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An underappreciated gold mine that’s worth a closer look

Pan African Resources may be relatively small, but its strengths are worth noting.
The Pan African Resources operation in Barberton in Mpumalanga. Image: Supplied

Of all the JSE-listed gold miners, I get the sense that Pan African Resources plc is just simply underappreciated.

Why? Probably because it is relatively small. Yet size is not necessarily correlated with quality, and the gold junior stacks up well against even the majors.

Despite its modest R7.5 billion market cap, the group’s latest operational update reveals that it managed to produce 201 608 ounces of gold in its 2021 financial year. This is a better production profile than DRDGold’s latest annualised production despite DRD having a market cap of R12.8 billion.

Perhaps more important than ounces are profitable ounces (something the mining industry seems to have only recently remembered).

At the last reported date, Pan African Resources was the second lowest cost producer on the local bourse (beaten only by Gold Fields).

No surprise, but the legacy operations of Sibanye-Stillwater are the most expensive per ounce produced.

GOLD FIELDS 2 164 000 oz $1 078/oz
PAN AFRICAN RESOURCES 201 608 oz $1 252/oz
ANGLOGOLD ASHANTI 2 352 000 oz $1 287/oz
DRDGOLD 177 732 oz $1 343/oz
HARMONY 1 499 032 oz $1 416/oz
SIBANYE-STILLWATER (GOLD) 997 568 oz $1 606/oz

Source: Various company reports

For some background, perhaps listen to Pan African Resources’S latest update in this MoneywebNOW podcast.

The two key highlights are:

  • FY21 gold production is 12.3% higher year on year; and
  • Net senior debt has basically halved (down 45% year on year).

Additional upsides

Beyond this, Pan African Resources has a range of projects that either derisk its operations (such as solar power that should be operational in Q3 this year) or expand its production (such as its Mintails transaction) – or which support the communities in which it operates above and beyond the environmental, social and governance minimums, such as its Project Blue initiative (it is converting land into a modern blueberry farm to provide sustainable employment for the community of Barberton).

All positives, all likely to incrementally add value, and all – probably – not appreciated by the market.

Listen to Simon Brown’s interview with Pan African Resources CEO Cobus Loots  in this MoneywebNOW podcast (or read the transcript here):

Adding to this attractiveness is Pan African Resources’s strong dividend policy: other than FY18, it has consistently paid out a generous portion of its profits as a dividend to shareholders, and management has reiterated its intention to keep doing this.

Its excellent dividend history sets a high benchmark against which many other gold miners fail.

More subtly, this dividend flow from Pan Africa Resources allows investors to hold what is effectively a (dividend) yielding investment in a geared exposure to the rand-gold price. There is a lot in that sentence, so let me break it down in my conclusion:

Pan African Resources offers a domestic investor the following exposure:

  • Rand-gold exposure: Its revenue is earned by selling gold priced in US dollars and translating this back to rands. Thus, you get both gold price and currency movements (so-called ‘rand-gold price’) embedded in this revenue stream.
  • Geared exposure to this rand-gold price: Its mine running costs are largely fixed and do not change with the changes in the rand-gold price. Thus, the group has strong operating leverage; if the rand-gold price moves higher, this change drops to the bottom line creating a leveraged effect on its profits. Thus, if the rand-gold price is running higher, Pan African Resources can outperform this movement.
  • (Dividend) Yielding rand-gold play: If you bought an ounce of gold in South Africa, you would have one-to-one exposure to the rand-gold price. That said, no matter how long you held that ounce of gold, you would still only have an ounce of gold and would have earned no interest on the capital invested. Pan African Resources pays dividends from its profits; thus you get the (geared) exposure to rand-gold, but also earn a yield on your capital here (imagine a bank account offering your capital exposure to rand-gold with an attractive interest rate attached!).

In closing, I get the sense that Pan African Resources is often underappreciated – and honestly, I don’t think it should be.

It is a good quality junior gold miner with strong management, and the latest operational update further illustrates this.

Keith McLachlan is investment officer at Integral Asset Management.

He holds shares in Pan African Resources.

Integral Asset Management’s clients may hold shares in Pan African Resources.


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I forget the exact numbers but in merely comparing production output, you conveniently forget to compare the all in sustained cost of production of DRD to PAN, hence no surprise that the lower cost open cast DRD has the higher market cap. If you’re gonna compare businesses, then at least talk about costs & EBITDA, etc, instead of selecting metrics that only support the share you currently hold…

Oops, my bad, just seen the table (thought it was an ad embedded in the copy), my apologies.

Gold mining shares are looking very cheap.

I do not understand why the share prices are dropping, Gold is better than Rands and they are about 40% below their value.

Retailers are affected by the riots, Insurers are affected by Covid-19 deaths, Banks are affected by the high debt. Property is not stable.

PGM(s), coal, Iron ore, copper is hard currency outside of South Africa.

I always do the opposite of what Keith recommends.

So far it’s worked out well.

Brilliant article. Thank you for writing and thank you for always generously sharing your information and helping us to make money! May God bless you.

I also own PAN shares. The future looks good for them.

End of comments.



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