Our opinion on the current state of PAN-AF(PAN)Pan African Resources (PAN) is a gold mining company listed on both the London and Johannesburg Stock Exchanges, with a focus on re-treatment gold production. With the Elikhulu plant, it has significantly enhanced its production capacity, with the potential to produce approximately 700,000 ounces of gold annually at a cost of around R450,564 per kilogram. Given the current gold price hovering around R1 million per kilogram, this presents a substantial profit margin for the company. The Elikhulu plant is expected to generate approximately R15 billion in revenue over its life, with R5.3 billion contributing back to the economy. This has established Pan African Resources as a highly profitable entity with relatively low operational risks, especially given that re-treatment operations typically have fewer uncertainties compared to traditional mining.
The company has also embraced renewable energy by approving the construction of a 10MW solar power plant, which should help reduce its reliance on grid electricity and lower operating costs in the long term.
In its financial results for the six months ending 31st December 2023, Pan African Resources reported gold production up 6.7% and all-in sustaining costs (AISC) of $1287 per ounce, against a gold price of just over $2000 per ounce. This margin underscores the company's profitability. Headline earnings increased by 46.4%, while earnings per share (EPS) were up 46.1%. At the reporting period-end, the company had access to $31.3 million in cash and $86.4 million in undrawn credit facilities, maintaining a healthy liquidity position.
For the year ending 30th June 2024, the company continued to perform well, with production up 6.2% and AISC at $1350 per ounce. The average gold price over the period was $2021 per ounce. Net debt increased to $106.4 million due to construction costs at the MTR project. On 4th June 2024, the company secured a five-year wage agreement with the National Union of Mineworkers (NUM) for an annual increase of 5.3%, which provides stability in its labor costs.
In its trading statement for the year ending 30th June 2024, the company estimated a headline earnings per share (HEPS) increase of between 27% and 37%, driven by a 16.8% increase in revenue, mainly due to higher gold sales and an 11.3% increase in the average US dollar gold price.
Technically, the share has been in an upward trend since reaching a low of 288c in June 2023. It was added to the Winning Shares List (WSL) on 31st January 2024 at 430c and has since risen to 692c, representing strong growth. While Pan African Resources presents a good investment opportunity, especially given the upward momentum of the gold price, investors should remain cautious due to the inherent volatility of the gold market and the company's exposure to fluctuating gold prices. However, with gold breaking above long-term resistance at $2060, it could offer a speculative opportunity for those willing to take on some risk.
