Financial advisory Edison Group has upgraded its confidence in Pan African Resources after the company posted higher production expectations for the 2024 financial year and as a result of it having made significant progress with the Mogale Tailings Retreatment (MTR) plant at its Mintails site, in Gauteng.

Pan African increased its production guidance for the 2024 financial year to between 180 000 oz and 190 000 oz, which prompted Edison to increase its production estimate for the company in turn by 1.9%, or 3 575 oz, to 189 725 oz.

Edison forecasts that Pan African’s production will reach 250 000 oz/y in 2026.

MTR is the company’s fourth large-scale tailings plant and will be commissioned by December 2024. It is poised to produce 50 000 oz/y of gold over 20 years.

Edison’s core valuation of Pan African has risen by 22.2% to 42.27c, or 33.46p, based on projects sanctioned or already in production and incorporating updated gold price forecasts.

This valuation rises by another 21.74c to 26.76c if other assets, such as the Egoli operation, are also taken into account.

Edison explains that, alternatively, if Pan African’s historical average price to normalised headline earnings per share (HEPS) ratio of 8.4x in the period from the 2010 to the 2023 financial year is applied to its forecasts for the 2024 and 2025 financial years, it implies a value of 35.29p in the 2024 financial year, followed by 39.82p in the 2025 financial year.

As such, Pan African’s current share price of 17.32p could be interpreted as discounting normalised HEPS falling to 2.61c a share, against 5.31c a share and 6c a share forecasts for the two coming financial years, respectively.

In the meantime, Pan African remains cheaper than its principal London- and South African-listed gold mining peers on at least 97% of commonly used valuation measures if Edison’s forecasts are used and 86% of the same measures if consensus forecasts are used, which collectively imply a share price of 37.16p on the basis of its year one earnings per share (EPS) estimate and 43.50p based on its year two EPS estimate.

“Separately, we estimate that Pan African has the ninth highest dividend yield of the 61 precious metals mining companies expected to pay dividends to shareholders in the next 12 months, globally,” Edison states.

It adds that Pan African’s enterprise value equates to just $11.42/oz of gold.

Pan African has at least two organic growth projects in prospect – the Mintails Soweto Cluster and Royal Sheba – for development in the immediate future.

Beyond these, Pan African also has the Fairview subvertical shaft, Rolspruit, Poplar and Evander South assets available for development.

Based on Edison’s long-term dividend forecasts, it calculates that an investment in Pan African’s shares at a price of 17.32p today offers investors a (real) internal rate of return of 24.4% a year in dollar terms to at least the end of the 2039 financial year.