Shanta Gold’s (LON:SHG) share price could hit double digits if further exploration is successful, reckons Peel Hunt.
The broker has re-launched coverage on the firm with a, 8.8p price target, but sees “near term potential for upside”.
This is based solely on the New Luika site, which made record quarterly production of 24.6koz at an all-in sustaining cost of US$608/oz in the third quarter.
This was a strong improvement on the first half of the year, which the broker said was difficult due to geotechnical issues and a lack of ore.
“The third quarter clearly put to bed concerns over continuation of these issues into the second half,” the Peel Hunt added.
The underground project is set to produce 310koz over its life following an upfront capital spend of US$38mln.
But, there is a 514koz resource that currently sits outside the mine plan and the broker believed Shanta should look to convert approximately 30% this.
“With 163koz of the available resource already in the indicated category and hosted at surface in open pit targets that can deliver ore to the plant with limited capex we do not feel that the 30% resource-reserve conversion ratio is a particularly ambitious assumption.”
The “outstanding” third quarter also eased any worries over Shanta’s debt level of US60mln, the broker said.
“We have limited concern over the company’s ability to address this funding requirement well ahead of the crunch-time in April 2017.”
Overall Peel Hunt placed a ‘Buy’ rating on the shares, which were 6% higher today to around 7.2p.