Operational Update

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’ or ‘the Group’)

OPERATIONAL UPDATE

Pan African, the African-focused precious metals producer, is pleased to provide an operational update for the year ended 30 June 2017 (‘current reporting period’).

KEY FEATURES AND HIGHLIGHTS

• Gold produced for the current reporting period was approximately 173koz, 4.4% below the production guidance provided. This was due to the slower than anticipated restart of the underground mine at Evander Gold Mining Proprietary Limited (‘Evander Mines’) and operational challenges experienced at Barberton Mines Proprietary Limited (‘Barberton Mines’), which have now been remedied.
• Evander Mines 7 shaft refurbishment has been successfully completed, and the restructuring programme is materially complete.
• Elikhulu Tailings Retreatment Plant (‘Elikhulu’) is fully funded and construction on-track.
• Feasibility study completed for a sub-vertical shaft at the high-grade Fairview mining operation at Barberton Mines, with an estimated capital expenditure of R105 million, to be spent over a two year period. This project should yield an additional 7-10koz of gold per annum.
• Encouraging high grade drill result at Evander Mines’ 2010 Pay Channel orebody, which has prompted a feasibility study to assess the economic viability of expanding the underground mining operations.
• Completion of disposal of Uitkomst Colliery Proprietary Limited (‘Uitkomst Colliery’) on 30 June 2017.
• Strong statement of financial position with net debt of R66.7 million at 30 June 2017 (30 June 2016: R339.7 million) and available debt facilities of R880.2 million.
• Production guidance for the 2018 financial year in excess of 190koz.

CEO STATEMENT

Cobus Loots, the CEO of Pan African, commented:  “The 2017 financial year was operationally challenging in many respects, however the Group is now seeing the benefits of the remedial actions implemented by management.   We look forward to a much improved performance in 2018, with a substantial increase in gold production.  The Elikhulu project is on track for delivering first gold as originally planned, and is expected to contribute low-cost ounces and profits in the next 18 months.  We are excited about the prospects for the Evander Mines’ 2010 Pay Channel project; the Evander Mines team now has to bring the project to account in the near term, in a profitable and value-accretive manner.  During the past year, Pan African has reaffirmed our gold focus and again delivered transactions that crystallise shareholder value.”

PRODUCTION PERFORMANCE AND 2018 GUIDANCE

Pan African’s gold production for the current reporting period was 4.4% below its revised gold production guidance (announced on 20 February 2017) at approximately 173Koz. As per the announcements of 10 March 2017 and 10 April 2017, the Group is pleased to report that the initial Evander Mines shaft refurbishment has been successfully completed, and the restructuring programme is materially complete. This will result in substantial cost savings going forward.

In the next financial year, the following initiatives will continue at Evander Mines to ensure a sustainable and consistent performance from the operation:

• Continuation of the engineering work plan to improve the reliability of the shaft and related infrastructure, including:
  • 8 Shaft pump column;
  • 7 Shaft steelwork i.e. buntons and guides; and
  • 7a and 8 Shaft, shaft bottom arrangements.
• Improving the total meters squared blasted per panel and per crew.
• Clean mining programme:
  • Stoping width reduction, with the introduction of improved hanging wall support;
  • Improved fragmentation resulting from optimisation of the blast design; and
  • Improve quality of sweepings with the introduction of user-friendly blasting barricades and additional sweeping tools.
• Old gold vamping, which is the cleaning of mud accumulations in redundant declines and spillage in and around the belt declines.
• Pillar mining and vamping at 7 Shaft.

Mining in the high-grade areas in Fairview’s 11-block is also now established and expected to continue for the remainder of the 2018 financial year.  Productivity improvements are expected at Fairview following the commissioning of a new bulk air cooler, which will reduce the ambient temperature at the work face by approximately 3 to 4 degrees Celsius. To address the flexibility constraints currently experienced at Fairview, and increase gold production from this very high-grade and long life ore-body, a feasibility study into a new sub-vertical shaft has been finalised. The findings of the feasibility study are detailed in the growth projects section below.

The Group’s gold production guidance for the financial year ending 30 June 2018 is in excess of 190Koz, an increase of approximately 10% on 2017 gold production.

GROWTH PROJECTS

ELIKHULU PROJECT UPDATE

The Elikhulu project is progressing according to plan with project completion and first gold expected in the last quarter of the 2018 calendar year. Following the successful US$50 million equity raise on 12 April 2017, Pan African has commenced funding the initial capital expenditure on the Elikhulu project’s civil engineering works and the procurement of long-lead-time items, such as the tower crane and the carbon-in-leach tanks, which are critical to ensuring construction deadlines are met.

Capital expenditure of approximately R175 million has been incurred on the Elikhulu project during the current reporting period, and capital spend remains on track relative to the total initial forecast capital expenditure of R1.74 billion.

Pan African is also pleased to announce that the facility agreement for the R1 billion Elikhulu term debt facility has been signed. The facility was underwritten by Rand Merchant Bank, a division of FirstRand Bank Limited, and the syndication has closed successfully, with an over-subscription of more than 50%. The appetite shown by the banking market highlights the quality of the project, which prevailed despite the negative sentiment at the time of the release of the new Mining Charter. Utilisation of the facility is subject to the fulfilment of customary conditions precedent, and the first drawings under the seven-year facility are scheduled for the final quarter of the 2017 calendar year.

Together with the Group’s existing R1 billion revolving credit facility, these facilities comprise the core debt instruments for funding the Group’s capital expenditure programmes. The low-cost, long-life Elikhulu project is expected to increase the Group’s annual gold production by more than 50koz per annum and reduce the Group’s average all-in cost of production.

BARBERTON MINES SUB-VERTICAL SHAFT PROJECT AT FAIRVIEW

The Fairview mining operation is currently restricted by the hoisting capacity of its No.3 Decline, which is used to access workings below 42 Level.  This decline is currently used to transport employees, material, and for rock hoisting.  The 11-block, or MRC, orebody has an average grade of 31.3 g/t and current life-of-mine of 22 years.  With no intervention, future mining at depth will result in increased travelling distance, reduce employee face time and cause a lack of capacity to ensure both ore replacement and exploration development.

Pan African, with the assistance of DRA Projects SA Proprietary Limited (‘DRA’), has completed a feasibility study on the construction of a raise-bored, sub-vertical shaft from Fairview’s’ 42 Level to 64 Level, with the potential of continuing the vertical shaft in future to 68 Level.  This sub-vertical shaft will be used to transport employees and material to the working areas, which will allow the No.3 Decline to be used exclusively for rock hoisting, increasing overall capacity and production from this mining area.

DRA has reviewed the technical and commercial aspects of the project and the supporting feasibility study has yielded very positive results. The estimated capital expenditure for the project, including contingencies, is approximately R105 million, to be incurred over a two-year period. The productivity improvements for Fairview are estimated to yield an additional 7,000oz of gold per annum, which can be optimised further to more than 10,000oz per annum.

EVANDER MINES 7 SHAFT NO. 3 DECLINE AND 2010 PAY CHANNEL

The 2010 Pay Channel resource is adjacent to the 7 Shaft infrastructure and extends from the boundary of Taung Gold International Limited’s 6 Shaft project and mining rights.  As previously reported, Evander Mines embarked on an exploration programme to drill a further exploration borehole from surface, to increase geological confidence in the 2010 Pay Channel orebody, for which resources are summarised in the table below:

7 Shaft: No.3 Decline and 2010 Pay Channel resources
Category	Tonnes	Grade	Contained gold
	million	g/t	tonnes	Moz
Measured	0.52	11.02	5.80	0.19
Indicated	0.34	10.02	3.50	0.11
Inferred	5.41	10.85	58.70	1.89
Total	6.27	10.82	68.00	2.19

On 6 July 2017, the exploration borehole successfully intersected the Kimberley reef at a depth of approximately two kilometres, highlighting a reef intersection with a 6cm width at 36.8g/t. Additional drilling deflections will be performed to further delineate the ore body.  The previous borehole into the 2010 Pay Channel yielded a reef intersection with a 49 cm width at 36.04g/t.

Harmony Gold Mining Company Limited previously developed the 7 Shaft mine workings towards the 2010 Pay Channel, however due to financial constraints and a reassessment of capital priorities, all development on the Evander Mines’ shafts (other than 8 Shaft) was halted in 2009. This resulted in the controlled flooding of the development ends and 7 Shaft’s No.3 Decline, from 22 level up to 18 Level. Following the dewatering, only standard footwall and on-reef development would need to be completed, with the associated engineering infrastructure, before mining can commence.

The 2010 Pay Channel is approximately three kilometres in tramming distance from 7 Shaft, which is currently used by Evander Mines for hoisting to the Kinross metallurgical plant. This compares favourably with the 8 Shaft mining areas, which are approximately 10 kilometres in tramming distances from 7 Shaft.

The Pan African project team has commenced a feasibility study related to the 7 Shaft No.3 Decline and 2010 Pay Channel resource, which will address the following critical issues:

• Collation of geological data from the drill hole intersection and deflections;
• The cost and timing of dewatering and re-equipping the 7 Shaft No.3 Decline from 18 Level to 22 Level;
• The development cost and timing to access the 2010 Pay Channel; and
• The economic viability of the project.

The 2010 Pay Channel can potentially increase Evander Mines’ underground gold production significantly at a relatively low capital cost, using Evander Mines’ established shaft and metallurgical facilities.  The feasibility study for the project is expected to be completed during Q1 2018.

DISPOSAL OF UITKOMST COLLIERY

The Uitkomst Colliery disposal to Coal of Africa Limited (‘CoAL’) became effective on 30 June 2017 (“effective date”). On the effective date CoAL took ownership, control and management of Pan African Resources Coal Holdings Proprietary Limited, the holding company of Uitkomst Colliery. Pan African received its consideration on conclusion of the disposal on the effective date as follows:

• R125 million in cash
• R125 million through the issue of 261,287,625 new ordinary shares in CoAL
• R25 million in interest bearing deferred consideration which may be paid by CoAL at any time prior to the second anniversary of the effective date.

GROUP NET DEBT POSITION AND INVESTMENTS

The Group’s statement of financial position is robust with net debt at 30 June 2017 of R66.7 million
(30 June 2016: R339.7 million). Available debt facilities at 30 June 2017 were R880.2 million (30 June 2016: R624.6 million).

The Group net debt is comprised of R161.2 million in cash and cash equivalents, and R227.9 million of drawn debt facilities.

The groups holding in CoAL shares, which is classified as an investment, was valued at approximately R127.5 million at 30 June 2017.

FINAL RESULTS

The final audited results for the year ended 30 June 2017 are expected to be published on or about
20 September 2017.

Shareholders are advised that the financial information contained in this announcement has not been reviewed or reported on by Pan African’s external auditors.

By order of the Board

Johannesburg

20 July 2017

Contact information
Corporate Office The Firs Office Building 1st Floor, Office 101 Cnr. Cradock and Biermann Avenues Rosebank, Johannesburg South Africa Office:  + 27 (0) 11 243 2900 Facsimile: + 27 (0) 11 880 1240	Registered Office Suite 31, Second Floor 107 Cheapside London EC2V 6DN United Kingdom Office:  + 44 (0) 207 796 8644 Facsimile: + 44 (0) 207 796 8645
Cobus Loots     Pan African Resources PLC   Chief Executive Officer Office: + 27 (0) 11 243 2900	Deon Louw Pan African Resources PLC Financial Director Office: + 27 (0) 11 243 2900
Phil Dexter St James's Corporate Services Limited Company Secretary Office: + 44 (0) 207 796 8644	John Prior / Paul Gillam Numis Securities Limited Nominated Adviser and Joint Broker Office: [phone]
Sholto Simpson One Capital JSE Sponsor Office: + 27 (0) 11 550 5009	Matthew Armitt / Ross Allister Peel Hunt LLP Joint Broker Office: [phone]
Julian Gwillim Aprio Strategic Communications Public & Investor Relations SA Office: [phone]	Jeffrey Couch/Neil Haycock/Thomas Rider BMO Capital Markets Limited Joint Broker Office: [phone]
Bobby Morse/Chris Judd Buchanan Communications Public & Investor Relations UK Office: [phone]

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