H221 and FY21 operational analysis
Barberton underground (42% of production; 41% of adjusted EBITDA)
Barberton reaped the rewards to increased mining flexibility in H221, owing to the establishment of four platforms from which to cycle high-grade production on the MRC orebody (cf three in FY20), with tonnes milled remaining at high levels and the underground grade remaining close to its average for the last 10 years. As a result, production recorded its highest level since H116, while unit costs increased by only 3.1% (H221 cf H121) in rand terms, which was a creditable performance given that year-on-year CPI inflation in South Africa was 4.9% in June after recording a 30-month high of 5.2% in May and that the number of tonnes milled from surface sources decreased by 5.9 percentage points, from 24.3% of the total in H121 to 18.4% in H221. As a result, Barberton recorded its second highest level of adjusted EBITDA in recent history in H221 (after H121) and otherwise the highest since at least H115 and easily covered capex of ZAR230.4m (see Exhibit 3).
Full details of Barberton’s operating performance in FY21 are provided in Pan African’s results announcement. In summary, the worst depredations of the coronavirus were mitigated by: increased reserve delineation drilling on the 256 platform of the high-grade MRC orebody at Fairview to increase confidence in, and predictability of, management’s geological models; Barberton’s ability to mill ore from surface sources (requiring a lower complement of workers); and its ability to focus on higher-grade areas of the orebody after the establishment of the 257 and 258 platforms, thereby allowing four platforms to cycle (flexible) production on the MRC. The improved flexibility, resulting from accelerated underground development programmes, has now increased the face length available for mining to over 200m (cf 130m at end-FY20). At the 257 platform alone, geological mapping and reserve delineation drilling have identified mineralised widths in excess of 15m (cf the usual 7m ordinarily encountered on the upper platforms).
Exhibit 3: Barberton underground operational statistics and estimates, H118–H221
|
H118 |
H218 |
H119 |
H219 |
H120 |
H220 |
H121 |
H221e |
H221 |
H221 vs H221e (%) |
FY21 |
Tonnes milled underground (t) |
124,969 |
112,862 |
127,858 |
119,777 |
117,545 |
116,035 |
122,199 |
129,501 |
133,473 |
+3.1 |
255,672 |
Head grade underground (g/t) |
8.70 |
12.07 |
9.60 |
9.88 |
*9.70 |
*8.79 |
11.25 |
10.38 |
*10.42 |
+0.4 |
10.82 |
Underground gold contained (oz) |
34,956 |
43,803 |
39,463 |
38,052 |
36,648 |
32,791 |
44,195 |
43,215 |
44,724 |
+3.5 |
88,918 |
Tonnes milled surface (t) |
0 |
0 |
12,471 |
33,158 |
47,231 |
56,593 |
39,267 |
38,879 |
30,078 |
-22.6 |
69,345 |
Head grade surface (g/t) |
0.00 |
0.00 |
2.30 |
1.62 |
*2.16 |
*0.73 |
1.06 |
2.16 |
*0.98 |
-54.6 |
1.03 |
Surface gold contained (oz) |
0 |
0 |
922 |
1,729 |
3,283 |
1,331 |
1,343 |
2,703 |
949 |
-64.9 |
2,292 |
Tons milled (t) |
124,969 |
112,862 |
140,329 |
152,935 |
164,776 |
172,628 |
161,466 |
168,380 |
163,551 |
-2.9 |
325,017 |
Head grade (g/t) |
8.70 |
12.07 |
8.95 |
8.09 |
7.54 |
6.15 |
8.77 |
8.48 |
8.69 |
+2.5 |
8.73 |
Contained gold (oz) |
34,956 |
43,803 |
40,386 |
39,780 |
39,932 |
34,122 |
45,538 |
45,918 |
45,673 |
-0.5 |
91,211 |
Recovery (%) |
93.0 |
93.5 |
94.0 |
92.5 |
92.0 |
92.0 |
93.0 |
92.5 |
93.0 |
+0.5 |
93.00 |
Production underground (oz) |
32,159 |
40,966 |
37,735 |
35,129 |
36,737 |
31,392 |
42,350 |
42,469 |
42,476 |
0.0 |
84,826 |
Production calcine dumps/surface ops (oz) |
0 |
0 |
815 |
1,677 |
0 |
0 |
0 |
|
0 |
N/A |
0 |
Total production (oz) |
32,159 |
40,966 |
38,550 |
36,806 |
36,737 |
31,392 |
42,350 |
42,469 |
42,476 |
0.0 |
84,826 |
Recovered grade (g/t) |
8.00 |
11.29 |
8.54 |
7.49 |
6.93 |
5.66 |
8.16 |
7.84 |
8.08 |
+3.0 |
8.12 |
|
|
|
|
|
|
|
|
|
|
|
|
Gold sold (oz) |
32,159 |
40,966 |
37,829 |
37,527 |
36,737 |
31,392 |
42,350 |
42,469 |
42,476 |
0.0 |
84,826 |
Average spot price (US$/oz) |
1,288 |
1,317 |
1,220 |
1,306 |
1,477 |
1,647 |
1,877 |
1,819 |
1,805 |
-0.8 |
1,836 |
|
|
|
|
|
|
|
|
|
|
|
|
Average spot price (ZAR/kg) |
554,361 |
521,029 |
556,770 |
596,180 |
698,031 |
882,504 |
981,381 |
850,373 |
843,828 |
-0.8 |
909,122 |
|
|
|
|
|
|
|
|
|
|
|
|
Total cash cost (US$/oz) |
1,145 |
981 |
996 |
1,097 |
1,159 |
1,053 |
997 |
1,235 |
1,150 |
-6.7 |
1,074 |
Total cash cost (ZAR/kg) |
492,826 |
390,220 |
454,164 |
500,214 |
547,594 |
572,432 |
521,351 |
577,560 |
542,629 |
-6.0 |
531,999 |
Total cash cost (US$/t) |
294.62 |
356.03 |
268.42 |
269.10 |
258.39 |
191.44 |
261.64 |
311.60 |
298.72 |
-4.1 |
280.30 |
Total cash cost (ZAR/t) |
3,945.00 |
4,405.46 |
3,860.00 |
3,817.67 |
3,797.00 |
3,237.70 |
4,253.00 |
4,530.90 |
4,383.29 |
-3.3 |
4,318.56 |
|
|
|
|
|
|
|
|
|
|
|
|
Implied revenue (US$000) |
41,421 |
53,057 |
46,151 |
49,325 |
54,261 |
53,724 |
79,491 |
77,251 |
76,250 |
-1.3 |
155,741 |
Implied revenue (ZAR000) |
554,499 |
660,698 |
655,098 |
699,398 |
797,598 |
893,997 |
1,292,694 |
1,123,280 |
1,105,899 |
-1.5 |
2,398,592 |
Implied revenue (£000) |
31,422 |
38,722 |
35,652 |
38,120 |
43,061 |
42,614 |
60,824 |
55,637 |
54,762 |
-1.6 |
115,586 |
|
|
|
|
|
|
|
|
|
|
|
|
Implied cash costs (US$000) |
36,819 |
40,182 |
37,667 |
41,155 |
42,576 |
33,047 |
42,246 |
52,468 |
48,857 |
-6.9 |
91,103 |
Implied cash costs (ZAR000) |
493,003 |
497,209 |
534,400 |
583,855 |
625,654 |
558,918 |
686,715 |
762,914 |
716,891 |
-6.0 |
1,403,606 |
Implied cash costs (£000) |
27,900 |
29,269 |
29,102 |
31,803 |
33,796 |
26,203 |
32,349 |
37,790 |
35,265 |
-6.7 |
67,614 |
|
|
|
|
|
|
|
|
|
|
|
|
Reported adjusted EBITDA (ZAR000) |
72,300 |
174,700 |
137,200 |
140,700 |
205,100 |
262,200 |
543,900 |
|
421,700 |
N/A |
965,600 |
Source: Pan African Resources, Edison Investment Research. Note: *Estimated.
Since the year end, Pan African announced a three-year wage agreement with the National Union of Mineworkers (NUM) and a five-year wage agreement with the United Association of South Africa union (UASA). While there are a number of conditions to the agreements, the substantive points are that the NUM deal provides for an average annual wage increase of c 5.6% for three years ending 30 June 2024, while the UASA deal provides for 5.0% increases for the five years to end June 2026, but with the potential to be higher or lower depending on the rate of South African consumer price inflation. The blended average annual increase is expected to be 5.4% compound annually for the initial three-year period of the agreements. While price increases in South Africa (as measured by the CPI) were 3.0–3.3% between July 2020 and March 2021, they recently accelerated to 5.2% in May and 4.9% in June. Over the past six years, they have been 3.1–6.3% (simple average 4.7%). With little apparent political will to rein prices in, however, in the face of the country’s unemployment situation, inflation is expected to remain at elevated levels at or around 4.5% into the foreseeable and, as such, Pan African’s agreements represent a real-term increase of less than 1%, while at the same time conferring upon Barberton the security of operating in an environment free from the prospect of old fashioned industrial action.
Elikhulu (26% of production; 33% of adjusted EBITDA)
Elikhulu’s performance in H221 was broadly similar to both that in H121 and Edison’s prior expectations, with the exception of the fact that unit cash costs (as measured in ZAR/t) did not decline relative to H121 as we had expected. Remedial and optimisation work on the Elikhulu tailings storage facility’s lower compartment restricted tonnage throughputs, in mitigation of which the group was required to install elevated drains on the south-western edge of the compartment in order to facilitate the removal of excess water from the facility (TSF) and to ensure sustainable operations. At the same time, the lower benches of the Kinross TSF were found to contain higher than expected concentrations of historically processed fine carbon, which adversely affected metallurgical recoveries, compounded by the mining of the coarser but high-grade outer wall of the Kinross TSF, which also acted to reduce recoveries.
As a result, whereas we calculated that Elikhulu accounted for 47% of group-wide H120 adjusted EBITDA, 91% of H220 adjusted EBITDA and 68% of FY20 adjusted EBITDA, in FY21 we estimate it accounted for 39% of H121 adjusted EBITDA, 27% of H221 adjusted EBITDA and 33% of FY21 adjusted EBITDA. Nevertheless, while adjusted EBITDA at Elikhulu was comparable to that of Barberton in FY21 (ZAR786.0m cf ZAR965.6m), its capex was still an order of magnitude lower (ZAR64.2m cf ZAR418.3m).
Exhibit 4: Elikhulu operational statistics and estimates, H119–H221
|
H119 |
H219 |
H120 |
H220 |
H121 |
H221e |
H221 |
H221 cf H121 |
FY21 |
Tonnes processed tailings (t) |
3,534,278 |
7,313,931 |
6,211,028 |
6,882,546 |
6,278,191 |
6,671,500 |
6,776,576 |
7.9 |
13,054,767 |
Head grade tailings (g/t) |
0.30 |
0.26 |
*0.28 |
0.32 |
0.31 |
0.27 |
0.29 |
-6.5 |
0.30 |
Tailings gold contained (oz) |
34,089 |
60,199 |
56,348 |
70,494 |
62,472 |
57,740 |
63,038 |
0.9 |
125,510 |
Recovery (%) |
44.0 |
51.3 |
52.0 |
43.0 |
43.0 |
42.6 |
42.6 |
-0.9 |
41.0 |
Production tailings (oz) |
15,292 |
30,909 |
29,301 |
30,315 |
26,863 |
24,610 |
24,596 |
-8.4 |
51,459 |
|
|
|
|
|
|
|
|
|
|
Total production (oz) |
15,292 |
30,909 |
29,301 |
30,315 |
26,863 |
24,610 |
24,596 |
-8.4 |
51,459 |
Recovered grade (g/t) |
0.13 |
0.13 |
0.15 |
0.14 |
0.13 |
0.11 |
0.11 |
-15.2 |
0.12 |
|
|
|
|
|
|
|
|
|
|
Gold sold (oz) |
15,292 |
30,173 |
29,301 |
30,315 |
26,863 |
24,610 |
24,596 |
-8.4 |
51,459 |
Average spot price (US$/oz) |
1,216 |
1,306 |
1,451 |
1,647 |
1,852 |
1,805 |
1,805 |
-2.5 |
1,811 |
|
|
|
|
|
|
|
|
|
|
Average spot price (ZAR/kg) |
563,250 |
596,180 |
685,680 |
882,504 |
968,130 |
843,828 |
843,828 |
-12.8 |
896,689 |
|
|
|
|
|
|
|
|
|
|
Total cash cost (US$/oz) |
517 |
575 |
621 |
495 |
656 |
711 |
849 |
29.3 |
744 |
Total cash cost (ZAR/kg) |
239,639 |
262,650 |
293,608 |
265,166 |
342,917 |
332,333 |
396,698 |
15.7 |
368,613 |
Total cash cost (US$/t) |
2.24 |
2.43 |
2.93 |
2.15 |
2.81 |
2.62 |
3.05 |
8.6 |
2.93 |
Total cash cost (ZAR/t) |
32.00 |
33.70 |
43.00 |
36.33 |
45.63 |
38.13 |
44.78 |
-1.9 |
45.19 |
|
|
|
|
|
|
|
|
|
|
Implied revenue (US$000) |
18,595 |
39,009 |
42,516 |
50,783 |
49,750 |
44,421 |
43,442 |
-12.7 |
93,192 |
Implied revenue (ZAR000) |
267,899 |
554,999 |
624,898 |
837,196 |
808,898 |
645,909 |
626,289 |
-22.6 |
1,435,187 |
Implied revenue (£000) |
14,365 |
30,145 |
33,740 |
40,283 |
38,067 |
31,992 |
31,097 |
-18.3 |
69,165 |
|
|
|
|
|
|
|
|
|
|
Implied cash costs (US$000) |
7,912 |
17,742 |
18,209 |
14,818 |
17,626 |
17,495 |
20,657 |
17.2 |
38,283 |
Implied cash costs (ZAR000) |
114,000 |
246,492 |
267,600 |
250,023 |
286,500 |
254,384 |
303,480 |
5.9 |
589,980 |
Implied cash costs (£000) |
6,208 |
13,421 |
14,455 |
11,784 |
13,496 |
12,601 |
14,986 |
11.0 |
28,482 |
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA (ZAR000) |
145,100 |
296,300 |
333,100 |
564,000 |
484,800 |
|
301,200 |
N/A |
786,000 |
Source: Pan African Resources, Edison Investment Research. Note: *Estimate.
Capex at Elikhulu will continue to increase in FY22 as it transitions from Phase 1 of its operations (the re-mining of Kinross tailings) to Phase 2 (the re-mining of Leslie and Bracken tailings), necessitating the installation of approximately 6km of piping and a pump station between the plant and the areas to be mined. Thereafter, it is expected to produce approximately 60,000oz gold pa until FY26 as re-mining progresses from the Kinross to the Leslie and Bracken TSFs. For the final seven years of operation, while processing the Winkelhaak TSF, it is expected to produce c 50,000oz gold pa (excluding c 102,000oz inferred mineral resources delineated in the soil material beneath the existing TSFs).
In the meantime, however, Elikhulu is expected to produce 55,000oz gold in FY22, with improved throughput and higher recoveries from the planned re-mining of areas on the upper benches of the number three Kinross TSF dam (in line with its mine plan from the start of production).
Evander underground (18% of production; 16% of adjusted EBITDA)
Relative to prior periods, underground operations at Evander in H221 recorded a vastly improved performance, with both tonnes processed and grades increasing materially at the same time that unit costs (measured in ZAR/t) decreased materially, to result in a near seven-fold increase in adjusted EBITDA (cf H121) to a level that is almost certainly a record for underground operations at Evander since they came under PAF ownership and management in H213.
Exhibit 5: Evander operational statistics and estimates, H119–H221
|
H119 |
H219 |
H120 |
H220 |
H121 |
H221e |
H221 |
**Change (%) |
***Variance (%) |
FY21 |
Tonnes milled (t) |
37,347 |
26,624 |
30,044 |
21,392 |
50,634 |
76,093 |
69,812 |
37.9 |
-8.3 |
120,446 |
Head grade (g/t) |
7.82 |
10.01 |
*12.59 |
5.16 |
8.51 |
9.74 |
10.56 |
24.1 |
+8.4 |
9.70 |
Contained gold (oz) |
9,384 |
8,572 |
12,161 |
3,549 |
13,854 |
23,829 |
23,709 |
71.1 |
-0.5 |
37,563 |
Recovery (%) |
94 |
94 |
95 |
94 |
91 |
98 |
99 |
8.5 |
+1.0 |
96 |
Underground production (oz) |
8,821 |
8,058 |
11,553 |
9,117 |
12,607 |
23,352 |
23,409 |
85.7 |
+0.2 |
36,016 |
Production from surface sources (oz) |
0 |
0 |
0 |
0 |
|
|
|
N/A |
N/A |
0 |
Total production (oz) |
8,821 |
8,058 |
11,553 |
9,117 |
12,607 |
23,352 |
23,409 |
85.7 |
+0.2 |
36,016 |
Recovered grade (g/t) |
7.35 |
9.41 |
11.96 |
13.26 |
7.74 |
9.55 |
10.43 |
34.7 |
+9.2 |
9.30 |
|
|
|
|
|
|
|
|
|
|
|
Gold sold (oz) |
8,821 |
8,058 |
9,214 |
5,863 |
12,607 |
23,352 |
23,409 |
85.7 |
+0.2 |
36,016 |
Average spot price (US$/oz) |
1,214 |
1,306 |
1,451 |
1,647 |
1,852 |
1,805 |
1,805 |
-2.5 |
0.0 |
1,811 |
|
|
|
|
|
|
|
|
|
|
|
Average spot price (ZAR/kg) |
565,367 |
596,180 |
685,658 |
882,504 |
968,072 |
843,828 |
843,828 |
-12.8 |
0.0 |
896,612 |
|
|
|
|
|
|
|
|
|
|
|
Total cash cost (US$/oz) |
1,711 |
1,814 |
1,420 |
1,241 |
1,604 |
1,012 |
1,030 |
-35.8 |
+1.8 |
1,225 |
Total cash cost (ZAR/kg) |
780,357 |
828,170 |
671,299 |
665,209 |
838,665 |
473,272 |
481,582 |
-42.6 |
+1.8 |
606,656 |
Total cash cost (US$/t) |
404.07 |
549.62 |
546.00 |
169.14 |
399.31 |
310.68 |
342.36 |
-14.3 |
+10.2 |
366.30 |
Total cash cost (ZAR/t) |
5,733 |
7,796 |
6,404 |
5,671 |
6,496 |
4,517 |
5,023 |
-22.7 |
+11.2 |
5,642 |
|
|
|
|
|
|
|
|
|
|
|
Implied revenue (US$000) |
10,709 |
10,525 |
13,370 |
9,879 |
23,348 |
42,150 |
41,877 |
79.4 |
-0.6 |
65,225 |
Implied revenue (ZAR000) |
155,115 |
146,084 |
196,499 |
167,699 |
379,599 |
612,892 |
624,798 |
64.6 |
+1.9 |
1,004,397 |
Implied revenue (£000) |
8,272 |
8,134 |
10,610 |
7,836 |
17,865 |
30,357 |
30,543 |
71.0 |
+0.6 |
48,408 |
|
|
|
|
|
|
|
|
|
|
|
Implied cash costs (US$000) |
15,091 |
14,633 |
16,404 |
3,618 |
20,218 |
23,641 |
23,901 |
18.2 |
+1.1 |
44,120 |
Implied cash costs (ZAR000) |
214,100 |
207,564 |
192,402 |
121,306 |
328,918 |
343,748 |
350,638 |
6.6 |
+2.0 |
679,556 |
Implied cash costs (£000) |
11,659 |
11,301 |
10,393 |
5,509 |
15,495 |
17,027 |
17,312 |
11.7 |
+1.7 |
32,806 |
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA (ZAR000) |
(58,985) |
26,085 |
64,900 |
(345,600) |
49,000 |
|
331,000 |
575.5 |
|
380,000 |
Source: Pan African Resources, Edison Investment Research. Note: *Estimate. **H221 cf H121. ***H221 cf H221e.
After a difficult H121, in which output was below expectations, among other things, as a result of a ventilation shaft lining fracture, successful remedial work on the shaft barrel allowed production in H221 to more than make up for the shortfalls in H121, with average production of c 5,134oz per month for each of the last three months of FY21 (ie an annualised production rate of 61,608oz pa).
The 8 Shaft pillar now has a remaining life in excess of two years and is expected to produce approximately 79,160oz of gold during this period, at approximately 39,000oz pa, after which production at Evander underground will be redirected towards Phase 1 of the 8 Shaft decline, 24 Level project and potentially Phase 2 thereafter (extending mining down to 25 and 26 Levels).