REG-Pan African Resources Plc: Operational Update

Pan African ResourcesAnnouncement

21/05/2021 07:05

Pan African Resources PLC

(Incorporated and registered in England and Wales under Companies Act 1985
with registered number 3937466 on 25 February 2000)

Share code on AIM: PAF

Share code on JSE: PAN

ISIN: GB0004300496

ADR ticker code: PAFRY

(Pan African or the Company or the Group)

OPERATIONAL AND GROWTH PROJECTS UPDATE

Pan African is pleased to provide shareholders with an update on the
Company’s operations and growth projects.

HIGHLIGHTS
* FY 2021 production guidance increased to ca. 195,000oz of gold for the
financial year ending 30 June 2021, exceeding the previous production guidance
of ca. 190,000oz.
* The Group continues to maintain stringent policies and protocols to mitigate
the effects of the ongoing COVID-19 pandemic on employees and operations.
* Production from Evander’s 8 Shaft pillar has significantly improved in the
2(nd) half of the 2021 financial year, with average production of ca. 3,400oz
per month, for the last three months.  The 8 Shaft pillar has a remaining
life in excess of 2 years, and is expected to produce ca. 80,000oz of gold
during its remaining life of mine (LoM) (ca. 34,000oz per annum).
* As part of its continuous evaluation of the respective merits of its growth
opportunities and capital expenditure priorities, the Group has completed an
internal study into the extensive gold resources at the 24 level at
Evander’s Underground operations (24 Level project), with ca. 100,000oz
recoverable, and accessible through the 8 Shaft number 2 decline.  The 24
Level project will extend the LoM of Evander with a minimum of two and a half
years.
* The independent fatal flaw analysis and subsequent concept study completed
on the Mintails SA’s tailings resources (Mintails Transaction) has yielded
positive results. The initial phase of this project has the potential to
produce some 533,000oz of gold over an estimated 12 year LoM at an AISC of ca.
$800/oz, according to the initial studies.
* In light of the positive concept study on the merits of the Mintails
Transaction and the reassessment of the mining opportunity at the 24 Level
project, the Group has reprioritised its capital expenditure programmes as
follows: * It will now implement a phased approach for the development of the
Group’s Egoli project, with significantly reduced upfront capital
requirements, materially reducing the requirement to raise debt to fund this
project in the ensuing years
*  It will complete a pre-feasibility study (PFS) during the third quarter of
the 2021 calendar year and a definitive feasibility study during the first
quarter of the 2022 calendar year on the Mintails Transaction;
* It has commenced preparatory work for the mining of the 24 Level project

* Site clearance and procurement of major components for the Evander Mines’
solar photovoltaic plant (Evander Solar Plant) has commenced and the project
is on track for commissioning during the third calendar quarter of 2021.
* The Group expects to maintain a similar production level for the 2022
financial year.
Pan African CEO Cobus Loots commented:

“We are pleased with the robust operational performance for the year to
date, and that we again expect to exceed our original full year production
guidance.

We are encouraged by the outcome of the recently completed concept study for
the Mintails Transaction, which confirms our initial assessment of the
asset’s potential.  Our team is now focussed on completing the
pre-feasibility study early in our next financial year. 

The Evander 8 Shaft pillar project is now performing in line with our
expectations, and generating the anticipated returns on this capital
investment. 

We have re-evaluated our capital expenditure priorities following the receipt
of the positive Mintails concept study and the 24 Level project study,
resulting in a more phased approach for the development of the Egoli project.
This approach will extend the life of Evander 8 shaft and reduce our reliance
on debt funding for Egoli’s development, enabling the Group to maximise the
value of our assets and also returns to our shareholder.

The successful completion of the Evander Solar Plant in the next months will
pave the way for further renewable energy initiatives, so as to further reduce
our carbon footprint and further increase operating margins”

INCREASED PRODUCTION GUIDANCE FOR 2021 FINANCIAL YEAR

The Group now expects to produce ca. 195,000oz for the 2021 financial year,
representing an increase of 5,000oz relative to the previous production
guidance of 190,000oz.

Based on current planning, the Group expects to maintain similar production
levels for the 2022 financial year.

COVID-19 UPDATE

The Group remains vigilant in its efforts to prevent and mitigate the impact
of the COVID-19 virus on its people and operations. It continues to diligently
implement operating procedures and protocols and to monitor the impact of
COVID-19 on our operations and surrounding communities.

UPDATE ON GROWTH PROJECTS

Mintails Transaction

1. Transaction background and rationale  

As announced on 6 November 2020, Pan African entered into conditional
sale-of-shares agreements (Sale Agreements) to acquire the total share capital
and associated shareholder loans and other claims of Mogale Gold Proprietary
Limited (Mogale Gold) and Mintails SA Soweto Cluster Proprietary Limited
(MSC), collectively Mintails SA.

2.Initial fatal flaw analysis and concept study update

In January 2021, Pan African commissioned DRA Global to complete a fatal flaw
analysis on Mintails SA’s assets to be acquired which identified no fatal
flaws on either the Mogale Gold or MSC assets.

Following the positive findings of the fatal flaw analysis, a concept study
was conducted on the Mogale Gold assets, including a high-level financial
evaluation.  This study indicated an optimal tailing throughput feed of ca.
800,000 tonnes per month, with anticipated recoveries of ca. 53%. The
anticipated upfront capital required of ca. ZAR1 000 million and ZAR1,700
million capital over the LoM will be confirmed during the next stage of the
project planning.

The concept study did, however, identify areas that would require further
evaluation during the pre-feasibility stage of the project, including:
* TSF deposition capacity constraints, which would require additional
development to support the anticipated life of the project; and
* The availability of water sources in the area to supply the re-mining of the
Mogale Gold or MSC assets.
* Additional confirmatory process test work to confirm gold recoveries.
Key inputs used in the concept study’s financial evaluation include:
* Real discount rate post tax – 10.71%
* Gold price – US$1,770/oz
* Exchange rate – US$/ZAR14.50
* NPV – ZAR1,469 billion (US$101.3 million at an exchange rate of US$/ZAR:
14.50)
* RATIRR* – 42.8%
* Project capital – ZAR1,000 million (US$68.9 million at an exchange rate of
US$/ZAR: 14.50)
* Expected LoM – 12 years
* Average annual production – 44,400oz
*Real after-tax internal rate of return

?3. Future development

Pan African and its subsidiaries have a proven track record of successfully
commissioning and operating tailings retreatment projects, as demonstrated by
the Barberton tailings re-treatment plant, the Evander tailings re-treatment
plant and most recently its flagship Elikhulu operation.

A pre-feasibility study will be completed during the third quarter of the 2021
calendar year, and, if positive, will be progressed to a definitive
feasibility study, expected to be completed during the first quarter of the
2022 calendar year.

Evander Mines underground strategy

8 Shaft pillar

Following technical challenges experienced during the initial phases of the 8
Shaft pillar mining, production levels anticipated in the original feasibility
study have now been achieved.  This operation is expected to produce an
average of 34,000 oz per year over its remaining LoM of two years and five
months, measured from end of the 2021 financial year. 

The Group reassesses the respective merits of its growth opportunities and its
capital expenditure priorities on an ongoing basis. This process, together
with the early-stage attraction of the Mintails Transaction, has resulted in
the reappraisal of the current Egoli project development plan, as well as a
re-evaluation of existing underground mining opportunities at Evander Mines’
24 level.

This capital expenditure reprioritisation is expected to result in improved
cash returns and will require a substantially reduced capital outlay and
commensurate reduced debt levels, when compared to the previous Egoli
development plan.

The table below details the available Mineral Reserves and Resources as at 30
June 2020 (prepared in accordance with SAMREC Code), accessible through
existing 8 Shaft infrastructure, at Evander’s Underground operations.

 Category                     Tonnes     Grade (g/t)  Gold (kg)  Gold (oz)  
                           Evander 8 Shaft Pillar                           
 Proved Mineral Reserves      342 068    9.83         3 362      108 000    
                     Phase 1 (Evander 8 Shaft 24 level)                     
 Measured Mineral Resources*  301 788    10.46        3 158      101 523    
              (Possible Phase 2) (Evander 8 Shaft 25-26 level)              
 Measured Mineral Resources   759 781    11.99        9 110      292 878    
 Indicated Mineral Resources  698 700    12.63        8 827      283 790    
 Inferred Mineral Resources   328 950    12.93        4 252      136 715    
                               Egoli Project                                
 Proved Mineral Reserves      447 163    5.90         2 640      85 000     
 Probable Mineral Reserves    2 987 864  6.72         20 076     645 000    
 Total Mineral Inventory      5 866 315  8.77         51 424     1 652 907  

*The Phase 1 Mineral Resources can be converted to a Proved Mineral Reserve at
30 June 2021.

8 Shaft decline

Following the cessation of deep level underground mining at Evander during May
2018, after a decline in the Rand gold price at the time, the Group has
continued to maintain the infrastructure’s integrity, to preserve the
mineral resources, and conduct limited vamping operations.

As part of its medium-term capital deployment strategy, an internal technical
and economic study, to assess merits of mining the number 2 decline on 24
Level project (Phase-1). This study will be followed by a Phase-2 study that
will assess the merits of extending mining to 25 and 26 levels. Phase-2 will
also be designed to utilise a proven on-reef mining layout, minimising waste
and significantly reducing the time for ore body access development.

Phase-1 mining will extend Evander’ 8 shaft production profile, post
cessation of the 8 Shaft pillar mining, for an additional two and a half years
and maintain annual production of approximately 34,000oz per year. The 24
Level project will result in a five-year life for the Evander 8 Shaft complex.

An integral component of the Phase-1 study was the identification of risk
mitigating measures to address the major challenges previously encountered
during the mining of the Kinross orebody and ensure economical extraction.

The principal challenges identified and the planned mitigation measures are
outlined below:

 Factors                                       Prior to 2018 curtailment of operations                                         Current Study mitigation measures                                                                                             
 Low efficiencies                              High temperatures due to inadequate refrigeration capacity                      Installation of a new refrigeration plant at a capital investment of approximately ZAR170 million.                            
 Ore and waste separation                      Waste was previously hoisted to surface                                         Underground waste handling and storage facilities are to be installed at a capital investment of approximately ZAR60 million  
 Face time                                     Limited face time due to excessive underground travelling distances             Installation of a man carriage on 24 level                                                                                    
 Labour intensive ore handling infrastructure  Production requirements entailed three shifts to operate on a continuous basis  Reduced tonnage profile requires only one shift to be manned to meet planned production targets                               

Key inputs used in the internal technical and financial assessment include:
* Real discount rate post tax – 10.71%
* Gold price – US$1,770/oz
* Exchange rate – US$/ZAR14.50
* NPV – ZAR126.1 million (US$8.7 million at and exchange rate of US$/ZAR:
14.50)
* RATIRR* – 26.6% (calculated based on Phase-1 cash flows only)
* Project capital required – ca. ZAR320 million, to be funded internally and
from existing facilities
*Real after-tax internal rate of return

Egoli Project (Egoli)

Following the reprioritisation of the Group’s capital expenditure
programmes, a more phased approach for the development of the Egoli Project
will be followed, concurrent with the 8 Shaft Phase-1 and possible Phase-2
developments at 24, 25 and 26 level, as described above.

Egoli’s first phase development will entail the dewatering of the number 3
decline infrastructure to 19 level, where a drilling platform will be
established to enable infill drilling, in order to finalise short-term mine
planning.

The Egoli project’s phased development approach and production profile will
coincide with the depletion of the 24 Level mineral resources.

EVANDER MINES’ SOLAR PHOTOVOLTAIC PLANT

During the first calendar quarter of 2021, the Group contracted with juwi
Renewable Energies Proprietary Limited, to construct a 9,975MW solar
photovoltaic plant at Evander Mines.  Civil works and the procurement of
major components have commenced and commissioning is anticipated in the third
calendar quarter of 2021.

The solar photovoltaic plant will provide an estimated 30% of Elikhulu’s
power requirements, resulting in a reduction of fossil fuel-generated power
and an expected annual CO(2) saving of more than 26,000t in the first full
year of operation. A feasibility study for a similar solar photovoltaic plant
at Barberton Mines is currently being undertaken as well as expanding the
Evander plant currently being constructed to meet the Evander underground
power requirements and to reduce the escalating cost of electricity.

COMPETENT PERSON

The competent person for Pan African Resources, Hendrik Pretorius, the manager
for group mineral resource management, signs off the Mineral Resources and
Mineral Reserves for the Group. He is a member of the South African Council
for Natural Scientific Professions (SACNASP 400051/11 – Management
Enterprise Building, Mark Shuttleworth Street, Innovation Hub, Pretoria,
Gauteng Province, South Africa), as well as a member in good standing of the
Geological Society of South Africa (GSSA – CSIR Mining Precinct, Corner
Rustenburg and Carlow Roads, Melville, Gauteng Province, South Africa).
Hendrik has 17 years' experience in economic geology and mineral resource
management (MRM). He is based at The Firs Office Building, 2nd Floor, Office
204, Corner Cradock and Biermann Avenues, Rosebank, Johannesburg, South
Africa. He holds a BSc (Hons) degree in Geology from the University of
Johannesburg as well as a Graduate Diploma in Mining Engineering from the
University of the Witwatersrand. Hendrik has reviewed, and approved, in
writing the information contained in this document as it pertains to Mineral
Resources and Mineral Reserves.

For more detail on the reported Mineral Resources and Mineral Reserves, the
FY2020 annual Mineral Resource and Mineral Reserve Report is published on our
website www.panafricanresources.com

The information contained in this update is the responsibility of the Pan
African board of directors and has not been reviewed or reported on by the
Group’s external auditors.

Rosebank

21 May 2021

This announcement contains inside information.

For further information on Pan African and its ESG initiatives, please visit
the Company's website at www.panafricanresources.com

 Contact information                                                                                                                                                                                                                                                                                  
 Corporate Office The Firs Office Building 2nd Floor, Office 204 Cnr. Cradock and Biermann Avenues Rosebank, Johannesburg South Africa Office: + 27 (0)11 243 2900 info@paf.co.za  Registered Office Suite 31 Second Floor 107 Cheapside London EC2V 6DN United Kingdom Office: + 44 (0)20 7796 8644  
 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/Jane Kirton St James's Corporate Services Limited Company Secretary Office: + 44 (0)20 7796 8644                                                                      Ross Allister/David McKeown Peel Hunt LLP Nominated Adviser and Joint Broker Office: +44 (0)20 7418 8900           
 Ciska Kloppers Questco Corporate Advisory Proprietary Limited JSE Sponsor Office: + 27 (0)11 011 9200                                                                             Thomas Rider/ Nick Macann BMO Capital Markets Limited Joint Broker Office: +44 (0)20 7236 1010                     
 Hethen Hira Pan African Resources PLC Head: Investor Relations Tel: + 27 (0)11 243 2900 E-mail: hhira@paf.co.za                                                                   Website: www.panafricanresources.com                                                                               



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