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PAN AFRICAN RESOURCES PLC - Trading Statement

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Pan African Resources PLC

("Pan African" or the "Company" or the "Group")

(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

TRADING STATEMENT, OPERATIONAL AND CORPORATE UPDATE, ACQUISITION OF A PRODUCING SOUTH AFRICAN COAL MINE AND 2016 PRODUCTION GUIDANCE

1. TRADING STATEMENT

In terms of paragraph 3.4(b) of the Listings Requirements of JSE Limited (”JSE”) (“Listings Requirements”), a listed company is required to publish a trading statement as soon as it is satisfied that a reasonable degree of certainty exists that the financial results for the period to be reported on next, will differ by at least 20 per cent from those of the previous corresponding period.

Pan African is incorporated in England and Wales under Companies Act 1985 and accordingly its presentation currency is Pound Sterling.

The annual average Rand (“ZAR”):Pound Sterling (“GBP”) exchange rates affect reporting of results in GBP. For the reporting period to the date of this announcement, the average prevailing ZAR:GBP exchange rate of 17.89:1 (30 June 2014: 16.88:1) was used to translate earnings per share (“EPS”) and headline earnings per share (“HEPS”) from ZAR to GBP. This 6.2%  year-on-year change in the average exchange rate should be taken into account for the purposes of a comparison with the prior reporting period.

Pan African advises shareholders that it’s Group EPS and HEPS for the year ended 30 June 2015, calculated in ZAR, is expected to be between 40 per cent and 60 per cent lower than the 24.74 cents EPS and HEPS for the period ended 30 June 2014. Calculated in ZAR, EPS and HEPS are therefore expected to be between 9.93 cents and 14.87 cents.  EPS and HEPS denominated in GBP are expected to be between 43 per cent and 63 per cent lower than the 1.47 pence EPS and HEPS reported for the year ended 30 June 2014. In GBP, EPS and HEPS are therefore expected to be between 0.54 pence and 0.84 pence.

The primary reasons for the decrease in EPS and HEPS are as follows:

Low grade mining cycle at Evander Gold Mines (Pty) Ltd (“Evander Mines”)

Pan African previously communicated that Evander Mines was in a low grade mining cycle. This cycle had reduced gold production and resulted in reduced profit margins and net profits generated by Evander Mines, in comparison to the previous corresponding reporting period.

Pan African has previously guided shareholders that the low grade mining cycle at Evander Mines was expected to continue until February 2015, after which the operation would return to a higher grade mining cycle.  Pan African can confirm that mining in higher grade areas has now commenced. The turnaround in production has however been slower than previously anticipated, principally due to challenges related to underground mining operations and infrastructure constraints, with the situation exacerbated by Eskom power interruptions and a Department of Mineral Resources section 54 stoppage. These issues adversely impacted on production output.  Evander Mines has effected corrective actions, including improved maintenance protocols, strengthening of the on site management team and a renewed management focus on achieving operational and production targets.

Evander Mines has also commenced implementing measures to ensure future lower grade mining cycles will be less pronounced than that experienced in the previous cycles. One such measure is to advance the main decline from 25 level to 26 level to access high grade reserves in the lower section of the mine. In addition to increasing Evander Mines’ life of mine, the development will alleviate mining flexibility constraints by creating additional stoping areas.

Barberton Mines’ Biox® plant issues

As previously reported, Barberton Mines’ Biox® plant was subject to an oil contamination from a breakdown at the Fairview primary crusher during                May 2014. This remained a challenge during the first six month reporting period; however the Biox® plant recoveries had improved to 96% (planned 97%) by December 2014. Management now believe the recovery to be nearly complete. Operational and maintenance systems have been implemented to mitigate the risk of future contamination.

2. OPERATIONAL AND CORPORATE UPDATE

Exploration results at Barberton Mines

Pan African is pleased to announce infill and extensional exploration drilling results of the Main Reef Complex (“MRC”) orebody at its flagship Fairview Mine in Barberton. Recent drilling at Fairview Mine has yielded extremely positive results confirming the down dip extension of the high grade 11 Block of the MRC orebody by a further 170 metres. This extension of the MRC orebody has resulted in an increase in the gold mineral resource by 317,500 ounces, thereby extending the life-of-mine of Barberton Mines in excess of 19 years (a detailed mineral resource and mineral reserve report is expected to be released in September 2015).

Recent borehole results of the 11 Block:

Borehole number Reef width (m) Grade (g/t)
Bh 5940 6.87 53.30
Bh 5816 6.91 120.03
Bh 5849 16.26 50.22
Bh 5864 13.83 43.82

Evander tailings retreatment plant (“ETRP”) performance

Pan African remains focused on creating shareholder value through unlocking the potential of its organic surface and brownfields exploration projects.

In this regard, shareholders are referred to the announcement dated 12 February 2015, which announced the successful commissioning of the ETRP and the first gold poured from the ETRP in January 2015.

The total construction capital spend on the ETRP was approximately R175 million, which is substantially below the original R200 million project budget.

The ETRP has now successfully ramped-up processing to its capacity of 180,000 to 200,000 tonnes per month at 0.31 g/t. Gold production from the ETRP remains on target and Pan African is pleased to announce recoveries in line with the 42% planned recoveries.

Growth projects at Evander Mines

In light of the positive results of the ETRP, the Company will undertake a preliminary economic assessment on the viability of constructing “Elikhulu”, a tailings retreatment plant which can potentially treat slimes at a processing capacity of up to 12 million tonnes per annum at a head grade of 0.28g/t from the Winkelhaak, Leslie and Kinross tailings storage facilities. The total mineral resource for Elikhulu is 165Mt at 0.28g/t (1.5Moz).

Furthermore, an internal technical team from Evander Mines has been assigned to assess the merits of progressing the Evander South brownfield project to the level of a preliminary economic assessment. The Evander South Project is an attractive mining opportunity whereby the Kimberley reef can potentially be exploited at shallow depths, commencing at 300 metres below surface.

The Company’s current internal growth projects are summarised hereunder:

Evander Mine Projects Category Tonnes
(million)
Grade
(g/t
Ounces
(Moz)
Depth below surface
(m)
Elikhulu Resource 165.0 0.28 1.5 0
Evander South Resource 21.2 7.66 5.2 300-1,200

Phoenix Platinum

Overall plant recoveries at Phoenix Platinum have increased significantly to 36% (2014: 27%). The cessation of International Ferro Metals Limited’s operations at Skychrome resulted in an improvement in the quality of the feedstock being treated and the introduction of new reagents in the metallurgical process are the main contributors to the higher recoveries.

Refinancing of Group Revolving Credit Facility (“RCF”)

Transaction agreements have been entered into with Pan African’s current consortium of South African banks to refinance its existing RCF.  The new facility has a tenure of 5 years, and increases the available RCF from R600 million to R1.1 billion at a reduced margin and facility fees. This new facility provides Pan African with access to a long-term debt facility with flexible terms at a competitive rate to fund its organic and acquisitive growth aspirations.

Group Cash Generation

The Group continues to be profitable and cash flow generative, which has resulted in group net debt being reduced from R459 million at December 2014 to R315 million (including R142 million outstanding on the ABSA gold loan) at the announcement date.

3. ACQUISITION OF UITKOMST COLLIERY

The Company has entered into agreements to acquire the Uitkomst colliery (the “Colliery”), a high grade thermal export quality coal deposit (with further metallurgical applications) located in the Utrecht coalfields in KwaZulu Natal, South Africa, for a cash consideration of R200 million from Oakleaf Investments Holding 109 Proprietary Limited and Shanduka Resources (Proprietary) Limited (“Shanduka”).

The Colliery is an existing operational mine and the acquisition is expected to be immediately earnings and cash flow accretive to Pan African.

The Colliery is located close to the town of Newcastle, South Africa and contains a coal mineral resource of 25.7 million tonnes of which 22.1 million tonnes can be classed as  measured or indicated (in accordance to the SAMREC code). The area also has additional exploration potential.

Current operations at the Colliery demonstrate that underground extraction of the mineral resource is viable and that the run-of-mine coal can readily be beneficiated to produce excellent yields of high grade coal suitable for export or local metallurgical markets. The Colliery currently yields and sells approximately 400,000 tonnes of coal per annum.

Resources 12% Ash Product
Class MTIS (Mt) Yield (%) IM (%) Ash (%) VM (%) FC (%) CV (MJ/Kg) TS (%)
Measured 17.13 73.9 2.7 12.0 28.1 57.2 28.94 0.96
Indicated 4.99 76.2 2.8 12.0 27.4 57.9 28.97 0.96
Inferred 3.59 79.4 2.6 12.0 26.6 58.9 29.12 0.93
Total 25.72 75.1 2.7 12.0 27.7 57.6 28.97 0.96

   

IM – Inherent moisture VM – Volatile matter FC – Fixed carbon
CV – Calorific value TS – Total sulphur MTIS – Mineable tonnes in situ

Pan African therefore believes there are opportunities to increase production and improve the operational performance of the mine with a view to improve the long term productivity and economics.

The Colliery’s acquisition will be funded from existing debt facilities and internally generated cash flows. The acquisition is subject to final due diligence, regulatory approvals and other suspensive conditions typical for a transaction of this nature.

The Colliery’s acquisition is categorised as a category 2 transaction in terms of section 9.5(a) of Listings Requirements and accordingly no shareholder approval is required.

In terms of section 10 of the Listings Requirements, Shanduka is a related party to Pan African. Shanduka’s interest in the Colliery’s acquisition is considered to be a small related party transaction. As such a fairness opinion, from an expert acceptable to the JSE, will be completed and shareholders will be updated in due course.

4. PRODUCTION GUIDANCE – FINANCIAL YEAR 30 JUNE 2016

Pan African is expecting gold production in excess of 110,000oz at Barberton Mines, in excess of 100,000oz at Evander Mines, and platinum group metal production of approximately 10,000oz at Phoenix Platinum.

5. EXECUTIVE DIRECTORS’ REMUNERATION

Given the challenging economic and operating environment experienced during the current financial year, Pan African executive directors have resolved that they will forfeit their annual salary increase for the forthcoming financial year.

6. DIVIDEND POLICY

The Company’s progressive dividend policy is expected to be unaffected by the trading statement and acquisition referred to in this announcement.

Cobus Loots, the CEO of Pan African, commented as follows: “The 2015 financial year has been extremely challenging for Pan African, and even though we are disappointed that Evander Mines’ turnaround has not happened more rapidly, the operation is now established in higher grade mining areas. Having implemented corrective strategies, the Group is well positioned to deliver an improved performance in 2016.

The extension of Fairview’s life of mine, in conjunction with Evander Mines’ development of the main decline from 25 level to 26 level and exploration projects, underpins our confidence in the longevity of the Company’s gold production and resources.

Refinancing our debt facilities enables the Group to continue growing and investing appropriately. It secures long term funding at a competitive rate, and provides the Group with a flexible financing package to manage its capital structure and liquidity.

We remain committed to providing our shareholders with an appropriate cash return on investments and based, on current forecasts, we believe that the Company will maintain its dividend pay-out and industry leading dividend yield.

Pan African remains a precious metal focused company and, in addition to ensuring that our current operations perform in line with shareholders’ expectations, Elikhulu and Evander South present exciting organic growth opportunities for the Group.  The acquisition of the Uitkomst colliery does not change our precious metals focus, however our robust financial position in a difficult resources market allows us to take advantage of selective opportunities within South Africa that we believe can be immediately earnings accretive to shareholders whilst not affecting our dividend policy.”

The financial information contained in this trading statement has neither been reviewed nor audited by the Company`s auditors. Pan African anticipates releasing its audited results for the year ending 30 June 2015 on or about 23 September 2015.

For further information on Pan African Resources plc, please visit the website at www.panafricanresources.com

8 June 2015

Contact Details

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
Facsmile: + 27 (0) 11 880 1240

Registered Office
Suite 31
Second Floor
107 Cheapside
London
EC2V 6DN
United Kingdom
Office:   + 44 (0) 207 796 8644
Facsmile: + 44 (0) 207 796 8645

Cobus Loots Deon Louw
Pan African Resources PLC Pan African Resources PLC
Chief Executive Officer Financial Director
Office: + 27 (0)11 243 2900 Office: + 27 (0) 11 243 2900

   

Phil Dexter Peter Stewart
St James's Corporate Services Limited Canaccord Genuity Limited
Company Secretary Nominated Adviser
Office: + 44 (0)207 796 8644 Office: +44 (0)207 523 8350

   

Nigel Gordon Sholto Simpson
Fasken Martineau LLP One Capital
Solicitors in the UK JSE Sponsor
Office: +44 (0)207 917 8500 Office: + 27 (0)11 550 5009

   

Julian Gwillim Daniel Thole
Aprio Strategic Communications Bell Pottinger PR
Public & Investor Relations SA Public & Investor Relations UK
Office: +27 (0)11 880 0037 Office: + 44 (0)203 772 2500

Matthew Armitt / Ross Allister
Peel Hunt LLP
Joint Broker
Office: +44 (0)020 7418 8900

www.panafricanresources.com

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