Risk Mitigation Strategies for Investing in South African Mines

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.

Source: Carlos Muza on Unsplash

For more than a century, the mining sector has underpinned the South African economy, maintaining its pivotal status. Despite a two-decade trend of diminishing growth within the gold mining sector, South Africa remains a leading gold producer, ranking within the global top 10. This positions the country as an attractive option for investors seeking to diversify their portfolios across different sectors and regions.

Investing in emerging markets such as South Africa typically involves higher risks compared to more developed nations, particularly due to the greater impact of global economic downturns and geopolitical unrest. Nonetheless, these markets often promise higher returns, benefiting from more dynamic demographic trends, a propensity for quicker growth than their developed counterparts, and a nimble approach to overcoming obstacles. Therefore, with appropriate risk management, investments in these markets can offer significant advantages in terms of portfolio diversification and growth potential.

This article aims to enlighten investors about the investment climate in South Africa and the potential within the gold mining sector, highlighting opportunities to hedge against the risks of an economic downturn in the US and capitalise on gold’s status as a reliable asset during periods of macroeconomic and geopolitical instability.

Despite facing numerous challenges, Pan African Resources has strategically adapted its operations and long-term planning to address and navigate these issues effectively. The company has consistently provided strong shareholder returns, a factor yet to be fully reflected in its market valuation. Consequently, Pan African Resources presents considerable growth prospects for investors prioritising sustainable practices and seeking to align with a company committed to making environmentally, socially, and corporately responsible decisions for its enduring success.

Understanding the South African Market

The mining industry significantly contributes to South Africa’s economic well-being. In the first half of this year, mining exports amounted to US$575bn, representing nearly 60% of the country’s total exports, as per the South African Revenue Services. With the industry employing close to half a million individuals in a nation grappling with over 30% unemployment, its role in bolstering the economy and the socio-economic fabric of South Africa is undeniable.

Although no longer the world’s top gold producer, South Africa remains a significant player, positioned as the eighth-largest globally. A recent study by PWC, ‘SA Mine 2023: Adapt to Thrive‘, suggests that the decline in gold production since the mid-2000s is largely due to the anticipated closure of existing mines over the next two decades without further investment.

The sector has seen a resurgence in recent times, with gold mining firms that invest in exploration and innovation poised to reap the most benefits. Gold production has seen an uptick since 2020, with rising commodity prices and a depreciating rand offsetting the inflationary pressures faced by the industry.

Nonetheless, the gold mining sector continues to encounter numerous challenges, including persistent electricity supply issues that lead to equipment malfunctions, production disruptions, and safety concerns. The inflationary impact on imported machinery, coupled with the volatile economic landscape expected to continue into 2024, exacerbates these challenges. The sector also contends with illegal mining activities and a scarcity of skilled labour.

Pan African Resources is proactively addressing energy security by progressively transitioning to renewable energy sources and enhancing energy efficiency. The company has introduced various cost-saving measures and hedging strategies to mitigate the impacts of currency fluctuations and gold price volatility. It is also deeply invested in community partnerships to uplift living standards and promote socio-economic stability.

In the past two years, significant strides have been made towards achieving the goal of sourcing 50% of energy from renewable sources by 2035. Notably, the 10MW Evander solar initiative, operational since 2022, now supplies 30% of the Evander mine’s energy requirements. Further projects to diversify the energy portfolio across the company’s operations are well underway.

Addressing Geopolitical Risks

The rise in geopolitical tensions has become increasingly noticeable across the globe, exacerbated by growing economic frictions between the US and China, the conflict in Ukraine, and escalating hostilities between Israel and Palestine, which threaten stability in the Middle East and potentially beyond.

Since July 2021, gold has stood out as the only commodity to advance in value in terms of the rand, capitalising on its status as a safe haven amid these turbulent periods. This has also been advantageous for the South African gold mining sector. Nonetheless, these global events have negatively influenced the macroeconomic landscape, introducing a surge in volatility and uncertainty, conditions under which gold traditionally excels compared to other investment assets.


The gold mining sector has historically been challenged by the prospect of changes in mining regulations, taxes, royalties, and the political climate across Africa, impacting the industry’s capacity for future planning. This was highlighted in August when Mali adjusted its local ownership regulations, now requiring mining firms to allocate up to 35% ownership to local investors and the government, an increase from the previous 20%.

Conversely, the South African government has opted not to demand stakes in mining enterprises. Instead, it prioritises ensuring that local mining operations benefit historically disadvantaged individuals through ownership and business opportunities. Mining companies are also expected to contribute to social initiatives and partnerships that enhance the living conditions and prospects of communities surrounding the mines.

On a wider scale, South Africa’s regulatory and policy framework is competitive both regionally and in comparison with developed economies. The nation’s fiscal policies and legal structures are highly regarded, supported by robust and well-established financial markets. While there are sectors within the economy that require structural reforms and improvements in business facilitation, businesses largely comply with regulations set by authorities. South Africa boasts an advanced banking system and, unlike the challenges faced by Barrick in Tanzania and the DRC, foreign enterprises in South Africa face no hurdles in repatriating funds or claiming VAT refunds from the state.

For Pan African Resources, cultivating social and relational capital is essential, recognising the value it brings in fostering goodwill within communities, mitigating socio-economic and political risks, and supporting the company’s enduring viability. The mining group adopts an approach that goes “beyond compliance”, aiming to exceed regulatory requirements and uphold the highest standards in responsible business conduct and stakeholder engagement.

The company’s commitment to sustainability ensures that all stakeholders share in the value created by its enduring mining operations and projects. This includes initiatives in renewable energy, agriculture, land restoration, and ongoing investments in local employment and community economic development.

Agile Adaptation to Market Dynamics

Pan African Resources, with its nimble structure and innovative approach, is adept at swiftly and effectively responding to fluctuating market scenarios. The company has proactively addressed the escalating challenges related to electricity supply in South Africa by accelerating its shift from conventional grid power to sustainable energy sources.

The company’s enterprising spirit and focus on high performance have facilitated the diversification of its gold mining portfolio, embracing both organic growth and projects that enhance production. Leveraging advanced exploration technologies and strategic planning, Pan African Resources has broadened its resource base, incorporating a mix of extensive, high-grade underground operations and cost-efficient surface reprocessing activities. The firm has also secured extended mining rights, spanning until 2038 at Evander Mines and 2051 at Barberton Mines.

Notably, two of its projects, the Rolspruit and Egoli, are highlighted in GlobalData’s Global Mining 2026 Report on significant global gold mine developments, underscoring the company’s ambition to be recognised as a sustainable, safe, high-margin, and enduring gold producer.

Transparency and Reliability of Information

In an era marked by challenging global economic and geopolitical climates, the mining industry faces increasing ethical dilemmas, including rising corruption and crime rates. In this context, investor caution is understandable, with a clear expectation for transparency and thorough due diligence to ensure the integrity of their investments. There is a unanimous intolerance for corrupt practices, with investors demanding assurance on the security of mining rights within the sector.

Pan African Resources is dedicated to maintaining the highest levels of transparency and eradicating any unethical behaviour that might jeopardise the group’s operational integrity and stakeholder value. Initiatives implemented include the formation of an audit and risk committee by the board, the creation of a code of ethical conduct, the revision and enhancement of its corporate misconduct policy, and the establishment of a confidential whistleblowing hotline for both employees and external service providers.

To align with the UK Bribery Act, the US Foreign Corrupt Practices Act, and the South African Prevention and Combating of Corrupt Activities Act, the company has instituted a comprehensive anti-bribery and anti-corruption policy.

Moreover, the company is committed to exemplary corporate governance, supported by a diverse Board of Directors equipped with the necessary knowledge, skills, and experience to lead Pan African Resources with responsibility, integrity, and transparency. The company’s financial statements undergo independent audits, and the whistleblowing register is reviewed quarterly by the board’s audit and risk committee.

These measures are consistently reviewed and monitored to guarantee the highest standards of transparency, ethical conduct, and accountability throughout the organisation.

Financial Performance and Dividend Payouts

In the financial year 2023, Pan African Resources showcased a robust and resilient financial performance, reinforcing the belief among analysts that the company’s shares are undervalued and present a lucrative opportunity for investors.

Throughout the year, an elevated rand gold price offset the lower production outputs from the underground operations, which faced challenges due to electrical supply interruptions. The company is initiating enhancements at its Barberton Mines’ underground sites to boost future output and has revised its production forecast upwards for the 2024 fiscal year. With the rand gold price remaining strong, the company anticipates another year of substantial growth for its stakeholders.

Moreover, Pan African Resources continued its tradition of issuing high dividends, declaring another substantial payout in a year that also saw its most significant capital venture with the funding of the MTR project’s development.

Concerns exist within the mining sector that the shift towards renewable energy for sustainability might escalate operational costs. However, Pan African Resources’ transition to a greener energy mix in recent years demonstrates the opposite. Strategic investments in sustainability initiatives, such as solar energy projects, have led to reduced energy expenses at Elikhulu, especially as Eskom, the national power provider, is set to increase electricity rates significantly above inflation.

Diversification as a Risk Mitigation Strategy

Despite the inherent volatility often associated with emerging markets compared to their developed counterparts, the potential for higher returns compensates for the perceived increased risks. Companies operating in these markets generally display greater resilience and adaptability to challenges, accustomed as they are to navigating through various obstacles.

Contrary to the common belief that emerging markets lag in granting operational permits, Pan African Resources’ experience indicates that acquiring permits in South Africa can be considerably quicker than in North America. For example, securing a permit for Mintails took under two years, a stark contrast to the potential decade-long process in the US and Canada due to extensive compliance and consultation demands.

Investors seeking to broaden their geographical and sectoral investment exposure are encouraged to explore the South African gold mining industry. Pan African Resources, in particular, offers promising growth potential and a secure diversification avenue.

The company remains focused on gold mining, capitalising on long-term organic growth opportunities without venturing into other metals like copper or platinum group metals (PGMs). It prioritises optimising its existing assets through efficiency enhancements, maximising output, and adopting innovative methods to manage ore depletion, thereby improving overall operational efficiency.

While organic growth is Pan African Resources’ primary strategy, the company remains open to acquisition opportunities that meet its stringent investment criteria, ensuring they contribute positively to shareholder value and returns.

Aiming to diversify its investor base, the company is actively engaging with prospective investors in the US, targeting those looking to mitigate the risks associated with a potential US recession and seeking promising investment avenues abroad. This initiative has seen a gradual increase in US-based shareholders, rising from under 2% to approximately 6% over the past year.

The investment case for gold and gold stocks remains compelling, with gold historically outperforming both the general stock market and fiat currencies. Gold is poised to gain from the global economic shift and the ongoing efforts to diminish reliance on the US dollar as the reserve currency of choice.

The Global South, encompassing developing nations across Africa, Latin America, Asia, and Oceania, is actively exploring alternatives to reduce dependency on Western markets and the dollar. Concurrently, China has been systematically reducing its US Treasury holdings, opting instead to bolster its gold reserves, marking a significant shift in its foreign reserve strategy.

Risk Mitigation Strategies for South African Investing

For more than a century, the gold mining sector in South Africa has played a crucial role, offering distinct investment opportunities within the industry. Historically, gold and its equities have been dependable assets during economic uncertainties and inflation, becoming increasingly significant in the current unpredictable market climate.

Within the broader context of emerging markets, Pan African Resources emerges as a robust investment choice, fulfilling the diversification requirements of investors. The company’s deep understanding of the South African landscape, coupled with its skilled management team and robust assets, has propelled its organic growth and fortified its position against both international and domestic challenges. Pan African Resources’ financial accomplishments highlight its steady performance and commitment to sustainability and ethical practices.

Investors seeking a comprehensive evaluation of Pan African Resources’ approach in the local context are advised to conduct a detailed due diligence of the company. In this process, the management team will ensure complete financial clarity and respond to any queries investors may have about the company’s operational efficiency, strategic objectives, and risk management strategies in South Africa and globally.