Risk Mitigation Strategies for Investing in South African Mines

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The mining industry has been the mainstay of the South African economy for more than a century and continues to play a significant role. Though the gold mining industry has experienced two decades of declining growth, South Africa is still among the top 10 gold producers in the world. It provides safe diversification opportunities to investors looking to expand their portfolio across sectors and geographically.

Emerging markets like South Africa are typically associated with higher risks than developed countries, and developing countries do tend to be harder hit during adverse global macroeconomic and geopolitical conditions. However, with these risks come potentially higher returns. Emerging markets offer more favorable demographic profiles, are likely to grow faster than developed countries, and are often more agile and innovative in resolving the challenges they face. Thus, if the risks are mitigated, investors stand to benefit from an asset that provides portfolio diversification and capital growth opportunities.

This article will provide investors with insights into the South African investment landscape and the opportunities the gold mining industry offers, including thoughts on diversifying away from the risk of US recession and benefiting from the safe haven status of gold in turbulent macroeconomic and geopolitical times.

Though South Africa and the local gold mining industry do face several challenges, Pan African Resources is well aware of these and has adapted its operations and long-term business strategy to mitigate and withstand these risks. The company has delivered robust returns to shareholders, and this performance still needs to be factored into its share price valuation. Thus, the Group offers tremendous upside potential to investors who value sustainability and want to partner with a company that understands what a crucial role environmental, social, and corporate governance decisions made today will play in its long-term sustainability and success.

Understanding the South African Market

The mining industry has always played a significant role in South Africa’s economic fortunes. In the first half of this year, mining exports accounted for US$575bn, nearly 60% of South African exports, according to South African Revenue Services statistics. The industry also employs almost half a million people in a country with over 30% unemployment. As such, it plays a crucial role in contributing to the vitality of the economy and socio-economic health of the country.

Once the largest gold producer in the world, South Africa is still the eighth largest producer globally. According to a recent PWC study, SA Mine 2023: Adapt to Thrive, South Africa’s decline in gold production levels since the mid-2000s has been a result of expectations that many of the country’s existing gold mines will end production in the next two decades in the absence of further investment commitments.

The industry’s recent fortunes have been more upbeat and gold mining companies making investments into exploration and innovation to bolster future production stand to benefit most. Meanwhile, gold production has been steadily increasing since 2020, and stronger commodity prices and a weaker rand have counterbalanced inflationary cost pressures on the industry over the past year.

However, the gold mining sector still faces several headwinds in the local market. Ongoing electricity constraints have been weighing heavily on the industry, exposing mining companies to equipment failures, disrupted production, and safety issues. Inflation on imported equipment is contributing to cost pressures and planning becomes even more difficult in the volatile and uncertain macro-economic conditions that are likely to persist into 2024. Illegal mining and a shortage of skilled labor are also long-standing industry headwinds.

Pan African Resources is navigating the energy security challenges by concertedly migrating its energy mix increasingly to renewable energy and implementing energy efficiency initiatives. It has implemented several cost-saving initiatives and hedging strategies to counter currency and gold price volatility, and it is also actively investing in, and partnering with, the surrounding communities to improve their living conditions and foster socio-economic stability.

Over the past two years, the company has made significant progress towards achieving its aim to generate 50% of its energy from solar and other renewable energy sources by 2035. The company is already benefiting from the cost-savings generated by the 10MW Evander solar project, which came online in 2022 and is already meeting 30% of its Evander mine’s energy needs. Other projects and plans to change the Group’s energy mix on other mining projects are well-advanced.

Addressing Geopolitical Risks

Geopolitical risks have been on the rise globally, fuelled by increasing macroeconomic tensions between the US and China, the Ukraine invasion, and the recent threat that Israel-Palestinian hostilities pose to peace in the Middle East and potentially further afield. 


The price of gold, the only commodity to gain ground in rand terms since July 2021, has benefited from its safe haven status during these turbulent times, as has the South African gold mining industry. However, the events have had an adverse impact on the global macro-economy, introducing heightened levels of volatility and uncertainty where an ideal safe-haven investment such as gold outperforms other assets. 


In the gold mining industry, the impact of anticipated changes in mining regulations, taxes and royalties, and political stability on the African continent have long dogged the sector’s ability to plan for the future with any level of certainty – and this was made evident again in August this year when Mali revised it local ownership policy, requiring mining companies to give local investors and the state stakes of up to 35% compared with 20% previously.

In comparison, however, the South African government has steered clear of demanding a stake in mining companies and has instead focused on ensuring local mining companies extend the benefits of their activities to historically disadvantaged people through ownership and business opportunities. They are also expected to invest in corporate social initiatives and partnerships that improve the circumstances and livelihoods of surrounding mining communities.

From a broader regulatory and policy level, the country also compares favorably to other countries on the continent and developed markets. South Africa’s fiscal policy and legal regime are up there with the best, and the country has deep and liquid financial markets. Though the government does need to make structural changes in certain sectors of the economy and needs to improve the ease of doing business, companies generally adhere to the rules and regulations established by the regulators. South Africa also has one of the most sophisticated banking systems and, in contrast to Barrick’s recent experience in Tanzania and the DRC, foreign companies operating in South Africa have no issues expatriating money or recovering VAT claims from the government.

Building and maintaining social and relationship capital is a priority for Pan African Resources because it recognizes how much this builds goodwill in the communities and reduces socio-economic and political risks and contributes to the long-term sustainability of the business. The mining group pursues a “beyond compliance” rather than a tick box approach to ensure it meets the highest standards of regulatory compliance and responsible business practices and its stakeholder relationships.

The business’s sustainability imperatives ensure that all stakeholders benefit from the long-term value proposition generated by its long-life mines and other mining operations. These include renewable energy and agricultural projects, land rehabilitation initiatives, and continued investment in local community job creation and economic development initiatives.

Agile Adaptation to Market Dynamics

As a mid-sized mining company, Pan African Resources has the operational advantage and pioneering mindset that enables it to be agile and adapt quickly and productively to changing market conditions. The mining group has responded proactively and timeously to intensifying electricity supply constraints in South Africa, putting in place plans to fast-track its transition from grid-supplied energy to renewable energy sources.

Pan African Resources’ entrepreneurial and performance-driven culture has also enabled the company to diversify its gold mining portfolio by pursuing organic growth and production-enhancing projects. Using modern exploration techniques and planning systems, it has expanded its resource base to include a combination of long-life, high-grade underground mining operations, and low-cost surface remining operations. It has also secured long-term mining rights out to 2038 at Evander Mines through to 2051 at Barberton Mines.

Two of its mining projects, the Rolspruit and Egoli projects, feature on GlobalData’s top 10 major gold mine developments in its Global Mining to 2026 Report. Projects like these enable the company to deliver on its strategic intention to be a sustainable, safe, high-margin, and long-life gold producer.

Transparency and Reliability of Information

Challenging global macroeconomic and geopolitical conditions have meant that corruption and crime levels have been on the increase, and the mining sector has also had to contend with these worrying ethical challenges. Against this backdrop, it is no surprise that investors are cautious about making investment decisions unless they are confident the companies are providing full transparency and will facilitate – and pass – robust due diligence processes. They have zero tolerance for corruption and, within the context of the mining sector, rightly want to be assured of companies’ security of mining rights.

Pan African Resources is committed to full transparency and stamping out any unethical practices that could impact the Group’s ability to conduct business and add value for its stakeholders. Measures undertaken in the business include a board-constituted audit and risk committee, establishing a code of ethical conduct, reviewing, and updating its corporate malpractice policy, and instituting an anonymous whistleblowing hotline accessible to employees and third-party service providers.

To ensure compliance with the UK Bribery Act, the Foreign Corrupt Practices Act of the United States of America, and the South African Prevention and Combating of Corrupt Activities Act, a formal anti-bribery and anti-corruption policy has been put in place.

The Group is also committed to upholding the highest standards of corporate governance, with a diverse Board of Directors that possesses the requisite knowledge, expertise, technical experience, and business acumen to govern Pan African Resources responsibly, ethically, honestly, and transparently. Third parties independently audit the Group’s financial statements, and the whistleblowing register is reviewed quarterly by the audit and risk committee constituted by the board.

Together, these measures are regularly revisited and monitored to ensure the utmost transparency, ethics, and accountability across the entire business.

Financial Performance and Dividend Payouts

Pan African Resources delivered strong and resilient performance results again in its 2023 financial year, underscoring analysts’ views that the stock is undervalued and offers investors attractive upside potential.

During the year, a higher rand gold price counterbalanced lower-than-expected production from the underground operations, which were adversely affected by electricity disruptions. The Group is implementing measures at its Barberton Mines’ underground operations to increase future production levels and it has increased its production guidance for the 2024 financial year. If the rand gold price maintains its current strength, the Group expects to achieve another year of robust growth on behalf of its stakeholders.

Pan African Resources also maintained its status as a high dividend-paying stock, distributing another generous dividend during a year in which it also undertook its largest capital investment by funding the MTR project’s construction.

There is a concern that mining industry efforts to achieve sustainability by transitioning to renewable energy sources may increase mining companies’ operational cost bases. However, the Group’s experience of shifting its energy mix over the last few years proves otherwise. Innovative exploration and carefully considered investment in sustainability projects, including solar plants, have, for instance, contributed to energy cost reductions at Elikhulu at a time when Eskom, the country’s power utility, has, and will continue to, impose electricity price increases that are well ahead of inflation.

Diversification as a Risk Mitigation Strategy

Though emerging markets may have historically been more volatile than the developed world, the perceived higher risks typically come with higher returns than those available in markets that are traditionally viewed as safer. Companies in emerging markets tend to be more resilient and quicker to adapt to challenges because they are used to contending with headwinds.

While the prevailing perception is that emerging markets are slower to issue permits for new operations than developed countries, Pan African Resources’ experience shows it is possible to get a permit issued in far less time in South Africa than in the US and Canada. Getting a permit for Mintails took less than two years compared with the up to 10 years it can take to satisfy all compliance and consultation requirements in North American countries.

Thus, investors looking to diversify their investment exposure geographically and within the mining sector are well advised to consider investing in the South African gold mining sector, with Pan African Resources offering attractive upside potential and safe diversification benefits.

Investors stand to benefit from the Group’s sole focus on gold mining for as long as there are long-life organic growth opportunities. It has no intention of investing in copper or platinum group metals (PGMs) at this stage, instead sticking to its core business and sweating its existing assets by adopting measures to streamline production, maximize the production potential of its existing assets, and address depleting orebodies by using new on-reef methods that reduce waste development and improve overall efficiencies.

Though Pan African Resources’ primary business strategy is to grow organically, it does consider acquisition opportunities where they arise, but will only pursue these if they pass the Group’s strict investment hurdle criteria to preserve shareholder value and improve returns.

The company is interested in diversifying its investor base, looking to partner with like-minded investors who also believe sustainability is critical to long-term success. Pan African Resources has begun targeting the US investor market, seeking investors interested in diversifying away from US recession risks and interested in identifying attractive investment opportunities further afield. The Group’s efforts are bearing fruit, with the proportion of US shareholders in the company increasing progressively over the past year from under 2% to around 6% currently.

Overall, there is a strong investment case for gold and gold shares, with the precious metal offering an unsurpassed long-term investment track record, outperforming the overall stock market and paper currencies historically. Gold is also set to benefit from the bifurcation of the world economy and the resultant efforts to replace the dollar as the world’s reserve currency.

The so-called Global South group of countries, including developing countries in Africa, Latin America, Asia, and Oceania, have already begun exploring ways to reduce their dependence on the Western developed markets and the dollar. In addition, China has been substantially disinvesting from US Treasuries over the past few years, reducing its exposure to assets that were previously the mainstay of its foreign reserve portfolio. Instead, the central bank has been increasing its holding of gold reserves.

Risk Mitigation Strategies for South African Investing

South African gold mining companies have been operating for more than a century, offering investors seeking to incorporate sector-specific exposure in their investment portfolios opportunities they won’t find elsewhere. Gold and gold shares also have a long track record of providing a hedge against economic uncertainty and inflation – a valuable attribute in current and future market conditions.

Pan African Resources offers a stable investment opportunity within a broader emerging market portfolio, satisfying all the attributes investors looking to diversify are interested in harnessing. Pan African Resources’ deep understanding of the South African market, strong management team and long-life assets have enabled the business to adapt and grow organically, notwithstanding the global and local challenges the company has faced. Its financial results reflect the company’s strong performance track record and commitment to maintaining its leading position in sustainability and ethical practices.

Investors wishing to get a deeper understanding of Pan African Resources’ local market strategies are invited to request comprehensive due diligence on the Group, during which the management team will give them complete transparency of the financials. They are also more than willing to answer any other questions investors may have about the company’s performance, operations, and strategic imperatives and get more detail on how Pan African Resources addresses the risks it faces in South Africa and worldwide.