Pan African Resources missed out on millions of rand in profit this year after attempting to hedge against a downturn in gold prices.
The slip up cost the group about 23% of its profit for the year to end-June, putting a dent in its competitiveness as gold miners worldwide ride the wave of rising prices.
The price of gold has skyrocketed nearly 35% this year, crossing a record $3,500/oz earlier in the week as geopolitical uncertainty and trade wars drove up safe-haven demand.
Against this backdrop, Pan African is set to report stellar financial results for the year to end-June. The gold miner expects revenue to be up just shy of 45% year on year in the period under review.
However, in a cautious bid to fund a portion of construction costs at its Mogale tailings retreatment (MTR) plant, the miner entered into a synthetic forward transaction in the first half — a process that enables companies to hedge against price risk by creating a “synthetic” position using financial instruments such as swaps and options.
This transaction, together with other price-hedging tools, resulted in an opportunity cost of $26.2m and losses of $5.8m, with 105,000oz of gold (more than half of overall gold sales) not fully benefiting from prevailing prices.
The company has become fully unhedged since July 1, allowing it to benefit from spot prices in this financial year. Fortunately, experts predict that bullion will continue to rally over the next 12 months, with Wall Street analysts seeing potential for the metal to reach $4,000/oz by year-end.
Pan African said it expects to report headline earnings per share of 5.68c-6.10c, up 37%-47% from the previous financial year.
The jump in revenue was primarily attributed to a 35.7% rise in the average gold price to $2,735/oz, while gold sales were also 6.5% stronger at 196,926oz.
With the group’s MTR and Tennant Mines operations bolstering its portfolio in the 2026 financial year, the company expects its annual output to increase to 275,000oz-292,000oz in the next 12 months.
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