PAN African Resources has agreed to defer the settlement of a loan with Rand Merchant Bank (RMB) in terms of which $7.8m (R148m) worth of gold – equal to 5,000 ounces – will now be paid to the bank in the first quarter of the 2021 calendar year.
In July, Pan African said it had entered into a 12-month agreement in which it would sell RMB 20,000 oz, equal to about 12% of its total production, for R394m in upfront cash. It said at the time that the strong gold price had provided a good opportunity to do the deal.
The prevailing price of the gold was about R633,000 per kilogram ($1,414/oz) which Pan African said at the time was an opportunity to lock in a good margin. The current rand gold price, however, is about R1m per kilogram, although the fact remains that owing to the national lockdown aimed at curbing COVID-19, production is curtailed.
Pan African confirmed today that its surface re-mining activities were at 70% capacity in terms of government regulations governing industrial activities during lockdown.
The initial 21-day lockdown was extended by two weeks by President Cyril Ramaphosa which means that production can only begin from April 30 with full productive capacity only likely in the weeks thereafter.
Pan African has suspended production guidance which had been put at 185,000 oz for the 2020 financial year. This represented an increase over 2018 production which came in at 170,000 oz.
Notwithstanding the lockdown, Pan African said that its balance sheet was “robust” and that it had support from lenders should more liquidity be needed. As of December 31, which is Pan African’s interim date, there was some $7.4m in cash and equivalents whilst net debt was at $123.7m.
Pan African has also hedged 50,460 oz during the second half of its financial year with a put option at R650,000 oz and a call at R850,000 oz.
The agreement to defer the payment of the gold loan implies a level of prudence by Pan African nonetheless and raises the question as to whether it will win support for the development of the Egoli project. The project requires R750m to build.
Pan African also resumed dividend payments which had totalled $3.4m at the half-year point.
