Pan African Resources — The sun rises over Egoli’s city of gold

A summary of the output of Pan African’s assets during the year, including the production in H220 implied by FY20 and H120 numbers, is provided in the table below.

While H220 production overall was 6.9% lower than in H120, FY20 production was nevertheless higher than a) in the previous year, b) updated company guidance (May 2020) and c) our prior expectations. Self-evidently, this performance was achieved during the period in which the most severe coronavirus-related lockdown restrictions were in place in South Africa. Within this context, output at PAF’s Barberton underground mine was particularly notable, outperforming the updated guidance by 4,129oz (or 6.5%) and our forecast for the year by 3,225oz (or 5.0%):

The table overleaf presents PAF’s H220 and FY20 results relative to both historic results and also our prior expectations (albeit within the context of known production from each of its assets). Among other things, readers are reminded that production from Evander’s 8 Shaft Pillar project was capitalised until June, when steady-state production was achieved, whereas our forecasts assumed that 100% of Evander underground production and costs were expensed in the period.

From Exhibit 3, it may be seen that, while normalised earnings and profit after tax were within 5% of our prior expectations, Pan African outperformed Edison’s underlying expectations (as measured by normalised headline earnings per share (HEPS), which excludes other income and expenses – ie zero cost collar losses – in particular) by a material 26.8% in FY20. In crude terms, while other expenses (ie zero cost collar losses) were US$17.3m worse than our prior expectations, this was approximately balanced by costs of production which were US$9.9m better, net finance costs which were US$1.6m better and a tax charge which was US$2.9m better. Excluding other expenses therefore, normalised headline earnings were US$15.3m (approximately the sum of US$9.9m, US$1.6m and US$2.9m), or 26.7%, ahead of our prior forecasts.

On the basis that our prior normalised HEPS forecast of 2.98c/share compared with a consensus EPS forecast of 2.72p/share, within a range 2.39–3.04p/share (source: Refinitiv, 27 July 2020), we would infer that actual FY20 results were also materially ahead of consensus forecasts.

In addition, it should be noted that, over the full year, Pan African sold 5,593oz gold less than it produced, implying, among other things, that it sold 3,254oz less than it produced in H220, adding to the 2,339oz less that it sold in H120. At the average gold price received during the year (US$1,574/oz), we estimate that this could have added an additional c US$8.8m to revenue.

Barberton recorded its highest adjusted EBITDA number since H117 in H120 and easily covered capex of ZAR107.0m, despite facing challenging geological conditions at Fairview and the need to put enhanced security initiatives in place to curtail illegal mining activities. Notwithstanding the challenging operating environment in H220 (January to June), Pan African was successful in increasing both tonnes milled from underground and surface sources to their highest (combined) level since at least H111 – albeit, to some extent, at the expense of the head grade, which declined by 18.4%, from 7.54g/t to 6.15g/t. In particular, the worst depredations of the coronavirus were mitigated by: a) increased reserve delineation drilling on the 256 platform of the high-grade MRC orebody at Fairview in order to increase confidence in, and predictability of, management’s geological models, b) Barberton’s ability to mill ore from surface sources (requiring a lower complement of workers) and c) its ability to focus on higher-grade areas of the orebody after the establishment of the 257 platform, thereby allowing three 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 130m. At the 257 platform alone, geological mapping and reserve delineation drilling have identified a mineralised width in excess of 15m (cf the usual 7m width ordinarily encountered on the upper platforms). In the meantime, management is in the process of establishing the 258 platform some 25m below the 257 platform, which is scheduled to enter production in Q221, at which point Barberton/Fairview will have four platforms to cycle high-grade (flexible) production on the MRC.

At the same time, costs were also extremely well controlled, with unit operating costs declining 14.7% in H220 in local currency terms (cf H120), to ZAR3,238/t – the lowest since H116. Aggregate costs in US dollar terms were the lowest since H216, with the result that adjusted EBITDA increased by 27.8% in H220 relative to H120, compared with only an 11.5% increase in the US dollar price of gold.

Elsewhere, development towards the down-dip extension of the ZK orebody has commenced on 62 Level at Fairview, while development relating to the PC Shaft project at the Consort mine was completed in May, during which time initial sampling revealed grades in excess of 300g/t (approximately 10oz/t) and contributed towards a proved mineral reserve of 5,000t at an average grade of 25g/t (approximately 1oz/t). Production from high-grade resource blocks is expected to reduce all-in sustaining costs (AISC) to a target level of US$1,200/oz and to ensure future profitability at the Consort mine over a life of an additional three years. Concurrently, drilling has commenced on priority targets, while advanced techniques are being employed for the generation of new exploration targets for potential future production.

In contrast to much of the South African gold mining industry, where the challenges of COVID-19 have been well documented, Elikhulu has proved to be one of the unsung heroes, with a performance in H220 that was better than both H120 and our prior expectations in all respects, with the single exception of metallurgical recovery (which was nevertheless approximately the anticipated annual average over the life of the mine on a full-year basis after an excellent H120 and regarding which a degree of moderation was inevitably expected). At the same time, the new satellite pump station that was commissioned at the end of 2019 with a view to increasing plant feed grades and rates for the remainder of the financial year was clearly successful. As a result, whereas we calculated that Elikhulu accounted for 47% of H120 adjusted EBITDA and 68% of FY20 adjusted EBITDA, we also estimate that it was responsible for 91% of H220 adjusted EBITDA.

Capex at Elikhulu will increase in FY21 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. However, this was no less than was expected at the time that Elikhulu entered production and, at ZAR127m in FY21, will easily be covered by adjusted EBITDA (estimated at a record ZAR564m in H220 alone).

While superficially the most affected of Pan African’s operations by coronavirus, in fact comparison between Evander underground’s performance in H220 and FY20 relative to prior periods is rendered almost impossible by the fact that the 8 Shaft Pillar project reached steady-state in May and that, therefore, revenues and costs from the project prior to that point were capitalised, rather than expensed, which accounts for the apparent discrepancy in Exhibit 6 between ‘contained gold’, production and ‘gold sold’ (among other things). Separately, production from the 8 Shaft Pillar project was reported to be 1,096oz in May and 3,152oz in June to make a total of at least 4,248oz during the period under review. On the basis of the underlying operational statistics provided, however, it can be seen that the remnant mining and vamping activities operated at slightly above break-even, at a 13.9% gross margin with costs well controlled and, in the event, very close to our prior H220 forecast of ZAR5,670/t. Readers should note that the apparent discrepancy between gross cash profits and the large negative adjusted EBITDA figure implied in H220 may be attributed to ‘other’ expenses, being the zero cost collar contract losses alluded to elsewhere in this note, the majority of which (US$24.8m out of a total of US$28.7m) related to operations at Evander. On an underlying basis, Evander underground had an LBITDA of ZAR280.7m (see Exhibit 6) after ZAR413.7m of hedging losses, ie it had an underlying EBITDA of ZAR133.0m. On the same basis, Pan African as a whole reported EBITDA of ZAR1,328.4m after ZAR478.0m in hedging losses, ie it had an underlying EBITDA of ZAR1,806.4m. On an underlying (as opposed to headline) basis therefore, Evander underground contributed 7% of PAF’s EBITDA.

Operationally, shaft tower construction was completed between 14 and 16 Levels and all eight underground stoping crews at Evander have now been migrated over to the 8 Shaft Pillar project. Henceforward, management expects Evander underground to contribute, on average, 30,000oz of production pa to the group over the next three financial years at an AISC of c US$1,000/oz and therefore at materially higher margins than the previous remnant underground mining and vamping operations.

Critical to the success of the 8 Shaft Pillar project is the requirement to de-stress the orebody while mining is underway, to which end Pan African has already commissioned a grout plant at surface with the ability to pump a mixture of concrete and waste rock underground to selectively support areas of the orebody. At a recent site visit to the 8 Shaft Pillar project at the time of the South African Mining Indaba in February, attended by Edison, the short distance between the shaft bottom and the stoping areas was immediately apparent (ie 10 minutes – in sharp contrast to PAF's previous operations at 24 Level at 8 Shaft, which had an approximate 100-minute commute to the working faces). In addition, the working faces are close to an intake airway (negating the need for refrigeration) and the ore will only need to be handled about four times before reaching surface (cf 22 times previously) and will require only c 4km of tramming (cf c 14km previously). This last point is significant since Evander has a high percentage of fine gold in its ore and, historically, it has been estimated that up to 1% of this gold has been lost per kilometre of distance trammed. This combination of fewer transport points and systems is therefore anticipated to have a materially beneficial effect not only on the operation’s cost base (see Exhibit 6), but also on its mine call factor. The other aspect of the visit that was very apparent was the development in technology around pillar mining and especially the use of pseudo-packs and rapid reaction pit props (rather than matt packs) for 'intelligent' rather than passive ground support – thereby de-risking the operation from both an environmental, social and governance (ESG) and a financial perspective.

Pan African’s other two currently producing operations, the BTRP and the ETRP, accounted for 11% and 6% of the group’s annual production and 14% and 4% of its adjusted annual EBITDA, respectively.

In addition to its existing five producing operations, the next project that PAF has confirmed it will develop is Egoli (formerly the 2010 Pay Channel) underground at Evander.

The Egoli orebody is c 1.75km in tramming distance from No 7 Shaft at Evander, which is currently used to hoist run-of-mine material from the No 8 Shaft Pillar project to the Kinross metallurgical plant. Following dewatering, standard footwall development, further deepening of the decline and on-reef development and associated engineering will be required before mining can commence.

An optimised mining feasibility study on the project was completed at the end of 2019 and this has now been reviewed by consultants DRA and its own independent feasibility study completed. A summary of the salient conclusions of the study is as follows:

While superficially comparable to former underground operations at Evander 8 Shaft, however, there are a number of important differences, which are summarised below:

As with the 8 Shaft Pillar project, the lower number of transport points and systems is significant given that a high percentage of gold in the Evander ore is in the form of fine gold, which is otherwise estimated to be lost at a rate of 1% per kilometre of tramming distance.

While the same project as previously conceived by Edison, nevertheless some of the assumptions and parameters associated with the project have changed since our last note on PAF (see Back to where it belongs, published on 28 July 2020). A summary of the principal changes is as follows:

Of note is the average level of expected cash costs of ZAR1,787/t over the life of the mine. While this may seem low relative to ZAR6,099/t for the remnant mining and vamping at 8 Shaft reported in FY20 and also the average ZAR3,838/t expected by Edison over the course of the next two and a half years at the 8 Shaft Pillar project, it is very much in line with the ZAR1,403/t steady-state average reported between H113 and H215 for the original 8 Shaft project.

The peak funding requirement of the project is estimated, in the feasibility study, to be ZAR1.05bn (US$66m) and – consistent with its requirement for non-dilutionary funding – Pan African has now obtained credit approval from Rand Merchant Back (RMB) for the full debt funding of the project’s capital expenditure in two phases:

As a result, Pan African has mandated DRA Global, in its capacity as consultants, to complete the detailed project scheduling and planning. It has also now commenced preliminary refurbishment of the relevant project infrastructure in Q121 in the expectation of placing long-lead equipment orders in Q221 and starting underground de-watering and equipping in Q321.

First gold is expected to be produced approximately 20 months after construction commences, with ramp up to steady-state production over the following 16 months. Whereas we had previously valued Egoli on the basis of our estimate of project NPV at a 10% discount rate, we have now formally modelled it into our group earnings and cash flow statement on the basis of the following operating parameters over the next 10 years:

In the immediate future, we estimate that the inclusion of Egoli into Pan African’s portfolio of producing assets will increase group production from an estimated 190,818oz in FY21 to 284,509oz in FY25, as follows:

Readers should note that the above mine plan in Exhibit 9 excludes an additional c 1.95Moz of inferred resources that will be accessed as underground development proceeds, with the potential to increase Egoli’s mine life from eight to 14 producing (financial) years.

Pan African’s philosophy towards hedging is to hedge only specific and material exposures arising from operational risks, capital investments and transactional flows that can adversely affect the group’s sustainability. Hedges are short-dated and limited to a maximum of 25% of the group’s estimated annual production unless additional exposure is specifically approved by the board of directors. In the case of FY20, the board considered that volatility in the rand price of gold combined with the group’s US$15.9m in debt redemption commitments warranted managing the group’s gold price risk more fully and therefore the decision was taken to increase hedge levels to approximately 50% of guided production for the year.

As a result, Pan African had two forms of hedging contracts in place in H220 for the purposes of guaranteeing debt serviceability and covenant compliance. The first was a gold loan of 10,000oz (of which 5,000oz remained outstanding as at end FY20) that locked in a gold price of approximately US$1,325/oz (ZAR709,969/kg at average forex rates during H220). The second was a series of zero cost collar contracts over 50,460oz gold in H220 that capped the gold price received by Pan African at ZAR836,000/kg (c US$1,560/oz at average forex rates), but also floored it at ZAR655,000/kg (c US$1,222/oz).

In the event, the gold price averaged ZAR882,504/kg during H220 (Edison calculation) and peaked at ZAR1,063,715/kg – implying a loss during the period of between ZAR46,504/kg and ZAR227,715/kg over the contracted 50,460oz gold, or ZAR73.0-357.4m in aggregate (US$4.4-21.4m at average forex rates). Within this range, Edison’s considered loss estimate was US$10.4m – albeit this estimate was based solely on realised losses and excluded the amortised cost of the options. In the event, Pan African reported a mark-to-market fair value loss of US$22.0m during the full year comprising realised losses of US$12.0m (note: realised losses in H1 were ZAR29m, or US$2.0m at average forex rates) and unrealised losses of US$10.0m.

As at 30 June 2020, Pan African had zero cost collar hedges over 50,000oz gold with an average floor price of ZAR708,000/kg and a ceiling price of ZAR925,829/kg, which will be delivered in H121. Thereafter, it will be unhedged. With due regard for the accuracy of our hedging loss forecasts in H220, our forecast for the same number in FY21 (albeit using a slightly different methodology) is as follows:

Our estimated loss of US$7.3m in H121 (Exhibit 11) is included in our estimate of ‘exceptionals’ in Exhibit 22. Note that the above estimates are based on a gold price of US$1,819/oz in H121 and may differ materially to the extent that the gold price exceeds this level – even on an intra-day basis. However, since all options and the gold loan expire in H121, all losses should be ‘realised’ with no ‘unrealised’ component to consider. Again, however, for reasons of practicality, these estimates exclude the amortised cost of the options.

Assuming a forex rate of ZAR16.5113/US$ for the remainder of the year and a (relatively conservative) short-term (real) gold price of US$1,819/oz in H121 and US$1,749/oz in H221, followed by a flat long-term (nominal) gold price of US$1,892/oz (consistent with our last note and also A golden future, published on 11 June), our absolute value of PAF (based on its existing four producing assets plus Egoli) has risen to 39.03c/share (cf 34.18c/share previously – albeit not including Egoli), on the basis of the present value of our estimated maximum potential stream of dividends payable to shareholders over the life of its mining operations (applying a 10% discount rate):

Including its other potential growth projects (eg the Fairview sub-vertical shaft project) and assets (ie the residual Evander underground resource and its shareholding in MC Mining), our updated total valuation of Pan African is barely changed compared with that in July, as follows:

Note that the increase in the value of PAF’s shareholding of 13.1m MC Mining shares relative to our previous valuation in July reflects merely the rise in the latter’s share price from ZAR1.25/share to ZAR1.38/share currently (adjusted into US dollars at the appropriate forex rate).

Exhibit 14, below, depicts PAF’s average share price in each of its financial years from FY10 to FY20, and compares this with normalised HEPS in the same year. For FY21 and FY22, the current share price (of 22.70p) is compared with our forecast normalised HEPS for FY21 to FY22. As is apparent from the graph, PAF’s price to normalised HEPS ratio of 4.6x for FY21 and FY22 (based on our forecasts – see Exhibit 22, below) is only fractionally above the very bottom of its recent historical range of 4.2–14.8x for the period from FY10–20:

Stated alternatively, if PAF’s average contemporary price to normalised EPS ratio of 9.1x in the period FY10–20 is deemed ‘correct’ then, given our normalised earnings forecasts, its share price may be expected to be c 45p in FY21 and FY22.

Note that, within this context, our normalised FY21 HEPS forecast of 6.42 US cents compares with a consensus forecast of 5.62c, within a range 4.78–6.47c (source: Refinitiv, 8 October 2020).

PAF has reiterated its dividend policy of having a target dividend payout ratio of 40% of net cash generated by operating activities (after allowing for the effect of sustaining capital on cash flow, contractual debt repayments and one-off items). After sustaining the costs related to the Evander underground closure in FY18, the Pan African board elected not to recommend a final dividend for that year. However, it stated that recommencing distributions to shareholders was a priority for the future. This was achieved in FY19 when the board recommended a final dividend of ZAR50m, or c US$3.4m, which equated to ZAR0.022375 or c 0.11725p or 0.15179 US cents per share and which it described as a ‘signal’ of its intent to resume more meaningful distributions to shareholders in the future. In FY20, the dividend was duly increased materially (ie 5.5x) – in this case, to a record of ZAR312.9m, or 0.83582 US cents per share. While this was less than our most extravagant forecast of 1.52c/share (see Back to where it belongs, published on 28 July 2020), it mainly reflected actual versus anticipated changes in working capital, which were not as positive as we had forecast over the period in question. To the extent that there was a shortfall compared with our expectations in FY20 however, this merely sets the company up for further increases in the dividend pay-out in FY21 and beyond, notwithstanding an increased capex profile as a result of the development of the Egoli project (see our forecasts in Exhibit 9). Otherwise, the FY20 dividend was strongly in line with our prior two forecasts, of 0.86c and 0.72c in March and May, respectively.

Based on its current share price, Pan African boasts a dividend yield of 2.8%, on which basis it ranks number 14 of the 63 dividend-paying precious metal companies over the course of the next 12 months. This rises to nearly 5% and a rank within the top 10 dividend paying precious metals on the basis of both consensus and Edison FY21 forecasts (see Exhibits 15 and 16):

Over the next two years PAF remains cheaper than its South Africa- and London-listed gold mining peers on at least 63% of comparable common valuation measures (19 out of 30 individual measures in the table below) if Edison forecasts are applied or 76% if consensus forecasts are applied:

Including its liabilities to non-financial institutions, PAF had net debt of US$55.7m on its balance sheet as at 30 June 2020 (cf US$130.7m as at 31 December), which equates to a gearing ratio (net debt/equity) of 30.3% and a leverage ratio (net debt/[net debt+equity]) of 23.3% (cf 64.8% and 39.3% as at end December 2019, respectively). This figure includes gross debt and cash and is reflected in our financial summary (see Exhibit 22, below); however, it excludes a number of other items, the majority of which reflect the value of hedging contracts, rather than conventional indebtedness. A full reconciliation of the various contributors to Pan African’s net debt as at end-FY20 is nevertheless as follows:

Within this context, the reported decline in net debt to US$62.0m as at end-June 2020 cf US$130.7m as at end-December represents a decline of US$68.7m, or 52.6%, in the space of just six months and implies average net cash inflows of approximately US$11.5m per month. Maintaining this rate of net cash inflow would imply that Pan African could be net debt free as early as December 2020 (excluding dividend pay-outs).

However, while capex relating to Elikhulu has fallen to (effectively) zero in H220, we are now expecting it to be replaced by capex relating to the Egoli project (see Exhibit 9). Although this will slow the rate of debt repayment relative to our previous expectations, all other things being equal, we continue to forecast that the company will achieve net debt free status during the FY22 financial year (NB on a post-FY21 dividend basis – see below):

Debt is principally financed via a US$46.2m term loan facility plus a US$43.3m revolving credit facility and a US$8.1m general banking facility. Principal on the Elikhulu facility is payable in equal instalments until maturity in June 2024, while the revolving credit facility (RCF) has a maturity beyond mid-2024. The group’s RCF debt covenants and their actual recorded levels within recent history are as follows:

In addition to Egoli and the 8 Shaft Pillar project, Pan African has three other near-term organic growth projects, namely the Fairview sub-vertical shaft project (adding 7–10koz to production pa), which is already in development, the Royal Sheba project (c 30koz pa), and the extraction of the Prince Consort shaft pillar (3,900–7,800oz pa), which is also in development. It also has one solar plant initiative to help regulate its electricity supply at Elikhulu, one large-scale agriculture project at Barberton and a number of new agriculture projects on rehabilitated land at Evander.

At the same time that it approved the Evander 8 Shaft Pillar project, PAF concluded that it would not pursue mining the near-surface Royal Sheba resource on a standalone basis, but that it will instead upgrade the existing Barberton Mines processing plant infrastructure to take Royal Sheba ore. Development of the orebody will be in two phases:

At the same time, the Dibanisa project – scheduled to be completed in FY21 – will integrate Sheba and Fairview infrastructure, such that Fairview will be able to accommodate Royal Sheba ore. One of the immediate advantages of this will be that additional available shaft time will assist with the development and mining of Royal Sheba. Once in production, the Sheba plant will be available to process both surface material and Royal Sheba uppers (ie Phase 1). Tailings from the Royal Sheba operation will then be available for processing via BTRP infrastructure in addition to the latter’s traditional sources. Among other things, this method of development will help to expedite the environmental licensing process, shorten the timeline to production, enhance returns and negate the need for external capital funding. Development of Royal Sheba will extend operations at Sheba by 10 years to 19 years in total. In addition, optimised usage of infrastructure is also anticipated to reduce AISC to c US$1,000/oz (management estimate). Design has been completed for the early extraction of the western block in Phase 1 (above the historical workings). In the meantime, a preliminary economic assessment for Phase 2 is underway. Management has indicated that it would require an internal rate of return in excess of 20% in order to proceed with the project. In this event, it anticipates that it would take approximately one year to open and develop the orebody, such that mining of the uppers (Phase 1) would commence in approximately March 2021 and the mining of the lowers (Phase 2) in about September 2021.

Despite historically being the highest grading operation at Barberton, the Consort mine has recently also become one of its highest cost operations. In order to address this, management has determined on an immediate initiative to mine the Prince Consort (PC) Shaft pillar, which boasts a mineral resource of 48.82kt at a grade of 25.54g/t (0.82oz per tonne, or opt), containing 40koz gold. At the same time, it will explore the 36 exploration targets that have been identified at New Consort for potential future exploitation.

The orebody was intersected in early May (only one month later than planned, despite coronavirus) and development into the first target block on Level 42 was completed in June, with assayed grades as high as 300g/t (approximately 10oz/t) being reported, including large amounts of visible gold. Since then, New Consort has outperformed its gold production targets by more than 60% (or 11kg/354oz) in the two months after access was gained into the target block and, having achieved steady-state, the operation is now poised to produce at a rate of 3,900–7,800oz pa at a targeted AISC of c US$1,200/oz over a period of approximately three years. In addition to underground ore, additional material from surface stockpiles at Consort will maximise and extend plant capacity.

While Pan African is less exposed to load-shedding than its deep level South African peers by virtue of 52% of its gold being derived from tailings and other surface sources (FY20 Edison estimate) and its having spare plant capacity in general, recent outages have nevertheless had a disruptive effect on operations at Elikhulu. In mitigation, management has completed a bankable feasibility study on a 10MW solar plant at Evander (actually 9.99MW so as to avoid the need for NERSA1 regulatory approval), which was positive and the board has subsequently given its approval for the project to be developed. The solar plant will supply approximately 30% of Elikhulu’s power requirements and will reduce its dependence on both grid power and electricity price inflation (which was 13.9% as a result of regulatory price increases in FY20). Note that none of these potential benefits are yet incorporated into Edison’s financial model on, and valuation of, Pan African. An engineering, procurement and construction management (EPCM) contract for the construction of the solar plant has been awarded and PAF is currently in the process of finalising the necessary legal and contractual agreements for the project, as well as raising the dedicated funding in a fashion that is non-dilutive for PAF shareholders. In due course, the project will also generate carbon credits for Pan African. It may also be replicated at Barberton.

South Africa detected its first new coronavirus infection on 5 March. In the following few weeks, the epidemic followed a typical exponential curve and on 15 March, the country’s president, Cyril Ramaphosa, declared a national state of emergency, banning visitors from high-risk countries, stopping large gatherings, closing more than half of its land borders and shutting schools. On 23 March, the South African government made the decision to lock down the country for all but ‘essential services’. On 14 April, it extended the lockdown by two weeks, until 30 April. As an adjunct, however, from 16 April, it allowed underground mining operations to return to 50% capacity from a position of care and maintenance, albeit observing strict health protocols. From 1 May, surface operations were able to return to 100% capacity. Underground mines were required to remain at 50% capacity, albeit subject to the discretion of the mining and energy minister, Gwede Mantashe, who had the authority to sanction production above this level.

As far as Pan African was concerned, during the lockdown ‘essential services’ included security, pumping and ventilation activities, metallurgical plant maintenance, inspection of underground workings, management and monitoring of tailings deposition facilities, waste management and water treatment facilities and other health and safety-related services. As part of essential services, the group undertook to conduct limited surface re-mining and processing activities at its Elikhulu Tailings Retreatment Plant and at its Barberton Tailings Retreatment Plant. As a result, during the lockdown, Pan African’s group surface mining operations operated at c 70% of normal capacity, while Barberton Mines resumed limited operations at certain high-grade sections of its Fairview operation in order to ensure the required minimum feed for its BIOX processing plant. Of the group’s total staff and contractor complement, only 26% (excluding security staff) were involved in essential services. The South African Department of Mineral Resources & Energy (DMRE) approved all of the group’s activities during the period, subject to compliance with, and adherence to, all relevant laws and regulations. Following the easing of lockdown regulations, tailings operations ramped up to full capacity by 1 May 2020, while underground operations were conducted at c 50% of capacity from 27 March until 31 May.

As soon as the lockdown was announced, Pan African suspended its erstwhile production guidance of 185,000oz for FY20. However, on 11 May, it provided an indication of output for its assets for the full year of 176,000oz on the assumption that surface retreatment plants operated at or close to capacity for the remainder of the year and underground mines operated at 50% of capacity. In the event, it produced 179,457oz, with most of the outperformance attributable to operations at Barberton (see Exhibit 2).

Initially, as the South African lockdown began to ease, coronavirus cases began to increase rapidly, reaching nearly 14,000 new cases in July, with the epicentre of the epidemic shifting away from Cape Town to Johannesburg. As seasonal weather patterns have shifted however and South Africa has entered its warmer months, from September to March, the number of new daily cases has dropped sharply, from almost 14,000 per day to around 1,000 new cases per day currently.

At the time of writing, the number of cases of COVID-19 in South Africa has increased to 695,000 of whom 18,028 have died. Among other things, this suggests a steadying of the mortality rate at 2.6% cf 2.9% globally and 6.8% in the UK. In part, this may be attributed to South Africa’s relatively youthful population (average age 26.4 years cf average African age 19.7 years and average UK age 40). Whatever the reason however, at the time of writing, the official death toll in South Africa continues to remain an order of magnitude below other badly affected countries (albeit with the proviso that not all deaths may be being captured in the official figures).

Pan African has containment and compliance measures in place at all of its operations, including a group COVID-19 steering committee that has been established to enforce and monitor awareness, risk mitigation and prevention strategies. It also undergoes regular DMRE audits.

As at 30 June 2020, PAF had only two positive cases of coronavirus among its workforce complement of c 4,500. As at 14 September, it reported the following coronavirus-related statistics among its personnel: