Coal news and updates

Pan African expects improvement in 2016; acquires coal mine for £10.4mn

Pan African Resources (LON:PAF) expects its performance to improve in 2016 as it moves into a new high grade zone at its Evander gold mine.

Pushing through a low grade patch severely affected the South African mine and Cobus Loots, chief executive, said the company’s earnings per share for this year could drop by between 40% and 60%.

 “The 2015 financial year has been extremely challenging for Pan African, and even though we are disappointed that Evander Mines’ turnaround has not happened more rapidly, the operation is now established in higher grade mining areas.

“Having implemented corrective strategies, the group is well positioned to deliver an improved performance in 2016.”

Dividends, however, are not expected to be affected with Loots adding: "we believe that the company will maintain its dividend pay-out and industry leading dividend yield."

Loots also announced an upgrade to the reserves at its other South African operation, Barberton, which was also hit in the past year by a breakdown of a primary crusher.

Recent drilling at the Fairview mine at Barberton revealed an extension of the high grade 11 Block of the MRC orebody by a further 170 metres, adding an estimated 317,500oz of gold.

Broker Peel Hunt said: "Now operatingin the higher grade areas, we expect the improvements to be delivered shortly,driving a strong start to FY16."

This has extended the life of Barberton mines to over 19 years.

Loots added: “The extension of Fairview’s life of mine underpins our confidence in the longevity of the company’s gold production and resources.”

Production guidance for the financial year to 30 June 2016 now in excess of 210,000oz gold and approximately 10,000oz of platinum.

Pan African said it is implementing measures to ensure lower grade mining cycles are less pronounced in future.

In addition, Pan African has agreed the ZAR200mln (£10.4mln) acquisition of a thermal coal mine from Shanduka Resources.

The Uitkmost colliery in South Africa has a coal mineral resource of 25.7mln tonnes and sells approximately 400,000 tonnes of coal per annum

Loots said: “The acquisition of the Uitkomst colliery does not change our precious metals focus, however our robust financial position in a difficult resources market allows us to take advantage of selective opportunities within South Africa.”

Peel Hunt said: "The move into coal mining for this precious metals producer may surprise some, but we do not expect this to be the start of a strategy to become a diversified producer, more of an opportunistic move to add cash flow, strengthen the dividend cover and generate value."

It has also been revealed that the 23.86% holding in Pan African owned by Shanduka will be sold off to the Mabindu Trust, the China Investment Corporation and the Standard Bank of South Africa once Shanduka’s merger with the Pembard Group completes.

Shares in Pan African Resources were trading 4% lower on the news at 11p.

source: www.proactiveinvestors.co.uk