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Shanta Gold boosts production and cuts costs

Last updated: 12:28 21 Jul 2015 BST, First published: 07:46 21 Jul 2015 BST

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The ultimate aim: gold pour

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Shanta Gold (LON:SHG) boosted gold production and cut costs at its New Luika gold mine in Tanzania during the second quarter to the end of June 2015.

During the period the company produced 14,664 ounces of gold, up from the 13,516 ounces produced in the first quarter.

All-in sustaining costs rang in at US$1,157 per ounce, down from US$1,451 per ounce.

However, in this new pricing environment with gold looking set to test the US$1,000 mark soon, the company plans to drive costs down still further.

During the second half of the year, Shanta expects all-in costs to drop dramatically to between US$650 and US$680 per ounce, leading to average full year costs of between US$850 and US$900.

Full year production is expected to come in at between 72,000 and 77,000 ounces.

The improvement in the cost structure will come as the full effects of the redevelopment of the Bauhinia Creek pit begin to be felt as well as improvements to the stripping ratios at other existing pits.

The first ore from the redeveloped pit was delivered into the plant in May.

“The first half has been one of major mine re-development,” said chief executive Toby Bradbury. “We eagerly anticipate a consequent reduction in mining costs being realised from July 2015.”

If costs can indeed be cut to under US$700 per ounce in the second half it will provide Shanta with significant insulation as gold prices continue to be buffeted by the prevailing winds of the global economy.

Sales of the yellow metal in the quarter were 11,590 ounces at an average price of US$1.222 per ounce, which was down on the first quarter, which saw 13,551 ounces sold at US$1,252 per ounce.

In recent days, the gold price has fallen to its lowest level in over five years, knocked by talk of a US interest rate rise leading to sales of what is deemed a haven asset class; it's about US$1,101.6 at the time of writing.

Shanta's house broker Peel Hunt has put its recommendation and target price under review, from a 'buy' previously.

It said the "overall takeaway" from the second quarter update was the "strong improvement" compared to the first.

Analyst Michael Stoner noted, however, that there remained room for improvement, with the company, which remains well-financed, positioning for a "very strong" second half.

"The ongoing rationalisation of the mine plan is due to be delivered in Q3. It has already been highlighted that the optimised Bauhinia and Luika pit plans offer greatly reduced strip ratios and therefore lower operating costs," he added.

The analyst said the firm's renewed focus on exploration was positive, while the testing of the potential for near-mine mineralisation could deliver life of mine extensions while reducing production risk through multiple ore sources.

"In this regard, the company is also developing the Jamhuri pit to offer an additional source of ore with similar economics to the Luika pit," he highlighted.

Shanta shares were unchanged at 5.625p on the day.

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