IT’S been a transformative year for Pan African Resources, yet the company remains strongly inward focused for its future growth ambitions.
Over the past 12 months the company’s share price has quadrupled catapulting it into the JSE Top 40 Index. It is also on the FTSE 250 index which has raised trading volumes. Pan African will be debt-free by end-February; it has closed its hedging position; and it will pay shareholders a maiden interim dividend in March.
It has established a firm foothold in Australia, its first foray outside of South Africa, through the acquisition of Tennant Mines in the Northern Territory.
Production is also firmly on track to meet its FY2026 guidance of between 275,000 and 290,000 ounces, adding about 100,000 oz to its production portfolio in two years. This performance and its solid growth pipeline make it one of the stronger mid-tier gold producers not just locally, but globally.
Yet CEO Cobus Loots refuses to contemplate any major growth beyond its current organic pipeline, arguing that buying assets at current gold price levels is simply too expensive. “We would never rule out acquisitions, but any deal would have to create similar value to what we’ve done in the past,” he said in an interview following the release of the interim results on Wednesday last week.
“If you are a large-scale producer you have to look at deals of 300,000 oz a year and there are very few deposits like that left. We are in a strong position; when we grow by 100,000 oz, it gives us 25-30% growth. Obviously at some point you become a victim of your own success, but we’re not yet there,” said Loots.
In its results presentation, Pan African guided for capital expenditure of $267m for its 2027 financial year from $156m this year. Loots did not offer a longer-term capex outlook but indicated that capex for 2028 is likely to decline again as the company consolidates its current growth projects.
He provided the market with an update on the key projects to bring its 13 million oz of mineral reserves into production over the next few years. These include the addition of the Warrego project in Australia taking output to 100,000 oz by 2029 for a capital cost of almost $180m.
Pan African is also finalising a definitive feasibility study, by June for the expansion of the Soweto Tailings Retreatment (STR) project. The preferred option is its integration with Pan African’s mainstay Mogale Tailings Retreatment plant, forecast to produce 50,000 oz this year. The addition of STR, which would cost about $160m, will see additional production of up to 35,000 oz for 15 years.
At its South African mines, the company is planning to start mining at Royal Sheba, an open pit and underground prospect at its Barberton complex. Close to its Evander mine, also in Mpumalanga, Pan African is dusting off plans for the Poplar deposit with an estimated Mineral Resource of about 29Mt. Loots says the company has initiated research into the feasibility of establishing a 100,000 oz a year underground mine.
Costs rise
A concern for shareholders is the rise in costs, which came in at $1,874/oz for H1, $300/oz above guidance. Loots explains that two-thirds of the increase related to employee incentive payouts and the stronger rand/dollar exchange, putting upward pressure on input costs. He highlighted that 90% of the portfolio operated at around the $1,700/oz level and that unit costs would decline as production volumes pick up.
But he also acknowledged the growing costs of production generally in the gold sector: “Everybody’s experience huge cost pressures and I can’t see that changing. AISC of $1,700/oz is the new $1,000/oz level.”
For now, shareholders are seemingly not too concerned, with the share price rising by over 7% yesterday following on the results announcement.
After declaring a maiden interim dividend of 12c per share, Loots promises further strong payouts with the company now debt-free and set to add considerably to its cash-flow of now that the company is debt free and says, share buy-backs and special dividend payments, could also be considered.
