Pan African outlines funding package for gold project

JOHANNESBURG (miningweekly.com) – The announcement by midtier gold mining company Pan African Resources of a mixed placement-and-debt funding package for its R1.7-billion Elikhulu gold tailings project was followed by a surprising fall in the company's share price.

The funding package is aimed at fast-tracking the development of Elikhulu, which has good return metrics.

The London Aim- and JSE-listed company, headed by CEO Cobus Loots, describes Elikhulu as being low-risk and low-cost gold project, with a relatively quick delivery timeframe.

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 of $527/oz of gold, for a 13-year life-of-mine at an average gold production of 52 000 oz a year.

A definitive feasibility study (DFS) said it would 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.

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.

“This initiative, together with our recently announced coal disposal, is consistent with our strategy of pursuing and executing value accretive opportunities both within and outside of South Africa,” Loots added.

But following the company’s outline of a proposed R705-million ($51-million) share placement, coupled to a R1-billion ($72-million) seven-year debt facility from Rand Merchant Bank, the share price fell 4.04% in Johannesburg to 261c a share before noon, and then recovered to 263c a share at the close, a drop of 3.31%

The funding package involves an immediate placing of shares at the issue price, subject to demand, through an accelerated bookbuilding process carried out by Numis Securities, Hannam & Partners and Peel Hunt, in the UK, and by Standard Bank and Rand Merchant Bank (RMB), in South Africa.
 
The net proceeds of the placing will be used to advance Elikhulu, with construction anticipated to begin in the third quarter of 2017.

The company said that the fast-tracking of earthworks and the placing of deposits for long lead items – while awaiting the full RMB facility drawdown – would have numerous advantages in maintaining the proposed timelines.

It added that the project was found to have no fatal flaws when reviewed by independent technical adviser Mineral Corporation, as part of RMB’s credit approval process.