Hail and farewell

After more than 15 years, this will be Edison’s last note on Pan African for the foreseeable future. In our first note, PAF had a share price of 10.25p and a market capitalisation of £148m. We think this performance speaks for itself and we wish management and the company all the very best for the future.

Valuation: £2 continues to beckon

Based on its six principal producing assets, our core valuation of Pan African has moderated by 7.1% to 51.70c per share (cf 55.65c previously), based largely on lower production and higher capital expenditure guidance for FY27 (although note that the higher longer-term production from Tennant in particular that might be expected to attend higher FY27 capital expenditure may not be fully captured in our financial model) and the relentless rise of the rand. It rises by a further 37.99–43.01c to 89.69–94.71c (66.67–70.41p) if other assets, such as Egoli and the Soweto Cluster, are also taken into account. However, all these valuations are calculated at Edison’s long-term (real) gold price of US$1,866/oz, which increasingly appears to be a worst-case scenario. At the prevailing price of gold ( US$5,221/oz), our core valuation more than quadruples, to 237.56c (176.60p). Alternatively, if PAF’s historical average price-to-normalised headline earnings per share (HEPS) ratio of 8.1x for the period FY10–25 is applied to our FY26 and FY27 forecasts, it implies values of 148.9p and 114.5p, respectively, or 205.3p in FY27 if the price of gold remains at current levels until June 2027. In the meantime, PAF remains cheaper than its principal medium-sized international gold mining peers on at least 52% of commonly used valuation measures if Edison forecasts are used or 46% if consensus forecasts are used. This same peer group implies a PAF share price of 237p in FY26 and one of 129p in FY27 (or 231p in FY27 if the current gold price prevails until June 2027), based on Edison’s normalised HEPS estimates. This is validated by a terminal valuation of 186.94p in FY31 at Edison’s long-term gold price of US$1,866/oz, assuming 4.1% cash flow per share growth per year thereafter (which is the average real return of the gold price from 1967 to 2025). Note that this final figure rises towards £10/share at the current price of gold.

H126 results, guidance and forecasts

Pan African’s production in H126 was exactly in line with both our expectations and prior guidance (provided in its Operational update of 26 January) with the single exception of the fact that 3,227oz of Evander’s output was derived from surface sources, rather than underground (Exhibit 1). Financially, five out of seven operations (ie all except Barberton and Evander surface) recorded record adjusted EBITDA (see Exhibit 3), which contributed towards record group profitability (Exhibit 5) and a maiden ZAR0.12/share interim dividend. Guidance for FY26 was reiterated at 275–292koz, albeit at a higher all-in sustaining cost (AISC) of US$1,820–1,870/oz at ZAR17.00/US$ (cf US$1,525–1,575/oz at ZAR18.50/US$ previously).

Relative to our prior forecasts (Exhibit 2), the most obvious variances were:

• Costs of production were 8.7% less than our expectations in aggregate, resulting in a positive US$26.0m variance in mining profit.
• However, this was offset by a US$35.4m negative variance in ‘other expenses’, which related to share-based payment expenses and the costs associated with PAF’s transfer to a Main Board listing in London. Both these expenses are somewhat ‘exceptional’ in nature, the first being highly variable and therefore difficult to forecast and the second being very much a ‘one off’, justifying our traditional treatment of adjusting ‘other expenses’ out of normalised HEPS.
• Including small negative variances for royalty costs and net finance income, the resulting US$15.2m negative variance in pre-tax profits was more than offset by a positive US$18.0m variance in taxation expenses to result in attributable profits that were US$2.9m (or 2.0%) above our prior expectations.

Exhibit 2, below, summarises PAF’s H126 results, relative to both our prior expectations and prior year results (as reported, rather than adjusted).

Operationally, production at MTR/Mogale was approximately 10% lower than expected by management, as a result of mined grades and recoveries that were adversely affected by the intersection of an anomalous low-grade lens of low-recovery calcine material that reduced both mining grade and recoveries.

Elsewhere, the ramp-up of tonnes at Evander associated with the start of major mining activities at 25 & 26 Level was delayed, with mill throughput at almost exactly the level of H225, albeit this was achieved at a materially higher grade and a lower unit cost (see Exhibit 4).

Nevertheless, both achieved record adjusted EBITDA, along with the BTRP, Elikhulu and Tennant/Nobles, in both US dollar and rand terms:

Notably good unit production costs in local currency per tonne processed terms were recorded at Barberton, BTRP and Tennant/Nobles (relative to our prior forecasts), despite above inflation increases in the prices of reagents, annual salary increases and a 12.7% regulatory increase in the electricity tariff (albeit mitigated by PAF’s solar initiatives). Production at Tennant/Nobles in H226 is also anticipated to increase to c 30,000oz as higher-grade ore from open pits replaces lower-grade feed from the Crown Pillar Stockpile.

As a result, we have adjusted our H226 operational performance expectations to those shown in Exhibit 4, below. In general, our production expectations have remained almost unchanged. However, we have revised our cost assumptions as well as our estimate of the gold price for the remainder of the financial year to June to US$5,221/oz (cf US$5,000/oz previously). At the same time, we have also adjusted our foreign exchange rates to reflect the continuing strength of the rand against both the US dollar and sterling:

• from ZAR21.9007/£ to ZAR21.4678/£ (-2.0%),
• from ZAR16.0266/US$ to ZAR15.9583/US$ (-0.4%), and
• from US$1.3664/£ to US$1.3452/£ (-1.6%).

Taking all of these factors into account, we have revised our HEPS forecasts for the group for FY26 up by 3.8% and our normalised HEPS forecast by 11.6%, as shown in Exhibit 5, below.

A comparison between Edison and consensus forecasts for FY26 is provided in Exhibit 6:

Medium- and longer-term group production

In addition to its H126 results, Pan African also provided production guidance for FY27. Readers are directed to Pan African’s results announcement for the details of this guidance. In summary however:

• At Barberton, an upgrade to the number 3 Shaft winder at Fairview was completed at the beginning of H126, which will mitigate unplanned interruptions in future production from the lower levels of the mine, resulting in improved output. Other initiatives to improve production at Fairview include:
  • Mining of multiple platforms on the MRC (Main Reef Complex) orebody to improve mining flexibility (NB operations are currently active on the high grade 260 to 262 Platforms, which supplied the bulk of the high-grade (>20g/t) ore in H126).
  • Development into the 263 Platform in the MRC orebody is expected during the current quarter.
  • Simultaneously, additional development on 50 Level to access the up-dip extent of the Rossiter orebody is in progress.
• Feed from the Winkelhaak tailings storage facility (TSF) will be blended with feed from Leslie/Bracken from FY27, further increasing flexibility and production consistency at Elikhulu. As the resources at Leslie/Bracken are depleted, this infrastructure will then be sequentially repurposed to Winkelhaak, which will ultimately supply 100% of the plant’s feed. Drilling of additional sonic holes and the construction of re-mining infrastructure at the Winkelhaak TSF commenced in H126 and represents the last significant capital to be spent at Elikhulu for its remaining nine-year life.
• At Evander, the B raise line on 24 Level at 8 Shaft (which is in the high-grade core of the Kimberley Reef orebody) has now been established. Other initiatives include:
  • Accelerated development of the 24 & 25 Level mining areas, where the A raise line’s cross-cut has now intersected the reef and where the high-grade portion extends further to the east.
  • Access to 25 Level being achieved through an on-reef decline layout from 24 Level footwall infrastructure.
  • Commencement of construction of the underground workshop on 24 Level, with mechanised development towards 25 Level progressing from existing cross-cuts on 24 Level, as well as from the main development.
  • Planning of hybrid mining below 24 Level, comprising conventional stoping and mechanised on-reef development.
• At Tennant, major capital projects that were originally scheduled for later in the operation’s life cycle have been accelerated with the aim of improving its overall production profile to 100koz per year over the next three years, as follows:

Overall therefore, guidance for production in FY27 is 270–302koz, broken down as follows:

Edison’s detailed forecast for FY27 is 291.6koz, which is 10.6% below our previous (pre-guidance) forecast of 326.1koz. However, we would then expect output to expand to 347.3koz (±5.1%) with increases at Barberton (to its steady-state level), Evander (as the 24 & 25 Level project hits its stride), MTR (as mine sequencing develops in its favour) and Tennant/Nobles (in line with management’s updated production profile):

A feasibility study to process PAF’s Soweto Cluster TSF as a standalone operation was successfully completed in H126, the results of which were announced on 27 November 2025 (see our note Bringing Soweto to the fore, published on 17 December 2025). A definitive feasibility study (DFS) for a plant with expected annual gold production of 30–35koz over 15 years is expected to be completed by June. Additional expansion projects to those already considered include:

• Ongoing exploration on the group’s wholly owned mining leases at Nobles, Juno and Warrego has confirmed extensions to the known mineralised zones. Fast-tracking the wholly owned Warrego gold and copper project in particular is targeting first production in 2029/30. The subject of a recent feasibility study, the Warrego project should increase PAF’s Australian group production to c 100,000oz gold and 10,000–15,000t copper per year over more than 10 years at a capital cost of US$40–45m. Regional gold and copper deposits owned by third parties could supply additional supplementary feed and a feasibility study to this end is currently in progress.
• A further Australian group project is White Devil, where a recent scoping study, commissioned by joint venture partner Emmerson Resources, was reported to have delivered ‘encouraging results’, confirming an updated mineral resource of 4.6Mt at 4.2g/t gold, for 611,000oz contained gold, of which 87% is in the indicated category and therefore eligible for upgrade into reserves.
• Fast-tracking the Royal Sheba project, where management plans to convert the BTRP plant to process hard rock feedstock from the Sheba Fault project (comprising the Western Cross and Royal Sheba orebodies), which has an estimated mine life of nine years, with both orebodies open at depth. Contract mining specialists have already been shortlisted and processing of Royal Sheba ore at the BTRP is expected to commence this calendar year. The development of the Royal Sheba project requires a relatively minimal upfront capital investment of c US$11m in its first year, with the project expected to be self-funding thereafter.
• A feasibility study is being conducted into the installation of a flotation section at the BTRP, which has the potential to deliver an additional 7,500oz of gold production over the next three years.
• At Evander Mines, the Poplar project, containing mineral resources of 28.7Mt at 6.99g/t for 6.46Moz gold, is located within the approved Evander Mines mining right. The Kimberley Reef at Poplar has been intersected from as little as 500m below surface and dips moderately to a maximum depth of around 1,200m. The group has commenced an updated pre-feasibility study at Poplar to determine the optimal access and extraction methods for a 100,000oz per year shallow underground mine, which will form the basis of a later full feasibility study.

Updated (absolute) valuation

Valuation

In addition to production guidance, PAF also provided updated capital expenditure guidance for FY26 and FY27. While guidance for FY26 was 20.9% (or US$41.4m) lower than we had previously forecast, at US$156.3m, guidance for FY27 was materially higher, at US$266.5m (albeit this should still be more than two times covered by operational cash flows). With the caveat that this higher capital expenditure is likely to be attended by higher production beyond FY31 that is not fully captured in our financial model (and therefore represents ‘upside risk’), based on the present value of the estimated potential dividend stream payable to shareholders over the life of its mining operations (applying a 10% discount rate to US dollar dividends), our absolute valuation of PAF (based on its existing six producing assets in FY26) is 51.70c (cf 55.65c previously).

As noted previously, however, this valuation is conducted at Edison’s relatively conservative long-term gold price assumption of a US$1,866/oz (real) for CY30 and beyond. At the current gold price of US$5,221/oz, all other things being equal, our valuation more than quadruples to 237.56c (176.60p):

Even so, including its other growth projects and assets, our updated total valuation of PAF as a whole rises to 89.69–94.71c per share (66.67–70.41p).

Historical relative and current peer group valuation

Historical relative valuation

Exhibit 13 below depicts PAF’s average share price in each of the financial years from FY10 to FY25 and compares this with HEPS in the same year. For FY26 and FY27, the predicted share price is shown, given our forecast normalised HEPS for those years (as per the paragraph below Exhibit 13). As is apparent from the chart, PAF’s price to normalised HEPS ratios of 9.7x for FY26, in particular, remains towards the middle of its recent historical range of 4.1–14.8x for the period FY10–25:

If PAF’s average year one price to normalised EPS ratio of 8.1x for the period FY10–25 is applied to our updated normalised earnings forecasts, it implies a share price for PAF of 148.9p in FY26 followed by one of 114.5p in FY27 (as shown Exhibit 13). Stated alternatively, PAF’s current share price of 179p, at prevailing foreign exchange rates, appears to be discounting FY26 and/or FY27 normalised HEPS of 29.80c per share (cf our forecasts of 24.77c and 19.07c, respectively). However, readers should note that, should the current price of gold prevail until June 2027, our FY27 normalised HEPS forecast increases to 34.18c, in which case our corresponding share price increases to 205.3p.

Relative peer group valuation

In the meantime, it may be seen that PAF remains cheap relative to its listed international gold mining peers on 52% of comparable common valuation measures (43 out of 82 individual measures in the table below) if Edison forecasts are used or 46% (38 out of 82 measures) if consensus forecasts are used. However, it is cheap on at least 70% of measures (58 out of 82 measures) if the spot price of gold prevails until June 2027.

Applying PAF’s peers’ average year one P/E ratio of 12.9x to our normalised HEPS forecast of 24.77c per share for FY26 implies a share price for the company of 237p at prevailing foreign exchange rates. Applying its peers’ average year two P/E ratio of 9.1x to our normalised HEPS forecast of 19.07c per share for FY27 implies a share price of 129p (at Edison’s gold price) or 231p (at the spot price of gold).

Valuing blue-sky upside

Pan African is a multi-asset company that has shown a willingness and ability to grow production both organically and by acquiring assets in order to maximise shareholder returns. As a result, rather than our customary method of discounting maximum potential dividends over the life of operations back to FY25, in the case of Pan African, we can alternatively discount forecast cash flows back over five years to the start of FY25 and then apply an ex-growth terminal multiple to forecast cash flows in that year (FY30) based on the appropriate discount rate.

In this case, our estimate of PAF’s pre-financing terminal cash flow in FY30 is 6.18c/share (at a real gold price of US$1,866/oz in current money terms) compared to 5.78c/share previously. Applying a (real) discount rate of 6.66% (calculated from a nominal expected equity return of 9% and long-term inflation expectations of 2.1944%, as defined by the US 30-year break-even inflation rate; source: Bloomberg, 27 February) to this estimate of cash flows, our valuation of the company is 88.39p/share in FY26 assuming zero long-term cash flow per share growth beyond FY31.

At this point (FY31), production is anticipated to be in the order of 345.3koz. If PAF is able to maintain this level of cash flows per share via organic investment, its valuation will flatten out at 68.95p/share in real terms on an ex-growth basis. However, the gold price alone should afford an additional 4.1% growth per year in real terms (the compound average annual real appreciation rate in its price from 1967 to 2025), in which case, PAF’s terminal valuation almost trebles to 186.94p/share and its current valuation almost doubles to 168.53p/share.

Financials

PAF reported net debt of US$46.2m on its balance sheet as at end-December 2025 (cf US$150.5m at end-June 2025 and US$228.5m at end-December 2024, which was the recent peak) and indicated that, at current rates, it would be extinguished by the end of February this year. Beyond that, we forecast that PAF will continue to generate cash from operations comfortably above US$100m per year (and potentially around US$600m per year depending on the gold price etc).

Unsurprisingly, the group remains very comfortably within its senior debt covenants: