Pan African Resources share price is extremely oversold

Pan African Resources (LON: PAF) share price crashed to the lowest point since October 2021. The shares fell to a low of 14.32p on Wednesday, which was about 38% below the highest point in 2022. This drop brings the market cap of the company to over 276 million pounds.

Gold prices and weak earnings

Pan African Resources is a gold mining company that has operations in South Afrca. The company’s stock price has plunged for two main reasons. 

First, as I wrote in this article on Tuesday, gold prices have plunged to the lowest level since January as the US dollar strength continues. It has dropped by over 6.30% from its lowest point this year and analysts caution that the situation will likely worsen. 

Pan African Resources, like other mining companies, makes money when the prices of its commodities is rising. 

Second, the company published weak earnings last week. In its report, the firm said that it had a pre-tax profit of $28.9 million while its attributable earnings plunged to $29.1 million. The latter was down from over $46.1 in the same period last year.

The company attributed this weakness to the overall challenges it experienced at the Barbeton mines. As earnings dropped, so did the company’s dividend. It returned $20 million to shareholders compared to the $21.6 million it paid in the previous year.

Still, a bullish case can be made for the company. For example, while gold prices have retreated, there is a likelihood that this pullback is only temporary. Therefore, the company could benefit if prices stage a comeback.

Meanwhile, the company has some of the lowest cost of operations in the business. This means that an ounce of gold mined is mostly profitable even if gold prices retreat. Finally, the firm is addressing the challenges at its Barberton mines.

Pan African Mining share price forecast

PAF stock chart by TradingView

Turning to the daily chart, we see that the PAF stock price has been in a strong bearish trend in the past few months. As it dropped, it managed to move below the key support level at $15, the lowest point on October 21st. It has also plunged below the 50-day and 200-day moving averages.

The Stochastic Oscillator and Relative Strength Index (RSI) have moved below the oversold level. Therefore, the shares will likely continue falling because of the bearish momentum and then resume the rebound later this year.