Earnings Call: H2 2018

Sep 19, 2018

Ladies and gentlemen, welcome to the Pan African twenty eighteen Final 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 in South Africa from The United Kingdom and from elsewhere. In terms of the proceedings today, we will kick off with a ten minute recording that hopefully provides some background to the Pan African journey over the last year. It truly is and continues to be a journey. I believe it is important to showcase the Pan African assets, but more importantly, some of the Pan African people to our shareholders, analysts and the broader audience. We are so proud of our people and what they achieve every day. So please bear with us for a couple of minutes. For those of you dialed into the conference call, a link to that video is available on our website also. Following the video, we will run through the main body of our presentation. For further detailed information, please refer to our Sen's RNS announcement and to the supplementary information available on the Pan African website. Please rest assured that the presentation will be brief and that there will be an opportunity for questions afterwards. We will first take questions from the floor and then from our conference call participants. Can we please now spend a couple of minutes on the video? It's a very challenging space at the moment, both in terms of gold, but also in terms of South African mining. The whole industry has experienced massive inflationary pressures over the last decade or two. We are faced with a very low rand gold price. A lot of the industry has become marginal from an economic perspective. We've had a tough twenty four months, but we believe we've acted decisively and quickly in order to remedy what was required. Pan African Resources is an African focused mid tier gold mining company listed on both the JSC in South Africa as well as the A market in London. Operations include Barberton Mines in Pumalanga and Ivanda Gold Mines incorporating the Eliukulu project in Ivanda. Despite the tough operating conditions in the 2018 financial year, we at Pan African Resources have kept our eyes firmly on the prize. So we aspire to be the gold investment of choice, not only in South Africa, but also from an international investor perspective. We are a sector leading dividend. We've had to cut that in the last year, but we believe it will be back in force going forward. We have very exciting growth. We have low cost, sustainable, safe ounces in terms of tailings. We have a world class underground long life ore body in the form of Barbaton. So all of those factors combined, we believe to make us incredibly attractive for gold investors and for investors in general. Pan African Resources produces approximately 170,000 ounces of gold per year, But what really sets us apart from our competitors is the quality ore bodies, ore bodies with good cash flow margins and a low execution risk. Pan African differentiates itself from the rest of the mining sector in that it gives shareholders a proper return on their capital and that is demonstrated with the sector leading dividend yield that we've had in the past five years as well as a very attractive return on equity. We have had some key challenges in the last year, which required a repositioning strategy in order to execute a decisive turnaround. The challenges were specific to the underground operations at H Shelf. There we experienced massive cash flow hemorrhage especially in the last financial year. We could not afford to have the Yvanda underground continue and be loss making. As a group, we're simply not big enough to absorb continuing losses. So we had to curtail that operation and then refocus on higher margin, low cost operations such as Elukulu. The Elukulu tailings retreatment plant in Evanda is a key component of the future growth prospects of the company and the project has been commissioned in record time. We started building the plant in August, and it has taken us less than a year to try to construct a plant of this magnitude, which it hasn't been done before in South Africa. We're incredibly proud of El Akuli and what we've achieved. We only received our definitive feasibility study in December 2016. We raised the money in April 2017. All the permitting was in place by August 2017, and we've built a 1,700,000,000.0 plant in less than twelve months. We are going to do our budgeted tonnage, which is 1,000,000 tonnes a month. And we've got three tailings storage facilities that will be sitting through Elukulu. Each one of the tailings storage facilities will take about four years to treat. Elikulu has created over 400 permanent employment opportunities, and we are employing people from the local community and people that were detached from the mine as well. And we are going to increase the output of the group in terms of the ounces by more than 25% to 30%, which is really great for the team. Future lower cost underground mining is underpinned by the attractive Egoli project, which will be serviced by Evander's seven shaft. There is a high grade block, which will be mined, thus extending the life of mine to approximately fifteen years. South African has been compelled to move away from the deep level underground mining and we focused on our lower cost, lower execution risk underground ounces at Barbaton as well as surface operations. The production sources at Barbaton going forward form part of the repositioning strategy, but the increased focus on surface operations required us to install a 1.7 megawatt regrind mill in order to maximize the output of this plant. A lot of the slime sand has a consistency of sea sand, is very coarse and it tends to settle out in the tanks. So we had to install a regrind mold to mill it finer so that we are able to treat it and pump it. It has extended the life of the mine and also increased the opportunities of retreating now the older dumps, which are very coarse. The biggest highlight is being able to treat 100,000 tonnes through BTRP for the first time since commissioning. We processed 100,042 tons through the BTRP and also managed to close our gold target. That has differentiated Pan African from its peer group and so doing repositioned itself as a low cost producer in the local sector. Barberton Mine is Pan African Resources flagship gold operation and it is vitally important that we continue to establish sustainable underground operations that are flexible and responsive to any potential challenges that we may face, especially at the 11 Block. The 11 Block is critical to the Barbican underground operation as a result of it being such high grade. On average, our reserve grade is 25 grams per tonne plus. So if the 11 block sneezes all of Barbetton and actually all of Pan African catches the coal. In the past year, we have hold into the next platform, which gave us a little bit more flexibility. Currently, we do have two platforms that we're mining in the MRC. Both of them are high grade platforms, and we developed quite a long lay down as to the next one as well. We're developing towards a third platform, which should be there early in the New Year. So that bodes very well for Babaton underground going forward. Underpinning this repositioning strategy is an ESG culture, which is a business imperative. Paramount to this is the health and safety of our employees. In order to have a license to operate, need to understand that we have to be safe. Barbaton and Evander are safe operations. We achieved the millionth facility free ships at Barbaton recently, but can never take your eye off the ball as far as safety is concerned. So we take it incredibly seriously. It's something we discuss and think about in action every single day. By achieving one million fatality pre shifts for Powassan Mine, it makes me feel great as a group shaft manager because I'm on the driver's seat making sure that, you know, I provide proper guidance to ensure that, you know, all our people returning back home unharmed. So I can say we are the best in the market by such an achievement. Through these actions that we have taken in the last year as well as our plans for the future, we aim to continue delivering sustainable returns not only to our shareholders, but also to our employees and communities. Without having a constructive relationship with these stakeholders, we can't operate. So we need to understand that. And I think we've put our engagement efforts with specifically communities on steroids in the last year and we've been seeing the results. We continue to drive various community focused development projects. In Iwanda, we sponsor the recently opened business incubation center, and Buminello Primary School is one of two schools that form part of the adopter school program. The Sheba multipurpose center forms the heartbeat of the Singwaubilee community in Barbaten. And through the provision of land, seedlings, water, and mentorship, Barbaten Mines have empowered a group of local women with the necessary skills to successfully run the Sing Mawile vegetable project. Lastly, Fairview Primary School is a gem in the local community, an outstanding example of the formalization of the community through education. It is very much important because as a mine, we've got that social responsibility to look after our communities. We work in the communities. We work with the communities, so we must also invest in in our communities. Looking to the future, Pan African Resources has to continue growing while still meeting our strict capital allocation criteria and ESG compliance. We see within our existing portfolio good generic growth opportunities, both surface as well as underground that will deliver into those criteria such as for example the Rojoba. We're busy drilling the Rojoba project here at the back. The gold is quite close to surface. We've just finished the first phase and there's quite a lot of potential especially for ore bodies close to surface. That means that the potential might be for open cast mine and also it's low cost, low risk. So yes, we're very excited about this. Very soon we will be taking that project both definitive feasibility study and all indications that it's going be a very positive result. We're very excited about Royal Chiba. We found effectively a very large resource in our backyard. It's very encouraging in terms of the exploration results and the mineral resource and reserve estimates up to now. We believe we can expand on that further and further process it, but we don't have to pay for it, it's on our mining lease. To further ensure our continued growth through differentiation, we must remain focused on preserving the quality of our ore bodies and unlocking value for all our stakeholders. What we're doing in Barbaton for our future is Fairview has the deeper shaft system of the two mines, the Chiba Mine and the Fairview mine. And we are utilizing that to access the depth extent of the ore bodies from the Chiba side. So the Zeko ore body, we're chasing that at depth. And then the MRC, which is our best grade ore body, is open ended and we've got an aggressive diamond drill program underground to chase the depth extent. And we are busy with the new subvertical shaft at Treviu Mine, which will enable us to go after the depth extent of the MRC ore body. We see Pan African as a business which continues to differentiate itself from the rest of the sector with good returns, growing into the top of businesses that we believe are what our shareholders will be looking for, close to cash flow, good margins, relatively low capital outlay and a relatively short period of time before the first cash flow returns are generated. Those opportunities are few and far between, but we will continue looking within both SA as well as the rest of Africa for those opportunities that meet that criteria. We're very proud of the team. We've put a lot of focus and emphasis on the team and working together. We have a flat structure in terms of decision making. And we're very proud of what we've achieved and we're very excited about the future. I am so proud of what we have achieved. It was time to up our game and we have the grade and the team to do it. To mine for gold is serious safety, but I take safety even more serious. This is not only about underground mining, but we've got some of the best surface resource potential. A healthy community is a happy community. If the community happy, we as Powhatan mines are happy. Our safety record that Pan African resources is one of the best in the industry, and I'm very proud of it. Mining is all about flexibility. Opening up platforms in Block 11 will take productivity to a whole new level. When the committees win, we all do. I'm very serious about space. I'm so proud of what we have achieved here at BTRC for achieving 100,000 tons per month. Grade is everything, and at the end of the day, we've got the grade. Thank you very much for bearing with us. We will now proceed on to the quite brief presentation. We can please note our disclaimer and detailed forward looking statements on Page two and three of the presentation. And then if we move on to Slide four, our mission statement is to be the safe, low cost and sustainable mid tier gold producer. We recognize that gold investors and generalist investors even more so have a universe of investment opportunities and alternatives. To be frank, if Pan African had continued with high cost and difficult deep level mining at Evander Number 8 Shaft underground, in this environment, we would have had to reconsider this mission statement. The entire rest of this presentation is dedicated to demonstrating that Pan African Resources has turned the corner. We have delivered on our undertakings over the last year. We have safe, profitable and low cost gold mining operations, and we have very exciting and attractive growth opportunities in the near future. We can then move on to a presentation summary on Slide six. We will start with the twenty eighteen challenges, remedial actions and the results of said actions. We will then provide further detail on our assets and how we have repositioned our business for sustainability. Dion Low, our Financial Director, will provide color on the 2018 financial results, but more importantly, management views on key financial issues and how these will impact our future. We will then conclude by briefly talking about very exciting near term value accretive growth opportunities within our own portfolio as well as key deliverables for the 2019 financial year. If we move on to Slide number eight, which is a high level illustration of the relative relationship between cost increases in South African rand, gold prices and gold prices over the last years. Pan African has always been known for its cost control, almost being quite frugal, and we have generally managed to contain general annual cost increases to approximately 8% per annum or below over the last years. We are, however, not immune to inflationary pressures, and therefore, we require a depreciating South African rand over time in order to maintain our margins. In December 2017, Cyril Ramaphosa was elected as President of the ANC. In the words of Charles Dickens, it was the best of times, it was the worst of times for us. President Ramaphosa's election provided much needed certainty to South Africa. However, it also resulted in a very rapid strengthening of the South African rand, a move that saw most of our operating margin disappear as the rand gold price reduced to almost ZAR500000 per kilo. I have to say that even in this environment, the bulk of our portfolio was still profitable, which is quite different to the rest of the South African industry. To compound our difficult situation in December 2017, on Slide 9, despite our best efforts, the Vanda 8 Shaft underground was loss making. Our BTRP at Barbaton was experiencing processing issues, and Barbaton Mines underground only had access to one mining platform in the exceptionally high No. 11 block. We were also faced with an unprotected strike action and community unrest for a number of days at the December in Barbaton. So if we move on to Slide No. 10. I think one of Pan African's corporate values is resilience, and we believe that from the outset, resilience requires brutal honesty about one's situation. And being brutally honest, in late December twenty seventeen, we had a major problem in terms of the sustainability of our business. The profits generated by Barbaton and the ETRP at Evander were being eroded by the very weak rand gold price and also by losses from the Evander underground. We are not a management team that can sit back and hope for get better gold prices and improve or an improved operating environment while we and our shareholders suffer indefinite losses. I think a key Pan African strength is the ability to act quickly and execute well. In late December and in the January 2018, the entire Pan African management team was strategizing on how we turn the ship. And by the January, we had developed a detailed action plan. I have to stress this was on top of remedial actions previously derived, implemented and communicated to the market. We have a track record of delivery, and we now had to use this track record to deliver a much improved Pan African. In terms of repositioning, it wasn't good enough to be the best or lowest cost gold producer in South Africa. We had to be competitive with international peers. That means not producing at an all in cost of circa $1,200 but rather look to produce at an all in cost of between $800 and $900 per ounce. The rest of this presentation will demonstrate how we have repositioned Pan African to be even safer, be sustainable, be more profitable, resume a sector leading dividend and also grow profitable production in future. If we then can go to Slide 11. I do believe that we have on a regular basis communicated key challenges and achievements to the market over the last year, but let's summarize a few key points. To be clear, safety is our number one priority. Safety performances have also recently enjoyed renewed attention, both in South Africa but also internationally. We will never be complacent about safety. Despite an excellent performance in the last year, we can and we will do better. We have successfully curtailed unprofitable production ounces from the Evander 8 shaft underground. In January 2018, as a result of the issues highlighted above, the operation was burning almost million per month. After an internal and external review, our Board made the decision to curtail operations. It was all done within three months. And despite the human tragedy, this action has completely changed the cost and profitability profile of our business going forward for the better. The fact that we have managed to successfully close a large scale operation in such a short time frame also demonstrates that you can do business and do what your business requires in South Africa. The BTR regrind mill is our next achievement. We commissioned the mill on time, and it is performing exactly as we had anticipated. We are guiding to more than 20,000 ounces of production for the BTRP in 2019, which makes it an excellent profit and cash generator for our group. We have significantly improved Bobarton Mine's underground flexibility, and we are currently seeing the results of our actions and our investments. In terms of near term growth and in terms of profits and production, we successfully commissioned Ilekulu earlier this month, more than two months ahead of the original feasibility schedule. This Slide 11 is quite a simple slide, and our Investor Relations firm questioned a strategy to make it more impactful. We believe actions speak louder than words. And again, the actions detailed in the slide completely repositioned our business. We are now safer, more sustainable and much more profitable. Let us now have a look at our repositioned business and what shareholders can expect in the future. Slide 13 is a map of our gold operations all in Mpumalanga, South Africa. We move to Slide 14. And I have to say, all of the information contained in this presentation, this is probably the one that I'm proudest of. This is the first year that I, in my capacity as CEO, can stand before you and congratulate our teams on a fatality free year. This is the first year where I don't have to pass condolences to the family of an employee that passed away in the line of duty. This was despite all the upheaval at Evander and the enormous number of man hours spent on the construction of Ilekulu. Barbaton has more than halved its reportable injury frequency rate in the last year. And in terms of lost time injuries, I believe the operation leads the sector. Going forward, our operation with all of our business now so heavily focused on tailings, I would expect the safety performance to improve even further. Mandlaan Glossi, our Group Safety Manager is here today. Well done to him and to each and every Pan African employee. We cannot, however, become complacent. We have to do even better. On Slide number 13, the gold reserves that we have lost as a result of the curtailment of large scale underground mining at Evander has been generally recouped by our work at Royal Sheba and Igoli, demonstrating the depth of our resource and reserve base. We have bolstered our mineral resource management team over the last year, and they are delivering the results. In terms of our long life, low cost tailings business, which now produces 50% or more of all of our gold, Slide 17 only demonstrates that the BTRP is still an exceptional asset. Just to recap, the life of mine is still eleven years. We're still costing all in cost of production of $750 over the in the next year. The initial capital investment was repaid in less than two years. And this has obviously served as a catalyst for the larger tailings business at Pan African. So we're very happy with the achievements at the BTRP. On Slide 18, which is a much spoken about tailings business at Evander, principally the Ilekulu. I believe Ilekulu will change the face of Evander. As we've said before, we've managed to build a ZAR 1,700,000,000.0 plant in less than twelve months. We managed to secure all of our permitting in seven or eight months. And I think this demonstrates that one can build projects successfully in South Africa, and we're quite excited about what Elukulu will hold. So in terms of the forecast for our tailings business at Evanda, we are looking to tie up further surface sources to keep the Kinross plant producing, and we anticipate approximately 10,000 ounces from this plant in FY 'nineteen. If we can then briefly move on to Barbaton Underground, which has been a flagship asset for Pan African for many years. Barbaton Underground certainly made its production targets for the last bit of the 2018 financial year. We've managed to really contain costs on a unit basis very well. If you look at the increase, was pretty much negligible on a unit basis at Barberton underground. And it bodes very well for the year that's that's ahead. So I mean, we're forecasting 80,000 ounces of production from Bogatin underground for FY 'nineteen. And if we achieve that guidance, which is every indication that we will, we can expect to have our all in costs reduce even further, certainly quite a bit below ZAR500000 per kg, which I believe is very competitive in the South African context. Just a very brief and I have to say busy slide on Slide 21. We've tried to demonstrate the universe of opportunities we have principally at Fairview and Sheba as far as the 11 block and other ore bodies are concerned. We've spoken about the subvertical shaft that we're in the process of constructing. We have flexibility now from a mining perspective. We have two high grading underground ore bodies on the MRC being the three fifty eight and the two seventy two. We should be in the next platform early in the next year. That will give us three platforms, and it's been a long time since we've had three platforms in this very high grading block. We estimate on average this block grades 25 grams a tonne. Some of the areas we're seeing 80 or 100 grams a tonne. That's exceptional, and it demonstrates and improves our twenty years life that we currently have on this fantastic underground asset. If we then can move on to Slide 23, which deals with ESG. Investors rightfully demand detail on ESG compliance and performance. We sometimes, I believe, sell ourselves short in this regard. However, ESG has become very much part of our business. Our operations make a positive difference where we operate. We are involved in schools, we are involved in communities, and we will do even more in future. Specifically at Barbaton, as I've said in the previous presentation, we have put our community engagement efforts on steroids, so to speak, in the last six months. We are seeing our results. Community disruptions currently have been very, very limited. I will now ask our Financial Director, Dion Loe, to provide more color on the 2018 financials and also on the prospects going forward. Thank you, Gwyvis, and good morning, everyone. Slide 25 summarizes the 2018 financial year's results, which differentiates between continuing and discontinuing operations. Continuing operations comprises Barbaton Mines, the BTRP, the ETRP, the Ilekulu project and the ROM circuit at the Kinross plant, whereas discontinued operations comprises Evander's seven and eight Shaft complex. Revenue from combined operations, both continued and discontinued, declined by 13% to ZAR1.87 billion, adversely impacted by both the lower gold price and lower gold sold volumes. The lower production volumes and high cost of Evander's underground production is reflected in the substantial increases in all three cost parameters for the combined operations, with all in sustaining costs and all in costs materially in excess of the 538,000 a kilogram we received on average for the 2,000 financial year for a kilogram of sold gold. This burn rate, as Kubas mentioned, was clearly unsustainable for the group for a group of our size and compelled the repositioning of the group to ensure its sustainability. As expected, gold mining with its high fixed cost structure is disproportionately affected by lower production volumes and a lower rand gold price, And EBITDA from continued operations was adversely impacted, declining to $416,000,000 relative to the $816,000,000 in the prior year. Losses from the combined operations amounted to 1,560,000,000.00 following the ZAR 1,760,000,000.00 impairment of the discontinued operations. However, if the impact of the discontinued operations is excluded from the results, the continued operations still generated a post tax profit of $2.00 £2,000,000 or £11,500,000 Earnings per share on a combined operation basis was clearly impacted by the impairment of the discontinued operations declining to a loss of $0.86 per share or $0.05 $1.05 pence per share. But headline earnings per share, which excludes the results from discontinued operations, was still positive at ZAR0.66 per share or ZAR0.73 a share. The movement in net debt to ZAR1.62 billion results from the ZAR1.65 billion capital spend primarily on the construction of the Elekudu plant, which was funded from drawings from the dedicated El Akuna debt facility and the general purpose revolving credit facility, the RCA facility. Slide 26 discloses the trend in production cost in rand and dollar terms for the continuing operations only. The impact of the lower production volumes on unit cost is evident in the 2018 financial year as the trend turned negative, but we are confident that it will reverse in the 2019 financial year as production volumes revert to the guided levels. We monitor cash flows judiciously, and Slide 27 discloses the cash flows for the 2018 financial year. Notwithstanding the owner risk cash outflows associated with Evander's operating losses and retrenchment costs, the group was still cash flow positive from an operational perspective to the extent of million. As expected, finance costs increased commensurate with the increased debt levels as we funded the capital expansion program withdrawing from the RCF and El Akuli facilities to the extent of ZAR1.4 billion. We endeavor to maintain a minimum liquidity headroom of ZAR200 million to ZAR300 million for working capital purposes at all times and sold treasury shares in May to the extent of ZAR149 million where the rand gold price was severely depressed and we were concerned about possible disruptions at our operations. Slide 28 shows the maturity and amortization profile of the existing OCF facility. The orange line in the first graph is the RCF facility's existing amortization profile. The restructured RCF facility is the blue line in the first graph. And existing Elekpuri facility is in green, it's a straight line amortization over a five year period. The existing RCF facility, that's the orange line, amortizes currently with three installments of 133,000,000 commencing in June 2019, a further installment in December 2019 and a final installment of ZAR 133,000,000 in June 2020, together with a bullet repayment of million on that date, and that's why it goes down to zero on the graph. The original intent was that the bullet installment of ZAR600 million in June 2020 would be refinanced on extended term. But in light of the group's growth prospects, specifically the Rojibwe project, we deemed it appropriate to rather introduce a core revolving credit facility indebtedness of $1,000,000,000 for the next five years as is depicted by the horizontal blue line on the first graph. Effectively, we're saying is that, that orange line will revert to the blue line. Now this obviates the compulsory RCF debt repayments of ZAR 400,000,000 in the 2019 and 2020 financial year, which will enable us to finance the Roer Shiba project's development from existing debt facilities and internally generate cash flows as opposed to equity. With the restructured RCF, our annual cash flows for the next five years will be limited to 200,000,000 per annum for the Elukuli facilities amortization, as is depicted by the green blocks in the second graph, which shows the cash redemptions associated with existing profile, that's the blue block. That's the blue block here, which is the existing profile consistent with the orange line in the first graph. And then the restructured RCF, which now becomes a core indebtedness of ZAR 1,000,000,000 over a five year period, and then that leaves us only with ZAR 200,000,000 for the Elukulu repayment. In this regard, where we're the process, in this regard, RMD has provided us with a term sheet to restructure the facility on this basis with intent to have it in place early next year for Royal Sugar's development, assuming, of course, the DFS is as positive as we believe it will be. Slide 26 discloses the specific items on Evander's fixed asset register that have not been impaired. Noteworthy is that none of the gold prospects and the projects have been impaired. The land or the ETRP infrastructure, which will now form part of the Elukulu project going forward. Fair value accounting compels us to impair the discontinued operations and the Kinross plant ROM circuit. But unfortunately, it does not allow us to fair value the Egoli project and the Ilekula project, which were acquired as part of the original Iwanda acquisition. If we could fair value these assets, the combined NPV value of ZAR2.1 billion would comfortably have offset the impairment loss of ZAR1.78 billion. Finally, although the group's ROEs have been in excess of 60% in two of the past five years, the returns have been quite erratic over this period, a function of both the rand gold price and also production inconsistencies. With the repositioning of the operational base, the risk of this level of production inconsistency has been materially reduced, which would positively impact on our ability to deliver into a more consistent return on equity in the future and also reinstitute our historical dividend payments, which remains a business imperative. Thank you. Thank you very much, Dion. We will now conclude the presentation brief with briefly detailing value accretive growth in the near future and then also the prospects for 2019. So in terms of growth, we have looked at a number of acquisitions in recent years, mostly in the rest of Africa. Most of these opportunities were priced such that after paying the acquisition and development costs, it was very difficult to generate an attractive return for our shareholders. We decided to again look in our own backyard in terms of projects, our own assets and look what we found. We put out an announcement last week, I believe, in terms of Royal Sheba. So you will recall that previously, we were developing towards the Royal Sheba underground on 23 Level at Sheba. The plan was to have the underground in production in the next three to four years. The new drilling results has been disseminated to the market. We put down 20 holes. There's plans to do another, I think, 10 holes in the next month. It's a pretty inexpensive drilling program. The results, again, have been published. We're very excited. We have a very substantial resource now of almost 900,000 ounces grading more than three grams a tonne. Even more exciting is that three and fifty thousand of these ounces are sitting near surface at a compelling grade of almost four grams a tonne. So we're now completing a definitive feasibility study on Royal Sheba. We've also started engagement with all stakeholders in terms of the required permitting for this project. In South Africa, our people desperately need jobs. Our people desperately need economic opportunity. And I believe Royal Sheba can provide a lot of that certainty in the Barbaton area and that in a very short space of time. If we very quickly then also discuss Igoly, which is the underground project sitting as part of Evanda. Understandably, I don't think our shareholders have the appetite for us to go back into any sort of VITS type underground development at present. I do think that if this project was a stand alone project sitting in a development company or an offshore company and possibly if the project was situated in a different jurisdiction, the company would probably have a market capitalization of $50,000,000 I think very little value is attributed to Egoli in our portfolio at present. Again, it's not a priority for us to develop Egoli. Let's get it let's be clear. We need to demonstrate to the market that we are back on track in terms of production from the existing assets. We need to get Ilekulu to perform like we've said that will. We need to progress to Roshiba. But I do believe that Igoli is an attractive project, and I believe that there certainly is value going forward in that in Igoli. In terms of the focus for 2019, we will continue to improve our safety performance and our ESG performance and compliance across operations. We will deliver into the gold production guidance of approximately 170,000 ounces for the FY 2019 financial year. We recently reached a three year wage agreement at Balbaten with all of our major unions. I think we were the first substantial gold company to actually get that agreement. It's a long term agreement. I believe it's a reasonable agreement in terms of what it delivers to all stakeholders, and I believe it will provide a lot of stability at Balbaton going forward. We need to ensure that Ilekulu delivers according to expectations, and we need to continue to incorporate the ETRP throughput into Ilekulu. As per Dion's guidance, we need to increase our balance sheet flexibility and capacity. So obviously, that requires financial structuring. It also requires us to deliver into what we said we will do operationally, and I believe we'll do that. We need to look to reinitiate our sector leading dividend payments. I believe we're well placed to do that in the future in the near future, rather. And then we have to look to progress our growth opportunities, specifically Royal Sheba. We're also completing a study on the viability of mining the H Shaft pillar at Evanda underground, and we will communicate to the market, I believe, in the very near future as far as that strategy is concerned. And then also, certainly, developing the subvertical project at Barbaton and also, as I've mentioned, Igoly. So thank you very much for attending today. I think we will go to questions from the floor first. And if I may be so bold as to actually sort of preempt what's probably a question that will be asked, which is how are we doing with the ramp up of Ilekulu. And it's much better to hear from, I think, the man in charge, Jonathan Irons, if you don't mind just sort of briefly detailing where we are as far as Ilekulu is concerned. Thank Thank you for the opportunity. Firstly, congratulations, I think, on a well put together presentation and a very exciting corporate video. But in terms of the Elukulla project to date, up to this morning, we've managed to smell 56 kilograms of gold for this current month. We are projecting to do between 90 and a 100 kilograms from a production forecast of between seven and eight hundred thousand tons for this month. Obviously, a million tons is our objective, and I am confident that we are busy at this point in time settling the plant. People are getting used to the machine. People are getting used to the operations. We are busy ironing out the issues. And I think that into October, we should probably get very close to 1,000,000 tonnes per month target and 130 kilograms and then begin to get to the place where we are consistently at 1,000,000 tonnes per month. Then moving into December, we aim to have the plant expanded to incorporate the ETRP as per plan into the Ilekulu plant. So we're looking forward to that as well. So I think given the normal ebbs and flow of commissioning, which has, I think, gone very well, we're definitely benefiting in terms of risk and reward at this point in time from a project finished quite early, smelting some gold, making some money. So I think we're for some positive results. So given the current environment, I think we're okay. Thanks, Chris. Let's take questions from the floor. You very much. Thanks. Anwar from Kron from Nedbank. Just on Igorlia, getting a bit of mixed messaging. It does look like a good project, but you've just closed on an underground gold mine now. There's a possibility of reopening that. What is the plan there? Is it basically getting it ready and trying to sell it? Or what would you look at as a benchmark or trigger to reopen that or to go for that? And would you be using a much higher hurdle rate given the higher risk associated with underground nature underground mining of that nature? So that's the first question. Thanks, Ronald. Yes, let's be clear. Pan African will not develop Igoli in the near future even though we believe it is a very attractive project. So our focus is delivering into our production guidance. Our focus is getting Ilekulu and ETRP to work. We need to progress Royal Sheba, and I think that's very exciting. We need to resume our dividends, which is key. So Igoli is, as I said, a very attractive project. I'm very comfortable with the work we've done to date. But we have to accept that our shareholders at this point do not have appetite to go back large scale into an underground operation. So I think we will do whatever we need to realize maximum value for MIGOLI in the future. It does not exclude our development in future years, but certainly not in the near term. Okay. And then the second question is on the dividend. So you obviously want to resume that as soon as possible. So what are you looking at? What metrics? What net debt to EBITDA levels? When will you be comfortable to start resuming that? Well, we have a dividend policy. And I think, Dion, if you want to just quickly just help us out here. Sure. On the dividend policy is not unchanged, and that's 40% of free cash flow. Obviously, taking into account the state of the gold sector, the state of the company, capital expenditure going forward. But if there's no need to withhold any cash, we will be looking to paying out 40% of our free cash flow. Clearly, the debt restructure plays into that, the extent to which we need to pay cash back to the bankers. This is Bruce Williamson, Integral Asset Management. Just with respect to the dividend, I mean, when you guys now get sort of back on your feet properly, are you going to be looking at paying both an interim and a final? And then also being a junior year end, as investors, we certainly have to wait till December to pick up the dividend. Are you going to go back and pay interim final and try and pay us the money a lot sooner? I mean, that's certainly what I can say is our Board has not excluded the possibility of an interim dividend. I do not want to commit to that right now. But if you look at the history of Pan African, we've paid a very attractive, as a matter of fact, sector leading dividend for almost all of the years that I've been involved. And we understand that most of our investors appreciate and require that cash return. It's a key focus area of ours. So you can rest assured that it's enjoying our attention, and we need to get back to where we were in the past. Just you weren't exactly clear in saying that you'd looked out of South Africa but come back and now are far more excited about Royal Sheba. Does that mean you've stopped looking out of South Africa? And are you only looking at gold? That's one question. And then can you just give us an idea? I mean it looks the intersections at Royal Sheba below collar are really shallow. So potentially, what is your access plan into that ore body? So we have not stopped looking outside of South Africa. The focus has very much been internal and to fix what we needed to fix over the last year. Every time we do investigate and do due diligence on other assets, we learn a bit more about our own portfolio also. And I mean, to give you an example, we looked at an asset in Mali, an old Russian mine. It was mined underground, which was now planned to mine from an open pit perspective. And that sort of, again, got us thinking about our own portfolio and the opportunities that we have certainly as part of Barbaton. So we will continue to look, but there's no way that we can buy assets at a sort of 8% U. S. Dollar discount rate. I mean, our shareholders expect a 20% circa U. Dollar return, so that's what we need to give them. Unfortunately, those assets are few and far between. So we're quite disciplined as far as that is concerned. In terms of Royal Shiba, I do not want to preempt the outcome of the feasibility study. There are a number of hurdles that we would need to jump through from a permitting perspective, from a consultation perspective. Suffice to say, this is a very shallow ore body. The grades are very attractive. Mean four grams close to surface, you don't find those sort of ore bodies often, certainly not in Africa. I mean, we have power, we have water. We will have to improve or certainly increase our processing capacity if we wanted to mine it on any sort of scale. But let's not preempt and I think the other sort of point to make is that Roceba is not refractory. So it's free milling. It's a use of because it's very susceptible to normal CIL, which makes it even more attractive. So let's not preempt the results of the feasibility study. There's a lot of work that we need to do, but it would have been remiss of us not to put out these drilling results, which I think are excellent. Thank you. And then just from a tax perspective, would Royal Sheba be ring fenced? Or would that be part of your Barbaton tax? It probably will not be ring fenced in that you I mean, you get the benefit of the capital the tax deduction across all of the operations. And we will look at, obviously, tax structuring within what is allowable. But it makes sense for us to run it as part of the existing business. Okay. Thank you. Can we quickly take calls if there are any questions from the conference call facility? Thank you very much. We have a question from Justin Chen, Autonomous Securities. On mine? I hope you can guide us So we're in a fortunate position where most of the capital is being spent on Ilekulu. We need to finish that project. I think as we sit here today, we have about $100 odd million to go on Elekulu, but that's obviously expansionary capital. In terms of the existing operations, which has been really barbitten, again, the capital number we expect to drop this coming year, which will assist us as far as cash flows are concerned. From a sustaining capital perspective, we are guiding in the order of about ZAR110 million for 2019 for Barbaton and then about ZAR40 million of expansionary capital, which is mostly further work on Royal Sheba and then also work that we are doing on the sub vertical shaft at the Fairview operation. Okay. Excellent. That's very helpful on that. And then just just looking at Elokulu and going forward, when you integrate ETRP into it, you have do you have additional tailing sources that you're looking at essentially bringing in or that you could purchase regionally that to add to that? Certainly, we have secured pretty much all of the all of the Evander Basin. There are very few opportunities on the East Rand as far as tailings are concerned. So our focus there will be to optimize the throughput for the combined Ilekulu ETRP and obviously maximize profits. Unfortunately, there's not an awful lot of other tailings in that area that would make sense. The waste strand is a different story. We have been looking at opportunities as far as the waste strand is concerned, but it's early days. Okay. That's helpful. And just from a strategic perspective, have you considered adding additional sort of regional tailings business businesses as a source of, you could call it, external growth? Sure. I mean if it I mean tailings, I certainly don't want to say that it's an easy business because that would be a big disservice to our guys that do an excellent job in terms of running the surface tailings. But compared to mining 2.5 kilometers underground, it's a whole lot more sustainable. It is a lot easier, safer and certainly more profitable. So I do think that we will have license to look at expanding our tailings portfolio. It's a large chunk of our portfolio now. But it has to make sense for our shareholders. So again, the shareholders have to see the returns. It's not about production, it's about profits and it's about returns. Okay. Thanks very much, Kubis. I'll I'll free the line for other people if you have their questions in. Thanks. Thank you, gentlemen. There are no further questions from the line. Thank you then very much for all of you that attended in person and on the conference call, and we look forward to having a snack afterwards. Thank you very much.