Pan African Regulatory News (PAF)

Pan African Resources Plc - Finalisation of Evander Mines Restructure & OP Update

PR Newswire

London, May 2

Pan African Resources PLC

(Incorporated and registered in England and Wales under Companies Act 1985 with registered number 3937466 on 25 February 2000)

AIM Code: PAF

JSE Code: PAN

ISIN: GB0004300496

(“Pan African Resources” or the “Company” or the “Group”)

FINALISATION OF EVANDER MINES RESTRUCTURE AND OPERATIONAL UPDATE

Further to the operational update released on 28 March 2018, Pan African Resources advises shareholders of the conclusion of the Evander Gold Mining Proprietary Limited (“Evander Mines” or “Evander”) section 189 of the South African Labour Relations Act, 66 of 1995, process (“Section 189 Process”) and progress made on the Group’s operations and growth projects.

FINALISATION OF THE EVANDER MINES SECTION 189 PROCESS

Pan African Resources has concluded the consultation process with the relevant Evander Mines’ stakeholders as determined by the Section 189 Process, under the auspices of the South African Committee for Conciliation, Mediation and Arbitration. The Section 189 Process was initiated following continued operational losses, which have been exacerbated by the prevailing weak rand gold price. An internal and external review of the existing Evander 8 Shaft underground operation concluded that there is no realistic prospect of mining on a sustainable and profitable basis from this operation in the current weak rand gold price environment. The outcome of this process is regrettably that the current underground mining at Evander 8 Shaft will cease and the affected employees will be retrenched.

The cessation of the existing underground operations at Evander Mines will result in approximately1,700 employees being retrenched by the end of May 2018, at a cost of approximately R160 million that will be funded from the Group’s existing debt facilities.

To ensure that the Group has adequate working capital and continuation of funding for operations and growth projects, Pan African Resources is also in the process of finalising an additional standby facility of approximately R100 million.

Retrenched employees will be provided with opportunities for reskilling and the Group is in the process of identifying employment opportunities for retrenched employees in new, lower-cost operations at Evander, such as the new Elikhulu Tailings Retreatment Plant (“Elikhulu”), and also in post-closure environmental rehabilitation works. The Evander rehabilitation provision is fully funded by means of a R311 million rehabilitation trust and these funds will be used to fund Evander’s underground closure costs and associated rehabilitation.

The impact of the cessation of underground mining at Evander’s 8 Shaft is the following:

Pan African Resources CEO Cobus Loots commented:

“The decision to cease mining from Evander Mines’ underground operations was not taken lightly, particularly given the socio-economic conditions prevailing in the country and the impact on a large number of our employees. All South African gold producers have been adversely affected by the recent strengthening of the rand, and it is imperative that we act decisively to ensure the future of our Group and stakeholders that rely on our operations. During the past five years, Pan African Resources invested capital of R1.76 billion in our current mining operations in South Africa plus a furtherR1.74 billion which is being invested in our Elikhulu growth project. Pan African Resources remains highly committed to investing in our assets in South Africa and building a long term, sustainable platform for growth. The Elikhulu project has created approximately 250 new employment opportunities and we are confident that the Group’s future growth projects will create further long term employment opportunities. Post the cessation of Evander’s current underground mining operations, the balance of the Group’s production ounces will be low cost and cash flow positive, which will ensure the sustainability and profitability of the Group in the prevailing low rand gold price environment”.

OPERATIONAL UPDATE

As previously communicated, Pan African Resources’ strategy is to prioritise lower cost, high margin ounces both in its current operations and also in its future growth projects. The cessation of the current underground mining operations at Evander will cease production from all loss making ounces generated by the Group, resulting in improved positive cash flow and profitability from the Group’s remaining operations. These operations are summarised as follows:

IMPACT OF CESSATION OF EVANDER’S UNDERGROUND PRODUCTION ON GROUP CASH FLOWS AND PRODUCTION GUIDANCE

The Group’s net cash flows before finance costs and taxation (defined as earnings before depreciation, interest and taxation less capital expenditure) for the past 4.5 years has been summarised in a table below to illustrate the various operation’s profitability and sustainability.

*Includes the ETRP construction capital expenditure incurred during 2015/2014 financial years.

The Evander Mines’ underground operational cash outflow of R690.1 million over the past 4.5 years demonstrates the adverse impact that this high cost mining operation had on the Group’s cash flow generation during this period.

The Group previously guided production of 177,000oz -181,000oz of gold for the 2018 financial year. The cessation of underground mining at Evander Mines’ 8 Shaft will adversely impact gold production for the year, however Barberton Mines and the surface operations at Evander, which are the Group’s primary cash generative units, are performing consistent with prior guidance. The revised production guidance for the 2018 financial year is expected to be between 156,000oz and 158,000oz broken down as follows:

The information contained in this announcement has not been reviewed or reported on by Pan African Resource’s auditors and is the responsibility of the Directors of Pan African Resources.

For further information on Pan African Resources, please visit the Company’s website at http://www.panafricanresources.com/

2 May 2018