LITTLE VIEW: Pan African struck gold to buy mines

Investing in the gold mining sector comes with its ups and downs.

While throwing your weight behind the time-honour-the-machine can produce promising returns if all goes to plan, the rewards come with a significant risk factor.

Mining permits have been canceled and delayed, regional disputes, market volatility, and simply the results have been disappointing.

But that will be more rewarding as the risk premium increases in the right direction.

Remove it Pan AfricanThe Cobus Loots chief executive is approaching his 10th anniversary as the top dog at the gold producer in London and Johannesburg.

There have been several notable Pan African wins in recent months, including the buyout of Tennant Consolidated (TCMG), which is building a gold project in Australia’s Northern Territory.

Speaking about the acquisition with Proactive, Loots said it was ‘an opportunity to expand production, transform our business, reduce costs and achieve growth that we believe is worth it. right’.

Pan African recently announced the successful operation of the Mogale Tailings Retreatment (MTR) in South Africa.

This project will expand the capabilities of Pan African production. But it’s more than that.

The 100-year history of South Africa’s great gold mining is etched into the landscape in the form of these traditional tailing shields.

Tails are gold mining products. A lot of stuff was left after the gold was taken out of the ground. These tailings are then disposed of in areas known as tailings dams.

They are not worthless. In fact, it is a gold mine, albeit of a very low grade.

Pan African is one of the three main companies that mine these tailings to extract the remaining gold.

About 0.3 grams of gold per ton is extracted from these tailings, and although recovery is only half the cost, the payoff makes the operation worthwhile.

‘Because it’s simple and efficient and scalable, it gives us these economies of scale,’ says Loots.

There’s also a big ESG angle, as you’re reducing legacy liabilities (and) consolidating residual tailings on new, new buildings, he added.

On average, it costs about $1,000 to produce an ounce of gold from an MTR tailings facility. Not bad when the price of gold is more than double.

This brings us to a great place.

By 2024 gold prices had reached an all-time high of $2,800 per ounce at the end of October.

Although prices have entered a correction phase, gold remains firm at $2,568 per ounce (as of November 15).

Gold hopes it can sustain these price increases in the year ahead, as Pan Africa has some high investment targets on its hands.

In the 2024 fiscal year that ends on June 30, Pan African has a measly 190,000 ounces from all its operations. The current production target is 215,000 ounces, a 16 percent increase over the previous year.

For next year? With the MTR running on a continuous slope and the Tennant Creek operation, ‘production will be close to 300,000 ounces’

Loots said.

To top it all off, Pan African is tapping into renewable energy to help maintain the margins it needs.

In fiscal year 2024, Pan African will get 6 percent of its energy needs from renewables (date one). The goal is to have a 30 percent renewable energy mix by 2030, although Loots sees it reaching 50 percent.

Along with many Pan African achievements every year, the share price has increased by 90 percent, but analysts believe that there is more to come.

“Given this recent growth trend, particularly with the MTR project offering low-cost growth and improved margins… we look forward to Pan Africa’s participation to a time when profitability will increase,” Berenberg analysts wrote in a trader’s note.

Loots said the Pan African acquisition has been completed for the time being, and the company will focus on capitalizing on the next year’s projects.

Despite the positive developments, some analysts believe that Pan African remains limited by the market.

In a recent trader statement, Peel Hunt accepted the 300,000-ounce-per-year rate offered by Pan African.

However with shares trading at a 4.1 forward price-to-EBITDA ratio at the time of writing, we don’t believe that growth from property development or upside will pay in ‘, said Peel Hunt investigators.

The stock was selling at 44p, they said.

As it stands, Pan African is striving for a mid-cap value with a current market capitalization of £744 million.