Pan African looks to 24/7 operations

The interim narrative at Pan African Resources (PAF) revolves around faltering underground operations at the Barberton complex and progress on the industrial relations front.

In a sense, these developments are interrelated. The gold miner has struck agreements with union representatives at Barberton Mines linked to “reconfigured continuous operating shift cycles”. Theoretically, expanding Fairview and Sheba Mines’ cycles to around-the-clock operations should boost labour optimisation and drive down unit costs. The Consort Mine is also being converted to a contract mining model.

The Barberton complex is a mature mining operation, so it’s unsurprising that gold production is being held in check by the need to dig deeper and the increased underground travel times this entails. This is unavoidable given depletion rates, but with gold production down by 15 per cent to 92,307 ounces (oz), albeit against a record prior year comparator, the imperative to institute remedial measures is pressing.

Problems with optimisation fed through to a 10 per cent hike in all-in sustaining costs (AISC) to $1,291 (£1,070)/oz, although wider inflationary pressures also played their part. It didn’t help that the average gold price received fell by 4.4 per cent to $1,725/oz.

Management makes the point that 85 per cent of total production achieved an AISC of $1,139/oz, while surface production at the Barberton Tailings Retreatment Plant increased by 10 per cent to 10,012oz with an AISC of just $725/oz.

Looking ahead, gold production at end-June 2023 is expected at between 195,000-205,000oz, and we are likely to see the impact of the implementation of the new shift cycles, along with continued benefits from the successful adoption of solar PV renewable energy.

Theoretically, once inflation eases the dollar should depreciate and gold prices rise in line with the inverse correlation. Pan Africa’s yield and lowly forward rating keep us interested. Buy.

Last IC view: Buy, 17.1p, 15 Sep 2021