Pan African capital raise puts gold project on fast track

JOHANNESBURG (miningweekly.com) – Midtier gold mining company Pan African Resources has successfully raised R705-million in a share placing, the net proceeds of which will be used, together with a R1-billion seven-year debt facility, to fast-track the high-return Elikhulu gold tailings project in Mpumalanga.

Pan African CEO Cobus Loots drew grateful attention to the good support the company received in the placing from both new and existing investors.

Application will be made for the placing shares to be admitted to trading on the London Aim- and JSE on April 19.

The accelerated bookbuild was conducted in South Africa by Standard Bank and Rand Merchant Bank (RMB) and in the UK by Numis Securities, Hannam & Partners and Peel Hunt.

The issue prices represented discounts of 11% to the R2.72 a share price in South Africa and 12.5% to the 16p a share price in the UK.

At a gold price of $1 180/oz, Elikhulu has a net present value of $75.6-million, a real post-tax internal rate of return of 34.3% and a low all-in sustaining cost (AISC) of $527/oz of gold, for a 13-year life-of-mine at an average gold production of 52 000 oz/y.

Elikhulu will produce at a rate of 56 000 oz/y of gold for its first eight years of operation and at a rate of 45 000 oz/y for the remaining five years, a definitive feasibility study (DFS) completed in December has determined.

The project's debt redemption profile matches its cash flows, resulting in the funding arrangements not impacting on Pan African’s ability to pay dividends during the construction period.

Project commissioning and first gold are forecast for the final quarter of the 2018 calendar year.

Project construction will begin in the third quarter of 2017, with timeline advantage arising from the fast-tracking of earthworks and the placing of deposits for long-lead items.

Long-life, low-cost tailings retreatment operations are becoming synonymous with Pan African and Elikhulu’s successful entrenching of this position could possibly unlock other tailings opportunities.

The DFS, undertaken by DRA Projects, indicated excellent recovered grades and gold production, attractive financial returns and a low execution risk.

The R1.74-billion project is expected to add 25% to the group’s current 200 000 oz/y production profile and reduce its AISC, and its advance comes against the background of the refurbishment of the 7 and 8 Shaft complex at its Evander mines coming in within the R40-million budget, and on time for April 15 completion.

Cash outflow an ounce over the life of the operation is below $650/oz and amounts to $805/oz over the debt redemption term.

The average gold recovery rate over the life of the project is 47.77%.

The environmental and water licence approvals are expected by late 2017.

Pan African will be bolstered by the experience gained in the construction and operation of the Barberton tailings retreatment plant and the Evander tailings retreatment plant, positioning it well for Elikhulu’s smooth construction and operation.

In addition to the RMB debt facility, which will be repaid from the project’s cash flows, Pan African has a revolving credit facility of R800-million, which is extendable to R1.1-billion. 

The project, which entails establishing facilities and infrastructure at Evander, is in addition to the existing production from the existing Evander tailings retreatment project, which will continue to operate independently of Elikhulu for the next 13 years.

Elikhulu, meanwhile, is expected to reduce Evander’s cost profile as the three existing Kinross, Leslie and Winkelhaak tailings storage facilities are reclaimed, in that order. 

The gold dissolution value estimated for Kinross is 51.38%, Leslie 48.29% and Winkelhaak 53.77%.

Pan African’s successful capital raise puts this high-return gold project into fast-track mode.