Pan African Resources (LSE: PAF) – Strong Management To Make Shareholders Smile

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Pan African Resources PLC
  • LSE: PAF
  • Shares Outstanding: 2.23B
  • Share price GB£0.13 (24.02.2020)
  • Market Cap: GB£287.8M

South Africa is a difficult jurisdiction to operate in, but these guys get things done. The management team has impressed us so far in 2020, and the market is responding.

We recently interviewed Cobus Loots, CEO of Pan African Resources, a South African gold producer.

Investors may also want to read a different gold article or watch our latest gold interview.

We discuss:

  1. Operational Update
  2. Mining Difficulties In South Africa
  3. Big Plans For The Rest Of 2020

Company Website: https://www.panafricanresources.com/

If you see something in this article that you agree with, or even disagree with, please let us know in the comments below.

Any advice contained in this website is general advice only and has been prepared without considering your objectives, financial situations or needs. You should not rely on any advice and / or information contained in this website or via any digital Crux Investor communications. Before making any investment decision we recommend that you consider whether it is appropriate for your situation and seek appropriate financial, taxation and legal advice.

The Pan African Resources Logo.

Pan African Resources (LSE: PAF) – Be-Be-Beating Hard Times, That is my Theme (Transcript)

Gold ore

Interview with Cobus Loots, CEO of Pan African Resources (LSE: PAF).

These guys get things done. Mining is never easy, mining in South Africa is far from easy, but the management team at gold producer, Pan African Resources, keep finding a way to get things done and are consistently hitting targets. Pan African is well on its way to becoming a mid-tier gold producer targeting 185,000oz per annum this year. Loots ran us through the highs and lows of the last 6 months, including the recently released operational update.

Pan African Resources has a share price of GB£0.125 and a market cap of GB£278M. It is listed on the LSE.

The key highlights from the update?

  • Pan African is on track to deliver the full-year production guidance of 185,000oz.
  • Group gold sales increased by 14.7% to 92,941oz (2018: 81,014oz).
  • The Evander 8 Shaft Pillar project development is progressing according to plan, with steady-state production planned from March 2020.

We like the tailings slant on the business. Green is very fashionable right now. Barberton Tailings Retreatment Plant produces a steady stream of gold, c. 25,000oz per annum, and the Shaft Pillar at Evander, an area of developmental focus in the near future for Pan African, could provide 20,000oz, rising to 30,000oz+ “in the years ahead.” Pan African is now mining more economically due to a strategy change: mining at the shaft rather than at deeper levels. The result is an intended sub-US$1,000 AISC for the Pillar project. Solid numbers, and in line with the rest of Pan African’s other operations. Elikhulu Tailings Retreatment Plant has had a mining feasibility study conducted that is now being independently vetted by a third party, with the view to expand it to a full feasibility study. Loots says it looks like c. 90,000oz per annum, with a 9-year life-of-mine, rising to 20 years with further resource modeling. By utilising existing infrastructure, Pan African can keep costs down and get things going quicker. This is still a little way off but could be a good addition to the portfolio.

In terms of dividends, Pan African recently released its first dividends for years. Loot states the company was recently one of the highest yielding gold dividend shares in the world. Loots states that he wants to get back there. Let’s see how things turn out.

For now, it’s full speed ahead developing the projects, overcoming issues pertaining to jurisdiction, community and environment difficulties, and getting the share price where investors will no doubt want to see it.

Interview highlights:

  • 1:34 – Operational Update: Overview of Performance Results
  • 2:45 – Producing as Expected? A Run Through the Projects
  • 8:27 – AISC and Debt: What is the Current Position and What’s to Come?
  • 9:39 – Dividends: Keeping Them Going
  • 12:40 – Troubles in Jurisdiction and Community Issues: How Will They Ensure a Smooth Run of Operations?
  • 16:14 – What Should We Look Forward to from Pan African Resources?

Watch the interview here.


Matthew Gordon: Happy New Year. I haven’t spoken to you since before Christmas, so how are you?

Cobus Loots: Thanks, Matthew. We’re good. We’ve been busy as you might have seen from the operational update.

Matthew Gordon: We have, that’s why we called you. It seems like you have had a good last 6-months. You are on target to hit 185,000oz; that puts you very much in the mid-cap territory for sure. Are you pleased with your performance?

Cobus Loots:  Yes. We believe that, certainly the performance for the first 6-months provides a solid base for us to have a very good financial year. So Elikhulu performed very well, so we produced almost 30,000oz. We are well-positioned now actually for the next 6-months to increase that to go to almost 65,000oz for the full year so that is a great performance. Barberton was down slightly, mostly as a result of underground. But we have more flexibility now so we expect a much better 6-months, going forward from Barberton. And then also, and what I think is very positive, the work that we have done in the Evander 8 Shaft pillar. This project has gone from being a liability to actually now being poised to generate attractive cash flows going forward for the next 3-years.

Matthew Gordon: Okay. If you don’t mind, can we just break down that 185,000oz that you are going to be producing. You’ve got your existing Barberton and Elikhulu, both on the tailings and the mining front, and they are going as planned? The numbers are as targeted, first of all?

Cobus Loots: Well yes.Let’s start with Elikhulu first of all which we started last year: it’s a world class project. It is USD$130M that we put into the ground. It retreats old historic mining tailings, and it has a life of 12-years at present. And it is producing at an All In Sustaining Cost of USD$650 per oz or below. I think what’s more is that we are cleaning up legacy liabilities so it ticks the box in terms of ESG, looking after the environment, etc. So it’s a great project. It’s incredibly safe. We don’t have as many employees as what we would have had underground. So, we are very happy with the performance at Elikhulu, and as I said, we expect Elikhulu to do even better over the next 6-months.

And then the Barberton complex, which is also a world class tailings business, the BTRP, we do have about 20,000oz from the BTRP at Barberton and then 80,000oz at underground. So that gives us another 100,000oz per year, from Barberton. And then as I said, the Pillar, which is a project that we commissioned at the moment at Evander, that will give us 20,000oz which then actually becomes 30,000oz and more in the years ahead.

Matthew Gordon: Okay. And you actually refer to that as a former liability. Why was that?

Cobus Loots:  We curtailed operations at 8 Shaft, so we were mining 24 level, which was very deep. With a lot of infrastructure, a lot of logistics, a huge number of employees. So we curtailed that business about 2 years ago. We actually shut it down. And then the sort of question arose: what do we do with the remaining resource? We could have quite simply terminated operations at 8 Shaft, and that would have been the end. Instead, we said, let’s have a look at this Pillar project, let’s see what sort of Gold we can get out and over what sort of timeframe and at what margin, importantly. And that’s how the 8 Shaft pillar project has happened.

Matthew Gordon: Right. So basically, it was costing you a lot of money to get Gold out of the ground. It was becoming less and less profitable, having sunk a lot of money into the ground there as well. So you are now mining more economically as a result. That’s the point of what you have done?

Cobus Loots: Well, we are ceasing operations at the bottom levels which are very expensive and we are actually starting mining right at the shaft. So we have guided, we have anticipated that the all in sustaining costs of this Pillar project to be below USD$1000, which is very attractive. And that’s in-line with the rest of our operations.

Matthew Gordon: And Cobus, can I just ask you about Egoli, because you have obviously talked about the MFS, the mine Feasibility Study has been finalised now. Where are you at with that? What should we be excited about?

Cobus Loots: Yes. It has been a very interesting project from our perspective, as you said, the Mining Feasibility Study has been done. We are actually getting the study independently vetted by a third party and then they are expanding it to a full Feasibility Study, the results of which will be available pretty much at the same time as our interim financial results.

Matthew Gordon: Right.

Cobus Loots: And yes, circa 90,000oz per year, initially life of mine 9-years but if we model for the resources, it’s anywhere from 15 to 20-years.  At a fairly limited capital number for a project of this nature because of the fact that you are utilising existing infrastructure mostly: there is a processing plant, it’s operational on surface, we have the vertical shaft that’s all done. There are turns, certainly, currently, even a conservative Gold price to be attractive. So I think, you know, watch this space in terms of Egoli and our next steps when we release our interim results.

Matthew Gordon: Okay, when does that actually…how does that ramp up? How quickly does that ramp up?

Cobus Loots: You know, we haven’t yet pushed the button on development. The key is to finalise funding. And we what we have said to shareholders, we will not do the funding in any way that is dilutive. So we are looking at potentially bring in a stream or an equity investor of sorts. Certainly, the project has dig capacity in our view also. Once we are happy with the Feasibility Study and the fact that we can manage the risks, and it is a project that we need to be doing, from a pipeline perspective, we will finalise the funding and we will certainly add a time frame in terms of development.

Matthew Gordon: Okay. So the timing is not imminent? Because when I asked you earlier about, have you plans for adding debt for this year, you said, no. So, this is not a 2020 debt solution. You are saying that will come after that?

Cobus Loots: That’s right. The ramp-up period is three years, and most of the capital is spent in the later years. And if we potentially look to get in an equity investor, or some other form of finance, then that sort of takes off the burden, certainly from ourselves. But in terms of existing operations, certainly, we will be set in terms of debt, that holds true so we are not going to look to gear up the existing operations to fund a project like this. I think that it will stand on its own two feet.

Matthew Gordon: Okay. So you have been looking at the AISC and looking at ways of reducing it. I mean, I guess it is pretty standard: getting somewhere between USD$950 USD$1,000 is where you want to be, especially in today’s Gold price. So you are obviously throwing off a lot more cash, but you’ve also had to finance a lot of the development work with debt so what is the position on that at the moment?

Cobus Loots: Well, for 6-months to December, we have managed to de-gear the balance sheet and we have guided that in the year ahead, we should see a dramatic decrease in our gearing levels. You know, that’s a product of the Pillar coming into production, so we will be steadily instating the Pillar in March. It’s a product of Elikhulu performing at a steady state and the operations at Barberton performing. Certainly, what’s helping us also is the Gold price which is performing well in US dollars and even more so in South African Rand which is the currency that we look at.

Matthew Gordon: Yes. Okay. So, if I may just touch upon this here; a lot of mid cap and a lot of large companies, they tend to borrow money, then plough it back into the ground and kind of forget about shareholders. You issued your first dividend for a couple of years recently, what are your plans for keeping that going? Are you going to give back to long-holding shareholders in your company? Or is it the plan just to reinvest into the ground?

Cobus Loots: Well, if you look at our priorities in terms of how we apply capital, we need to continue to invest in our assets. But in the past, we have managed to do so, and then also pay an attractive dividend. Certainly, up to quite recently, we were one of the highest yielding Gold dividend shares in the world. And that’s where we’d like to get back to. And I think the operating environment in terms of the robustness of our assets and the performance, and then also the Gold price, should assist us in resuming even more attractive dividends in the future. Clearly, we have stalled some of the debt that we took on to fund Elikhulu, that’s still on the balance sheet, but as I said, we anticipate that number, in terms of the gearing levels, to come down quite dramatically in the year ahead.

Matthew Gordon: Any more plans for any more debt?

Cobus Loots: Well no, there’s no need for us to incur any more debt. Also, if you look at the sort of projects that we undertake now, one obviously looks at all the return metrics including internal rate of return, MPV etc, but payback is also very important for us, so how long does it take for us to get our money back and that’s where projects like Elikhulu where regionally, we were costing a payback of 4 years on a USD$130M odd, and at this Gold price, I actually expect the pay back to be sooner. So those are the sort of projects we like to do.

Matthew Gordon: Again, it’s just trying to understand the thinking of the management team here, because you’ve got options of paying it back in 4-years or paying it back quicker, paying dividends, you know, you have got the choice of what you do with that money. Some companies like to be completely debt-free as quickly as possible; others like to maintain some kind of leverage and utilise that spare cash elsewhere to develop and grow the business, where’s your head at?  

Cobus Loots: Well look, obviously, a mining company should not be over-geared and they should have a conservative level of debt. That’s really where I think we will end up in the next 6 months or so. It also doesn’t make sense for us to have no debt. In our view, it’s not efficient from a capital allocation perspective. We think that we can pay a significant, pretty much all of our debt in the next 12 to 18 months in resumed dividends so that one is not at the expense of the other.

Matthew Gordon: Okay. So dividends; they are still in the pipeline, your shareholders will still be receiving dividends as you continue to develop the business and grow the business – perfect. Can we talk about something else though? You did highlight them and I’ll give you credit for this; you don’t shirk or hide from this, you have talked about a couple of things: there have been some community issues which have affected productivity, and also, more recently, some power issues. I know mining is mining, and it is tough, but what has gone on there and will it reoccur?  

Cobus Loots: Yes, sure. I think we have demonstrated the ability to operate successfully in South Africa. We have had community unrest and that has affected, as you pointed out, the Barberton operations in the last 6 months. We had very serious power issues with ESCOM, our South African power and utilities, in December. On top of it, we also had probably the weakest December in terms of rainfall that I can recall for the last 20-years, so that will also have affected operations. So, you know, the bottom line is that one has to plan some level of disruption to your operations and you have to robust assets that can withstand these sorts of issues, and a management team that is proactive and can anticipate when they can and then deal accordingly.

So yes, South Africa gets quite a lot of bad press I think in terms of the operating environment, and a lot of it is justified, but as you said, most mining jurisdictions have their issues.

Matthew Gordon: They do, and like I say, I give you credit for not shirking away from it or ignoring it, but like I say, ESKOM for instance – what was the issue? Is it going to reoccur? Because I look at the, again, the information that you have provided, the prices have been going up and up, which affects your margins, but how do you engage with them? How do you have conversations that give you some sort of certainty about what the future looks like?

Cobus Loots: Well sure. ESKOM has been more of an issue at Evander, our underground business, and fortunately there, we have spare capacity so we can afford to turn off a mill for a couple of hours if there is what is termed, low-shedding: so where the grid is overloaded. So we do have that capacity but what I think also, the ESKOM situation is not going to become any easier overnight. We will continue to have power shortages in South Africa for at least the next 2-years. Barberton mines is less energy intensive so it is less affected. Elikhulu doesn’t use a lot of electricity so that is less affected. And fortunately, as I said, at Evander underground, we have some spare capacity so we can afford to reduce our underground consumption for a limited period. And recently, the Minister of Mines in South Africa has come out and said that they are in the process of deregulating the private power generation. At Evander, we are completing a Feasibility Study (FS) into our solar plant that will be able to look after pretty much all of Elikhulu during the daytime. And we expect that we will be able to, over time, expand that project also. So miners are being creative about finding solutions and I think that over the medium to longer-term, we will get those solutions implemented in a way that actually makes sense for shareholders.

Matthew Gordon: Interesting. You should talk to your neighbours over the road at Bushveld by the sounds of it.

Cobus Loots: Exactly.

Matthew Gordon: Okay. Well thanks for that update. It just sounds like business as usual for you. I appreciate you being quite direct about some of the issues that you miners face, but you are consistently hitting the numbers, or exceeding the numbers, despite those problems. So you always find a way. Do stay in touch and let us know how you get on. What are the next big things that we should be looking out for?

Cobus Loots: Well, we have our interim results now being released next week, on the 18th February and that will contain more detail on performance and what we expect for the remainder of the year. And yes, as I said, we are quite positive. We have laid a solid foundation, a good base to do well. So the Rand Gold price, is pretty much the highest it has ever been so that’s a good environment for us to operate in also.

Matthew Gordon: You see that continuing do you?

Cobus Loots: We sort of try focussing on those issues we can control, but it’s always nice to have tailwinds like the Gold price.

Matthew Gordon: Light a candle, for sure. Thanks again, speak real soon.

Cobus Loots: Thanks, Matthew. Speak soon.


If you see something in this article that you agree with, or even disagree with, please let us know in the comments below.

Any advice contained in this website is general advice only and has been prepared without considering your objectives, financial situations or needs. You should not rely on any advice and / or information contained in this website or via any digital Crux Investor communications. Before making any investment decision we recommend that you consider whether it is appropriate for your situation and seek appropriate financial, taxation and legal advice.

Gold ore

Pan African Resources (AIM: PAF) – A Dividend Paying Gold Producer (Transcript)

Interview with Cobus Loots, CEO of Pan African Resources (AIM: PAF).

We don’t tend to like investing in Gold producers as they rarely perform for shareholders. But we like this one, a lot. The CEO is brutally and refreshingly honest. He spends lot of time pointing out the difficulties in mining and operating in South Africa.

However, they make it work. They have a long track record of producing Gold and paying dividends. Last year they suspended the dividend payments as their debt borrowing for the new plant was the focus, however, they are planning to pay a dividend (subject to shareholder vote in November). The Audit Results are out today. The numbers are extremely encouraging and show a tremendous growth across the company. Cobus Loots talks about how they have done it and what the growth targets are in the short term. We were impressed about the way they think about capital allocation. Investing in their assets, they want to repay the debt on balance sheet, paying a dividend and how to deliver growth.

They still have a lot to do but we think this team is rigorous in its planning and methodical is how it delivers its projects.

Interview Highlights:

  • Overview of the Company
  • Audit Report: Great News?
  • Safety & Why It is Important to Pan African Resources
  • Productivity & Production: What Numbers Are They Looking At? Can They Lower Their AISC?
  • Paying a Dividend: Why Now?
  • Mining in South Africa: Benefits and Risks
  • Company Financials and Share Price: What’s The Outlook?
  • Future Plans for The Company

Click here to watch the interview.


Matthew Gordon: I’m looking at your executive officer statement. We had a chance to quickly scan through this. Some great numbers on there, you must be very pleased.

Cobus Loots: We are quite pleased. And I think this was a great improvement on pretty much all fronts.

Matthew Gordon: Definitely. Give us a one-minute summary of the business for those new to the story to start with.

Cobus Loots: The company is Pan African Resources PLC. We’re a UK company, but with a South African base, with all of our operations currently in South Africa. We have two large gold mining complexes. The first being Barberton Mines. Barberton Mines has been going for almost 130 years. So, gold mining started in Barberton in 1886. We’ve made some major improvements in recent years at Barberton. So, we have the underground mine that we’ve been mining, and will continue to mine for quite some time. And then we also have a tailings plant that produces ultra-low-cost ounces. The other complex is Evander Gold mines. The largest operation that we have now as part of the Evandar is the Elikhulu plant. That also produces very low-cost and low-risk gold ounces. And then we have an underground operation that we are also in the process of developing further at the moment.

Matthew Gordon: Can we talk about some of the growth stories that I’ve been reading about, eg: Egoli and Royal Sheba. But let’s start with these numbers. You’ve produced some exceptional numbers there. What stands out for you?

Cobus Loots: What stands out is the fact that we improved our safety performance at the year past. That’s critical for us on a number of fronts. If we can’t produce safety, we cannot produce. I’m very happy to report that all of our safety statistics have come down in terms of incidents in the last year. That’s a result of principally the Elikhulu tailings plant, which inherently is just a lower risk operation, but then also a massive focus on safety schemes, safety initiatives across the group. The safety box is never ticked. We have to continue to work on safety, but it was a good performance. Operationally we exceeded our production guidance for the year past. That’s obviously quite a positive. Actually, from all operations we had an improved performance. On the cost side from an All In Sustaining Cost (AISC) perspective we reduced our costs quite substantially. I’d like to say we are the lowest cost producer in South Africa as a group, certainly amongst the lowest cost at the moment. But not only that, we also internationally very competitive. So, AISC came in at $980 an ounce. The international benchmark at the moment is just over $900. So, $980 versus $900. Not bad. And there is potential for us to bring down that cost further in the year to come. So overall, good performance. I’m also very pleased by the fact we are proposing a dividend for approval at the upcoming AGM. And that’s positive. We had to suspend the dividend last year as a result of obviously gold price. What was happening at Evander, the substantial capital we were incurring on the construction of Elikhulu. So, I’m quite happy that the dividend is back. We’ll be at a more modest level, but it’s still to 1% yield is not to be frowned at.

Matthew Gordon: Good news it seems to me, but not without a lot of hard work from your team. And I noticed the first thing you focused on there was safety, which again is unusual. People usually to stick that at the back of the presentation. Why is it such a big deal for you guys?

Cobus Loots: If you analyse it coldly, the world is changing. If you can’t produce gold safely, it makes it very difficult to produce. Our people are our primary asset. That’s an addition to our ore bodies and all of our other infrastructure. So, we need to take care of our people from a health and safety perspective. Safety first, health also very important. So, without our people, well, we can’t achieve what we’ve achieved in the last year.

Matthew Gordon: Good. Nice to hear. Let’s talk about productivity. You’ve increased your forecast, so you’re going to be producing at what level by the end of next year?

Cobus Loots: We’re guiding 185,000 ounces for FY20, which as going to you said, is quite a be a big improvement on the 172,000 that we did last year. So that’s off the back of a number of projects. So, 1. Elikhulu will produce now for a full year. We commissioned Elikhulu in September 2018. So, we really only had the benefit of nine months of production from Elikhulu. You obviously ramping up also. So now you’re looking at a full year of production from Elikhulu which includes the enhanced or increased capacity via the ETRP. It’s a tailings block. So, we’re saying 65,000 ounces from Elikhulu. We’re saying 20,000 ounces from what we call the Evander Pillar project at the Evander underground, and then 100,000 ounces from Barberton. So, that makes up of our increased production guidance of 185,000 ounces.

Matthew Gordon: That puts you firmly in the mid-tier producer range. And if you look at what gold price is doing in the last couple of months, you’ll start to see the benefit of that in terms of margins, because of the amount that you’re producing. I make that point for investors, because there’s an assumption because gold is up that the junior explorers and developers will benefit. And they don’t. It’s the producers who will benefit far more quickly because of sales. You talk about the lower AISC, which I thought was interesting. You are striving to drive towards that $900 mark. You’ve clearly made some headway into that. What do you attribute that to and how are you going to continue driving the AISC lower?

Cobus Loots: The first contributor to the reduction of AISC has most definitely been our tailings business. We commissioned Elikhulu in the last year. It’s quite a large plant. It processes 1.2Mt of tailings p/m. And that’s where we get our 65,000 ounces of gold for the next year. The great thing with Elikhulu is it produces at an exceptionally low AISC. We should be at $650, if not lower. We then have the Barberton tailings retreatment plant (BTRP) that does also 20,000 ounces. So overall, we have 85,000 ounces that are what we like to call ultra-low-cost production. This provides a stable base load, for our portfolio, and allows us to survive pretty much in any gold price environment. And it brings down the groups AISC quite significantly. Those are the tailings businesses. There’s quite a lot of optimization happening underground at Barberton. We’re simplifying the infrastructure. We’re doing a lot more development which allows us further access to high-grade ore bodies. We’re looking at the marginal side of the business to see if we cut some ounces and reduce costs? There are a number of initiatives also ongoing to further reduce the AISC for the group.

Matthew Gordon: But that does tend to suggest that the Barberton costs are quite high.

Cobus Loots: If you look at our results presentation, Barberton underground actually has put different shafts with different cost structures. The flagship underground business is Fairview. Fairview has been going for many years. It’s an incredibly high-grade ore body. It’s on average more than 10g/t, but we get pockets of +100/gt. The principal ore body that we mine at Fairview is the MRC. It has a life currently of 20 years. And we’ve been doing a number of improvements to infrastructure to ensure that we can continue to mine successfully, safely and profitably in years to come. So, Fairview by itself is still a fairly low-cost producer. Then we have a more marginal ounces at Sheba and at Consort. So those are the answers that we have to focus on and reduce that all in sustaining costs.

Matthew Gordon: With regards to Sheba, what’s the chances of that making some kind of contribution this year?

Cobus Loots: Sheba has certainly contributed in the year past, but the focus is increasing that contribution. It’s a project that we’ve been speaking about for some time. We want to get the first gold out of Royal Sheba in the year to come. Sheba should do better this year.

Matthew Gordon: Let’s talk about dividends. But you’ve announced that you’re going to pay a dividend, it’s got to be voted for. I’m assuming the shareholders will accept. What made you do that?

Cobus Loots: It’s a modest dividend versus what we’ve paid in the past. It’s still in effect a yield versus having your money in a bank and in some jurisdictions earning a negative interest rate. I think that makes it attractive. If you consider the way that we think about capital allocation. 1. the first is investing in our assets. We have to continue invest in our assets, otherwise we will not be able to continue to generate returns. 2. is balance sheet, because of the project Elikhulu that we constructed in the last year, our balance sheet is highly geared, certainly more than what we’d like to see. So, in the next year, we’d like to repay quite a lot of the debt we have sitting on the balance sheet. 3. it is providing a cash return to our shareholders in the form of dividends. 4. once we’ve taken care of those we also look at growth.

Matthew Gordon: Mining is tough. Mining in South Africa is really tough. But your track record of bringing projects online is good. We talked previously about doing business in South Africa and what it was like. And you said, ‘yeah, it is tough, but we deal with it. We’re used to it’. Tell people about that conversation because I thought it was fascinating.

Cobus Loots: Well, I’ve concluded that gold is so precious because it’s so difficult to mine regardless of where you are actually doing your mining. South Africa has a fairly negative perception internationally and some of it is justified and some of it potentially is not. We have a long history of mining, certainly gold. More than 50% of all the gold that’s been mined in the world has come from our country. We have great infrastructure. We have access to power. We have access to technical skills. We have a good constitution. We have a good legal system, etc. But then you’re faced with the con’s also. You have unemployment. The economy is not doing great. There’s uncertainty in terms of mining legislation. We have power challenges, electricity issues. So, that sort of makes for an interesting mix. But as you point out, we’ve been able to mine successfully in South Africa for many years. We’ve been able to bring great projects online in South Africa in recent years which demonstrates that we have the ability to operate. One thing that’s certainly come to the fore in the last year is that Africa generally is a difficult place to do business. You look at regulatory issues in Tanzania. You look at terrorism in West Africa. You have to accept that mining in Africa does come with challenges and you have to equip yourselves and skill yourself to be able to deal with us and be successful and operate successfully and sustainably.

Matthew Gordon: You bring up points which most CEOs try to avoid discussing, which I appreciate. It’s also on page 7 of the presentation whene you talk about the underlying risks and how you’re dealing with them. It’s quite attractive when a company is refreshingly honest about the issues that they are dealing with. What it is hard to argue against is your track record of continually delivering the answers. What’s also important is driving that share price up. You have had your share price affected negatively. So what are you doing about it?

Cobus Loots: Well, if a share price does badly and we continue to sort of fret and worry about the share price, that it doesn’t really get us anywhere. So now we have a saying that ‘we focus on those things we can control and then the share price will take care of itself’, as it has done to some extent. I don’t want to speculate about the future, but now we’ve repositioned ourselves as a low-cost producer, even in a global sense. We have a long life. We have great projects where we can further increase production with fairly benign investments. I think we’re well positioned. We are safe producer. We are investing into our communities. We’re making a difference where we operate. All of that makes for a good mix. And if we deliver pretty much what we said we will do, the share price should take care of itself.

Matthew Gordon: As a producer, you’re benefiting from a higher gold price. Certainly, next year’s numbers will should, if it continues, benefit from a higher gold price because your margins are quite good. They’re definitely improving. I want to see them continue to improve. And I’m sure you do too. Let’s see what that looks like in the next the next few months. The one thing which I look for when I’m analysing a company is an understanding its financial health. You have debt at the moment. Which project are you using that for at the moment?

Cobus Loots: Well, that was the $130M Elikhulu project this last year. The project-based testament to what you can get done in South Africa. So, to put $130MIL into the ground in 12 months is not insignificant. This plant can cheat 1.2Mt of material a month. We currently produce for 65,000 ounces at an ultra-low AISC in the year ahead. So that’s to demonstrate that you can get things done in South Africa.

Matthew Gordon: And have you got more plans to raise any more money for capital expansion programs or are you done?

Cobus Loots: We are funded as far as the existing projects are concerned. So, there’s no need for us to go to market. I think the shareholders want to see us deliver on what we said we would do. 2019 was a first or second step in doing that and 2020 should be more of the same.

Matthew Gordon: So, margins are improving. Cash flow is starting to improve, are you starting see the benefit of it now?

Cobus Loots: Well certainly at the current gold price we are definitely seeing the benefit. That’s another positive around being based in South Africa. We have generally a Rand cost base, which is our local currency, which means that inflation is higher than what you’ll find in U.S. dollar terms. Wage inflation is higher than what you see in dollar terms. Electricity inflation is higher than what you’d see in dollar terms. So that’s sort of generally then puts a squeeze on margins. Where there’s a benefit is when you find a local currency, the Rand, blow out a little bit more to the dollar. What it’s done in the last months. So, then you see the margins actually go up quite a bit more than what you would find in dollar terms for your African producer. You can look to hedge. But what I’m saying is that the negative on cost inflation is offset when you find a large depreciation in Rand, which is what we have seen in the last month. So, $15,000 gold price is good for us, 700,000 Rand per kilo gold price, which is what we look at is even better for us at the moment.

Matthew Gordon: And then there’s just one other aspect – you’ve covered off safety and you’ve covered off the CSG component, but there have been some disturbances in-country. One of your sheets talks about arrest rates. Why declare that one? What’s that got to do with your ability to mine?

Cobus Loots: Well, illegal mining is a serious issue, and not only in South Africa and the rest of Africa. But you do find the guys being in South Africa quite militant, aggressive, armed. It’s meant that we’ve had to up our game a little, to professionalize further. We’ve spent a lot of money on security in the last year, more so than in years past. And that’s to protect our assets and to make sure we can continue to mine safely and sustainably into the future. So, yes, it’s endemic in South Africa. The fact that you have really high rates of unemployment. That’s going to create discontent. It’s going to create sort of people that have nothing to lose. And hence are desperate and that’s understandable. And so, we do what we can. If you look at our operations, contractors and employees combined, we employ 3,500 people. So, rule of thumb each of the workers and contractors look after up to 10 other dependents. So, 35,000 people that’s depended on our business. So, that is a big responsibility for us and it’s also a big responsibility for government to make sure that we can continue to operate. And we have been seeing the support from government, both nationally and locally, in terms of making sure that we can continue to operate.

Matthew Gordon: It is not just restricted to Africa either. We’ve been speaking to some companies in South America also struggling with illegal workers and all the issues that brings. You’ve got to be sensitive, but you also need to be able to continue to mine. If I may finish off with what you’ve done with your current assets, you’re sweating those assets and working them hard. And that’s reflected in the numbers we see. We look forward to seeing some guidance as to what that is looking like during the course of the next 12 months, obviously. And the final question is always, so any plans for any acquisitions?

Cobus Loots: We continue to look at acquisitions. It’s always a good thing because it teaches you. I always say in looking at other people’s businesses, you learn quite a bit about your own assets and what you can do differently. So, to some extent we’ll be busy with Royal Sheba, as a product of us looking at assets elsewhere. So, it’s not a priority for us. If we only sweat our own assets and we develop as we’ve set out in our plans for the year ahead, you should see a nice appreciation in the value of the business. So, an acquisition is not an imperative for us. So, we’ll continue to look, but we are certainly by no means desperate. And we’ve always said if you can develop your own portfolio, that really is first prize. Elikhulu being case and point. Egoli potentially also part of Evander, being a second example of what we will look at in the year ahead.

Matthew Gordon: And I’m guessing, given you’ve got experience in underground mining and tailings, if you were looking, you’d be looking for some similar kind of setup that would be optimal for you.

Corbus Loots: I think generally it’s difficult for us to justify going out of Africa. Southern Africa in a way makes more sense because it’s close, it easier to manage. Well, I wouldn’t want to limit the company by only that. So, you know, does it make sense a risk adjusted return basis. That’s what we would look at.

Matthew Gordon: Cobus, thanks very much. I know you’ve got a really busy day today with these numbers out and you’ll be speaking to lots of people. Thanks for making the time for us. Appreciate that. Please stay in touch, because I think you’ve built, or you are you continuing to deliver on your track record. Refreshingly honest.

Cobus Loots: Great. Thanks for having me.


Company website: https://www.panafricanresources.com

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