Pan African Resources PLC is cheaper relative to its peers, Edison analyst Lord Ashbourne wrote in a research note on Friday, also indicating that the company’s ‘innovative’ funding package for its Mintails project avoided equity dilution.
The research house has a target price of 14.32 pence for Pan African.
In London, its shares were up 0.2% at 14.38 pence on Friday, while its Johannesburg shares gained 0.9% to R 3.22.
The Rosebank-headquartered gold producer said on Monday it had completed a R 400 million transaction with Rand Merchant Bank, a division of FirstRand Bank Ltd, as the final component to the funding package for the Mintails dump retreatment project’s construction.
The funding brings the full upfront capital to R 2.5 billion. Mintails is located in Johannesburg.
Ashbourne said the funding is in the form of an innovative transaction with RMB, whereby Pan African will sell 4,846 ounces of gold per month to RMB for 24 months, commencing in March at a fixed price of $1,750 an ounce in return for an upfront premium of R 400 million.
At a gold price of $1,750 an ounce, Edison estimates that this funding will be free to Pan African. At a gold price of $1,938, it estimate that RMB will recoup its capital.
At $1,956, the research house estimates that it will provide RMB with a 10% internal rate of return.
‘As such, we believe that this transaction represents an innovative form of financing for Pan African as well as avoiding unnecessary equity dilution for its shareholders,’ Ashbourne said.
Pan African said on Monday it was in the process of finalising detailed engineering optimisation studies for the Mintails project. Commencement of construction is expected by June 2023, with steady state production forecast by December 2024.
Ashbourne said Pan African remains cheaper than its London- and JSE-listed gold mining peers on at least 86% of commonly used valuation measures, which collectively imply a share price of 36.8p in the financial year ending June 30 and 33.3p in the 2024 financial year.
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