CAN Pan African Resources follow up on last year’s stellar performance? It was the JSE’s third-best performing share in 2024 — it doubled in value — owing to the improvement in the gold price.
In an interview after the release of the firm’s interim results earlier this month, CEO Cobus Loots said the groundwork was in place for production to be boosted to 270,000 to 308,000 ounces in its 2026 financial year (starting July).
Before that, Pan African could announce the start of an interim dividend, despite notching up peak debt of $228.5m as of December 31 — a sum incurred partly by the development of the gold retreatment project Mintails, west of Johannesburg, which was commissioned in October.
In fact, were it not for a gold forward contract, in which Pan African booked an $18m opportunity cost in the six-month period, the interim dividend could have been announced already, said Loots. The board “deemed it would be prudent to wait to year-end”, he said. “That’s assuming the excellent gold price continues. It’s difficult to see it falling back materially. It feels like a strong bull market.”
Said Loots: “We run our models conservatively, but we should be degeared in 12 to 18 months”. At present Pan African pays out 40% to 50% of free cash flow annually.
Yet analysts are not entirely convinced by the Pan African story. This is partly to do with poor performance from its underground operations, Sheba mine, which is part of Pan African’s Barberton Gold Mines in Mpumalanga. Rampant gold theft and a precipitous decline in productively saw Sheba mine gold at $2,959 an ounce on an all-in sustaining cost basis, exceeding even today’s record gold price.
Nedbank Securities analyst Arnold van Graan said: “We believe the company faces elevated risk over the next couple of quarters from an investment perspective as it restructures Sheba”. There’s also risk from the reopening of Nobles, a brownfields mine in Australia acquired by Pan African in December in the $54m all-share acquisition of Tennant Consolidated Mining Group.
“Two steps forward, one step back,” said Van Graan in a report, which acknowledged that despite its impressive performance in the share market, Pan African remains a company in transition.
It’s an assessment that frustrates Loots. “I bet you the additional question next time will be: ‘Where is the growth from Australia?’ Because [analysts] have already banked the 70,000oz [coming from Nobles], and they pretend it’s their idea,” he said.
Said Van Graan: “As always, a correction in gold prices could cast a negative spotlight on [Pan African’s] higher-cost operations. Therefore we continue to rate the stock neutral.”
A version of this article first appeared in the Financial Mail.
