Upper Echelon Podcast: Jan Nelson - CEO, Pan African Resource
ALEC HOGG: Upper Echelon is brought to you by Deloitte for innovative thinking and thorough strategic planning. Jan Nelson, chief executive of Pan African Resources is in our Upper Echelon this week - Jan it is interesting to look back - that you started your career in the mining industry by going to the University of Johannesburg and doing geology. Why did you decide on that university in particular?
JAN NELSON: It was the closest to home - so that’s why I went - at that stage still known as Rand Afrikaans University but now the University of Johannesburg.
ALEC HOGG: Because it isn’t really that well known for its geology department. We hear of Wits and we hear of even Natal University but I suppose back in those days there must have been something that motivated you to go and learn about rocks.
JAN NELSON: I actually wanted to go and study marine biology and when I actually got to university they said to me “you are never going to make any money and all the money is in mining so why don’t you go and study geology” - so I went and saw the professor who was the head of the department, Professor Chris Roering at the geology department, and when he started telling me about all the plates and how they move and crash and generate lava I was hooked and I said I wanted to study geology. So that’s how it started and they actually had quite a good geology department at RAU.
ALEC HOGG: It’s a shame - we’re so rich in our history and one of the oldest rock formations in the world here in South Africa and yet not too many people know about it.
JAN NELSON: No, it’s actually quite sad but in the geological fraternity it is quite well known and there are a lot of professors that come out to South Africa on a regular basis to still study the rocks here.
ALEC HOGG: And you have the oldest rock formation in the world - where you guys mine in Barberton.
JAN NELSON: Yes.
ALEC HOGG: That I guess was the enterprise transforming transaction that everyone talks about, 2007 you were running a small little business called Pan African Resources doing some exploration on the continent and the Metorex Group decided it wanted to sell, or did you decide you wanted to buy?
JAN NELSON: No it was quite an interesting transaction. We were an exploration company with projects in Ghana, the Central African Republic and Mozambique and I think the decision at that stage from Metorex was they were a multi-commodity vehicle and they thought that if they took the gold mine which didn’t think had a premium in this multi-commodity vehicle, and put it with a company that had a project pipeline it would get a re-rating. That unfortunately never happened but inherently that was the birth of Pan African and currently Barberton is our flagship. So it was a very good transaction for us in the end.
ALEC HOGG: It’s been going since the late 1800s, the mines down there. Is there still a lot of gold left?
JAN NELSON: Yes, we’ve spent quite a lot of money in the last three or four years on the mine and we’ve extended the life to over 15 years and we are also drilling our prospecting permit at the moment and if we find something there we could have a whole new mine - there are two other companies also actively doing a lot exploration. So there’s quite a lot of activity in the Barberton region and as you said it’s quite amazing. It’s being going so long but there’s still a lot of potential out there. So yes, it’s very nice.
ALEC HOGG: Just for people who don’t understand mining, you’ve proven another 15 years. What exactly does that mean?
JAN NELSON: It just means that we’ve applied geological and drilling methods to such a level that’s there’s enough confidence that we will be able when we go down there and find it at the right grade and the right volumes and at current conditions in terms of costs, that we can actually extract those reserves and resources economically. So it’s just to give that comfort that we’ve applied science and that we’ve applied enough data to it to show that it can work.
ALEC HOGG: If it’s been mined since 1874, is it one of those formations where the deeper you go, the gold just continues?
JAN NELSON: There are two schools of thought. The one school says you’ve been going for 100 years, are you sure that there’s anything left and the other school says it’s been going for 100 years so there should be another 100 years. But we’ve drilled it down to the extension of the Fairview Mine where we are mining an ore body that is 10 to 15 meters wide, anywhere at between 60 and 100 grams a tonne and that ore body seems to go down another 400 meters. So that is quite exciting but obviously as you go deeper, your costs increase. So we are also looking a little shallower on other areas of the tenement that we hold.
ALEC HOGG: Does it end at 400 meters or is that just as far as you’ve explored?
JAN NELSON: No, we’ve drilled down 200 meters below the last level and in terms of the rules that allow you to project, we can only project with confidence another 200 meters, but we still believe that it’s open-ended. But for us at this stage to drill … the money you have to spend to drill down another 800 meters doesn’t make sense so as we then develop down another three or four levels we will drill down deeper.
ALEC HOGG: I was at the Mponeng Mine this last week and they were telling me there that they are going down to four kilometres. They are already 3.5 kilometres - it’s the old Western Deep levels. That’s a long way underground, how deep is it in the Barberton Mines?
JAN NELSON: Currently we are sitting at a depth of about 1.6 kilometres below surface. We have mining about 300 meters below surface but at the deepest part of our mine we are down 1.6 kilometres.
ALEC HOGG: That’s pretty deep.
JAN NELSON: I think for a greenstone gold mine that is pretty deep and there’s a lot of infrastructure to take you down and we put down about 1,800 people every day so it’s quite amazing and if you look at what the South African industry put down it’s actually quite an amazing thing.
ALEC HOGG: What brought you into mining - into where you are right now at Pan African Resources and I say this because mining is booming all over the world and the opportunities for well-trained South Africans - and you worked at Gold Fields, you worked at Harmony - to work in other parts of the world and for other companies, the attraction is very strong?
JAN NELSON: I think so. I was lucky to start my career at Gold Fields and it was a very good training school and the same with Harmony and I worked for a Canadian company. I spent most of my life, although Pan African started out as an exploration company, I am actually a mine geologist by profession and I like the mining. Even though you go underground I like interacting with the people. It’s a very exciting business, multi-disciplinary business, there are a lot of people involved and I actually like mining more than I like exploration. It’s quite strange.
ALEC HOGG: And you focussed quite a lot on Africa. You mentioned earlier Ghana, Central African Republic, and Mozambique. Did you explore Ghana - one knows it’s a gold province, the other two are not terribly well known though?
JAN NELSON: No a function of when I joined Pan Africa, the Ghana project was in the company already and the Mozambique project so we inherited those. We looked at Ghana, we didn’t see any prospectivity so we decided to drop that project and then we picked up quite an exciting piece of ground in the Central African Republic that we drilled but we didn’t find anything and the Manica project is advancing quite well in Mozambique - so a bit of mixed fortune in terms of exploration.
ALEC HOGG: How different is it mining in parts of the continent like the Central Africa Republic to say, a more dare we say civilised area like North America?
JAN NELSON: I think it’s challenging because it’s exciting on the one hand for the geologists. Geologists like to go into a frontier where there are very few people and there’s nothing there. So they like it, that’s very exciting for them but you know the geologists go there it’s exciting for them but when you take the mining engineers there and they have to build everything and mine it, it is a bit of a challenge for them. There is no infrastructure there - there is a lot of education that has to take place with the governments that are newly formed in terms of them wanting money and certain expectations; expecting that a mining project will be built in two years which doesn’t happen. So it’s a difficult environment to work in especially if there is no infrastructure and it’s a new environment.
ALEC HOGG: Is that part of the reason why you are no longer operating in those countries?
JAN NELSON: Absolutely. The cost of operating there was just too great and we acquired Barberton Mines, we acquired the Phoenix project so we became more uniquely South African where there’s very good infrastructure. I hear a lot of people complain about South Africa, but they must go up north into Africa and they’ll be thankful for what we have here and if you want to build mining projects South Africa is still a good place with the infrastructure. So I think for a company of our scale, we had to choose. Life is all about choices and we had to choose. We couldn’t be both and it’s more for the bigger companies like Anglo Gold and Rand Gold who have deeper pockets and deeper expertise to go and explore there.
ALEC HOGG: We’ve got our own problems here - you particularly had some issues with some illegal mining in Barberton.
JAN NELSON: Yes at one stage we had 900 illegal miners underground and I am glad to...
ALEC HOGG: Just stop there for a moment. You have 1,800 staff in total and 900 on top of that were illegally mining.
JAN NELSON: Yes it was actually absolutely amazing. These guys were well formed in syndicates and at one stage it got quite rough. They had AK47s, hand grenades, RPGs, tried to shoot down our helicopter that flew out the gold. Held some of our people hostage at one stage but I can say that we’ve got a very good management team at the mine and they managed to resolve that issue over a year and a half without any significant loss to both sides. So it was a good outcome.
ALEC HOGG: How was managing an issue like that? Did you bring a whole bunch of your own army?
JAN NELSON: No it was quite interesting. We had a two-fold approach. The first approach is the number of people that you put down in terms of perimeter security but we had to bring in what you could probably call special armed units from Fidelity that went underground and cleared out certain areas, but we also started an intelligence based security approach. So through another company who we still engage, we have 30 or 40 informants on our payroll, and they provide information in terms of what certain people are doing in terms of forming syndicates or trying to steal our gold - and I think that approach is the one that helps you. Obviously when we had the problem we had to deal with it and what we did is we shut down the ventilation on the mine and in that sense brought out most of the people, but in terms of keeping apace, the intelligence is in my opinion the only way that you can actively manage the security on your mine. You have to one step ahead of security otherwise it just becomes a numbers game.
ALEC HOGG: It’s costing you a lot though, security - the last number I saw R35 million a year?
JAN NELSON: Yes but low compared to when we had the problem - in that year we had to spend about R80 million but R35 million is what we have to spend on security and yes I agree with you it is high. We would like to spend nothing but if you look at the value of our asset, that’s what we have to do to protect our asset and we’re happy to do that if you look at the value of gold in the ground.
ALEC HOGG: Tough enough gold mining without having to deal with this kind of issue.
JAN NELSON: Yes but I think these issues come along and you have to deal with them but I must also say that we as a junior company got a lot of help from Harmony Gold Mining Company in this regard and that helped us a lot and I think they deserve a lot of credit for helping...
ALEC HOGG: They had a similar issue didn’t they?
JAN NELSON: Yes they had similar issues and I think they were one of very few other companies that are prepared to speak out about it and that certainly helped us and they definitely helped us a lot so I have to give them credit. If it wasn’t for them it would have taken us longer to resolve the problem and we would have gone down the wrong way in trying to resolve the problem.
ALEC HOGG: What about the police? If you think of something like this happening in the United States the cops would be there in an instant and presumably enforce the law. Do we have difficulties in South Africa?
JAN NELSON: I think that at that stage there certainly were problems in the police in Mpumalanga in dealing with problem. Certain units that they were trying to clear out, there was some corruption and initially they didn’t have enough staff but they certainly have resolved this problem. So we have worked very well with them. They have given us good support but I think initially they just weren’t staffed correctly for this problem and there was some corruption within them but I must say they have dealt with that - but they didn’t have all the resources they needed and we as a company had to supply some of those resources and I don’t think it was a lack of willingness from certain members of the SAP who I must say have gone beyond what they were supposed to do. They have got a lack of resources and that is something that must be looked at in the country.
ALEC HOGG: That was a public/private partnership clearing out 900 illegal miners. Incredible! Just to close off with you’ve been focussed as a gold mining operation but you are now also moving into platinum. What is attracting you there?
JAN NELSON: This is not an underground operation, this is simply the treatment of chrome tailings where we extract the platinum so we’ve built a plant for about R100 million. We have started producing our first concentrate a week ago and the cash costs of producing that platinum, palladium, rhodium and gold is about $450 an ounce and the current price is sitting at $1200 - $1300. So 40 people on a plant, there’s no underground mining, there are very good margins and that’s why we saw the opportunity and we took on the project.
ALEC HOGG: Its opportunistic then, it’s not something that you are going into long term.
JAN NELSON: No I think we will - we are certainly looking to grow that business. That business has got a 17 year life but we are currently looking at both hard rock platinum and gold opportunities.
ALEC HOGG: What about the next step. There are still a number of junior platinum and gold miners listed on this stock exchange and other stock exchanges around the world. I just think immediately of Jubilee Platinum. We’ve got this wonderful resource and also with their own processing options. Are those possibilities for Pan African into the future?
JAN NELSON: I think so. We certainly have also grown by forming strategic alliances and I certainly think that in terms of growth in the junior sector, both gold and platinum that the only way that the juniors are going to grow is by forming strategic alliances to grow and there is a lot of opportunity to do that. Obviously you have to be careful in terms of all the CEOs having big egos, but if guys can sit around a table and work together there is significant opportunity to consolidate.