The shoes of Pan African Resources’ COO melted shortly after he stepped out to inspect the firm’s recently acquired exploration prospect in Sudan.
“The temperatures outside were running at about 50°C. The soles of his shoes literally fell off,” says the firm’s CEO of eight years, Cobus Loots. Scrolling through his smartphone gallery, Loots shows a scene consisting of sky, an expanse of sand and some dark, ragged hills in the distance. “There’s nothing around,” says Loots. Except tons of gold, it should be added.
Despite years of political upheaval, Sudan ranks as Africa’s third-largest gold producer by dint of a thriving artisanal sector. It produced 90t last year. Orca Gold founder Rick Clark, who recently sold the firm’s Sudan project (unsentimentally called Block 14) to Perseus Mining for A$230m, describes Sudan as having “the largest gold rush Africa has ever seen”. That’s saying something, considering the phenomena of the Witwatersrand, and now West Africa, where billions of dollars in mergers & acquisitions (M&A) have changed hands in the past decade.
Pan African plans to spend $7m in its first three years exploring Sudan for gold. It’s an important step out in strategy for the firm, whose day-to-day efforts are on matters such as its Elikhulu tailings retreatment plant in Mpumalanga. For every ton of slag Elikhulu sieves, Pan African gets a minuscule 0.3g of gold. That’s about as far as you can get from the abundance offered in Sudan, but for Loots and Co it makes for low-cost production at a time when the firm’s peer group is rowing against inflation.
“The company has 30% of its ounces coming from dump retreatment operations with all-in sustaining costs below $1,000 an ounce. That’s very defensive,” says Simon Hudson-Peacock, an analyst for S2 Research.
Even without a contribution from Sudan, Pan African is on track to double production in the next seven to eight years, with 20 years of declared reserves to do it
Even without a contribution from Sudan, Pan African is on track to double production in the next seven to eight years with 20 years of declared reserves to do it, excluding recently acquired options over other tailings projects. “The others don’t and can’t,” adds Hudson-Peacock. Pan African is competing against the likes of SA’s Harmony Gold and Egyptian miner Centamin which, like Pan African, is listed in London and vies for the same investor attention in the “promising but not yet arrived” mid-cap mining space.
Shares in Pan African are 11% higher this year in Joburg compared with declines of 15.5% for AngloGold Ashanti and a steep 22% fall for DRDGold, which also processes gold tailings deposits in Joburg. Centamin is 6.5% weaker year to date.
Loots agrees that inflation is the headline concern this year, even if most of Pan African’s assets are competitive on the cost curve. “Electricity is a big one; so are steel and fuel which are up about 30%,” he says. He acknowledges that a recently announced cost-cutting programme at Barberton gold mines could see Pan African running to a standstill. Yet that may be enough to outpace competitors in a sector suddenly losing its lustre.
Arnold van Graan, an analyst at Nedbank CIB, is negative on gold stocks, and not just because of inflation. “The gold sector faces several challenges that could weigh on operational performance and margins. These include regressions in safety statistics, ongoing pandemic-related disruptions, skills shortages and logistical challenges.”
Investors ought to take profits and come back when valuations are depressed, he says — though with a caveat. Relative to their international rivals, JSE-listed gold producers are cheap, which may revive the M&A excitement of early 2021 when the tittle-tattle was that Sibanye-Stillwater was seeking a merger with AngloGold Ashanti or Gold Fields, or both.
Loots says Pan African is “always looking out” for potential M&A, but the focus is on low capital expenditure brownfields expansion at its Evander and Barberton gold mines; the latter is one of the oldest operating gold mines in SA. It’s a tricky asset, but the geology keeps on giving. At Evander, Pan African is extending through 8 Shaft in a project that will yield 65,000oz of new gold a year at a capital cost of about R800m. This compares with the roughly R1.2bn it initially intended to spend at Egoli, another Evander extension project, and which will now be developed on a more gradual basis.
“We believe the Evander mine and Egoli project — both conventional underground operations — will raise the company’s operational risk profile. However, this is balanced with its surface portfolio and in time this could be expanded with the optionality at Mintails and the Blyvoor assets,” says Van Graan.
These tailings deposits potentially add about 100,000oz and would take the company towards 400,000oz per year
For blue-sky potential, Pan African is kicking the tyres at some of SA’s forgotten gold tailings deposits west of Joburg, though they’re not “forgotten” for nothing. One that Loots is running the rule over — Mintails near Carletonville — has a troubled social, environmental and ownership history, and is in liquidation. Yet despite its controversial past, it contains an estimated 533,000oz of gold that Pan African thinks could be mined over 12 years. A feasibility study is due for presentation to shareholders in weeks. Loots won’t say what Pan African found, but he sounds positive.
There are also gold tailings at another of Carletonville’s former mines, Blyvoor, which was once an important asset in the Randgold & Exploration stable. Loots signed an option agreement over the property in December right from under the nose of the UK’s Katoro Gold, which was struggling to raise sufficient cash to buy and list it. It’s scoped to produce 25,000oz-30,000oz per year over 15 years. After a recent fatal flaw analysis, a decision on proceeding with Blyvoor is due in December.
These tailings deposits potentially add about 100,000oz and would take the company towards 400,000oz per year. Hamburg-headquartered bank Berenberg said in a note in February that the Mintails assets alone had an NAV of about $131m. Incorporating Mintails, Pan African shares could be worth 30p a share. In London, the stock is trading at 21.5p.
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