SA’s best performing gold stock takes strategy to Australia
IT’S been a breakout year for Pan African Resources, the Joburg- and London-listed gold miner. Its share cruised to a new record high last month, but according to several banks, the stock remains undervalued.In October Pan African completed the Mintails project, in which gold from dumps west of Joburg will be re-mined, adding about 50,000 ounes a year to the 186,000 oz a year output of its 2024 financial year. Mintails came in under budget — at about $135.1m — and ahead of schedule by a month.While these wins were well flagged, the market wasn’t expecting the $54.2m all-share acquisition this month of Australia’s Tennant Consolidated Mining Group. Tennant, which is privately owned, controls the Nobles mine, once the country’s largest open-pit gold mine.Pan African intends to reopen the mine, as well as tailings deposits and additional resources in a neighbouring copper/gold deposit. Near-term production is expected to be about 50,000 oz a year, taking Pan African’s production to about 300,000 oz a year during 2026, all things being equal.By Pan African’s calculation, assuming an all-in sustaining cost of $1,300/oz and a gold price of $2,600/oz, the project will have a three-year payback. Nobles has a five-year life at present, but there’s a belief it can be extended.Analysts took a shine to the deal because Pan African used its in-demand stock pretty much near the top of the cycle.“We believe this is a shrewd move,” said Arnold van Graan, an analyst for Nedbank Securities. “Using equity to complete the deal lets Pan African capitalise on its strong paper, which has seen the stock trading up about 90% year to date,” he said.Van Graan’s only concern is what happens to the investment’s numbers if momentum disappears from the gold price. “If gold remains strong, the payback should be quick, but a lower gold price could materially change the deal metrics,” he said.The long-term gold price is the imponderable in assessing Pan African’s deal, but so far the signs have been good. A gold price correction amid a surge in the dollar after the US election was relatively quickly overcome. According to analysts at US bank Goldman Sachs, the way is cleared for a run at a $3,000/oz gold price by year-end.The initial reaction to the Tennant deal, Pan African’s first foray outside Africa, was broadly neutral. The 6% decline in the miner’s share price so far this month is more driven by the gold price correction than specific criticism of the Tennant deal. Also, analysts think there’s major upside for Pan African not yet acknowledged.“We have increased our target price on [Pan African] by 23% to 43p a share, up from 35p previously,” said Tim Huff and Alex Bedwany, analysts with Canaccord Genuity, in a note this month. They have a buy on Pan African.Charlie Ashbourne, an analyst at Edison Research, said in a note this month that Pan African’s earnings could be boosted 19% in 2026 and a further 29.6% in 2027. Given an 8.2 historic adjusted earnings multiple (2010-2024) the Tennant deal equates to 45.71p a share.“This takes us close to 300,000 oz a year in production in four operating complexes — Barberton and Evander in Mpumalanga, and Mintails,” said Pan African CEO Cobus Loots. It also comes with a decision to ditch Pan African’s exploration programme in Sudan. “We’re not going to put more money into that region at this stage,” he said.“These opportunities don’t come along very often. Tennant was too small for the majors and too large for smaller companies.”A version of this article first appeared in the Financial Mail.The post SA’s best performing gold stock takes strategy to Australia appeared first on Miningmx.Weiter zum vollständigen Artikel bei Mining.com
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