UK-based Edison analyst Lord Ashbourne has hailed dual-listed Pan African Resources’ funding package for its Mintails dump retreatment project, outside Johannesburg, as an “innovative” transaction that avoided dilution.
The funding, which was completed early this week, entails a synthetic forward sale agreement with Rand Merchant Bank (RMB), whereby the mining company will sell 4 846 oz a month of gold to RBM for 24 months, starting in March at a fixed price of R1.025-million a kilogram ($1 750/oz) in return for an upfront premium of R400-million.
Including the upfront premium, the effective price at which Pan African will sell these ounces will be R1.36-million a kilogram ($1 938/oz) over the full 24-month period.
“At a gold price of $1 750/oz, we estimate that this funding will be free to Pan African. At a gold price of $1 938/oz, we estimate that RMB will recoup its capital. At a gold price of $1 956/oz, we estimate that it will provide RMB with a 10% (annualised) internal rate of return.
“As such, we believe that this transaction represents an innovative form of financing for Pan African as well as avoiding unnecessary equity dilution for its shareholders,” said Ashbourne.
Pan African Resources said early this week that it was finalising detailed engineering optimisation studies for its Mintails dump retreatment project, with environmental authorisation and related permitting expected within the next four months.
Thereafter, it will start with construction on the project and reach steady state production by December 2024.
The company in October 2022 acquired all the shares of Mogale Gold and Mintails South Africa Soweto Cluster, which are tailings storage facilities.
Pan African also produces gold from the Barberton retreatment project, the Elikhuku and Evander underground projects, as well as the Egoli project.