Pan African Resources, Will The Classic Gold Play Work Again?

Pan African Resources PLC (LON: PAF) can be said to be taking a standard, classic even, gold mining technique out for another run around the marketplace. We need to wait for their full-year accounts to see how they’re really doing but as the year-end trading update showed gold production is rising, debt is being paid down. Matters are looking good.

This though isn’t about the specific details of cashflows and so on. Rather, it’s about the basic background to what is being done. One of the mines, for example, has been in operation for 130 years – as Pan African proudly tells us. Surely a gold mine will be empty by that point?

Which is where we’ve got to understand something about mining. Yes, obviously, part of the game is in finding a mineralisation that is worth digging up. Where the revenue from extraction is greater than the costs of extraction. We could think that as humans have been mining gold for 6,000 years at least, therefore, all the interesting places have already been found.

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But that’s to miss something else. Technology marches on. The tech to explore for minerals worth digging up gets better. The technologies to mine get better. Of perhaps the most importance is that the techs available to extract metals from minerals continually improve.

This means that – often enough, it’s not certain but often enough – the best place to go mining is in a place that the previous levels of tech thought had been mined out. To apply the new technologies to those old piles and holes.

This has been especially true in gold mining over the centuries. Where we know there is gold mineralisation but perhaps it went too deep for people digging by hand? Or where there are large piles, lakes even, of wastes from previous minings which can now be reprocessed again using the modern techniques. Again and again, this has proven to be a profitable enterprise.

This being exactly what Pan African has been doing. The projects they have that are currently onstream are exactly this, reprocessing the wastes and gangues of previous mining attempts using newer technologies. Some of that effort is then also applied to tracking the mineralisations further and deeper than earlier exploration techs could manage.

This is an entirely classic play in the gold world. So much so that we could even predict that in 50 to 100 years someone will go over Pan African’s areas again with the next new extraction technique. But what should interest us here is that one of the risks of mining has been removed. The contents of those waste piles are, well enough, known. So, the risk to Pan African is not that the vein or mineralisation will suddenly disappear. Rather, they just need to continue to be efficient at extracting what is already known to be there.

That is, oddly for a gold mining company, Pan African is about the efficiency of operation, not so much the discovery of new mineralisations.