Ladies and gentlemen, a warm welcome to the 2019 Pan African interim results presentation. To those attending in person, thank you very much for taking the time to be here today. Welcome also to those of you dialing into the conference call facility from South Africa, from the U.K., and from elsewhere. In terms of proceedings today, we will only run through the interim results presentation. For further detailed information, please refer to our SENS, RNS announcement, and to the supplementary information available on the Pan African website. Please rest assured that we will try and keep the presentation fairly brief, and that there will be an opportunity for questions after our presentation. We will first take questions from the floor, and then we will move on to our conference call participants.
I have to say that I suspect that we will have a slightly easier job in terms of getting through this presentation than what will be the case for a very well-regarded and experienced public servant who is presenting another set of numbers and forecasts in Cape Town with us later this afternoon. On a serious note, we wish the honorable minister all the best for his budget speech, and thank you for his service. As per usual, our disclaimer and detail on forward-looking statements can be found on page two and three of our presentation. We can proceed to the presentation summary on slide number four. We will briefly reflect on the recent performance of global miners and also the status of gold as an investment. We will comment on South Africa as a mining investment destination.
I'm very proud to highlight Pan African's ongoing repositioning as a safe, low cost, and sustainable gold producer. We will provide detail on our surface retreatment and underground mining operations, and our financial director, Deon Louw, will highlight some of the key finance methods and considerations included in our group interim results. We will conclude this presentation by providing more information on progress with Pan African's internal growth initiatives and by reflecting on key deliverables for FY 2019 and our progress in achieving these deliverables. If we move on to slide number five, improving commodity prices, margins, and also a focus on back to basics have impacted positively on the valuations of major miners in recent years. The 2008 and then to 2014, 2015 slump have taught miners, investors, and bankers alike some invaluable lessons, which include the following.
Ensure that you have assets that are lower down on the cost curve. Marginal assets will struggle to survive a severe and prolonged downturn. Do not over-leverage your balance sheet. Capital discipline and return on investment are non-negotiables. Do not underestimate single project risk. Do not underestimate country risk. Be very wary of M&A, particularly when commodity prices have been running. Also, do not underestimate the importance of a management team. We were on an investor roadshow in 2015 when a major miner ran into financial difficulties and its share price plummeted to all-time lows. The market was incredibly negative as to the company's ability to survive. Knowing the ability and tenacity of the management team, we knew that they would have to do some hard yards, but in all likelihood, come out okay on the other side.
Pan African's board and management have also taken note of these lessons, and hopefully this is reflected in the way in which we run our business. I believe it was Desmond Tutu that stated that the only thing that we learn from history is we don't learn anything from history. We certainly focused on making sure that's not the case for Pan African. If we move on to slide number six, it does appear as though gold's safe haven status is returning. Now, the S&P has certainly outperformed gold in recent years. However, the last year has seen an improvement in the US dollar gold price. Central bank buying and the collapse of Bitcoin has further endorsed gold's safe haven status.
The end of QE and potentially cheap credit, ever-increasing geopolitical risks, and a number of other factors have resulted in most analysts looking more favorably on the yellow metal. When one adds likely ZAR weakness on top of a robust US dollar gold price, it could bode well for South African producers going forward. As I've said in the past, however, at Pan African, we do not bank on an increase in the gold price. We focus on those factors that we can control. Slide number seven, South Africa. Let us not deny the very serious situation that South Africa is facing at present. The chickens have finally come home to roost. We are faced with massive unemployment, a slowing economy, overloaded fiscus, and fading of state-owned enterprise. Also, a word of caution.
Recently, our country seems to be losing the plot as far as coexistence between miners and other groups are concerned. Few industries can make such a meaningful, positive impact on communities and lift so many out of poverty as what a new mining operation can do. If we sterilize miners' ability to get new operations going, we will all be a lot poorer. In fairness, however, the whole world's in a very uncertain place, as we all know. Who knows what Brexit or how Brexit or even the EU for that matter, will play out or what trade tariffs between the U.S. and China will ultimately amount to. Amidst all of this, two positives in South Africa that I would like to highlight. You can get things done.
Nowhere else in Africa would we have been able to deliver a project of the scale of Elikhulu at the cost and within the timeframe that we did. Furthermore, we managed to restructure the entire Evander operation within pretty much a 90-day period. A feat also impossible in many other jurisdictions. The second key recent positive is the willingness of government to engage. South Africa has been built on compromise, and we see a realization in government that business efforts are critical to all of our futures. We can have, and have had, meaningful interactions with the likes of the Department of Mineral Resources. There is an honest will by many good people to get the right things done. If we then proceed further, slide nine to 12 demonstrates Pan African's progress to being an even safer, low cost, and sustainable gold producer.
In February of last year, pretty much at the same time and the same venue, we had to ask shareholders and other stakeholders to bear with us and trust us to make our operations more sustainable. Mining is an industry that either keeps you humble or makes you humble, as the case might be. By no means can we sit back today and say, "Mission accomplished." However, our progress is tangible and our achievements speak to our mantra of deploying people into action in order to achieve results. If we move on to slide number nine on our safety performance, I'm personally very proud of our safety achievements, and we continue to work hard to improve even further.
I would like to commend all of our staff and management for their excellent safety performance in the last six months, and I challenge all of you to maintain and improve in the period ahead. At Phoenix Platinum, our first tailings retreatment operation, we ran for more than five years without one single lost time injury. This is the sort of safety performance that we continue to work towards. Slide 10, which deals with our cost performance. Personally, I fail to see the business case of producing gold at no margin or at a loss. We have decisively restructured our business in order to be a low-cost producer, not only in South African terms, but also when compared to our international peers. We expect our all-in sustaining cost profile to decline further as the group benefits from the steady-state production from our ultra-low-cost Elikhulu operation.
Investors have a universe of investment opportunities. There is no need for them to invest in South African gold miners. We have to be internationally competitive as far as our cost of production is concerned. This is what we've achieved in the last set of results, and we will continue to work at this going forward. Slide 11 might be fairly new to our presentations. It deals with ESG. The principles are very well ingrained in most miners, certainly within Pan African also. Without a social license to operate, we might as well close our doors. I do think what we've not done well in the past is actually communicate our achievements and what we do in our communities and the benefits that we pass on to all of our stakeholders. We have built and maintained schools and clinics. We provide bursaries and other services.
We train and we create entrepreneurs and skilled professionals. Without our operations, in my opinion, the town of Barberton would cease to exist in its current form, and the town of Evander would be solely reliant on Sasol. It's therefore critical to all stakeholders that we continue to do well. I think slide 12 speaks to our track record of capital allocation and also delivery on projects. Interesting that all of these projects have been internal. It's a lot easier to achieve attractive returns when you do not have to pay a further or additional acquisition price. Just to note that the Elikhulu number excludes ETRP. I believe the payback is even more favorable, if we were to include the ETRP integration into Elikhulu. We move on to our operations and a brief overview. Slide 14.
Our production numbers and further detail on costs are dealt with in detail in the interim results presentation and RNS SENS. Just a couple of points on the slide. You can now see that we've clearly rebalanced our portfolio towards low cost surface retreatment ounces. These ounces exclude potential growth from the likes of Royal Sheba and the 8 Shaft pillar project. Surface ounces as presented are for a full year of production. Clearly, we will not make these ounces in the year FY 2019 as Elikhulu is only being commissioned, or was only commissioned at the end of last year. In terms of our guidance of 170,000 ounces for FY 2019, we're comfortable that we will achieve that guidance, with some assistance from the Evander underground ounces that we're still producing at, so obviously a low rate at Evander underground.
If we proceed to slide number 16 and 17, which deals with our surface retreatment operations. These surface retreatment operations are now a real and sizable differentiator for Pan African. There were many skeptics that did not believe we would pull off Elikhulu. An Australian delegation that visited the site commented that it would have taken them three times as long to get a similar plant up and running. Ultimately, the Elikhulu construction amounted to more than 2.5 million man-hours. We used 2,000 tons of steel, we poured 40,000 cubic meters of concrete, and we moved 6,000 cubic meters of earth. 6 million, apologies, cubic meters of earth in constructing Elikhulu.
We broke ground in September 2017 and commissioned the plant only a year later. At Barberton's BTRP on slide number 17, the regrind mill is performing as anticipated, and the operation is again producing at a very attractive margin. We delivered the ounces at an all-in sustaining cost of just over $500 for the period under review, which I believe is quite exceptional. Slide 19. Let us not neglect our underground operations at Barberton. Unlike a lot of the South African underground gold mining industry, Barberton's underground is not in a sunset phase. Let's look back. Barberton has survived the Anglo-Boer or South African War, the Great Depression, First and Second World Wars, apartheid, and in 25 years, where arguably their phase of state had not been optimally managed. It is likely to survive most of us also.
Performance from the underground has been much improved in the current half. At the risk of stealing somebody else's catchphrase, under growth initiatives later in this presentation, we will discuss further actions to make the Barberton underground great again. Let me now hand over to Deon Louw to provide more color on our interim results.
Thank you, Cobus, and good morning. Slide 21 summarizes the 2019 year's interim results, with the emphasis on the continuing operations as this best represents the business going forward. The continuing operations now comprise Barberton Mines underground operations, our surface operations comprising the BTRP and the recently commissioned Elikhulu project, which now also incorporates the old ETRP throughput and the vamping and remnant mining at Evander's underground operations. It is noteworthy that although the total gold produced in this reporting period declined from 85,000 ounces to 81,000 ounces, that was produced at an average cost of $975 an ounce relative to the $1,268 an ounce in the corresponding period, as the loss-making underground ounces from Evander were eliminated and substituted by Elikhulu's low-cost ounces.
With the operational initiatives that Cobus will refer to and the full momentum of Elikhulu's low-cost production coming through in the second half of the financial year, we're expecting the group's all-in sustaining cost to reduce even further in the future. Although the average gold price per kilogram of ZAR 557,000 received in this reporting period was only 1% in excess of that received during the corresponding period, and despite the lower ounce production, attributable earnings from continued operations increased to ZAR 138 million, and headline earnings per share from continuing operations increased by approximately 13% to ZAR 0.0715 per share or approximately 8% increase in pound terms to GBP 0.0039 per share.
This is despite an increase in the weighted average number of shares by approximately 103 million following the sale of treasury shares in May 2018 to fund the incorporation of the ETRP's throughput into the Elikhulu plant, the full economic effect of which will only become evident in the second half of this financial year. Just for illustrative purposes and to digress for a minute, if the prevailing ZAR spot price of approximately ZAR 600,000 per kilogram held for the full six months of this reporting period, net profit after tax would have increased by approximately ZAR 80 million post-tax and post-royalties, illustrating the levered impact of movements in the ZAR price on gold on profitability. Unfortunately, it also works the other way when the ZAR price of gold declines, which only enforces our strategic objective of focusing on low-cost ounces going forward.
EBITDA from continued operations also increased to ZAR 343 million, with 25% of revenue in this reporting period, and its momentum should further increase in the second half of the financial year. As could be expected with the construction of the Elikhulu facility, net debt increased by ZAR 1.2 billion to ZAR 1.88 billion as we drew down on the senior debt facilities to fund the project construction. Net debt, we believe, has now peaked, and the balance sheet should commence deleveraging from these levels. The capital expenditure of ZAR 587 million incurred in this reporting period should also now decline in the second half of the financial year as the full capital expenditure on the Elikhulu TSF comes to an end in the next few months. Slide 22 is an overview of the cash generation and deployment thereof in the reporting period.
Cash generation by operations of ZAR 433 million was adversely impacted by finance costs and income tax of ZAR 97 million and ZAR 26 million respectively. The remaining ZAR 317 million of cash generated from operating activities, combined with debt advances of ZAR 295 million, funded the capital investment of ZAR 582 million in this reporting period, most of which obviously relates to the Elikhulu project's construction. Slide 23 tracks the group's equity returns over the past eight years. The impairment provision made in the 2018 financial year unfortunately halted this enviable trend. It's encouraging that the return from the continuing businesses in this reporting period has reestablished this trend. The lower execution risk in our operations going forward should also contribute to less volatility in the future returns.
We strive for a minimum return on equity of 16% on capital deployed, that's obviously equity capital, adjusted for incremental project specific and sovereign risks where deemed necessary. Slide 24 tracks the group's historical dividend yield over the past five years. The suspension of the 2018 dividend was regrettable, understandable in the context of the 2018 repayments, the retrenchment costs associated with the cessation of mining at Evander's H shaft, and the capital expenditure program associated with the Elikhulu project. We remain committed to reinstituting the dividends when expedient to do so. Slide 25 discloses the amortization profiles of the group's senior debt. The existing RCF facility is depicted in the yellow line. It's probably more a bit of a golden line with its existing termination in June 2020.
The restructured RCF facility is depicted by the green graph, with the restructured repayment profile and extended termination date in 2022. The existing Elikhulu facility is depicted by the blue graph, with its full amortization over the next five years. We originally contemplated to restructure the RCF facility with a bullet of ZAR 1 billion in five years' time. This proved to be unnecessary as the RCF facility can be redeemed on an amortizing profile over a shorter period of four years with a ZAR 500 million bullet repayment in June 2022. That's based on our forecasts, which were done on a conservative scenario, approximately ZAR 570,000 per kilogram going forward. Clearly, as the gold price improves in our favor, additional cash flows will result in an accelerated repayment profile.
The second graph on the slide illustrates the extent of the principal debt installments over the restructured RCF and Elikhulu facilities over the next five years. I can confirm that we have now received final credit approval from our debt consortium's lead bank, RMB, and our focus is to close our RCF restructure before the end of June this year to ensure that our funding capacity and liquidity is intact going forward. Thank you.
Thank you very much, Deon. If we proceed to sustainable growth. It is always a tricky one. Elikhulu is now almost done and dusted, so what is next for Pan African? At the end of last year, in a conversation with a fund manager, it was mentioned that we now have a sustainable, stable, and attractive business, but that this fund manager was not sure about where future growth would come from. This was the same fund manager that some 12 months previously was vehemently opposed to us looking at any growth opportunities. It is investors' prerogative to be fickle. As management, we have to look beyond the noise and do what we believe is right for the business. Fortunately, we have a very attractive internal growth profile and growth projects underway in our portfolio, as is evidenced by slide number 27.
On slide number 28, we have commenced the reversal of the trend of declining underground production from the Barberton underground. This does, however, not happen overnight. On slide 29, we look at just an overall depiction of the Barberton underground. We call it a universe of opportunity, and we sincerely believe that it is true. We will be in our next high-grade 11-block platform, the 256, in July of this year. At Fairview, we have also commenced developing towards the down-dip extension of the ZK orebody. This will increase mining flexibility in the next years. I am also pleased to report that we have commenced the development of the Barberton sub-vertical shaft, which will link B decline to C decline, and certainly increase production and increase flexibility in the years going forward. If we proceed to Royal Sheba, which is slide number 30.
The Royal Sheba's initial feasibility study is still on track to be complete by the end of this month. A lot of optimization will then follow, and we will communicate the results to the market in due course. We have also commenced discussions with stakeholders on the required permitting and will keep the market informed in this regard. The bottom line on Royal Sheba is the following. We have the orebody. We have the infrastructure. We need to get going as soon as possible in a manner that maximizes returns for all of our stakeholders. If we move to a new project, which the team has called Project Dibanisa. It is the brainchild of the management at Barberton and our corporate office management.
What potentially Dibanisa will allow us to do is to move the ore that is currently wasted at Sheba, move that to the Fairview operation and waste to decline. It will save costs. It will make the operation more efficient and potentially free up the Sheba infrastructure for other initiatives, including Royal Sheba underground mining. We look forward to updating the market in due course. On slide number 32, I think this is quite an exciting development. We have said in the past that the market could expect a feasibility study on the 8 Shaft pillar project at Evander by the end of January. It is a bit delayed, but here is our feasibility study. I think it looks quite attractive. We can produce more than 30,000 ounces a year for three years. Obviously, mining a pillar, it is quite cost effective. We do not have to use any of the old infrastructure.
The NPV of the project is very attractive. The upfront capital is pretty low. The key for us is to make sure we can mine this safely and sustainably. We will be making a final investment decision on this pillar project before the end of March this year. We speak about Egoli. Egoli, it is a quality underground ore body at Evander. I do not think we must allow the H shaft and the challenges with infrastructure and depth to cloud our judgment as far as Egoli is concerned. Clearly, it is not a project we are going to sort of venture out and do in the short term. We need to demonstrate to shareholders, certainly, to have a look and see what happens with the pillar. I think we can gradually then progress Egoli up the value curve.
Let us conclude this presentation with a health check and just to sort of reflect on key deliverables. In the year or period coming, we will continue to emphasize and focus on our safety performance and ESG compliance. We will certainly aggressively pursue our growth prospects, both at Barberton and Evander. From a production perspective, we will deliver into our gold production guidance of 170,000 ounces for the financial year. We will ensure Elikhulu delivers. The plant is pretty much ramped up. The integration with ETRP is pretty much complete. We should do an order of 170-odd kgs out of Elikhulu in February. We should be very close to 1.2 million tonnes. That is despite February being a short month. By all accounts, Elikhulu is going very well. We will certainly focus on further reducing our all-in sustaining costs.
Clearly, with sort of having a benefit of pretty much a full period of production from Elikhulu, a lot of that cost savings will come through automatically. In terms of finance, we need to focus on increasing our balance sheet flexibility and capacity. In due course, also reassess the merits of reinstituting our dividend. Finally, as we conclude, I would like to thank each and every employee and executive at Pan African's corporate office and at our operations. Without your commitment and dedication, we would not have survived the last year. Despite all the pressures and challenges, I still love walking into the office or onto our operations every morning. Thank you for attending. Thanks. I think we will move on to questions. First from the floor, and then we will move to the conference call.
Hi, Cobus. It is Yatish from Macquarie. Just two questions. Just the one on the Evander underground vamping. I think in the release you spoke around about ZAR 214 million for the cost of production, which yielded around about 280 kgs of gold. What proportion of that is actually the cash cost component?
If we talk about the pillar project, the initial capital is actually quite low. It sort of involves the drafting plant or a backfill plant, which is about sort of ZAR 10 million, then some development. Where we stand today, I think we're about 80 meters odd only of development that's required to get into the pillar. Clearly, the plan would be that we fund any additional capital out of cash flows generated by the project.
Sorry, I was actually referring to the vamping that you conduct of the high grade pillars.
Yes. Okay.
That's about ZAR 214 million cost of production.
Yeah. Okay.
Which yielded about 280 kgs of gold.
Yes.
On a rough calculation, that's about ZAR 718,000 a kg.
Yeah. No, it's fair. Look, I mean, the Evander, if we look at the underground, the activities in the last six months did not generate profits. We were, however, obliged to continue to keep H shaft open because we required the water for the ETRP. Now with ETRP having moved across to Elikhulu, we no longer need to do pumping out of H shaft. If we don't see the requisite results out of what we're doing on the vamping, it's actually. We're mining the highest grade panels still. We can continue to do that until June. We need to transition into this pillar fairly quickly. I mean, I can certainly. We will not continue to make losses on any of our operations.
Thanks. Then just one more question. Just on slide 14, you showed the production mix becoming 50/50 surface and underground.
If you were to look at the energy requirements of either at Barberton underground, you've got mechanization, whereas the other 50% is processing. Eskom being a key input for your processing operations, what contingencies or conversations are you having with your team in terms of how do you address non-disruptions on your processing ops? Thanks.
Yeah. Elikhulu, in terms of the input cost, the electricity is fairly low, it's less exposed to electricity. I think at the moment we're using about nine MVA, that could go up to about 12 as we pump further. We have generation capacity just to keep things going. It's not sufficient to run all the plant. I think what we're seeing from Eskom at the moment, Yatish, is that they are still prioritizing miners. There's an agreement with the Chamber of Mines that they actually can't shut down deep level mines. We help and assist where we can. When there's load shedding, we turn off some of the mills. It certainly hasn't had any effect on us, but we try and limit the effect. Clearly at Barberton, the impact on electricity will be more.
Again, because Barberton is not sort of your main drag, it's not really a term, but sort of fairly isolated. The issues as far as electricity is concerned in the past has been fairly limited. A lot of mining companies are looking at alternatives. We've also commenced the process now to say, well, something like an Elikhulu could potentially be quite viable. Let's say something like solar power and what's happened with solar over recent years, in terms of technology, could make it a viable alternative for the likes of Elikhulu. We've commenced that process. It's not something that's going to happen in the next six months. Yes, I agree that it is of concern, and it's something we focus on quite a lot.
Hi, Cobus. It's Rene Hochreiter from NOA Capital. Could you give us some guidance or a guidance update, I might have missed it, sorry, for FY 2019 and possibly also for FY 2020 in terms of production, all-in cost, and CapEx?
Yeah. It's a bit premature to guide on all-in costs, other than to say that we anticipate the all-in costs for FY 2019 to be a bit lower than where we sort of have come in the 6 months. In terms of FY 2020, it's a bit simpler because if we look at the ounces, again, we haven't yet finalized budgets, but Barberton would be in the order of 100,000 ounces and Elikhulu, which now incorporates ETRP, would be the 70,000 odd ounces. That excludes obviously any ounces from the pillar and anything else we gain from surface at Evander. If we take a step back to 2019, our guidance for FY 2019 is also 170,000 ounces. The mix is a bit different in that you don't have Elikhulu running for the whole period.
You do have higher cost ounces from Evander Underground comprising some of that 170,000 ounces, which you will find after obviously falls away in FY 2020.
The CapEx?
The sustaining CapEx for FY 2019 at Barberton is in the order of ZAR 150 million. There's some special projects. We have done the drilling at Royal Sheba. Going forward, we'll look at a couple of other initiatives that we'll announce in due course. Sustaining capital for our group now is in that order. Elikhulu obviously will not require a lot of capital in the first number of years. The first major additional capital being when we move over to the next set of tailing dumps, which will be at the end of 2021.
No expansion CapEx yet?
No. Well, again, sustaining capital, I think we've guided expansion. It'll sort of come down to the merits of the project. We're obviously still, in FY 2019, spending on Elikhulu. That clearly will come to an end very shortly. There's not an awful lot of other expansion in capital.
Thanks.
Cobus, Arnold van Graan from Nedbank. Two questions from my side. The 100,000 ounces level that you talk about at Barberton-
Is that sort of a sustainable level over the next few years before taking into account all the projects coming online? That's the first question.
Yeah. Sorry. Okay. Let me answer that first. The 80,000 ounces from underground, we believe is more or less sustainable. Again, you've seen the initiatives we've been busy with. 20,000 ounces from a BTRP after the installation of the regrind mill BTRP. We're doing an order of 55 kgs a month. That's sort of 20,000 ounces plus per annum. We can sustain that currently for sort of two, well, sorry, three odd years plus. Again, without looking at any other sources.
Secondly, on the underground at Evander. How much are you spending on the Egoli project assessment?
I have to ask you about your appetite to actually go back into underground mining. I understand with the Egoli project, you're obviously going to assess that over a longer-term period. For the pillar mining, are you comfortable with the risk profile and the risks that that presents?
The final decision on the pillar will be made at the end of March. The general manager we have at Evander is a gentleman by the name of Lazarus Motshwaiwa. He's mined pillars before, so he understands the risks and the implications. That's why we sort of haven't gone, I guess, full tilt yet on the pillar. We need to make very sure we can mine it safely. In terms of your question on Egoli, what we're spending at the moment on the project and the assessment of the project, zero. Very, very limited. We need to figure out a way of potentially accessing Egoli as part of this pillar if we do proceed with the pillar. Our shareholders, I don't think have an appetite for us to go back into deep level underground at this point.
We mustn't be, I guess, also blind to the opportunities in our portfolio versus going and doing something else. If you look at the Evander complex, over the years, there's been 10 shafts that have been sunk on the ore body. It tells you something about the quality of that basin. We have 30 million ounces plus in resource. The issues we had at eight shaft were not principally related to the ore body or lack of grade or lack of material. As you know, there's a number of other factors. Yes, it's an attractive project, we need to tread very carefully.
Hi, Cobus. Well done on executing Elikhulu on time and on budget. Couple of questions. Now that it's reaching steady state, right? Can you give us a sense of sort of the grade you expected before you started this and the grade that you're receiving in your plant, as well as sort of the recoveries that you're getting? What are you seeing at the moment?
Yeah. We're sort of seeing pretty much what we anticipated, which is a big relief. The only way to find out how a million-tonne a month plant performs is by really honestly building a million tonne a month plant. It's not really true. We obviously did a lot of work before in terms of the ETRP. Suffice to say that both grades and recoveries are in line. The recoveries takes a bit of time to come through. You're not going to get your optimized recoveries in the first months of production. We look at it on a sort of per KG basis and our guidance, we're fairly comfortable with the sort of guidance we've given going forward.
Is it still too early to talk about seepage down the?
Yeah. The life of mine currently of Elikhulu is 13 years. We will sort of look to optimize what we can, as we normally do with any project. I don't think we can expect sort of maybe one can extend the life of the project for a bit, we have lots of other things to also focus on at this point.
Just an additional question on Elikhulu. The water rights at the Leeuwpan Dam, what do you call that dam?
Leeuwpan.
Yeah. Is that dam given, where our rain has been and all that, do you have enough water for the entire life of this project, right?
Have you been to that dam? It is a lot bigger than what you would think. At the moment, given the rainfall, we are actually not using any water from the dam. We are using on-site water and rainfall. The water usage is actually a bit less than what we had anticipated. In terms of studies that were done, we are quite comfortable that we can extract water on a very sustainable basis if needs be.
I suppose a question for Deon. At what point does the balance sheet look healthy enough for a proper dividend, do you think? I mean, given your modeling.
That is something that I don't think there is a perfect level that one can commit to. It is a function of how stable the operations are, how good the cash flow generation is, how robust all the governance. It is a decision the board will make come September this year, with reflection of what transpired in the last nine months leading up to that point in time. Clearly, the debt levels are high, de-leveraging the balance sheet is a priority, but at the same point in time, we want to reinitiate dividends. We recognize the importance of that for many shareholders.
What was your dividend policy in the past?
Our dividend policy is not inconsistent with that of many mining companies, which is 40% of free cash flow. Tempered for CapEx, tempered for economic conditions or any other, let's call it, issues on the horizon. Other than from a expansionary capital perspective, there's no reason why we should retain lots of cash on the balance sheet unless there's a specific use for it.
40% before.
No. At that point in time, you'd have to make assessment whether you want to hold back a bit, be a bit more conservative. Invariably, when it comes to large projects such as Elikhulu, bankers want you to put some equity, some straight capital into the project as well. I think the likes of Royal Sheba we can fund without an equity contribution, but that would then have to come out of your own internally generated cash flows. In that instance, you would probably want to be a little bit more conservative and make some provision for that equity contribution to the project.
Is it still too early to talk about CapEx for Royal Sheba? Is it still less than ZAR half a billion?
Yeah. I think it's too early. I think what we've said, we're making progress. We need to optimize. We'd like to put something forward we know we can execute on.
Very cool. There's just one more question on Barberton Underground. What percentage of production does Fairview now contribute to the Barberton Underground mine?
About 60%. It's 50, 60%. Clearly, Sheba is also a very important Consort, is the one that we need to do some work on still. Consort's not sort of doing what it needs to do. There's quite a lot of focus also on upping the production from Consort. Shall we move on to any callers?
We have no questions on the line.
Okay, that's good. Sorry.
Say something more about your reserves development and program and progress in that regard.
Clearly we need to develop sufficiently so that we can maintain production. It's a big focus of ours. If you look at where we came short at Barberton Mines years previously, we didn't have access to these high-grade 11-block platforms. Ideally, you want to have at least three platforms operating where you can cycle between the three platforms. You'll see the sort of impact on our head grade once you have any of these big platforms in production. As I've said, you would have seen one of the slides. There's a big focus on fast-tracking development down to make sure that we, in our next platform, which is the 256 platform in July of this year. Ore replacement and reserve replacement has become a big focus of ours, specifically at Barberton Mines. Thank you very much.
Thank you for attending, please help yourselves to some snacks outside. Thank you.