REG-Pan African Resources Plc: Operational Update <Origin Href="QuoteRef">PAFR.L</Origin>

Pan African ResourcesAnnouncement

20/07/2017 11:05

Pan African Resources PLC (Incorporated and registered in England and Wales under Companies Act 1985 with registered number 3937466 on 25 February 2000) AIM Code: PAF JSE Code: PAN ISIN: GB0004300496 (‘Pan African’ or ‘the Group’)          

OPERATIONAL UPDATE

Pan African, the African-focused precious metals producer, is pleased to
provide an operational update for the year ended 30 June 2017 (‘current
reporting period’).

KEY FEATURES AND HIGHLIGHTS
* Gold produced for the current reporting period was approximately 173koz,
4.4% below the production guidance provided. This was due to the slower than
anticipated restart of the underground mine at Evander Gold Mining Proprietary
Limited (‘Evander Mines’) and operational challenges experienced at
Barberton Mines Proprietary Limited (‘Barberton Mines’), which have now
been remedied.
* Evander Mines 7 shaft refurbishment has been successfully completed, and the
restructuring programme is materially complete.
* Elikhulu Tailings Retreatment Plant (‘Elikhulu’) is fully funded and
construction on-track.
* Feasibility study completed for a sub-vertical shaft at the high-grade
Fairview mining operation at Barberton Mines, with an estimated capital
expenditure of R105 million, to be spent over a two year period. This project
should yield an additional 7-10koz of gold per annum.
* Encouraging high grade drill result at Evander Mines’ 2010 Pay Channel
orebody, which has prompted a feasibility study to assess the economic
viability of expanding the underground mining operations.
* Completion of disposal of Uitkomst Colliery Proprietary Limited (‘Uitkomst
Colliery’) on 30 June 2017.
* Strong statement of financial position with net debt of R66.7 million at 30
June 2017 (30 June 2016: R339.7 million) and available debt facilities of
R880.2 million.
* Production guidance for the 2018 financial year in excess of 190koz.
CEO STATEMENT

Cobus Loots, the CEO of Pan African, commented:  “The 2017 financial year
was operationally challenging in many respects, however the Group is now
seeing the benefits of the remedial actions implemented by management.   We
look forward to a much improved performance in 2018, with a substantial
increase in gold production.  The Elikhulu project is on track for delivering
first gold as originally planned, and is expected to contribute low-cost
ounces and profits in the next 18 months.  We are excited about the prospects
for the Evander Mines’ 2010 Pay Channel project; the Evander Mines team now
has to bring the project to account in the near term, in a profitable and
value-accretive manner.  During the past year, Pan African has reaffirmed our
gold focus and again delivered transactions that crystallise shareholder
value.”

PRODUCTION PERFORMANCE AND 2018 GUIDANCE

Pan African’s gold production for the current reporting period was 4.4%
below its revised gold production guidance (announced on 20 February 2017) at
approximately 173Koz. As per the announcements of 10 March 2017 and
10 April 2017, the Group is pleased to report that the initial Evander Mines
shaft refurbishment has been successfully completed, and the restructuring
programme is materially complete. This will result in substantial cost savings
going forward.

In the next financial year, the following initiatives will continue at Evander
Mines to ensure a sustainable and consistent performance from the operation:
* Continuation of the engineering work plan to improve the reliability of the
shaft and related infrastructure, including: * 8 Shaft pump column;
* 7 Shaft steelwork i.e. buntons and guides; and
* 7a and 8 Shaft, shaft bottom arrangements.

* Improving the total meters squared blasted per panel and per crew.
* Clean mining programme: * Stoping width reduction, with the introduction of
improved hanging wall support;
* Improved fragmentation resulting from optimisation of the blast design; and
* Improve quality of sweepings with the introduction of user-friendly blasting
barricades and additional sweeping tools.

* Old gold vamping, which is the cleaning of mud accumulations in redundant
declines and spillage in and around the belt declines.
* Pillar mining and vamping at 7 Shaft.
Mining in the high-grade areas in Fairview’s 11-block is also now
established and expected to continue for the remainder of the 2018 financial
year.  Productivity improvements are expected at Fairview following the
commissioning of a new bulk air cooler, which will reduce the ambient
temperature at the work face by approximately 3 to 4 degrees Celsius. To
address the flexibility constraints currently experienced at Fairview, and
increase gold production from this very high-grade and long life ore-body, a
feasibility study into a new sub-vertical shaft has been finalised. The
findings of the feasibility study are detailed in the growth projects section
below.

The Group’s gold production guidance for the financial year ending 30 June
2018 is in excess of 190Koz, an increase of approximately 10% on 2017 gold
production.

GROWTH PROJECTS

ELIKHULU PROJECT UPDATE

The Elikhulu project is progressing according to plan with project completion
and first gold expected in the last quarter of the 2018 calendar year.
Following the successful US$50 million equity raise on 12 April 2017, Pan
African has commenced funding the initial capital expenditure on the Elikhulu
project’s civil engineering works and the procurement of long-lead-time
items, such as the tower crane and the carbon-in-leach tanks, which are
critical to ensuring construction deadlines are met.

Capital expenditure of approximately R175 million has been incurred on the
Elikhulu project during the current reporting period, and capital spend
remains on track relative to the total initial forecast capital expenditure of
R1.74 billion.

Pan African is also pleased to announce that the facility agreement for the R1
billion Elikhulu term debt facility has been signed. The facility was
underwritten by Rand Merchant Bank, a division of FirstRand Bank Limited, and
the syndication has closed successfully, with an over-subscription of more
than 50%. The appetite shown by the banking market highlights the quality of
the project, which prevailed despite the negative sentiment at the time of the
release of the new Mining Charter. Utilisation of the facility is subject to
the fulfilment of customary conditions precedent, and the first drawings under
the seven-year facility are scheduled for the final quarter of the 2017
calendar year.

Together with the Group’s existing R1 billion revolving credit facility,
these facilities comprise the core debt instruments for funding the Group’s
capital expenditure programmes. The low-cost, long-life Elikhulu project is
expected to increase the Group’s annual gold production by more than 50koz
per annum and reduce the Group’s average all-in cost of production.

BARBERTON MINES SUB-VERTICAL SHAFT PROJECT AT FAIRVIEW

The Fairview mining operation is currently restricted by the hoisting capacity
of its No.3 Decline, which is used to access workings below 42 Level.  This
decline is currently used to transport employees, material, and for rock
hoisting.  The 11-block, or MRC, orebody has an average grade of 31.3 g/t and
current life-of-mine of 22 years.  With no intervention, future mining at
depth will result in increased travelling distance, reduce employee face time
and cause a lack of capacity to ensure both ore replacement and exploration
development.

Pan African, with the assistance of DRA Projects SA Proprietary Limited
(‘DRA’), has completed a feasibility study on the construction of a
raise-bored, sub-vertical shaft from Fairview’s’ 42 Level to 64 Level,
with the potential of continuing the vertical shaft in future to 68 Level. 
This sub-vertical shaft will be used to transport employees and material to
the working areas, which will allow the No.3 Decline to be used exclusively
for rock hoisting, increasing overall capacity and production from this mining
area.

DRA has reviewed the technical and commercial aspects of the project and the
supporting feasibility study has yielded very positive results. The estimated
capital expenditure for the project, including contingencies, is approximately
R105 million, to be incurred over a two-year period. The productivity
improvements for Fairview are estimated to yield an additional 7,000oz of gold
per annum, which can be optimised further to more than 10,000oz per annum.

EVANDER MINES 7 SHAFT NO. 3 DECLINE AND 2010 PAY CHANNEL

The 2010 Pay Channel resource is adjacent to the 7 Shaft infrastructure and
extends from the boundary of Taung Gold International Limited’s 6 Shaft
project and mining rights.  As previously reported, Evander Mines embarked on
an exploration programme to drill a further exploration borehole from surface,
to increase geological confidence in the 2010 Pay Channel orebody, for which
resources are summarised in the table below:

 7 Shaft: No.3 Decline and 2010 Pay Channel resources 
  Category   Tonnes  Grade    Contained gold    
            million   g/t    tonnes      Moz    
 Measured       0.52  11.02      5.80      0.19 
 Indicated      0.34  10.02      3.50      0.11 
 Inferred       5.41  10.85     58.70      1.89 
 Total          6.27  10.82     68.00      2.19 

On 6 July 2017, the exploration borehole successfully intersected the
Kimberley reef at a depth of approximately two kilometres, highlighting a reef
intersection with a 6cm width at 36.8g/t. Additional drilling deflections will
be performed to further delineate the ore body.  The previous borehole into
the 2010 Pay Channel yielded a reef intersection with a 49 cm width at
36.04g/t.

Harmony Gold Mining Company Limited previously developed the 7 Shaft mine
workings towards the 2010 Pay Channel, however due to financial constraints
and a reassessment of capital priorities, all development on the Evander
Mines’ shafts (other than 8 Shaft) was halted in 2009. This resulted in the
controlled flooding of the development ends and 7 Shaft’s No.3 Decline, from
22 level up to 18 Level. Following the dewatering, only standard footwall and
on-reef development would need to be completed, with the associated
engineering infrastructure, before mining can commence.

The 2010 Pay Channel is approximately three kilometres in tramming distance
from 7 Shaft, which is currently used by Evander Mines for hoisting to the
Kinross metallurgical plant. This compares favourably with the 8 Shaft mining
areas, which are approximately 10 kilometres in tramming distances from 7
Shaft.

The Pan African project team has commenced a feasibility study related to the
7 Shaft No.3 Decline and 2010 Pay Channel resource, which will address the
following critical issues:
* Collation of geological data from the drill hole intersection and
deflections;
* The cost and timing of dewatering and re-equipping the 7 Shaft No.3 Decline
from 18 Level to 22 Level;
* The development cost and timing to access the 2010 Pay Channel; and
* The economic viability of the project.
The 2010 Pay Channel can potentially increase Evander Mines’ underground
gold production significantly at a relatively low capital cost, using Evander
Mines’ established shaft and metallurgical facilities.  The feasibility
study for the project is expected to be completed during Q1 2018.

DISPOSAL OF UITKOMST COLLIERY

The Uitkomst Colliery disposal to Coal of Africa Limited (‘CoAL’) became
effective on 30 June 2017 (“effective date”). On the effective date CoAL
took ownership, control and management of Pan African Resources Coal Holdings
Proprietary Limited, the holding company of Uitkomst Colliery. Pan African
received its consideration on conclusion of the disposal on the effective date
as follows:
* R125 million in cash
* R125 million through the issue of 261,287,625 new ordinary shares in CoAL
* R25 million in interest bearing deferred consideration which may be paid by
CoAL at any time prior to the second anniversary of the effective date.
GROUP NET DEBT POSITION AND INVESTMENTS

The Group’s statement of financial position is robust with net debt at 30
June 2017 of R66.7 million
(30 June 2016: R339.7 million). Available debt facilities at 30 June 2017 were
R880.2 million (30 June 2016: R624.6 million).

The Group net debt is comprised of R161.2 million in cash and cash
equivalents, and R227.9 million of drawn debt facilities.

The groups holding in CoAL shares, which is classified as an investment, was
valued at approximately R127.5 million at 30 June 2017.

FINAL RESULTS

The final audited results for the year ended 30 June 2017 are expected to be
published on or about
20 September 2017.

Shareholders are advised that the financial information contained in this
announcement has not been reviewed or reported on by Pan African’s external
auditors.

By order of the Board

Johannesburg

20 July 2017

 Contact information                                                                                                                                                                                                                                                                                                                                       
 Corporate Office The Firs Office Building 1st Floor, Office 101 Cnr. Cradock and Biermann Avenues Rosebank, Johannesburg South Africa Office: + 27 (0) 11 243 2900 Facsimile: + 27 (0) 11 880 1240  Registered Office Suite 31, Second Floor 107 Cheapside London EC2V 6DN United Kingdom Office: + 44 (0) 207 796 8644 Facsimile: + 44 (0) 207 796 8645  
 Cobus Loots Pan African Resources PLC Chief Executive Officer Office: + 27 (0) 11 243 2900                                                                                                          Deon Louw Pan African Resources PLC Financial Director Office: + 27 (0) 11 243 2900                                                                   
 Phil Dexter St James's Corporate Services Limited Company Secretary Office: + 44 (0) 207 796 8644                                                                                                   John Prior / Paul Gillam Numis Securities Limited Nominated Adviser and Joint Broker Office: +44 (0) 20 7260 1000                                     
 Sholto Simpson One Capital JSE Sponsor Office: + 27 (0) 11 550 5009                                                                                                                                 Matthew Armitt / Ross Allister Peel Hunt LLP Joint Broker Office: +44 (0) 207 418 8900                                                                
 Julian Gwillim Aprio Strategic Communications Public & Investor Relations SA Office: +27 (0)11 880 0037                                                                                             Jeffrey Couch/Neil Haycock/Thomas Rider BMO Capital Markets Limited Joint Broker Office: +44 (0) 207 236 1010                                         
 Bobby Morse/Chris Judd Buchanan Communications Public & Investor Relations UK Office: +44 (0) 207 466 5000                                                                                                                                                                                                                                                

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