In its first half-year fiscal period, during which the newly acquired Evander Gold Mines contributed for the full six months, midtier gold producer Pan African Resources posted strong gold sales and margins, going some way towards justifying its February 2013 acquisition of the R1.5-billion operation.

“The acquisition of Evander Gold Mines has effectively doubled the size of our company, with its 31.6-million ounces of gold resource offering significant expansion potential and optionality for our group.

“The meaningful contribution from Evander during the last six months, despite the mining activity moving into a lower-grade mining cycle, further demonstrates the quality of this asset,” CEO Ronald Holding said last week.

Bolstered by production from the Mpumalanga-based mine, the group’s gold sold for the period ended December 31 increased by 123% to 100 172 oz, while revenue increased 101.9% to R1.35-billion, which marginally lifted earnings per share and headline earnings per share to 15c each.

Of the total revenue, Evander Gold Mines contributed R565.6-million, Phoenix Platinum, in the North West, contributed R1.1-million and Barberton Mines, in Mpumalanga, contributed R114.3-million.

Citing an “uneasy” environment in which gold prices retreated “considerably” to $1 311/oz, Holding said the group had nonetheless benefited from its “old lady” Barberton Mines operation, at which the Barberton Tailings Retreatment Project (BTRP) was completed over the period.

Gold sold at the combined Barberton Mines operation increased by 26.9% to 57 008 oz, which Holding believed would continue to underpin the company’s profitability.

Production at the group’s platinum tailings operations decreased by 4.8% to 2 987 oz in the period, achieving an average platinum price of $932/oz.

Meanwhile, the group’s total cost of production increased by a hefty 148.3% to R862.5-million, with Evander Gold Mines contributing R426.8-million and Phoenix Platinum R2.3-million to the increase.

“The primary contributing factor to the increased cost of production was the incorporation of Evander [Gold] Mines’ higher average cost of production as a result of its current low-grade mining cycle,” Holding said.

Barberton Mines’ costs increased by R86-million as a result of inflationary increases to mining costs as well as the incorporation of the BTRP costs of production.

Moreover, the group’s earnings before interest, tax, depreciation and amortisation increased by 73.9% to R450.8-million, largely owing to the inclusion of Evander results as well as the newly constructed BTRP.

Similarly, the company lifted profit after tax by 65.6% to R275.9-million.

Over the period, the group undertook a prefeasibility study on the possible upgrade and rehabilitation of the carbon-in-leach tanks of Evander Gold Mines’ Kinross plant to create additional processing capacity to treat 200 000 t/m of tailings.

“The project prefeasibility results are positive, with an average headgrade estimated at 0.33 g/t, at an estimated recovery of between 38% and 42%. Based on current estimates, the project could initially produce about 10 000 oz of gold a year,” stated the company.

The capital expenditure is projected to be around R190-million, with a construction period of less than 12 months to first gold production.

The project will leverage off the current plant infrastructure and labour, which will result in a marginal increase in the cost a ton to process the additional tailings.

Holding cautioned that the final six months of the financial year were likely to be challenging, particularly given the bearish sentiment around dollar gold prices and the inflationary pressures that it expected from the weakening rand.

The lower grade cycle at Evander Gold Mines will also be in full force in the final six months of the fiscal year and is expected to impact production and cash unit costs.