Shanta Gold Limited (LON:SHG) has reached a major milestone - receiving a US$9.1mln financing with a Tanzania bank to build a 7.5Mw power station at its flagship New Luika gold mine.
The move will cut costs of supplying power to the mining operation significantly, the firm said.
Chief executive Toby Bradbury told investors: "This power station project is a cornerstone capital item for the successful realisation of our mine plan for the New Luika Gold Mine.
"The transition from a power leasing arrangement to an owned power station has compelling strategic and financial benefits including a significant drop in per kilowatt hour power costs."
The gold producer's boss added: "The plant's arrival in the first quarter of 2017 is timed to the commencement of underground production in Q2 2017 and provides a longer term power facility to cater for an extended mine life as additional resources are brought in to the mine plan."
The power station project was outlined in the base case mine plan last September and will be supplied and operated by Inglett & Stubbs International.
The cash of US$9.1 million is provided via a 12 month letter of credit by Bank M, a wholesale bank in East Africa.
The interest is a fixed 8% followed by a five year monthly loan bearing interest at 12-month US dollar Libor plus 9% a year, the group added.
Power demand at New Luika is forecast to more than double to around 6Mw during development and operation of the underground mine.
New Luika produced just under 81,900 ounces of gold last year at all–in costs a competitive US$845 per ounce.
Costs are set to go lower still in the current year. Shanta is predicting output will rise up to a possible 87,000 ounces this year with costs to fall to between US$750-800.
Pit reserves in the last estimate in September totalled 177,000oz.
Shanta has instigated a five-year plan to boost these and extend the mine life through a combination of going underground below the exiting open pits and exploration of the surrounding deposits.
New Luika comprises nine deposits in the south of Tanzania.
SP Angel said: “The power station project is another positive development in Shanta’s progression towards lower costs and longer term development.
“Shanta’s recent high-grade gold discover at Askari, just 14km away from the New Luika gold mine, announced last month was an important milestone towards the longer-term development of a larger gold mining business.”
Shares eased 3.57% on the day to 6.75p.