What a rollercoaster world we live in!
From the enforced shutdown of a considerable portion of its gold mining activities in in South African in March, Pan African Resources plc (LON:PAF)(JSE:PAN) has roared back bigger and stronger and better than ever, beating revised production forecasts and forging ahead with new project developments.
Along the way, the company’s share price has risen from its April 2020 nadir of 9p to its current price of 27p, a threefold rise in the space of a few months.
The backdrop, of course, has been the record run in the gold price, a favourable dollar-rand exchange rate, and the ability of Pan African to be nimble in its response to coronavirus itself, both in terms of the way it protects its workers and in the way it has been able to get production going again.
Initially, when the virus struck, it helped that not all Pan African’s operations are underground. The surface work, particularly the well-established tailings reprocessing operations, were allowed to continue to operate under strict guidelines, and this not only meant that significant cash was still coming into the company, even at the worst moments of the crisis, but also that there was a sense of continuity.
Pan African never wholly shut down, the virus never wholly got on top of it. And once the South African government approved the re-opening of the rest of its operations the company came back with a vengeance.
“Covid continues to have an impact,” says chief executive Cobus Loots. “And our operations are geared to health and safety. We’ve had to re-educate our workforce, but we feel we’ve done that quite well.”
And with the workforce comfortably back in place under the new dispensation, Pan African has been confident enough to put out production guidance for the current year of 190,000 ounces. And, with the gold price roaring past the US$2,000 per ounce mark, there’s never been a better time to make such an announcement.
What’s more that combination of a strong production outlook with a high gold price means that Pan African is likely to be debt free by the end of the year, and looking at paying a dividend. For a company that was in some difficulty just a few years ago, it’s a remarkable turnaround.
But it comes as Loots has kept his eye on the ball, and stayed focused on what the company does best. In theory, supported by the company’s strong cashflow, he could go out into the market and acquire new projects and new ounces, and build value that way.
And it’s possible that may happen. But not in the first instance.
“The first order of business is re-investing in our own assets,” says Loots. “Why should we go out paying for acquisitions when we can develop our own projects.”
Given that one of the company’s flagship operations, at Barberton, has been mined successfully for decades and decades, there is some wisdom in what he says. New parts of Barberton continue to be developed, and recent ore sampling has delivered shown grades as high as 40,000 grams per tonne, or 4% gold, so it’s not hard to see why Loots is reckoning on at least 20 years of mine life left in some parts of it.
Meanwhile, at Evander, the recent commitment to a major new spend at Egoli allows for the future addition of 72,000 ounces per year over nine years.
For a mid-tier company, these are significant numbers, especially since the internal rate of return, done at what now seems the conservative gold price of US$1,650 per ounce, runs at just over 50%. As Paul Newman once said: “Why go out for hamburger when you can have steak at home?”
Of course, everything depends on the company’s social licence to operation, and Loots, having come up through the Black Empowerment structure himself, is as cognisant of this as anyone.
“There is a need in the communities in which we operate to make sure that people earn a decent living,” he says.
“A lot of people are desperate, and working successfully where we do demands that we address that. So we are active in our ESG. We support schools and a clinic, and we provide food to some of our people.”