Berenberg slightly raises target price on Pan African Resources

Analysts at Berenberg slightly raised their target price on precious metals group Pan African Resources from 28.0p to 33.0p on Thursday following "positive" results from a definitive feasibility study on the Mogale part of its Mintails project in South Africa.

Pan African Resources provided an update on Mogale, stating the study estimated capex of $161.3m would be required for a project that would produce 50,000 ounces of gold per year over a project life of 13 years, with average all-in sustaining costs of $914 per ounce.

The study also revealed that, in aggregate, the Mogale project hosts 123.6 megatons at 0.29 grams of gold per tone to host 1.14m ounces. If the Mintails Soweto Cluster was also added, then production could be increased from 13 to 21 years, with production of 54,000 ounces in years 14-20.

Berenberg, which reiterated its 'buy' rating on the stock, noted that while tailings reprocessing operations "lack the exploration potential of mines", it said they have low operating risk and were similar to Pan African's existing Elikhulu hydromining operation, with a cyanidation plant with a capacity of 800,000 tonnes per month, which could be expanded to 900,000.

"Production should commence in H2 2024 if development is approved and assuming environmental approval in March 2023. We value the project at $70.0m and view development as positive for Pan African as it injects low-risk growth into the production profile," said the German bank.

"We maintain a 'buy' recommendation, with a new price target of 33.0p per share based on an unchanged blend of 1x NAV and 5x EV/EBITDA. Production is guided to increase to 215,000 oz in FY 2022/23 and to 220,000 oz in FY 2023/24. Our forecasts are in line with this and we expect AISC of $1,100/oz and $1,085/oz, respectively. There are near-term headwinds to production if the South African power utility, Eskom, introduces power cuts following an increasingly acrimonious standoff with unions, which could result in power cuts for up to six hours a day."

Reporting by Iain Gilbert at Sharecast.com