate community protests relating to unrest as a result of poor 
    government service delivery in the area and competing recruitment interests 
    from lobby groups was experienced, which resulted in 6 days of lost 
    production. 
 
  * Union related demands resulted in workers embarking on a go slow which 
    adversely affected productivity. 
 
Operational: 
 
  * Fairview mine experienced flexibility issues, specifically at its very high 
    grade 11-block.  Work is underway to develop a new production platform. 
    Further flexibility improvements will be achieved via a new decline under 
    development.  In addition, a new refrigeration plant will improve working 
    conditions in this area. 
  * Six Section 54 regulatory notices, which resulted in 8 lost production 
    days. (Comparable period: one Section 54 regulatory notice resulting in 3 
    lost production days). Barberton Mines and Pan African continue to engage 
    with all stakeholders, including the DMR, in order to reduce the impacts of 
    these notices in future. 
 
Uitkomst Colliery 
 
Production and performance for the period has remained in line with 
expectations. Uitkomst Colliery has also bought-in additional coal from 
neighbouring mining operations to optimise its washing plant's operations. If 
the current favourable coal price environment continues, the payback period for 
this acquisition is expected to be less than the four years previously 
forecast. 
 
Phoenix Platinum 
 

Phoenix Platinum processing capacity has increased from 25,000 tons per month 
to 30,000 tonnes per month, following the installation of a scrubber in July 
2016. The operation has experienced water constraints due the persistent 
drought conditions during October and November 2016. Despite these challenges, 
production is expected to increase by 9.1% to 4,900oz for the 31 December 2016 
reporting period. 
 
Forward looking statements 
 
Any forward looking statements made throughout this announcement regarding the 
future financial performance of the Group have not been reviewed or audited by 
the Group's external auditors. The Board accepts full responsibility for the 
accuracy of the information contained in this announcement. 
 
Pan African is not obliged to publicly update any forward-looking statements 
included in this announcement, or revise any changes in events, conditions or 
circumstances on which any such statements are based, occurring after the 
publication date of this announcement, other than as required by regulation. 
 
Johannesburg 
 
5 December 2016 
 
Contact information 
 
Corporate Office                              Registered Office 
The Firs Office Building                      Suite 31 
1st Floor, Office 101                         Second Floor 
Cnr. Cradock and Biermann Avenues             107 Cheapside 
Rosebank, Johannesburg                        London 
South Africa                                  EC2V 6DN 
Office:   + 27 (0) 11 243 2900                United Kingdom 
Facsimile: + 27 (0) 11 880 1240               Office:   + 44 (0) 207 
                                              796 8644 
                                              Facsimile: + 44 (0) 207 
                                              796 8645 
 
Cobus Loots                                   Deon Louw 
Pan African Resources PLC                     Pan African Resources PLC 
Chief Executive Officer                       Financial Director 
Office: + 27 (0) 11 243                       Office: + 27 (0) 11 243 
2900                                          2900 
 
Phil Dexter                                   John Prior / Paul Gillam 
St James's Corporate Services Limited         Numis Securities Limited 
Company Secretary                             Nominated Adviser and 
Office: + 44 (0) 207 796 8644                 Joint Broker 
                                              Office: [phone] 
                                              1000 
 
Sholto Simpson                                Matthew Armitt / Ross 
One Capital                                   Allister 
JSE Sponsor                                   Peel Hunt LLP 
Office: + 27 (0) 11 550 5009                  Joint Broker 
                                              Office: [phone] 
                                              8900 
 
Julian Gwillim                                Lorna Cobbett 
Aprio Strategic Communications                Bell Pottinger PR 
Public & Investor Relations SA                Public & Investor 
Office: [phone]                    Relations UK 
                                              Office: + 44 (0) 203 772 
                                              2564 
 
Jeffrey Couch/Neil Haycock/Thomas Rider 
BMO Capital Markets Limited 
Joint Broker 
Office: [phone] 
 
www.panafricanresources.com 
 
 
 
END 
 

(END) Dow Jones Newswires

December 05, 2016 05:10 ET (10:10 GMT)