SA gold miner Pan African Resources (PAR) expects to report a significant drop in headline earnings after first-half sales came in short and its attempt to hedge against shifts in the gold price backfired.
PAR’s share price fell nearly 6% on Monday after the group reported that headline earnings per share (HEPS) for the six months to end-December were expected to be between 1.09 US cents and 1.31c, a decrease of 38%-49% from the previous comparable period.
The decline in headline earnings was partly driven by a poor sales performance during the reporting period. Volumes were down 18% year on year.
Further downward pressure came from the group’s $17.4m (R321m) synthetic forward transaction, a process that enables companies to hedge against price risk by creating a “synthetic” position using financial instruments such as swaps and options.
Instead of a downturn, gold’s rally accelerated towards the end of last year. It is now hovering around $2,900/oz, a level that Swiss investment bank UBS predicted late last year would only happen well into the second half.
While it resulted in a significant opportunity cost, the transaction agreement should be settled by the end of February, after which the group will fully benefit from the current spot price. According to PAR, this would be 21% higher than the average price it received previously.
Despite the drop in headline earnings, the acquisition of Tennant Consolidated Mining Group (TCMG) in Australia is expected to drive an increase in earnings.
The group expects to report earnings per share (EPS) of between 2.24c and 2.46c, up 5%-15% from the year-earlier period.
The newly acquired TCMG will bolster PAR’s portfolio from the 2026 financial year, when the operation is expected to reach full-year production of 48,000oz-60,000oz. The miner also forecasts a significant increase in output next year.
PAR said it was well positioned for improved production in the second half, with the sub-vertical shaft at Evander underground being fully commissioned last month and production at Mogale Tailings Retreatment now fully ramped up.
The miner’s interim results will be released on February 12.
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