Shanta Gold (LON:SHG) has added another admirer to its growing list of fans in the City with finnCap starting coverage with a 'buy' on the Tanzanian miner.
While the New Luika gold mine has been in production for three years, only now has it settled into cash-generative operation.
The most recent quarter was the best in the operation’s history, while the next two years will see it redeveloped in to a predominantly underground mine.
FinnCap expects the miner broadly to break even this year and with cash costs of US$453 per ounce in the most recent quarter, to be highly profitable going forward.
Forecasts are for adjusted profits to rise to US$16.9mln in 2016 and US$9.5mln the following year as production drops off before the underground operation gets going and production starts to rise again.
Cash management will be crucial, adds the broker.The underground operations will be the first priority and cost US$53mln. Production is scheduled to start in late 2016 while the open pits are due to run out in early 2018.
Funds will also be needed to pay off a US$25mln convertible note in April 2017 while the miner will have to explore around New Luika to find additional reserves.
Overall, finnCap says the shares are currently trading on six times 2017 earnings a rating it said that is not excessive given the exploration upside.
The price target is 13p compared to 5p today.