Pan African Resources plc (LON:PAF) and Shanta Gold Ltd (LON:SHG) are the two UK top picks in gold mining, according to the broker Peel Hunt, which has released a 41-page update on the sector.
Pan African, which reported stellar results on Wednesday, offers investors income, as it boasts a dividend yield of 4.5%, while Shanta is a ‘deep value play’.
“Its position in the lowest quartile of the cost curve should see it attract attention, but this has historically been overshadowed by the level of debt and concerns over a short mine life,” said analysts Michael Stoner and Peter Malin-Jones of Shanta.
“This has now all been addressed with re-financing and better than expected operational performance bringing the debt to sustainable levels.”
They reckon Shanta, currently changing hands for 10.5p, is worth 21p a share.
Pan African, up 9% at 21p, should is a buy up 26p, the Peel Hunt duo said.
“[The company] openly targets a position at the top of the dividend yield rankings,” the note said.
“The gold space is truly appalling at returning cash to shareholders.
“Pan African has a very clear policy to buck that trend and targets the highest dividend yield of the London gold names.”
Looking at the sector, Peel Hunt noted the Canadian diggers have tended to outperform their UK counterparts over the year to date with the exception of mid-tier operators Hochschild (LONHOC), Acacia (LON:ACA) and Centamin (LON:CEY).
The British small-caps “have lagged significantly”, the broker added.
“Given the forex benefit of the ongoing sterling weakness, we would expect the London names to relatively outperform and close the gap that opened through the second quarter,” the Peel Hunt analysts said.
“The London names should now be able to attract the attention of the overseas investor with a global mandate.
“As Brexit plays out, a further weakening of sterling may strengthen the appeal of London names.”