Pan African Resources

Precious metals producer Pan African Resources (PAF) has joined another group to buy into South Africa's Evander Gold for up to £139m.

The AIM-quoted company has entered a 50-50 joint venture with Jo'burg and Toronto-quoted Witwatersrand Gold to buy Harmony Gold Mining's interest in Evander, which expects to produce between 85,000 and 95,000 oz of gold a year for more than 10 years from its main Evander 8 shaft and other projects in Mpumalanga, South Africa.

Half of that would represent a significant increase for Pan African, which currently produces about 100,000 oz of gold and 12,000 oz of platinum group metals a year and recently announced it expected earnings for the six months to December to show an increase of 83% to 95%. The joint venture will pay an initial £115m for Evander, which boasts an estimated underground resource of 32.5m oz of gold with 6.88 grammes of gold per tonne of ore and an established reserve of 7.6m oz of gold at 8.02 grammes a tonne.

After that, Pan African, steered by chief executive Jan Nelson, and Wits Gold will make four cash payments of £2m each and may pay another £16m in cash or shares or a combination in two tranches at 19 months and 31 months after the closing date, depending on the performance of the gold price in terms of the South African rand. Pan African and Wits Gold say they plan to use a combination of debt, equity and cash flow to fund the deal and Pan African is sounding out key shareholders about the best route to take.

Pan African shares now trade at 16.75p, down 0.75p today, against Growth Company Investor's 10.75p recommendation in July, and yield around 5%. Hold for the medium term.