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Blue skies (and blueberries) for Pan African Resources

The company ‘has been the sector-leading dividend payer pretty much over the last decade, and the intention is to remain there’: CEO Cobus Loots.

SIMON BROWN: I’m chatting now with Cobus Loots, CEO of Pan African Resources, which had an operational update – not results –  for the year ending 30 June. We’ll get more details on that in a while. Cobus, I appreciate the early morning time. 

Before we delve in, what really jumped out at me was Barberton. You’ve got a 15-hectare blueberry farm project. You’re going to be exporting 80 000 to 100 000 tonnes. I assume this is a community project that you’re working on.

COBUS LOOTS: Yes, Simon. It’s an initiative we like to say is beyond compliance. It’s not required in terms of any of our sort of mining-right commitments. But our mines in that area can’t employ many more people and hence we had to look at other initiatives; this is one of the ideas we came up with. We have land, we have access to water. We have one of the best agricultural climates in South Africa, and we are partnering with guys that have done this before. So certainly it’s not distracting our focus from mining in any way. 

SIMON BROWN: I love it. In fact, my guest and I yesterday were talking around stakeholders, talking around companies doing good, being involved in the community. 

To the actual business of what you do – a huge increase. A 12.3% increase in gold produced, even ahead of the production guidance you had been giving. And this, let’s be clear, is to June;  it’s during the lockdown period. How much of this is just managing to create more efficiencies versus perhaps sort of expanding ore bodies and the like? Are you just managing to be a more efficient mining operation?

COBUS LOOTS: Well, the South African mining industry is quite used to dealing with difficult situations and communicable diseases. We’ve certainly had to sharpen up in terms of the protocols, but all credit to our teams on the operations. They really have taken all of these issues in their stride, and our people certainly do their best.  What is definitely also assisting is the quality of the ore bodies and the work we’ve been doing in recent years in terms of development, both at Barberton and the Evander underground. 

We’re very happy with this set of results. As you said, even better than the guidance we put out at the middle of May. 

SIMON BROWN: Exactly. I take your point. Communicable diseases, deep underground – these are issues that South African mining has worked with for a number of decades. Your debt is essentially melting away. Group net senior debt down 45.5%, sitting at just under US$34 million. You’re in a position now, I imagine, where your balance sheet is almost starting to verge on ‘lazy’, which I suppose is where a gold miner should be at this point in the cycle.

COBUS LOOTS: We think any miner shouldn’t be too highly leveraged because so many unanticipated events could happen; also the commodity cycle could turn. So yes, we’re very comfortable in terms of our balance sheet at this point. It allows us to, as we normally do, achieve this balance between re-investing in our assets, reducing debt to the extent required and then returning money to shareholders in the form of dividends.

Pan-African has been the sector-leading dividend payer pretty much over the last decade, and the intention is to remain there. 

SIMON BROWN: Yes, absolutely. I like that. It’s not too much debt, because eventually, prices do turn. We chatted at what would’ve been your half-year results. You were talking about your off-grid electrification. Now of course the president has announced that the government will be allowing up to 100 megawatts. I imagine this is something that you’re having a long, hard look at. You’ve got the capital to do it. Your balance sheet is certainly able to do it. It will just give you that security of power, and quite possibly at a better price than you can get from Eskom.

COBUS LOOTS: Yes. Most definitely. As you say, it’s around the security of supply, but it’s also very much around the cost and the ever-increasing cost of electricity. So we are in the process of constructing the first 10 megawatts at the Elikhulu operation, which will be up and running in October/November of this year. And once we’ve demonstrated that it works as we anticipate it will, then we definitely will in quite short order look to expand that to draw another 10 megawatts at Evander and possibly 10 megawatts at Barberton. These projects make a lot of sense economically.

So our initial investment on this 10 megawatts is about R150 million and we anticipate payback on that investment of less than five years, probably around four years. 

SIMON BROWN: You are doing this yourself. I know some in the shopping centres get a third party in to do it in essence, who then sells them that power. Do you do this off your own bat?

COBUS LOOTS: Well, we have a company by the name of Jui that’s doing the construction on an EPC (engineering, procurement and construction) basis. But yes, we will own a facility.

Why would you want to give margin away or give profits away if you don’t have to?

So yes, effectively there’s no need for us to sign up a power-purchase agreement with anybody else.

SIMON BROWN: And a four-year payback period, even a five-year payback period, is spectacular. 

We’ll leave that there. That’s Cobus Loots, CEO of Pan African Resources.

Our poll today on our social media – LinkedIn and Twitter. Gold stocks have been under pressure, yet gold’s above $1800/oz. We’ve got the rand weaker today, but it’s been about R14/dollar for a while, and it’s a bit head-scratching. We expect gold stocks to perhaps be doing better. 

The question to you on our social media: Are you investing into gold miners? Is this a space that you’re looking at and thinking there is potentially an opportunity? You can have your vote and let us know your thoughts on LinkedIn and Twitter. 

Listen to Wednesday’s full MoneywebNOW podcast here.



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