Shanta Gold Limited (LON:SHG) said full-year production is expected to be towards the upper end of its guidance range of 82,000 – 87,000 ounces.
If the company hits its annual target, it would represent an annual record for the New Luika gold mine.
The shares rose more than 4% in early deals as the company lowered all-in-sustaining-cost (AISC) guidance to US$730 – 780 an ounce, a 20 cent reduction at both ends of the guidance range.
Chief executive officer (CEO) Toby Bradbury described the AISC as “highly competitive” and said it would enable the company to generate significant cash flows to meet its capital expenditure programmes and debt obligations.
In the first half of 2016 the East Africa-focused miner produced 48,237 ounces of gold, up from 28,180 ounces in the first half of 2015.
The company sold 47,621 ounces at an average price of US$1,193 per ounce in the first half of the year, having sold 25,142 ounces at an average price of US$1,238 an ounce in the same period of the previous year.
Cash costs in the first half of this year plunged to US$437 an ounce from US$993 an ounce the year before, while AISC more than halved to US$632 an ounce from US$1,310 an ounce the previous year.
Half-year revenue surged to US$55.7mln from US$31.9mln in the first half of last year.
Underlying earnings, or EBITDA, came in at US$33.3mln versus a loss a year earlier of US$1.0mln, but the company reported a loss before tax of US$3.03mln, compared to the previous year’s loss of US$10.34mln, as it took US$33.2mln (2015: US$5.6mln) of non-cash charges relating to the amortisation of waste mining associated with the open pits and future development expenditure amortisation.
Net cash flow from operating activities during the first half of the year was US$17.2mln, up from US$4.4mln in the same period of 2014. The company ended the reporting period with a cash balance of US$39.5mln, up from US$19.6mln, while net debt narrowed to US$39.5mln from US$41.5mln a year earlier.
"This has been an excellent half year for Shanta, with a robust financial performance across the board,” said CEO Toby Bradbury.
“Net debt is back below US$40 million, even before taking account of the US$5.25 million silver stream proceeds that are expected to be received shortly. Shanta is well funded to deliver on its plans and with an improved gold price environment; we can look forward to further cash generation in the second half of the year," Bradbury said.
House broker finnCap has increased its target price for Shanta Gold to 20p from 12p in the wake of today’s interim update, though the increase has more to do with the broker increasing its gold price forecast from US$1,200 an ounce to US$1,300 an ounce, and adjusting its cable forecast to US$1.30.
“The period saw a critical restructuring of the company’s near-term US$25mln convertible note. US$10mln was repaid following an equity raise with the remaining US$15mln extended to April 2019. In addition, the company is in the process of arranging a US$5.25mln silver streaming deal. This is expected to close in Q3 2016," the broker noted.
Natural resources specialist SP Angel said Shanta has reported a small but meaningful fall in the AISC guidance.
It said the amortisation charge for work done on the New Luika pit was “unusually heavy”, though it acknowledged it is now the fashion to take these charges up front.
“Compared with the amortisation charge everything else looks like small beer, though we note that admin expenses have been cut to US$3.1mln vs US$4.7mln you [year-on-year],” said the broker’s John Meyer.
On the exploration side, Meyer said it was good to see further good news on the new Ilunga project where he believes there are further substantial resources to be discovered in the region.
Shanta is developing the Ilunga reserve as an open put. It said the strip ratios – a measure of the amount of waste material that has to be moved to get to the good stuff - and all future operations will be significantly lower than those adopted previously, which were less than 50%, and surface mining costs will therefore be lower than in the past.
For the second half of 2016 specifically, cash costs are expected to reduce significantly as production is supplemented from the ROM stockpile as a result of the accelerated mining program in the first half of the year.
“The [Ilunga] team report further good drill intersections from the Phase 1 programme, which is very good news for extending the mine life and for the prospect for mining more higher-grade gold. The programme has added a further 100 metres of mineralisation and the deposit continues to extend down dip to the west offering the prospect of further extensions to the resource,” Meyer observed.
“So far, the Ilunga resource is defined at 92,000 oz at 3.5 g/t [grams per tonne] but this should grow significantly from here in terms of resource ounces and hopefully also in grade,” the analyst suggested.
The broker concluded by saying the company is heading in the right direction, led by an unusually strong professional team, though the second half might be tougher going, notwithstanding the fact that with so much amortisation now out of the way, the figures should cosmetically look better.
Shares in Shanta were up 2.2% at 9,32p in lunchtime trading, having risen as high as 9.6p in the morning session.
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