Pan African Resources’ Barberton mines still delivering after 140 years

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SIMON BROWN: I’m chatting now with Cobus Loots, CEO of Pan African Resources. Results for the year-end June. Production up 6.2%, revenue up 16.8% earnings per share up 32.1% and a 22 cent dividend. That’s a ZAR dividend.

Cobus, I appreciate the time. We’re seeing a lot of cost pressures globally in mining. You’ve largely managed to hold on to them. Your all-in sustained cost increase was slightly above guidance, but you make the point that this really in many ways is at the core of Pan-African Resources – that you might be mining mines that are 140 years old in Barberton, but you need to do it with a strong eye on costs.

COBUS LOOTS: Yes, Simon. We are quite pleased the performance for the year and, as you say, the teams definitely did very well in terms of managing costs and will continue to do so.

Really what is a huge positive for Pan African is our surface re-mining business. Elikhulu is our flagship, and there we will be producing at $1 000/oz an ounce, or just over.

And then obviously we are in the process now of commissioning Mintails, our new project, and we are budgeting for less than $1 000/oz all-in sustaining. South African miners are known generally for being expensive. It’s not the case with Pan-African. We can compete very well with the internationals in terms of the costs. So that’s great for us.

SIMON BROWN: Yes. Gold is currently at $2 500/oz. That’s great, but we don’t know where gold will be in a year or a decade. It really is [about] positioning the operation – almost regardless of the gold price. If it’s going to be at $2 500/oz, that’s great, but if it’s going to be at $1 500/oz, you need to still be profitable.

COBUS LOOTS: It feels like there are still some tailwinds for gold. With interest rates said to be cut, and obviously all of the uncertainty in the world, we are definitely not banking on a $2 500/oz gold price. We’re running our models at sort of $2 000/oz or less, and … with our business.

The other thing is we have so such long lives on our assets that we’ll be going for many, many years.

SIMON BROWN: I want to touch on that. I went digging through your Samrad [South African Mineral Resources Administration] compliance, but I’ll come to that in a second. Net debt is markedly higher, but my sense is that’s the Mogale project, the Mintails, which is coming on stream any day now.

COBUS LOOTS: Yes, we’re not that keen on debt, but debt for the likes of Mintails definitely makes sense. The R2.5 billion that we’ve put into the ground for this project in 14 months will, at the current gold price, pay itself back in two to three years. The life of Mogale is more than 20 years, so that’s an exceptional project for Pan African.

SIMON BROWN: How are developments at Evander Mine doing? You’ve a couple of projects ongoing there.

COBUS LOOTS: Obviously Elikhulu is running at full steam, and that’s great. And then we’ve invested quite heavily into the underground, and the sub-vertical shaft was a bit delayed. It should be commissioned now in September, and that pretty much doubles our hoisting capacity at Evander, so we’re quite excited about the future of the underground at Evander. Obviously we’re mining [the] No 8 shaft at this point, but there’s also a huge opportunity at No 7, which is the Egoli Project, which we’ll bring to account in due course.

SIMON BROWN: Evander is an old mine and you seem to keep finding more and more that you can pull out of it, much like Barberton. That’s the 140-year-old mine. Barberton is probably one of the oldest mines in the country. Is it scoped out? You’ve got Samrec [SA Mineral Resources Reporting code] some 30 million ounces. Is there even more that you haven’t yet got to?

COBUS LOOTS: There is huge potential over the medium to long term, and we are sitting this week just looking at some of the other projects at Evander. Some of these projects, if they were in other countries, we would be able to list by themselves and they could be quite attractive. For us it’s a balance. We need to obviously reinvest in the business. We need to grow the business, which I think we’re doing quite successfully. And then we need to continue to give returns to shareholders in the form of sector-leading dividends. So that’s the balancing act for us.

SIMON BROWN: I take your point. You’re pushing guidance up to between 215 000 and 225 000 ounces. As I said, I went and had a look at your Samrec compliance. Gold resources at 30 million ounces. It is about not getting it all out at once. As you mentioned, with your Mintails there’s a cost, there’s a good payback. It’s that balance between getting it out of the ground, being profitable and the spend upfront.

COBUS LOOTS: Yes, hundred percent. Currently the market doesn’t give you any or not a lot of value for optionality. That’s fine and we accept that, and that’s why I think we are obviously very focused on the here and now and we’re very excited about the year ahead.

SIMON BROWN: We’ve seen a couple of deals globally in the gold mining space. Do you look at that sort of thing at this point or are you just saying you’ve got enough at this point in time that you can work with. You don’t need to do new deals – or do you have a look at some, just in case?

COBUS LOOTS: Well, we continue to look at other assets and doing so I think is a good discipline because you also learn a bit about your own portfolio. But we are in a very fortunate position where we have such a lot of growth potential within our own business and portfolio that we don’t need to go out and buy assets. That’s demonstrated by the lives of our assets. The teams continue to innovate and come up with new ideas.

At the BTRP [Barberton Tailings Retreatment Plant], which is our first tailings plant, we had two years left and now we’ve had a re-look and we’ve extended the life to seven years from tailings. That’s great for us – limited capital and great cash flows for another seven years.

SIMON BROWN: And, as you say, working with what you have.

We’ll leave it there. Cobus Loots, CEO at Pan-African Resources, I appreciate the early morning time.

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