Record second quarter production from Shanta Gold Limited (AIM:SHG, OTC:SAAGF)’s Tanzanian mining operations generated more than US$23mln of quarterly earnings and set the company well on the road to wiping out the last of its legacy debt from construction.
At the end of the quarter to end June 2023 Shanta had net debt of just US$8.7mln, down more than 50% quarter-on-quarter, and surely set for eradication by the time 2024 rolls around.
The market’s reaction to Shanta’s strengthening financial position has so far been somewhat muted. But it’s unlikely to be muted for long.
That’s because the company is now producing gold at an annualized rate of over 100,000 ounces per year, a rate which looks set to be sustained, at the very least, for five years, and very probably for much longer.
With the gold price hovering at close to the US$2,000 per ounce mark, as it has been for much of this year, it’s not hard to make the obvious calculation: Shanta’s annual revenues will amount to the amount of gold it produces multiplied by the gold price.
On current trends that works out at a cool US$200mln per year for the next five years.
Or, if you want to look at it another way, between now and 2028, Shanta is likely to book a total of around US$1bn in revenues.
All of this is based around the two mines that the company already has up and running – New Luika, which has been going for 11 years, and Singida, which came on stream earlier this year.
New Luika has another five years of official life left, but in recent years Shanta has managed to push out New Luika’s mine life still further every year. This isn’t that uncommon in the mining industry, but be that as it may, the simple fact is that the gold keeps coming, and that gold in turn means dollars into the company.
Singida, for its part, boasts an official mine life of seven years, but as Shanta’s chief executive Eric Zurrin notes, it sits in an area “that’s completely underexplored.”
Would it be any surprise if the Singida mine life also got pushed out consistently as the years rolled by? – it would not.
“Singida’s been very under-drilled,” says Zurrin.
“It’s likely to get either (a) an extended minelife, (b) a bigger throughput, or (c) both.”
As it stands, the official projection for average production from both mines combined over the next five years is 103,000 ounces, although there will be some variation within that timeframe.
The next question is margin.
Here, there’s plenty of grounds for encouragement too.
All-in sustaining costs are currently allowing for a US$700 margin per ounce of gold production, which nets out at EBITDA of around US$350mln over the next five years.
That’s a big enough number by anyone’s standards, and worth noting too that with the paying off of the debt, the “I” in EBITDA becomes largely immaterial.
Hardly surprising then that a major Chinese company ran the rule over Shanta last year, and that many in the market think that the company may shortly go into play again.
Will it?
Well, that 100,000 ounces per year is a useful enough add-on for any gold producer. But when it comes the potential for a real value uplift, it’s not the production that’s likely to attract the attention, but the exploration and development that’s taking place north of the Tanzanian border at the West Kenya project.
Here, Shanta has already booked a handsome 1.8mln ounces of gold, and looks likely to push on past the two million mark later this year, as a US$7mln drilling campaign continues.
No question that West Kenya easily has the potential to double Shanta’s existing production, and possibly to take it higher even than that.
Some optimists reckon there might be as much as five million ounces of gold in the surrounding districts, although no number of that order can be spoken about with any certainty.
What seems likely, though, at this stage is that if Shanta does remain an independent entity it will likely push towards an early production scenario at West Kenya, and work up the additional ounces later.
This is the approach it’s taken at Singida and it seems to be paying off – the dollars are rolling in and the company is well positioned for further growth.
The one real uncertainty is at the top of the company, where Zurrin has announced his intention to seek new challenges, and the appointment of a replacement is underway. Zurrin has undertaken not to leave until the new appointee is firmly ensconced, but he does think that leaving Shanta in much better shape than he found it is a suitable enough legacy.
If things continue as they are, it will be hard to argue with that.