Finance Ghost: Pan African Resources: Record Production, but Rising Costs

When mining companies specialise in one commodity, their fortunes are inevitably tied to the performance of that underlying commodity. Whether we are talking about coal, platinum, gold or even diamonds, there are underlying cyclical and structural factors that will impact performance.

But management teams don’t play a passive role in this. They don’t just sit around and wait to see what the commodity price will do. On a daily basis, they need to manage costs and allocate capital, making difficult through-the-cycle decisions about when to accelerate production and when to pull back.

Through luck, skill, or a combination of the two, Pan African Resources has broken the record that really counts right now. In the year ended June 2026, they reported record gold production numbers at exactly the right time, with the results (and shareholders) benefitting from the combination of a 38.6% increase in production and a 54.8% jump in the average USD gold price received.(1)

It’s been a gold mine alright, in every sense of the word.

That’s not the only record

With revenue up 114.2%, it’s not going to come as a surprise to you that there are even stronger percentage increases in other key profitability metrics on the income statement. For example, HEPS has jumped 199.5%, which means that it nearly tripled. The final dividend is a record of around R1.58 billion, equating to R0.65 per share. Together with the interim dividend, Pan African’s excellent performance this year resulted in R0.77 per share in dividends.

But with a share price of just over R27, at the time of writing(2), the company is on a dividend yield of just 2.8%. The modest yield may suggest that investors are placing considerable value on future growth opportunities, rather than treating Pan African as a cash cow or an income-focused share. This is a function of both the broader expectations for the gold price and the market’s sentiment towards a management team that has invested heavily in increased production.

Mogale Tailings Retreatment – just one example of the production story

To achieve the jump in production that has contributed to strong results, Pan African Resources has had to invest in several underlying operations.

An excellent example is the Mogale Tailings Retreatment (MTR) operation, where the successful commissioning of surface operations in December 2025 helped boost production by 68.6% to 51 927oz.

Importantly, Pan African isn’t a one-trick pony. Evander Mines gives us a good example of growth at one of the underground operations, with a 68.4% increase in production driven by underground development targeting a higher-grade line. This led to the average underground recovered grade increasing substantially.

This doesn’t mean that everything always goes to plan, of course. Tennant Mines (acquired in 2024) was a disappointment this year based on a slower-than-expected production ramp-up at the Nobles operation. Management is taking action here by allocating capital to projects to improve that operation. Together with other initiatives at Tennant Mines, production is expected to jump from 32 124oz in FY26 to between 48 000 and 52 000oz in FY27.

There’s more to come

With gold still trading at highly favourable levels, Pan African is driving projects that aim to further increase production.

There are a number of projects underway at Barberton Mines and Tennant Mines. The art and science of mining lies in finding the right mix between surface and underground operations, taking into account the expected return on capital for each type of project.

Pan African also recently announced the completion of the Definitive Feasibility Study for the Soweto Cluster tailings retreatment facility, with the plan being to build a new operation that would produce 35 000 to 40 000oz per annum over approximately 15 years. At current gold prices, the expected payback period for the capital investment in this project is just three years. Anything can happen with gold prices, of course, but this is a good example of the type of opportunities available to the company. They expect to make a final investment decision in December 2026.

But at what cost?

When the gold price is strong and production is ramping up, there’s much for shareholders to celebrate. But underneath all this, we find a significant increase in the costs to actually get the yellow stuff out of the ground. This issue is being masked by the generational jump in gold prices, but it could quickly become a problem if gold prices pull back.

Putting some numbers to this will reveal the extent of the risk. If we go back a year to FY25, the lower-cost operations at Pan African Resources achieved an all-in sustaining cost (AISC) of $1 434/oz. In FY26, this jumped by 18.6% to $1 702/oz. Notably, these operations represent more than 90% of annual production.

If we include all the operations to get to a group number, we find that AISC increased 16.7% to $1 867/oz. Interestingly, the higher cost operations are seeing production costs increase at a slower rate.

Guidance for group AISC for FY27 is between $2 085/oz and $2 175/oz, which implies an increase of 14% at the midpoint of guidance. Using that forecast, Pan African is telling the market that group AISC is expected to jump from $1 600/oz to $2 130/oz in the space of two years.

At the current gold price of $4 350, there are still significant margins to be made. But what if there’s a substantial drop in the gold price?

Even gold doesn’t always glitter

We’ve seen tough periods before for the yellow metal. After rallying in the aftermath of the Global Financial Crisis of 2008/2009, gold suffered several difficult years where it traded sideways at roughly the $1 000 mark.

After making it to over $2 000/oz by 2023, things really took off and the price doubled in the space of only a few years. The concerns around global inflation and the debasement of the US dollar have contributed to the rally in the gold price, much to the benefit of Pan African Resources and the other names in the gold sector.

But that means we only have to go back to 2023 to find a price that is in line with the expected AISC in FY27. That’s not the same as cash breakeven, but it gives an indication of how quickly the inflationary pressure can catch up to a nasty decline in the gold price.

Even if the price only pulled back partially towards those levels, it could squeeze margins in an environment of rapidly increasing mining costs.

The next chapter of capital allocation

The 3-year total return for Pan African is 720%. That’s way ahead of the peer group on the JSE. AngloGold is the closest at 425%, while Harmony and Gold Fields have managed 249% and 229% respectively. DRDGOLD, a tailings business, has only managed 162%.(3)

Importantly, these returns have been achieved over a period in which the gold price has significantly bucked its long-term trend in terms of an accelerated rally. They are not indicative of future returns. However, the outperformance achieved by Pan African Resources through its investment in production has been clear to see.

The group is now in a net cash position, with the only outstanding debt being the domestic medium-term notes of $49.7 million. With cash and short-term investments of $246.2 million, Pan African has significant flexibility with the balance sheet.

But now they need to decide what to do with the funds. Capital allocation decisions will continue to be a major driver of shareholder returns, one way or another.

The group is using share buybacks, but they are also pushing ahead with extensive capex projects. The market seems to be lapping it up for now, but the spectre of mining cost inflation is difficult to ignore.

If the gold price continues its incredible run, then Pan African’s ongoing production increases could support shareholder returns, subject to cost management. But if the gold price goes sideways, or falters with a downward move, then compressed margins could more than offset the benefit of higher production levels.

This is why Pan African Resources is effectively a leveraged play on the gold price, particularly based on management’s approach of expanding production rather than returning excess cash to shareholders.

Disclosure: The Finance Ghost holds a position in Pan African Resources at the time of writing. BROKSTOCK, its employees, representatives or related parties may hold positions in the financial instruments discussed.

(1)  All financials sourced from Pan African Resources’ results for the year ended June 2026

(2)  Google Finance, accessed on 16 September 2026

(3)  Moneyweb data, accessed on 16 September 2026 

Disclaimer: This article is provided for informational purposes only and does not constitute financial advice, a recommendation, an offer, or a solicitation to buy, sell or hold any financial product. The views expressed are based on publicly available information and are intended to present a balanced discussion of potential opportunities and risks. Any forward-looking statements, expectations or opinions are subject to change and may not materialise. Past performance is not indicative of future results. Readers should conduct their own research and consider their individual objectives, financial circumstances and risk tolerance before making any investment decisions. Any investment decision remains the sole responsibility of the reader.

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