Old mines and gold wasting energy rise in value in pan-African stocks

The share price has risen 94% in Johannesburg this year, more than three times the return of the second-best miner, Harmony Gold Mining Co. Ltd. It also rose by a similar percentage in London, where it was listed on the Alternative Investment Market. Shares rose 0.3% in Johannesburg on Tuesday, hovering near the record high set earlier this month.

The price of gold, which has broken record after record — rising 27% since the beginning of the year and reaching an all-time high of $2,790.10 an ounce on October 31 — has helped. Larger players have not scaled the same heights, partly due to higher operating costs and weak production across large-scale global assets, offsetting the windfall of higher prices.

Pan African, which produced a relatively modest 186,000 ounces of the metal in 2023, has bolstered its portfolio of traditional deep mines with less expensive surface operations that address old tailings sites and will account for nearly half of production within a few years.

“We can do what would be difficult for big companies to do, which is to increase production – and low-cost production – significantly,” Kobus Lutz, Pan-Africa CEO, said in an interview. The company’s third tailings project, Mintails, which is being ramped up, will provide an additional 50,000 to 60,000 ounces annually, he said. “I think the market is very excited about it.”

The miner’s “higher production volumes and lower costs” make it attractive compared to peers and insulate it from a lower gold price, according to Allan Gray Ltd, a Cape Town-based fund manager that increased its stake in Pan African to more than 17% in the quarter ended. in September, making it the largest holder of shares, according to data it compiled Bloomberg.

“I don’t think the market has fully captured the cash flow that Pan African will generate once Mintails is up and running,” said Sean Muncy, portfolio manager at Allan Gray.

New ore bodies

Pan African has owned the Barberton complex – three mines located 300 kilometers east of Johannesburg that have produced more than 8 million ounces of gold over nearly a century and a half – since 2007. The main operation, Fairview, remains Two decades in the mining field. The company hopes to prolong this by deploying modern technology to find new ore bodies, according to Lutz. The company also extended the life of Evander, the company’s other underground asset acquired from Harmony Gold Mining Co. Ltd. 12 years ago.

“When men started extracting these ores, no one thought they would be mining them 140 years later,” Lutz said. “Through our exploration, we continue to find new, high-quality ore bodies for mining.”

South Africa, the world’s largest gold producer for more than a century, fell out of first place nearly 20 years ago and now occupies 12th place, equivalent to a tenth of what it was at its peak in 1970. Mine on Earth has risen by almost 30% this year – and today produces the most gold from the country.

While the underground mines are profitable at current gold prices — the cost of production is about $1,400 an ounce, according to Loots — the ultra-low-cost tailings process gives the company a buffer against gold price fluctuations, said Brendon Hubbard, a portfolio investor. A director at Johannesburg-based ClucasGray Investment Management, which owns pan-African stocks.

“The timing was good in terms of the gold movement that we’re seeing right now,” Hubbard said. “So the pan-African profitability metrics are looking really good.”

(Written by William Close and Khaliko Siwili)