This stock has outperformed Tesla – it's still the right time to buy

Telegraph

18-02-2025

Questor is The Telegraph's stockpicking column, helping you decode the markets and offering insights on where to invest.
This column is not in the habit of researching shares that trade near an all-time high as it would rather take a more contrarian tack, in the view there is better value to be found in what is not being talked about rather than what seems popular.
Equally, the views of the market must be respected – even if they are not always right – and in this context it is interesting to note both the onward march in the price of gold and the very favourable response given to what were, frankly, mixed quarterly results from Barrick Gold last week.
Both, in turn, point us toward Pan African Resources as a stock that may be worthy of further scrutiny.
Despite precious little fanfare gold trades at a new all-time high, as the metal enjoys its third major bull run since President Richard M. Nixon withdrew the dollar from the gold standard in 1971 and smashed up the Bretton Woods monetary system in the process.
Concerns over sticky inflation, galloping government debt and geopolitical tensions could all be giving gold a boost, as could the dilemma that faces central banks.
They would like to cut interest rates to give a helping hand to growth and reduce the burden of Western governments' interest payments on their alarming debts, but at the same time are obliged to try and squeeze inflation back toward their 2pc target.
Given a choice, this column believes growth will win out and chances may be taken with inflation to the potential benefit of stores of value such as gold.
Even central banks are getting in on the act. World Gold Council data shows that monetary authorities around the world have acquired over 1,000 tonnes of the metal in each of the last three years, prompting stories of long waits for delivery of physical metal from internationally recognised vaults.
Whatever the reason, gold has now done better (in capital terms) than Alphabet, Apple, Microsoft and Tesla on a three-year view, despite investors' ongoing predilection for technology stocks, thanks to AI, and apparent disinterest in the precious metal. This does at least fit with the investment thesis on gold espoused by this column more than once.
It is also interesting to note how shares in Barrick Gold moved smartly higher after the miner's fourth-quarter and full-year results for 2024, even though production guidance for 2025 missed expectations owing to ongoing problems in Mali, and management predicted another increase in all-in sustained cost (AISC) of gold production of up to 5pc, to a maximum of $1,560 an ounce, after an 11pc jump in 2024.
Barrick Gold's earnings per share in the fourth quarter surged by 61pc year-on-year on a stated basis (and by 56pc on adjusted numbers), to show just how much gearing gold miners provide in the metal's price – and that increase came off an average gold price for the quarter of $2,657 an ounce, compared to the spot price of $2,929 that prevails at the time of writing.
If the metal keeps on rising, the upside surprise potential in miners' earnings (and dividend payments) seems considerable.
Our exposure to gold miners is somewhat diminished after last year's takeover offers for Centamin and Shanta Gold, even if both helped to top up Questor's portfolio pot.
We still have Resolute Mining but that one is ensnared in the same political problems in Mali as Barrick Gold, and the West African nation represents a much larger percentage of output at Resolute.
That stock could yet come good, but it may be worth adding another name to the mix – Pan African Resources.
Last week's first-half results for the six months to the end of December had their flaws, not least that profits grew only modestly, thanks to a 3pc drop in output and a 29pc jump in AISC to $1,675 an ounce, part of which was due to well-documented problems with the South African power grid operated by Eskom.
Those challenges are unlikely to go away in a hurry, and represent a risk to the investment case, but last December's acquisition of Tennant Consolidated in Australia brings welcome geographic diversification and a big potential kicker to overall group gold output from the year to June 2026 onwards.
That deal brings dangers, too, as group debt is higher, and the operations are in a different jurisdiction but forward price-to-earnings ratios of just over six times for fiscal 2025 and below four times for 2026 reflect those risks and ongoing scepticism that gold will maintain its strong run.