Pan African Resources forecasts that its earnings per share (EPS) and headline earnings per share (HEPS) for the financial year ended June 30,2015 will be between 40% and 60% lower than the R24.74 EPS and HEPS in the 2014 financial year, the company said in a statement to its shareholders on Monday.
The company therefore expects its EPS and HEPS to be between R9.93 and R14.87 for the 2015 financial year.
The decrease in earnings is primarily attributable to the low grade mining cycle experienced at Evander gold mines and Biox plant issues at Barberton mines.
The low grade mining cycle had reduced gold production and resulted in reduced profit margins and net profits, in comparison to the previous corresponding reporting period. This was expected to continue until February 2015, after which the operation would return to a higher grade mining cycle.
While Pan African can confirm that mining in higher grade areas has now commenced, the turnaround in production has however been slower than previously anticipated, principally due to challenges related to underground mining operations and infrastructure constraints.
The situation has been further exacerbated by Eskom power interruptions and a Department of Mineral Resources section 54 stoppage, the company said.
Meanwhile, Pan African says that Barberton Mines’ Biox plant, which was subject to an oil contamination from a breakdown at the Fairview primary crusher during May 2014 remained a challenge during the first six month reporting period.
However the Biox plant recoveries had improved to 96% (planned 97%) by December 2014, and management now believe the recovery to be nearly complete.
Operational and corporate update
Infill and extensional exploration drilling results of the Main Reef Complex orebody at Pan African’s flagship Fairview mine in Barberton has led to an increase in the gold mineral resource at Barberton by 317 500 oz, extending the life-of-mine in excess of 19 years.
Pan African’s Evander tailings retreatment plant has ramped-up processing to its capacity of 180 000 to 200 000 tpm with recoveries of 0.31 g/t – in line with the 42% planned recoveries, while overall plant recoveries at Phoenix platinum have also increased significantly to 36% (2014: 27%).
Meanwhile, Pan African has refinanced its existing revolving credit facility. The new facility has a tenure of 5 years, and increases the available revolving credit facility from R600 million to R1.1 billion at a reduced margin and facility fees.
The company has also reduced its net debt from R459 million at December 2014 to R315 million today.
Acquisition of Uitkomst colliery
The company has entered into agreements to acquire the Uitkomst colliery, a high grade thermal export quality coal deposit in the Utrecht coalfields in KwaZulu-Natal, for a cash consideration of R200 million from Oakleaf Investments Holding and Shanduka Resources.
The colliery, which contains a coal mineral resource of 25.7 Mt of which 22.1 Mt can be classed as measured or indicated, is an existing operational mine and the acquisition is expected to be immediately earnings and cash flow accretive to Pan African.
Current operations at the colliery demonstrate that underground extraction of the mineral resource is viable and that the run-of-mine coal can readily be beneficiated to produce excellent yields of high grade coal suitable for export or local metallurgical markets. The colliery currently yields and sells approximately 400 000 tpa of coal.
Pan African is expecting gold production for the financial year ended 30 June 2016 to be in excess of 110 000 oz at Barberton Mines, in excess of 100,000oz at Evander Mines, and platinum group metal production of approximately 10 000 oz at Phoenix platinum.
“The 2015 financial year has been extremely challenging for Pan African, and even though we are disappointed that Evander Mines’ turnaround has not happened more rapidly, the operation is now established in higher grade mining areas. Having implemented corrective strategies, the group is well positioned to deliver an improved performance in 2016.
“The extension of Fairview’s life of mine, in conjunction with Evander Mines’ development of the main decline from 25 level to 26 level and exploration projects, underpins our confidence in the longevity of the company’s gold production and resources, “Pan African CEO Cobus Loots said.
He continued: “The refinancing of our debt facilities enables the group to continue growing and investing appropriately. It secures long term funding at a competitive rate, and provides the group with a flexible financing package to manage its capital structure and liquidity.
Loots said that while Pan African remains a precious metal focused company and, in addition to ensuring that its current operations perform in line with shareholders’ expectations, Elikhulu and Evander South present exciting organic growth opportunities for the group.
The acquisition of the Uitkomst colliery does not change its precious metals focus, however the company’s robust financial position in a difficult resources market allows it to take advantage of selective opportunities within South Africa that it believes can be immediately earnings accretive to shareholders whilst not affecting its dividend policy.