With the price of gold on a tear, there has never been a better time to be in gold production, I feel. Pan African Resources (LSE:PAF) is a South African gold producer and an AIM stock to watch, in my view. The PAF share price has skyrocketed 99% in the past six months and it now has a market cap of £545m. The company kept things ticking over in a reduced capacity throughout lockdown. But it continues to make strides with revised production guidance for FY21 of 190,000 ounces.
And it recently undertook a feasibility study on its Egoli Project, which shows a life of mine of between nine and 15 years, with gold production of 72,000 ounces annually and mining rights in place until 2038. In the meantime, the company already has several other mines producing substantial quantities of the precious metal.
Paying down debt
The rand/gold price is approaching an all-time high and this could mean Pan African achieving debt-free status before the end of FY21.
With a forward EPS of around 16p, and current share price over 24p, the company has a price-to-earnings ratio of 1.5, which makes it a cheap UK stock. Its dividend yield is only 0.5%, but management would like to return to being a sector-leading dividend-payer later this year. Also appealing (and a key issue for future-proofing any business) is the fact that the company is big on safety and strongly committed to Environmental, Social and Governance (ESG) awareness.
But operating a mining company in South Africa comes with considerable risk. Covid-19 continues to pose a danger in developing countries, and political strife can wreak havoc. The South African economy is struggling, and the treasury has said it needs to raise an additional R40bn in taxes over the next four years. This could mean Pan African Resources is in for a steep hike in tax payments.
For these reasons, the PAF share price is likely to experience volatility. This makes it a share for those with a high risk-tolerance only. But I think it’s an AIM stock to watch nonetheless.
Is the APH share price stuck in a rut?
Alliance Pharma (LSE:APH) is a leading international healthcare business. It recovered from its March market crash low, but the APH share price has been coasting, with little excitement ever since.
Alliance Pharma owns an array of products including Kelo-Cote, MacuShield and Nizoral, each of which has a unique selling point. They’re proving popular in Asia-Pacific, where Alliance is rapidly growing its market share. Sales of Kelo-Cote for the first half were up £1.1m.
It cancelled its final dividend payment for 2019. This could be one reason for the APH share price dwindling in recent months. It may be stuck in a rut, but sales are picking up in China and the CEO is confident growth will resume later this year.
Altogether, Alliance Pharma has over 90 products selling in over 100 countries. It’s no stranger to acquisitions, and I wonder if it may take advantage of the economic downturn to acquire more unique brands. With a market cap of £392m and a P/E of 15, it’s not dirt-cheap but I think high demand for its products could give it appeal as a potential takeover target.
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Kirsteen has no position in any of the shares mentioned. The Motley Fool UK has recommended Alliance Pharma. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.