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Shanta Gold sees sharp increase in underground production at New Luika

The company has turned over a new (gold) leaf, with a focus on controlling costs
Underground mine shaft
Full-year production guidance should settle at around 80,000 oz at an AISC of US$800 an ounce

The ramp-up of production continued in the third quarter at Shanta Gold Limited’s (LON:AHG) New Luika gold mine in Tanzania.

As a result of new underground workings, the total ore mined underground shot up to 75,996 tonnes from 41,096 tonnes in the previous quarter.

READ: Shanta Gold restructures to adjust to Tanzania legislation changes

Gold production in the quarter dipped to 18,225 ounces (oz) from 19,657 oz in the second quarter, with the company seeing some grade variability in an isolated western section of Bauhinia Creek. In the fourth quarter, the grade is expected to improve as the company is now operating from two stopes.

Shanta has previously indicated that full-year gold production would be at the lower end of a guidance range of 80,000 – 85,000 oz at an all-in-sustaining-cost (AISC) of US$800 -  US$850 an ounce; on Thursday morning it indicated it expects full-year guidance would settle at around 80,000 oz at an AISC of US$800 an ounce.

In the third quarter the AISC rose to US$822 an ounce from US$735 in the preceding quarter, with the rise partly explained by higher royalties and a new clearing fee, which bumped up the AISC by US$39.

Gold sales in the quarter were achieved at an average price of US$1,267 an ounce, compared to an average spot price in the quarter of US$1,279 an ounce.

READ: Shanta Gold says new bank still working on due diligence after Tanzania changes

"Shanta's new strategy of focussing closely on cost control, operational improvements and shareholder returns was implemented in September 2017, accelerated by the recent legislative changes in Tanzania. The senior management team and I are confident that we are positioning the company in a much stronger direction for the future and all our staff are committed to achieving the goals we've set,” said Eric Zurrin, chief executive officer of Shanta.

"Not only are we are targeting annual savings of US$5mln, we are also adjusting our capital expenditure priorities. These priorities include a reduction in capital expenditure as the company moves past legacy capital-intensive projects at New Luika, and the ramp-up of the underground operation reaches its completion. Pleasingly the ramp up continues to proceed as planned, indeed the total ore mined underground almost doubled from that of the previous quarter,” he added.

Resources specialist SP Angel noted “production came off slightly on lower grades from underground, which are expected to improve through Q4/17 helping the company to hit its 80koz and $800/oz in AISC annual target”.

“On a positive side, management cost cutting programme is expected to see target AISC come at the lower end of the previously targeted range. Operations remained FCF [free cash flow] negative during the quarter, although the situation is due to change in 2018 following completion of underground development works,” SP Angel’s John Meyer said.

Shares in Shanta rose 1.2% to 3.29p in the morning trading session.

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