Pan African Resources (LSE:PAF) — Interim Results Presentation

0:01 Good afternoon, and gentlemen, and welcome to the PAN AFRICAN RESOURCES PLC interim results investment presentation. Apologies for our short delay in starting this afternoon. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged. They can be submitted at any time using the Q and A tab situated on the right hand corner of your screen. Just please simply type in your question at any time and press send. The company may not be in a position to answer every question received during the meeting itself. However, the company will review all questions submitted today and publish responses where it's appropriate to do so.

0:30 Before we begin, we'd like to submit the following poll. If you would give that your kind attention, I'm sure the company would be most grateful. And I'd now like to hand over to Kovas Lutz, CEO from PAN AFRICAN. Good afternoon, sir. Good afternoon and thank you to all of you for joining us this afternoon. I will then proceed to go through the slides. Just summarizing our half year results for the period ended 12/31/2021. Please note the disclaimer and detail on forward looking statements on slide number two and three. And then if we just move on to an overview of the presentation on slide number four. Importantly, we'll start with an overview in detail on health and safety and also our initiatives and progress in terms of dealing with COVID-nineteen.

1:22 Then we'll just spend a couple of minutes on the highlights for the half year that's passed. We will provide an overview of our operations and how we managed to continue to operate very successfully in South Africa. We will then delve into a bit more detail in terms of operational performance by mine. All in sustaining cost is clearly a massive area of focus and we'll detail our plans and also discuss the performance for the half year that's passed. And in group capital expenditure, a couple of slides on how we continue to reinvest into our assets for the future. ESG, it's no longer a nice to have. It's critically important if one wants to have a sustainable and long term business. So we'll speak about some of our ESG initiatives, spend a bit of time on the financials for the year, half year that's past. Organic growth, we're very excited about the prospects we have for growing our production and reducing our costs at both the Evander underground and also the Royal Sheba mine at Barbaton.

2:28 And then we have further opportunity of growing and tailings retreatment both the Mintails and the Blaifuer potential opportunities. We'll spend a couple of minutes on just detailing our plans there and then just conclude by demonstrating that we are firmly on track in terms of delivering our what we need to for the full FY 2022 financial year. So let's get on to the presentation.

3:03 So health and safety, so on slide number six. Now we would be the first to say that you if you count mine safely you should not be mining at all. The half year that's passed has been excellent in terms of our safety performance, we believe we can always do better but you know we did reach a number of milestones so from a fatality free shift perspective both at Barbot and Evander it was a very good six months. You can see most of our important and critical safety rates have improved in the six months that's passed. Then in terms of COVID-nineteen, we've been on the front line in terms of dealing with the pandemic since its start. From a mining sector perspective in South Africa, we were only really curtailed in terms of production for about three weeks and our people have been back. So you know it's been critical for us to have policies and procedures and protocols in place to protect our people.

4:00 I think the industry in South Africa has done very well and specifically PAN AFRICAN now previously when we reported in September of last year we set ourselves a target of vaccinating some seventy five percent of our workforce and contractors and I'm pleased to report that actually now we've exceeded eighty percent of our people are fully vaccinated. So that definitely will assist us into the future and yes you know we've learned to live with the pandemic and we will continue to be vigilant and make sure we manage the impact on our people and operations. If we then go on to some of the highlights for the half year that's passed and that there truly were a number of highlights. In terms of gold production it was a record for PAN AFRICAN for a half year producing just over one hundred and eight zero ounces.

4:51 We'll spend a bit of time specifically discussing the Evander mines underground, but you know production is up more than 100 at Evander underground. Also importantly we managed to increase the life of that Evander eight shaft underground operation to thirteen years. So that's a big extension and it'll add a lot of value to our group in the coming years. And then initially our production guidance for the full year was 195,000 ounces. We've now upped that guidance to 200,000 ounces, which I think is also a good achievement. From a cost perspective, despite the increasing in strength against the US dollar, it's important to note that most of our costs, pretty much all of our costs are rand denominated.

5:37 So strengthening of the currency does adversely impact our dollar cost performance. But despite that strengthening of the rand we managed to reduce all in sustaining cost by more than 6%. The Vanda underground mines all in sustaining cost came down by more than 60% and then importantly 80% of our gold production was delivered at an all in sustaining cost of just north of $1,000 per ounce which is in our assessment world class and we're still targeting an all in sustaining cost for the full year of below 1,200. Also financially it was a great half for us. The record profit in South African rand terms. So profits came up very nicely. We managed to slash our net debt to what is now a very manageable $28,000,000.

6:29 On the ESG front we'll discuss it. There's a specific slide dealing with ESG but some of the highlights is the solar plant we in the process of commissioning at Evander Mines that's close to being fully constructed so we hope to switch it on in the next month or so. We also then will look to expand that facility with a further 12 megawatts and then we've completed a bankable study. It was positive on Barbaton mines installing an eight megawatt plant and we currently engaged in engineering and permitting. So conceivably in the next twenty four months our group can have circa 30 megawatts of installed solar capacity and you know that should reduce our overall consumption by some 25 to 30%.

7:18 Also water retreatment and recycling of scarce resources. We've commenced construction on a treatment plant at Evander and looking to do a similar plant at Barbaton also. And then also the large scale agriculture initiative that we have at Barbaton is fully constructed and the first harvest will happen in March or in May rather of this year. And I mean we'll talk about these initiatives but this blueberry farming project is beyond compliance so it's not required in terms of any of our licensing requirements or regulations rules but something we're doing to give back to the communities and the project in only the first phase will employ some 400 temporary employees for pretty much five months of every year and most of these people will be local women from the areas where we operate.

8:14 If we then move on to an overview of our operations on slide number 11, operating successfully in South Africa. So PAN AFRICAN has been operating for many years in South Africa very successfully. Our barbiton mines has been going uninterrupted for one hundred and thirty years tells you something about the track record and the pedigree of the asset. So electricity is clearly of concern and the reliability of the local grid. And that's why we're busy with our solar plants and that's not only fantastic from an ESG perspective, but you know it's also going to save us a lot of money and cut our cost structure in the years to come. South Africa also has access to utilities, infrastructure and technical support when we need it. It's not always the case in all African jurisdictions.

9:07 From a ten year perspective our mining rights have now been extended so Evander mines have a mining right valid valid all the way through to 2038 and Barbaton in the last year has its right extended to 2051. We have regular audits and inspections from authorities so everybody can rest assured that we're compliant as far as the regulations are concerned. And then South Africa also has a well established legal and taxation regime, which is not always the case in Africa. Security given the commodities that we mine successfully is key and we've professionalized our security function in the last years. Number of initiatives that we're undertaking to actually reduce the cost of security.

9:53 And in stakeholder engagement what we call our social license to operate. I mean we make a meaningful positive difference in the areas where we operate and examples of this being bursaries that we hand out the support of local NGOs, agriculture, other community initiatives and very proud of what we do in our local communities and for other stakeholders around our operations. If we move on to slide number 12, it's quite a decent increase organically in our production profile in the years to come And that'll come from both producing more Ilkulu but also the ramp up of the Evander 8 shaft underground. We also have a unique production mix in that we saw such a lot of our production from surface remining which again it ticks the ESG green box. We literally clean up legacy liabilities as we go.

10:51 And that's evidenced further on slide number 13. Ilekulu and BTRP as we say turning environmental liabilities into profits. Just a summary of our key assets on that slide. Ilekulu as we said it was a $120,000,000 tailings retreatment plant that we commissioned in 2018. It produces at sub $1,000 an ounce. We've managed to extend the life so the life of mine remaining is still twelve years on Elekulu. It's technologically advanced, doesn't require an awful lot of labor. And yes I mean the repayment on that initial investment of $120,000,000 was three years which we think is very attractive. The entire plant which was a brand new and modern facility as we've said took us twelve months to construct. So that tells you something about the ability of commissioning large scale new projects in South Africa.

11:47 BTRP at our Barbaton Mine it was our first foray into gold tailings reprocessing commissioned 2013. I think it was at some $30,000,000 of capex it paid itself back in eighteen months again it's been a star performer for the group still alive remaining of some two and a half years but the future of BTRP we'll discuss really the retreatment of Royal Sheba ore. There's a couple of slides on Royal Sheba as we progress through the presentation. And then you have our underground mines Barbaton and Evander. These operations benefit from very substantial sunk capital. They have long lives of mines. Barbaton has a life of twenty years and we've now extended Evanda to some thirteen years with a lot of growth potential still into the future.

12:41 So I am getting some questions on the line and if you don't mind I'll sort of just finish with a presentation and then I will deal with the questions. I'll be fairly brief. So if we then move on to slide number 15, Ilekulu production was pretty stable it just decreased somewhat and we were nicely on track for the first couple of months of the financial year and then you know we had some of the worst weather in November and December of last year. But still a decent performance all in sustaining cost of just over $900 an ounce and as we've said the life of this operation now is still remains some twelve years. We need to start remining the Lesley Bracken complex which is the next facility we'll be remining at Ilekulu. So construction is well underway on the pumping and related infrastructure at Lesley Bracken and so that will be done before the end of this calendar year. That's Ilekulu.

13:39 And then secondly BTRP tailings operation as we've said it's been also the first gold tailings retreatment plant at the PAN AFRICAN COMMISSION. We need

13:56 speak about Roshiba but you know I'm sort of it's a quality world class ore body. We've looked at listed companies that have only one ore body of lower quality. So we think there's a lot of potential in Royal Sheba going forward. So in the next years we'll reconfigure the BTRP to actually process ore from Royal Sheba. If we go to the Barbaton underground which is three underground mines, the bulk of the mining and the gold comes from Fairview and we the largest ore body we mine at Fairview is the MRC. This is probably one of the highest grading underground ore bodies in the world. You know on average 20 five-thirty grams per ton but some of it more than 100 grams per ton.

14:44 And then we also have the Sheba And Consort Mines. So you can see on the slide it's not that clear but you know we have a number of we certainly have accelerated development at Barbaton in the last years and we currently have four production platforms at the MRC and that gives us a lot of flexibility. You can see on slide 18 that we've managed to increase our development rates so there's a big focus on getting more flexibility underground. And then also optimizing the underground infrastructure so project De Bernice we've been speaking about for some years. We're happy to report it by the middle of this year, so June July, that project will be complete and it'll allow us to actually combine some of the mining from Sheba and Fairview and in doing so over the medium term reduce costs and then also free up the Sheba infrastructure for Royal Sheba in the next years as we've said.

15:38 The H Shaft Pillar, that's the other underground operation that we have at Evander. It was a fantastic success the Evanda HRF Pillar in the last six months. It's the lowest cost I believe underground gold mine in South Africa at this point so producing at sub $1,000 and yes I mean really sort of exciting development. So initially we were only mining the HRF pillar and we now extended that but with 24 level that sort of extended the life was to four years and now subsequently we've our board has announced and approved the 20 five-twenty six level which will increase the life of the eight shaft only to some thirteen years. We have some further slides on that.

16:24 Reducing all in sustaining costs. So as we've said 80% of our production was produced at an all in sustaining cost of just north of a thousand dollars. And then we have the Barbatonsheba and Consort mines. They are high cost but it's a small percentage of our overall production. The plans that we have in terms of Consort and Sheba. Consort we need to we were developing 43 level that will give us access to more gold in the next six months. You might recall that about two years ago we intersected at Consort number 42 level some of the highest grading ore bodies that sort of we've seen in many years. Some of it was forty zero grams per tonne.

17:09 So you know we're hoping to achieve the same on 43 level. So that'll deal with the unit cost of production at Consort and then Shiba as we've said the future of Shiba really is a Royal Shiba and there's a specific slide on the Royal Shiba project. All in sustaining costs pretty much in line with what we had forecast. So for the group just below 1,200 and then 80% of our production came in at just over $1,000 which is world class. Group capital expenditures we've seen we continue to reinvest into our long life assets to generate attractive returns. If we have to cut back CapEx we can but in sort of this gold price environment and just given the prospects for the group we'll continue to spend the capital and we're able to achieve this balance between

18:06 reinvesting in our assets, investing in growth and then also providing what we believe to be a very attractive cash return to shareholders in the form of dividends. We've been able to maintain that balance and certainly we'll look to do so into the future. On slide number 26, I have spoken about ESG and I mean all the great things we're doing on renewables, agriculture, on skills development. So yes, I mean part of our DNA is ESG. We released our first dedicated ESG report last year reporting in terms of global reporting initiative and we also now moving towards assurance on this report. We've engaged PLC over the next years we'll move to gaining assurance on our report also.

19:03 On the financial statements they're pretty sort of self explanatory so I won't spend time too much discussing the financials. Suffice to say on slide number 29 our margins have opened up very nicely. Gold price post Us reporting results have been bolstered further clearly and low so it's had a nice run-in the last couple of days that should definitely assist us in the next six months. On slide number 30 you can see we're very comfortable from a debt repayment perspective. Currently we're forecasting that we should pretty much be without debt towards September of this year at the prevailing gold price and it gives us a lot of flexibility on our balance sheet.

19:54 We paid the highest ever dividend in December of last year. We can discuss that but net debt to equity has come right down very comfortable on slide number 31. Slide number 32 you can see we sort of historic dividend yield of just over 5% and we've reverted pretty much to our historical average. We'd like to again look to increase dividends in the year ahead if we can. So I think that's a different key differentiator for PAN AFRICAN is just sort of the history of paying dividends and consistent dividends to shareholders over the last ten years. If we then proceed to the next slide, so near term or granny growth. We're very excited about both what we're doing on Evander and also then Barbaton. I've mentioned the life of mine extension at Evander 8 Shaft 2526 Level.

20:51 We've now demonstrated that the Evander 8 Shaft can be incredibly profitable as we said we produced at less than a thousand dollars in the last six months and we now have a life of thirteen years. The capital for twenty fivetwenty six will also be internally funded at the prevailing gold price. So you know we're not looking to incur any large levels of debt to fund twenty fivetwenty six. And you know these are some pretty compelling returns I believe on slide 35. So twenty fivetwenty six assuming a gold price it's quite a bit lower than what's currently the case. Payback period on this investment is five years from when the project commences. It's about three years from when we really spend the CapEx so that payback is actually understated.

21:41 All in sustaining cost is competitive from a global perspective and the internal rate of return we think of is very attractive. That's 25, 26 level. And then Royal Shiba at Barbaton as we've said that's the future of the VTRP and also as I've said you know we looked at listed mining companies with ore bodies that are less attractive. This Royal Sheba is almost it's a million ounces, it's a strike of eight fifty meters confirmed, average width of 10 meters starting on surface. It'll be very different mining for Barbaton in that it's mechanized so we can do thirty forty zero tons a month with only 100 people. We've started the development so that's very much in progress. First ten zero ton bulk sample we will extract in the next couple of months. You can see the production profile there and we think there's a lot of upside also on the BTRP or on Royal Sheba in that you know we're not really stretching the the BTRP and we're not including the additional plant and milling capacity we have at the Sheba and Consort plants. So watch the space for Royal Sheba and our progress.

22:59 We've sort of, as we said, we've initiated the decline that development is well underway. So certainly you will see a lot of progress from Royal Sheba when we in at Royal Sheba when we report next. And in addition to our organic growth we also have further potential growth in the tailings retreatment space. We have two opportunities Mintails and Blaifua that we're currently assessing. We need to make a call on Mintails by August of this year and Blyphur only in December. But this is an indicative production profile that we can potentially add to our existing 200 odd thousand ounces of production. So we can do another 100,000 ounces of production from Mintails and Blyfur combined.

23:46 These tailings in addition to being green, so as we've said we clean up legacy liabilities but they also are incredibly attractive from a returns perspective. Generally you'd find that you'd be producing gold at an all in cost or all in sustaining cost of sub $1,000. So that clearly means that you sort of pay back your capital quite quickly. And then I think we'll conclude and just sort of demonstrate we're very much on track in terms of meeting our guidance and deliverables for the full financial year. We've spoken about our success in vaccination on COVID-nineteen and our safety recorder which is so critically important to maintain. We've managed to increase our production guidance. We've got well underway to achieve 200 ounces for the full year.

24:34 Certainly we need to successfully execute into our capital projects on mine and then come in at that all in sustaining costs of $1,200 or below. We've spoken about the very attractive growth at H Shaft and Royal Sheba and then certainly also the potential for further tailings retreatment at Mintails and Blaiford. We will continue to also investigate other acquisition opportunities. We always have to weigh these new potential acquisitions with what we have available in our own portfolio and so the sort of returns we are consistently able to give our shareholders from our existing portfolio. So it's not easy to find new acquisitions but we continue to look and to assess. ESG as we've said very proud of our progress and it's a journey that's never ending so very hopeful that we will be able to report in the next months we've switched on our first 10 megawatt solar facility will be one of the first large scale miners to actually commission a facility of this nature in South Africa.

25:37 And then you know as has been the case in the past we will endeavor to further increase cash returns to shareholders and to the extent necessary reduce debt. But you know our debt now is at a very comfortable level. So I think that's it in terms of presentation. Mean let's go. That's great Kobus. Let me just give you a small pause. Thank you very much indeed for updating investors this afternoon. Ladies and gentlemen, please do continue to submit your questions using the Q and A tab situated on the right hand corner of the screen. But just while Kobus takes a few moments to review those questions submitted already, I'd like to remind you that recording of this presentation along with a copy of the slides and the published Q and A will be accessed via your Investor Me company dashboard. Cobus, as you can see, you saw them coming through the live meeting. Perhaps if I may just hand back to you to read out the questions from investors and give a response where it's appropriate to do so. And then I'll pick up from you at the end.

26:28 Sure. So let's go through some of the questions. Graham, you asked about an intention of introducing an interim dividend. It's something that the board discussed. I think already PAN AFRICAN, certainly in the gold space is attractive from a dividend perspective yielding 56% per annum. Again we have to balance cash payments and dividends with the other capital calls that we have and just given the fact that we have this MintailsBloodfur acquisitions on the horizon. I think the board deemed it appropriate to not proceed to an interim dividend and rather stick to a final dividend for now. Michael asked about Bladefort. Can you talk about the Bladefort acquisition and what investors should look for from a news flow perspective?

27:22 So yes, I think the first hurdle for Bladefort would be a fatal flaws analysis that we will be able certainly to put out to the market by the end of April. So that's the first bit of news flow and then certainly by December of this year we need to make a final call as to whether we proceed. By December you will have a proper feasibility study concluded on Blyphur. Paul asked about high grade ore from Consort so we'll put a couple of pictures of that high grade ore onto the website. And the revenue from blueberries also gets that revenue. So like the blueberry project is one that in our view is we structured to be sustainable so it cost us $3,000,000 but we are the owner of the project so we get the returns.

28:12 So you know it's professionally done with a partner that is actually a large scale blueberry operator already. So So we expected we should be able to earn a return of some 15 odd percent per annum on our $3,000,000 investment which you know is not bad and I think that's an example of how one can do sustainable initiatives where everybody benefits. So financial capacity we have available we have clearly a sort of quite large undrawn facilities but it very much depends on the new acquisition. Tailings operations such as Mintails, Playfair, sort of Mintails probably order of magnitude to construct or initial CapEx on Mintails rather would be let's say $140 odd million.

29:05 We don't see if we were to proceed a need to raise equity. I think we can fund that sort of project with sort of our capacity we have on the balance sheet at the present plus some project specific finance if the opportunity stacks up. Also there was a question around our exposure to oil. Yes, I mean it's not massive. Sort of we do get a lot of our reagents from SASL in South Africa but you know they continue to operate quite successfully. Michael asked about organic growth versus M and A. As we've said, I mean it's always a trade off because we have such a lot of attractive, some big attractive optionality in our own portfolio so we constantly have to weigh that up against acquisitions.

30:02 We think both Mintails and Blayford could potentially be very attractive. Nowhere else in the world can you buy a million ounces on surface for what we've potentially agreed to pay for these assets. Again we have to make sure that they stack up technically and then proceed. But yeah we certainly spoilt for choice as far as growth is concerned. Stephen is asking about MC mining. We own still own those shares in MC mining and we continue to engage with the board and with the other shareholders of MC to see if there's anything to be done. The other performance has been quite disappointing. I wouldn't really want to comment outside of that in terms of that investment. You know we're a minority shareholder and all I can assure you is that we'll do what we can to protect the value that PAN AFRICAN has as far as MC is concerned and look ESG we as far as coal I mean PAN AFRICAN purposely exited our alcohol business so you know we're a pure gold play. Metallurgical coal will not disappear anytime soon. So I don't think it's you know one shouldn't comment too much about that.

31:23 Simon is asking about gold hedging. So we don't have any gold hedges at this point. I don't think it's necessary for us to have gold hedges. Most of our shareholders want clear and clean exposure to the gold price. You know that's different when you have large unfunded capital programs or you have a lot of debt, we don't have any of that. So I mean at this point there's no need for us to look at extensive gearing or hedging rather. If we do proceed with something like a mint tails, clearly we'll have to reassess the merits at that point. That's great, Kobus. I think you've actually addressed every question from investors. So thank you to all those that have submitted questions. And indeed, if any further questions do come through Kobus, we'll make those available to you post the meeting.

32:09 Cobus, I'll shortly redirect investors to provide you with their feedback, give you their thoughts and expectations. But before doing so, I wondered if I could just ask you for a few closing comments just to wrap up with, after which I'll redirect investors to give you their thoughts and expectations. No, thank you. So again, thank you to everybody for dialing in today and it's been a very good six months for PAN AFRICAN on all fronts. We're very excited about the next six months. There's a lot of work that we need to do. But you know certainly we have tailwinds as far as the gold price is concerned at this point. We have a lot of exciting growth in the pipeline and we look forward to engaging in the near future. That's great, Kobus. Thank you once again for updating investors this afternoon. Could I please ask investors not to close this session as we'll now automatically redirect you for the opportunity to provide feedback in order that the management team can better understand your views and expectations.

33:02 This will only take a few moments to complete, but I'm sure will be greatly valued by the company. On behalf of the management team of PAN AFRICAN RESOURCES, I'd like to thank you for attending today's presentation and good afternoon to you all.