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Shanta Gold pleased with progress at New Luika but legal changes mean an end to the Helio acquisition

Published: 07:37 18 Aug 2017 BST

gold mine
Production in the first half was 40,073 ounces compared to 48,237 ounces in the same period last year

Tanzania-focused gold producer Shanta Gold Ltd (LON:SHG) continues to ramp up operations at its New Luika gold mine, as it reviews its business plan amid changing legislation in the African country.

As well as posting latest half year figures, the miner revealed it had terminated a previous arrangement to buy Helio Resource Corp, which owns land next to New Luika, for US$5.6mln because of last month's legal changes.

Gold shipments now attract higher royalty rates of 6%, up from 4% previously, and a clearing fee of 1% has been applied.

READ: Shanta Gold happy with production but assessing Tanzania legal changes

First half loss before tax narrows

As reported previously, Shanta has repeated its output guidance for 2017 of between 80,000 and 85,000 gold ounces and ASIC (all in sustaining costs) of between US$800 and US$850 per ounce.

Production in the first half was 40,073 ounces compared to 48,237 ounces in the same period last year, leading to revenues of US$52.7mln (2016: US$55.7 mln).

In the six months, the firm sold 41,234 ounces of the yellow metal at an average price of US$1,257 per ounce, compared to average spot price of US$1,239 per ounce.

The loss before tax narrowed to US$649,000 versus a loss of around US$3mln in the same period last year.

The firm has cash of US$13.8mln and forward sales agreed for July to December this year, of 37,000 ounces at an average price of US$1,278 per ounce.

READ: Shanta Gold chief executive steps down in management reshuffle

Tanzania continues to undergo period of uncertainty

Eric Zurrin, now chief executive after Toby Bradbury stepped down, told investors: "Progress at New Luika has continued to be extremely pleasing.

"Underground development has now reached 4.4 kilometres in just over 13 months which is a testament to the skills and professionalism of the entire team. The transition to the underground mine remains on track and continues to be de-risked as more stopes are opened up and critical equipment arrives at site."

He also noted that a completed US$14mln share placing provided increased financial flexibility and reduced outstanding working capital requirements.

"Tanzania continues to undergo a period of uncertainty and Shanta is responding with proactive decisions around its cost structure.

"The company will update the market in due course with details of its ongoing and one-time efficiencies and cost improvements. Tanzania remains one of the fastest growing countries globally and Shanta is well positioned for the longer term," concluded Zurrin.

Second half expected to be much better

John Meyer, at SP Angel, said that the good operational results had been weighed down by legislative changes and challenges with claiming back VAT receipts putting pressure on free-cash-flow (FCF) generation.

The second half however is expected to be much better as capital investments are due to come down significantly while production is forecast to benefit from increased share of high grade underground ores, he added.

Shanta shares gained 7.69% on the day to 3.50p.

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Shanta Gold Limited (AIM:SHG, OTC:SAAGF) chief executive Eric Zurrin speaks to Thomas Warner from Proactive about how the East Africa-focused gold producer, developer and explorer has been performing so far this year. He says that "life is good at Shanta" following a quarter in which...

on 10/8/23