Pan African Resources PLC (PAF) Earnings Call Transcript & Summary

Good morning to all of you, and a warm welcome to our 2024 interim results presentation. Thank you very much for taking time out of your schedules to join us today. We will keep the presentation fairly brief with an opportunity for questions afterwards. Joining me and presenting today will be Deon Louw, our Financial Director. You are welcome to refer to our SENS RNS announcements and to the supplementary information available on the Pan African's website should you require detail not dealt with in today's presentation. Please note the disclaimers and info on forward-looking statements on Slides 2 and 3. Pan African strategy is to position ourselves as a safe and sustainable, high-margin and long-life gold producer. I believe the 6 months again demonstrated Pan African's resilience our ability to adapt, reconfigure our business, generate attractive returns on our assets and to grow in a responsible and value-accretive manner. We are very excited about our prospects for the next years and look forward to sharing some thoughts and further detail on many of our initiatives in the following slides. On Slide #4, an overview of the presentation. We will start with Pan African's health and safety performance and then provide an overview of the group and our operating environment, some key features from the half year past and detail on asset performance as well as our cost and capital outlook. We will then spend a couple of minutes on ESG before allowing Deon the opportunity to highlight elements of the group's financial performance for the 6 months. The presentation will then conclude by detailing key focus areas for the months ahead. If we then proceed to Slide #6. Our safety performance and journey to Zero Harm. We continue to focus on safety initiatives and interventions and on maintaining an industry-leading record. We can also celebrate a number of safety milestones achieved during the past half year. We reported an improvement in overall safety rates and a record number of fatality-free shifts at our Barberton operations. In addition to safety, wellness of our staff is enjoying a lot of attention, specifically a focus on reducing the impact of so-called lifestyle diseases. Sadly, 1 of our employees at Elikhulu passed away following an accident on the 1st of February of this year after the half year and our sincere condolences and support have been extended to the family, friends and colleagues. What makes this accident even more difficult is that this operation recorded almost a year with no notable injuries beforehand. Slide #8, a high-level representation of our unique portfolio of surface re-mining and underground assets. The addition of Mintails means that we now have 3 large mining complexes in South Africa. Service operations reduced unit costs and turn legacy liabilities into profits, whilst the underground provides long life of mines, solid returns on investment as a result of a large sunk capital base and also attractive optionality, which we are bringing to account in a circumspect manner as demonstrated by our progress on Evander underground. If there is 1 takeaway from the slide, it is that we are growing profitable production very materially in the years ahead. We expect to be well north of 200,000 ounces of annual production in 2025 with Mintails coming online. Importantly, all of this growth is fully funded either with banking facilities or with cash generated from our operations. Slide #9. The coming year will also see us moving towards an even more balanced portfolio of low-cost and stable surface re-mining and high-grade, long-life underground assets. This asset mix should also reduce our group all-in sustaining cost profile with both Elikhulu and Mintails producing at an all-in sustaining cost of below $1,000 per ounce. Slide #11, our operating environment. We continuously seek ways of making our business less susceptible to adverse external impacts in South Africa. Some matters to highlight in terms of our operating environment over the period include the following: we continue to reduce our reliance on Eskom, the South African electricity utility. So more information on this on the next slide. Pan African's assets have long lives with extended mining rights. The Evander complexes rights are valid until 2038, and those of Barberton until 2051. The Mintails new order mining right is currently valid until 2029. We will obviously seek extension in due course. In terms of stakeholder interaction, we invest heavily in our social license to operate. Pan African's mines make a meaningful positive difference in the areas where we operate. Finally, from a security perspective, our efforts to safeguard our people and operations and minimize the impact of illegal mining and criminality are ongoing. I believe the people of Kagiso and Mogale can already see a marked improvement in the area since we started our work on Mintails. To conclude on this slide, Pan African's track record demonstrates that we can operate and grow in South Africa and do so very successfully. To elaborate further on our renewable energy road map on Slide 12 with our Barberton solar facility on track to produce first power by the end of June of this year, this will almost double our behind-the-meter renewable energy footprint in the short term. We further anticipate first power from our 40-megawatt sturdy energy power purchase agreement during 2025. You can also expect other announcements on renewables from Pan African in the months ahead. Hopefully, we can add even more capacity and also possibly diversify into wind energy. The first 10-megawatt solar plant at Evander is already reducing group all-in sustaining cost by more than $10 per ounce. With this number obviously increasing in the coming years as Eskom tariffs continue to escalate. If we then proceed to keep reduction costs and financial features from the first half of the financial year on Slide 14. Some of the highlights for H1 of the 2024 financial year include the following: We produced more than 98,000 ounces of gold, an increase of nearly 7% when compared with the previous period. Our team did well in managing costs with an all-in sustaining cost below our previous guidance, of $1,350 and even lower at $1,149 for 85% of group production, positioning Pan African very competitively on the global cost curve. We are reporting an increase in cash generation of more than 120%, an increase in profit after tax of almost 50% when compared with the first 6 months of the previous financial year with very manageable net debt levels and healthy liquidity. And finally, we were able to maintain our sector-leading dividends to shareholders. If we then move on to more detail on the performance per operation starting with Elikhulu on Slide #16. This continues to be a flagship asset for the group. 10 years of production remaining producing at below $1,000 per ounce. Production tonnes for the period remained stable. However, our team managed to improve recoveries through the mining of the Leslie/Bracken tailings facility with gold production increasing some 9%. We look forward to another year of more than 50,000 ounces of production and clearly excellent cash flows from this asset in the current gold price environment. We generated almost $30 million of EBITDA in only 6 months. Phase 2 of the Kinross tailings facility was successfully commissioned in December 2023, on budget and on schedule. As we've said before, we are carrying all of the learnings on building and operating Elikhulu over to Mintails, as we ramp up operations on that site. Slide 17, the BTRP, another sterling performance from our first gold tailings retreatment plant commissioned in 2013 and the lowest cost producer of gold in the group. The BTRP management team also again deserves special mention, managing to reduce unit cost of production. In the coming years, we will substitute the BTRP's feed with run-of-mine material from Royal Sheba and Western Cross, lower grade but bulk ore bodies with both having significant potential to further increase resources and reserves. A more detailed investigation into the Western Cross ore body and its association with Royal Sheba completed and informs the Sheba fault geological structural model. Although work is in progress to confirm geological continuity through diamond core drilling, the potential of a larger mineral resource at Sheba is highly probable. Mintails on Slide 18. Large-scale construction at Mintails will be completed later this year with steady-state production expected by December 2024. Importantly, we have now fixed contracts for more than 80% of the upfront project capital. Therefore, the $135 million upfront capital estimate is now very much secure in our view despite all of the inflationary pressures over the last 2 years. In the current gold price environment, payback on this investment should be under 4 years with a project life of more than 20 years when we include the Soweto resources. On Slide 19, a picture of construction progress on the site with commissioning scheduled for later this year and you can see that we are very much on track in terms of the project's execution time lines. Slide 20, there's no doubting the benefit of Pan African developing Mintails for all legitimate stakeholders. We currently have over 400 contractors on site, approximately 80% of them from local Mogale communities. This number is expected to ramp up to almost 600 contractors in the next month. When steady-state production is achieved, the operation will directly employ almost 400 permanent staff and obviously, benefit the local economy in a number of ways. Also on Slide 20, over the life of Mintails, it will dramatically improve the environmental and water situation on site, a win-win for all involved. We calculate that the final closure liability will be less than 40% of what was an unfunded liability of more than $20 million when Pan African became involved. To conclude then on our surface assets on Slide 21, we are building a world-class tailings retreatment business in the next year with further scope to grow also. I don't believe the market is currently giving us much credit for Mintails, but this should change as the project comes closer to commissioning in the next while. Slide 22. The Evander underground team delivered above expectations despite electricity constraints and difficult mining conditions were in the 8 Shaft Pillar, producing more than 21,000 ounces for the 6 months at an all-in sustaining cost of just over $1,200 per ounce. We are on track with our capital programs at Evander and some of the highlights for the 6 months include: Progress with our new underground refrigeration infrastructure with Phase 2 due for commissioning by the end of the financial year, a ramp-up in tonnes from underground by more than 16% when compared with the corresponding period despite difficult mining conditions and crew movements to the expanding 24-level mining areas. Good progress with the development of our subvertical hoisting shaft with this project scheduled for completion in quarter 2 of 2024. I really believe this shaft with a hoisting capacity of some 40,000 tonnes per month will be a game changer for the Evander underground. No more cumbersome conveyors, lower costs with a higher mine core factor and finally, completion of a dewatering of the Egoli Decline to 20 level with the commencement of ramping activities on the upper levels of this project. If we proceed to Slide 25, dealing with Fairview at Barberton. Following implementation of continuous operations at Barberton underground in the last year, tonnes at Fairview have increased to an average of 10,000 tonnes per month from the underground, a further 14% improvement following the initial improvement to 8,800 tonnes per month when continuous operations commenced. The improved tonnes have seen Fairview delivering a 17% increase in gold production, while underground mine grade improved to more than 13 grams per tonne from approximately 12.5 grams per tonne in 2022. Currently, 3 platforms are mined within the MRC higher-grade ore body, providing mining flexibility. Exploration delineation drilling has been ramping up with confirmed down-dip extensions of a number of ore bodies. A more advanced and better informed deformation and structural model has been developed for the MRC orebody, identifying additional exploration targets for mining expansion. Work on the existing decline development infrastructure adjacent to the constrained 3 Decline is planned to commence still during this financial year. Once completed, we expect to reduce the constraints currently facing our shaft system, making much needed shaft time available for the hoisting of ore. Other important initiatives at Fairview include developing near surface resources for mining and infrastructure improvements we are implementing, which includes a grout plant to pump cement required for construction activities within the 3 Decline mining areas. The smaller underground operations at Barberton on Slide 26. At Sheba, continuous operations continue having a positive impact enabling increased lateral development into a higher-grade ZK and MRC mining areas and improving mining flexibility. Ramped up development into the ZK and MRC orebodies has resulted in a more consistent availability of higher-grade platforms available for mining, with close to 20% more ore delivered to the process plant in the past half year at an average of 8,661 tonnes per month versus 2022 where we had just over 7,300 tonnes per month, with a slight improvement in mine grade by 2% to 6.73 grams per tonne. Consort remains a challenge with adverse geotechnical conditions, limiting development and stoping operations within the PC Shaft infrastructure and impacting gold production. A revised mining plan has now been formulated for execution in H2 to increase underground mining tonnage, although at lower grades. The levels identified are of lower geotechnical risk and will provide the required gold production to sustain operations whilst the PC Shaft rehabilitation work is being completed in the next months. Diamond core exploration drilling continues aimed at creating underground mining flexibility and ultimately reducing the reliance on lower-grade surface sources, which is currently supplementing the ore feed to the processing plant. On Slide #28, the section dealing with all-in sustaining costs. Now 85% of our portfolio produced at an all-in sustaining cost of just under $1,150 per ounce. We expect the unit costs at Sheba and Consort to further reduce in the period ahead benefiting from the turnaround plans currently being implemented. Slide 29 demonstrates that our cost performance on core operations continues to be very much in line with the average for the global sector with most producers having experienced significant cost inflation over the last couple of years. Despite inflation, we should be able to maintain all-in sustaining cost at current levels in the coming financial year in U.S. dollar terms. On Slide 31, group capital projects. We continue to invest into our assets and into growth with most of Mintails as upfront CapEx spent in the next year. For the Evander underground, we expect CapEx to reduce from 2025 as most of the large capital for 24 to 26 levels would then have been spent. We then move on to ESG on Slide 34. We are very proud of our achievements on this front, particularly on progress with renewable energy and water retreatment which I have touched on earlier. We have completed school infrastructure projects in communities around our Barberton and Evander operations, which we handed over in November of last year. These fully equipped facilities will benefit close to 3,000 students annually and lead to much improved learning outcomes. We have also commenced with assistance programs at schools in Mogale around our Mintails site. These initiatives are much needed in these areas and were very well received by local communities. I will now hand over to Deon, who will provide an overview of the financial results for the half.

Thank you, Cobus. Slide 36 summarizes the group's interim financial results for the 6 months into 31 December 2023. Fortunately, the gold price tailwinds of the prior financial year continued into this reporting period, which combined with a production increase of 9% resulted in revenue increasing by 24% relative to the 6 months ended 31 December 2022. Although all-in sustaining costs in rand terms increased by 7.5%, the depreciation of the rand on exchange rate by 7.8% over the reporting period resulted in all-in sustaining costs actually declining by 0.3% to $1,287 an ounce when translated to U.S. dollars. Although turnover only increased by 24%, EBITDA increased by 41% in dollar terms to $75 million, demonstrating the leverage to be an incremental increase in revenue. This relationship held with earnings and earnings per share increasing commensurately by 46% to $43 million relative to the corresponding reporting period. Equally encouraging is a 135% increase in net cash from operating activities to $27 million, which contributed to net debt increasing by only 20% to $64 million despite spending $65 million on capital in the reporting period, of which $22 million related directly to the Mintails project. Slide 37 demonstrates the extent of the group's available debt facilities and funding approach to its capital programs. We differentiate between our core working capital or revolver type facilities as is depicted in the left bar chart and project-specific facilities depicted in the right bar chart. The former provides a group with working capital of $62 million, while the latter provides project-specific senior term debt of $132 million. In addition to the Mintails facility of $114 million, which comprise the domestic medium-term note program and senior debt facility, we are well advanced in implementing a renewable energy facility of $19 million to refinance the original Evander solar plants funding and the new Barberton facility of $12 million. This facility also provides for an accordion option of $14 million for the group's third major renewable facility, for either an expansion of the existing Evander solar facility or a solar facility for Mintails. Consistent with our project finance philosophy, the redemption profile of these facilities are sculptured to the cash generation of underlying projects to not impinge on the cash generation from the established operations designated for dividends and sustaining capital expenditure. As part of Mintails funding package and in lieu of an equity tranche, we raised ZAR 400 million or $22 million by means of a forward sale of gold in March 2023, which locked in the rand proceeds on 116,000 ounces at an effective rand gold price of ZAR 1,135,000 per kilogram, approximately $1,909 per ounce over a 24-month period. This fixed-price contract, which terminates in March 2025, represents approximately 31% of the guided annual production over the 24-month period using 185,000 ounces as the midpoint of the current annual production guidance. Together with 2 cost collars for 20,000 ounces, with an average floor price of ZAR 1.1 million per kilogram or $1,849 an ounce at an average cap price of ZAR 1.4 million kilogram $2,340 an ounce, approximately 53% of the second half of the 2024 financial years, production is protected from adverse movements in the rand gold price. These 2 collars expire on 30 June 2024, and the group will participate in further gold price movements until these [ cap ] prices, some 16% or $316 an ounce above the prevailing gold price of $2,024 an ounce are bridged. During the reporting period, none of the collar price levels were bridged, resulting in approximately 71% of the group's production benefiting from the prevailing elevated gold price during this period. Slide 38 illustrates the individual redemption profiles of the group's debt facilities referred to in the previous slide, and the group's total debt profile as it amortizes over the next 5 years to May 2029. Total debt is expected to peak at approximately ZAR 3.45 billion or $187 million in December 2024, as Mintails expenditure peaks with principal debt repayments commencing in March 2025, by which point in time Mintails should be in full production. This forecast assumes the implementation of the new solar funding facility and a dividend payment in December 2024, consistent with the existing dividend policy. This principal debt repayment profile provides a window within which to focus on completing Evander's 24 to 26 level capital expenditure program, Mintail's construction and commissioning of Barberton's solar facility. At forecast peak debt, the total debt-to-equity ratio is expected to be approximately 57% of the existing equity base of $328 million. In reality, it will probably be less as a ZAR 1 billion RCF facility is seldom fully drawn. The group endeavors to hold a minimum cash balance of ZAR 200 million or $11 million at any point in time and profits for the next 12 months to December 2024 is not taken into account. Slide 39 tracks the group's historical dividend yield and a near record 5.9% yield of the 2023 financial year dividend paid in December 2023 relative to the 30 June 2023 closing share price of ZAR 3.03. As already mentioned, the return of cash to shareholders is one of our business objectives, and we endeavor to manage our capital structure in a manner that enables the group to continue paying dividends while simultaneously developing major capital projects. Return on shareholders' funds is a key parameter for measuring the success of our capital allocation decisions and the annualized dollar return of 27% on the group's average shareholder funds of $311 million for the reporting period relative to the 20.8% of the 2023 financial year demonstrates that the operational initiatives undertaken by the group to address the production decline experienced in the 2023 financial year is bearing fruit. With Mintails coming into production in the 2025 financial year, we can expect a return on shareholders' funds to revert to its historical level of closer to 30%, given the enhanced profitability mix of the group going forward. Thank you.

Thank you, Deon. I think we can now wrap up with an update on Sudan and then also by emphasizing some key focus areas for us in the year ahead. On Slide 41. We have, in the past, detailed our rationale for venturing into the Republic of Sudan for exploration. I'm happy to report that we have now successfully resumed our exploration activities in the [indiscernible] state following a detailed assessment of the security and operational environment, which we obviously continue to monitor closely. We would hope to start drilling prospective targets in the months ahead. If we then conclude this presentation on Slide 43, Pan African continues to be focused on delivery and execution. Key areas for us in the next year include the following: We will continue our proactive journey to Zero Harm. We will monitor optimization and improvement initiatives to increase gold production as per our guidance and also reduce costs. We will successfully execute into our capital projects, including the very exciting Mintails development that will increase and sustain our future gold production profile at approximately 250,000 ounces per year. We look forward to progressing our ESG initiatives and focus on maintaining our social license to operate. And finally, we will maintain our focus on generating sustainable shareholder returns and creating value for all stakeholders. Thank you very much for your time this morning. We look forward to continue mining for the future in the year ahead.

Thank you again. I think we can now proceed with Q&A and let to do questions from the Chorus Call conference call facility first.

The question comes from Richard Hatch of Berenberg.

Congrats on a good set of numbers. I've just got 3 questions for you. The first 1 is a simple one. Just on Evander surface. Can you just remind us how much life we've got left of that particular operation. The second is, Deon, just on the working cap, there was quite a bit within the first half. I appreciate there was a bit of a release second half of last year, but can you just talk to us a bit about how we should be thinking about working capital second half of this financial year, please? And then the third one, I'm very sorry to hear about the fatality at Elikhulu. Could you perhaps just give us a bit more details on what exactly took place and just what you've done to prevent something like that happening in the future.

Thank you, Richard. So I'll deal with #1 and 2 and then have #1 and 3, and then have Deon come in on the working capital. Yes, so the surface sources at Evander for some time has not really been making any money or contributing margin. So it's an ad hoc business, effectively us doing rehabilitation, assisting other parties with tolling. But again, there's not much in it. So we sort of had a relook at that business and to the extent we don't make money, we certainly will not proceed. And that sort of factored into our guidance for the full year, the fact that we're not banking on getting any material ounces from there in the next 6 months. And then in terms of, yes, the very tragic accident we had at Elikhulu. As I said, it was the first loss time are reportable in almost 1 year of operations. So Elikhulu has an excellent safety record, very sad. It was a supervisor that was busy doing corrosion control on the plant and one of our guardrails failed and I don't want to comment too much because, obviously, the accident is still under investigation, but we have reassessed all of our guardrails across the group and where necessary, we've made some changes in obviously, risk assessments and the like also would need to take cognizance of this. But yes, it's very sad and tragic and certainly -- it's quite difficult for all of us, given the safety performance of the group and specifically of Elikhulu. Deon?

Thank you, Richard. Working capital is always a bit of a enigma in this first half as we have invariably have a fairly substantial cash outflow associated with the timing of payables. Inventory naturally has picked up as we need to capitalize the necessary spares and the likes for Mintails, and then on payables -- sorry, on receivables, it's just purely a question of timing of the delivery of the gold. So there was a movement in inventory, which related to gold, which was produced but not delivered timeously in the corresponding period. But there's nothing abnormal in that movement. It's pretty much just your normal payables, receivables and inventory movement as we see from year-to-year.

Okay. Should we be expecting to see anything come back in H2 Deon or is it any particular -- I'm just kind of thinking about cash movement in the second half.

Richard, I think it's probably going to be normalizing at these levels. I wouldn't want to say there's going to be a positive movement beyond what we have already.

Cool. And then sorry, just 1 follow-up. I mean look, the production performance has been very good. And obviously, lovely to see the costs come down as well. The rand's trading weaker than 19%, your guidance is on 18.5%. It feels that there's a very good chance that you'll come in towards the top end of your guidance or even beat as you've alluded to. What are the sort of things that you need to see to update the market to give an increase in that production guidance, which I think most of us probably think is likely to be raised?

Yes. I mean, I think, Richard, we'd like to be prudent and let's have line of sight of production for the next couple of months. But January was a good month again and February is bound to be also a good month for the group. And I mean, we don't have to sort of come in and shoot the lights out any more than, I think, what we have. And ultimately, if we can end the year with a cost that's a bit lower and produce in the order of 185,000 ounces. I think it's a very good achievement. Obviously, as you've said, we have excellent margins at the moment given the rand gold price. And then from next year, you're going to have a massive kick in the shape of Mintails. So there's no point in us, I guess, overpromising at this point. I think 185,000 ounces plus would be an excellent achievement at a lower cost than what we guided. So that's sort of what we're aiming at.

At this stage, we don't have any questions -- any further questions from the lines.

Great. So we'll then go to the -- just the online questions?

Thanks, We've got a few questions from the web now. The first 1 from Mark Bentley at Sharesoc. Please, could you comment on electricity supply disruptions and measures you're taking to mitigate them?

Yes. So Mark, it's mostly the disruptions related mostly to Eskom, our local utilities, infrastructure, substations, malfunctioning power surges, et cetera. So give you an example at Sheba, for instance, I mean we had flooding at on the lower levels because we had some of this Eskom infrastructure degrading and that's just something we need to manage. And our teams have become quite good. We have a good relationship with the local management and technical staff of Eskom and we try and get them to do preventative maintenance where it's possible. And we just become very good in terms of our reaction time when there is something that's down in terms of trying to get the utility to fix it. And that's just something we manage. And again, I can't -- we don't foresee it getting materially worse than what it is currently and we are able to manage and produce quite well. And obviously, the other mitigant over time is expanding our independent footprint that we're doing. In terms of renewables, we'll have the first 10 megawatts at Barberton up and running by June and then quite significant expansion as far as renewables are concerned in the next while. So that certainly will also go to some way in terms of mitigating our relationship with Eskom.

I've got another question relating to load shedding. It's from Ed Smile. He says that he understands there's significant protection for the company from load shedding due to zoning and the company's investments in solar. Please, could you let us know if the upper end of production guidance could still be achieved even if load shedding up to a level 6 continues for the next months?

Yes. So I mean, I think we've dealt with in terms of Richard's question on production, if it doesn't get much worse than what it is currently, we can manage. So I think our technical guys are doing an excellent job. And yes, certainly, even at Stage 6, as it's currently the case, we're able to function and operate fairly effectively.

Also from Ed, as production steps up with Mintails coming online, what is an efficient balance sheet for Pan African. What are you thinking about in terms of the dividend? And will you consider significant buybacks on this 4x P/E valuation post the CapEx in Mintails?

I think Deon will come in on the buyback, but it's -- yes, certainly, one of the differentiating factors for Pan African is what we think is a sector-leading dividend. Obviously, we have large capital this year that we need to spend both on completing what we're busy with Evander, our Barberton projects and then principally Mintails. So I think -- and again, the payback in the cash flows from Mintails are forecast to be exceptionally strong. And case in point would be the performance from Elikhulu where you can just sort of see how a well-performing tailings business, the sort of cash, very attractive cash margins that these assets generate. So yes, we'll then have a lot more flexibility, and I can assure you, certainly from my perspective, if the share price remains so undervalued that would be quite compelling them to do buybacks once we've derisked the business further in terms of having commissioned Mintails. Deon?

Yes, absolutely, Cobus. It is something the Board assesses on an ongoing basis is how best to utilize cash flows and capital to create wealth for shareholders and without exposing the business to unnecessary financial risk. So clearly, we're looking at debt peaking at about $187 million once Mintails is fully commissioned. That is probably a level at which we would carefully consider whether there's not more merit in paying down the debt as opposed to doing a share buyback. But I think the continuation of dividends and potentially an increased dividend based on our dividend policy is not out of the question. But as Cobus says, the priority is to finish these projects and then assess the merits of not rather -- maybe not rather reducing debt to strengthen the balance sheet. Given that we're in a cyclical business, and we need a certain balance sheet robustness at all times.

Thanks, Deon. A question from Peter Mallin-Jones of Peel Hunt. Can you give us a little more detail on the timings around MTRs, specifically when you are targeting first gold and when you expect to hit design capacity?

Yes. So Peter, we've been quite clear progress on site is excellent. Very proud of what the dies have managed to achieve in a very short time frame. So yes, we'll be commissioning probably start September, October. And then hopefully, by December this year, we would be, at some point, reach close to steady state in terms of throughput. That is our plan. And again, I mean, we don't have to do anything more than that. I think having brought a project like this online in less than 18 months would be exceptional. And that's what we're working towards.

We've got from Siphelele Mhlongo from Sanlam Investments, which says, well done on the impressive operational performance. Please can you highlight current capital allocation priorities in order from highest consideration to lowest? And can management highlight how these priorities could change once the projects are substantially completed and contributing to operational performance. And the second part of the question is, what is debt target debt gearing levels. And once this gearing level is reached, will management look to improve dividends or potentially take advantage of further growth opportunities.

Look, I think in terms of priorities, we try and -- and Deon will come in here, but we try and maintain a balance and the first part of call for excess cash or cash generated by operations is reinvesting into the sustainability of our business, which we do. And then we try and strike a balance between cash returns to shareholders, dividends and potentially buybacks versus growth. And I think we've done so quite successfully over the years, which is reflected in the return on equity and other metrics on our balance sheet and other measurables. So it sort of trying to get that balance right. Growth is good, but then it has to be a value accretive growth given again, our track record of what we believe is very successful projects over the last while. Deon?

Yes, absolutely. Clearly, we have to consider the trade-offs between the different opportunities, which exist for allocating capital. There is a view that mining companies shouldn't be geared at all, especially towards small end of the spectrum. Typical mining companies tend to be geared on the larger end, around about 30%, if any gearing at all, 30% debt-to-equity ratio. We're going to be slightly in excess of that, as I mentioned earlier, slightly probably closer to 50%, 55% when Mintails is fully funded. But then it's also a function of the maturity of the operations, the underlying volatility of cash flows, which determines the latitude with which you can apply discretionary cash flows to things such as buybacks, dividends and the likes. We stated repeatedly that our -- we are focused on returning cash to shareholders. But at the same point in time, we are in a business which is declining in value simply through the exportation of our reserves and by implication, we have to look at opportunities which not just meet our cost of capital but exceed our cost of capital that we can execute into and trade those off against the other potential uses of that capital. I don't think we would want to do a transaction which puts our dividend track record at risk. We see that has been one of our differentiating factors relative to the rest of our peer group. So within the priorities that mentioned, dividends do rank very highly -- dividends/share buybacks do rank very highly in that priority list.

Thanks, Deon. Bruce Williamson from Integral Asset Management has a couple of questions. Can you expand on difficult mining conditions at Evander underground? And secondly, by reducing hoisting constraints at Fairview, what total tonnes per month will you now be able to hoist from the MRC and other reaps?

So Bruce, I mean, the mining difficulties relate principally to the pillar. And as you will know, Evander had an exceptionally successful pillar extraction of the 8 Shaft Pillar and very profitable. It's done in a manner that was safe and all sudden obviously sterilize the future life of the operation. So I think it is very well done by the team. Obviously, as one gets to the end of that sort of pillar mining, it gets even more difficult, but the guys did well in terms of dealing with these challenges. And currently, we have about 9 of our 12 crews operating already on 24 level. So that transition was done successfully. And then yes, I mean, look, I mean, we still believe quantifying exactly about how much we can expand the hoisting capacity of -- principally Decline at -- 3 Decline at Barberton. But I would be surprised if we couldn't sort of expand it or improve by 10% to 20%.

Arnold van Graan from Nedbank. You show the 85%, 15% cost split in your portfolio. What is the expected cost trajectory for the high-cost operations -- could it get in line with the rest of the portfolio and when?

Yes. So certainly, we're quite positive about Sheba. If you look at the progress we've made since the implementation of continuous operations -- so I expect even better performance from Sheba now in the next 6 months. Again, we were unfortunate in terms of Eskom issues, and that caused flooding and quite a lot of disruption at Sheba, but we've been investing a lot in terms of development. And certainly, there's some attractive orebodies at Sheba. So yes, I mean, I'd be surprised if we couldn't get the costs at Sheba or rather the unit costs at Sheba down in the next 6 to 12 months. And then, yes, Consort, which is very small in the portfolio and -- on a cash flow basis, I think it cost us ZAR 12 million from an EBITDA loss perspective over the 6 months. So yes, certainly, there was an improvement at Consort. And yes, we expect Consort to certainly perform better in the next 6 months. We're doing the development, we're doing the exploration and we're not giving up hope on Consort and -- if you remember some years ago, it was a big contributor when we were mining the 42 level PC shaft. So we would hope to get back to some level of profitability and that's what we're working on.

Second last question is from Raj Ray of BMO Capital Markets. This question is on cost per tonne, which at Barberton and underground seems to have increased about 16% year-on-year. Are there other drivers in addition to inflation? And should we expect unit costs to come down for H2?

So I think one of the primary drivers, Raj, was the fact that we went to continuous operations at Barberton. So that means more people and anxious to produce more gold, which is what we did. So that's sort of the mitigating factor. But I think, certainly, going forward, that inflation should normalize. So you shouldn't, in the next year, see a similar level of increase again from that perspective. And then on the Evander side, I guess it's also related to capitalization.

Yes, it's quite correct. Raj, just the capitalization of costs in the past that didn't go through the P&L, now going through the P&L. So that will be a once-off adjustment. It shouldn't increase at the same rate, but it will be there now on a permanent basis as opposed to capitalizing as was the case in the past. So yes, that's contributed quite substantially to Evander's underground cost.

And the last question we have is from one of our local contractors around Mogale, it's Oupa Banda from Oupa's Lawn And Garden. Regarding Mintails, how many permanent jobs will be created after construction, including subcontractors?

So, Oupa, there will be more than 400 permanent jobs only on the plant and our operations. And obviously, I mean, we will endeavor to use as many local service providers as possible, which means Indirectly, that number will go up quite a lot. We're very happy with the progress we've made. We're very happy. 80% of all the contractors on site at Mogale come from local communities. We're supporting the schools and there were some great results from the matriculants that we were supporting at the end of last year, so that's encouraging. And I do think, as I said in the presentation, that anybody staying in that area can already see a difference in terms of lawlessness and rehabilitation, everything else. So it's a flagship project for us, and we look forward to working with all of the stakeholders in Mogale to make this a massive success.

There are no more questions from the webinar. Thank Cobus and Deon.

Thank you very much.