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(Bloomberg) -- The best-performing South African miner this year is defying the country’s contemporary reputation for ever-more costly and lower-grade gold production.
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Pan African Resources Plc extracts the precious metal from waste dumps, known as tailings, left behind by decades of mining when South Africa was the world’s biggest gold producer. It’s also operating century-old underground shafts around Barberton, the site of the country’s first gold rush in the 1880s.
The stock has gained 94% in Johannesburg this year, more than triple the return of the next-best miner, Harmony Gold Mining Co. Ltd. It’s up by a similar amount in London, where it is listed on the Alternative Investment Market. The shares rose 0.3% in Johannesburg on Tuesday, hovering near the record high set earlier this month.
A gold price that’s been smashing through record after record – surging 27% since the start of the year and hitting an all-time high of $2,790.10 an ounce on Oct. 31 – has helped. Larger players haven’t scaled the same heights, partly because rising operational costs and weaker output across extensive global assets have offset 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 process old tailings sites and will account for almost half of output in a few years.
“We can do what the major guys will find difficult to do, which is grow production – and low cost production – quite materially,” Pan African Chief Executive Officer Cobus Loots said in an interview. The company’s third tailings project, Mintails, which is being ramped up, will provide an extra 50,000 to 60,000 ounces annually, he said. “I think the market’s quite excited about that.”
The miner’s “increasing production profile and decreasing cost profile” make it attractive relative 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 through September, making it the biggest holder of the shares, according to data compiled by Bloomberg.
“I don’t think the market has fully internalized the cash flow that Pan African will be generating once Mintails is up and running,” said Sean Munsie, a portfolio manager at Allan Gray.