EUR 1700.64 For Business Accounts Only

Pan African Resources (PAN) - Attractive new strategy

Pan African Resources (PAN) has carved a niche for itself as a small, but impressive gold miner paying handsome dividends. In these 10 years PAN has substantially outperformed its South African peers, with a total return in US Dollars of 52% compared to a more than 50% negative return for miners such as Anglogold (ANG), Goldfields (GFI) and Harmony (HAR). We not only expect this trend to continue, but believe that PAN is only beginning to get into its stride as a growing, low-cost gold producer.

The positive long-term outlook is overshadowed by the recent operational setbacks, retrenchment of staff and sale of two non-core assets. The market is clearly unsettled by this, as reflected in the continued weakness in PAN’s share price which has dropped by 50% in the past year. 

For value investors, this dichotomy between short-term turbulence and sound long-term cash flows presents an outstanding opportunity for asymmetrical leverage to the gold market. At current prices, this quality gold junior is trading at a 2-year forward dividend yield of almost 10%.

Investors also gain exposure to the group’s portfolio of 15.3m ozs of Indicated Resources at Rolspruit, Evander South and Poplar that was independently valued at $342m in 2012. Despite the negative political climate in the SA mining industry, it remains a globally serious inventory of gold for which investors are currently paying nothing, in our view.