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Shanta Gold Limited: THE INVESTMENT CASE

Shanta Gold tipped for big profit hike as underground operations hit stride

Annual guidance for 2018 is 82,000-88,000 oz at AISC of US$680-730 oz
underground mine
Shanta can make US$14mln this year believes Numis

Shanta Gold (LON:SHG), the East Africa-focused gold group, is of one AIM’s producing miners through New Luika in Southwest Tanzania.

The mine started production in 2012 and last year Shanta delivered its first profit, US$4.2mln from 79,585 ounces of gold.

Eric Zurrin, chief executive, said it was a monumental achievement especially with the uncertain situation in Tanzania over the past year.

Shanta, though, has been largely unscathed by the dispute between Acacia and the government and Zurrin is optimistic it can settle the outstanding US$17.9 VAT rebate owing.

Cost cutting

Production costs tumbled at New Luika in the last three months (to June) with further savings expected over the remainder of the year.

Shanta will shift operations at New Luika completely underground from the end of August as sufficient ore has been stockpiled.

Shanta produced 20,544 ounces in the three months to June, up from 17,663oz in the previous quarter, while operating costs dropped to US$505 per oz from US$595.

On a sustaining basis, costs were US$748 per oz, but are expected to drop to within a range of US$680-730 by the year-end.

Sales over the quarter amounted 19,475oz at a price of US$1,302.

Ilunga development brought forward

Zurrin added the company has decided to move forward the start of underground production at the Ilunga deposit by more than a year to mid-2019, with final permitting by the end of this year.

"The cost saving initiatives that were executed in Q4 2017 are now beginning to have a significant impact on both costs and cash flow. The full effect of additional savings executed in Q2 2018 will be seen over the coming months, said Zurrin

Second gold producing asset

Shanta also has the Singida project in central Tanzania, which Zurrin says Singida is an important project as it offers the possibility of a second producing gold mine.

Recent exploration has allowed Shanta to boost the measured resource by 56% and the total measured and indicated resource by 12%, with the total now standing at 381,000 ounces grading 2.08 grams per tonne.

The overall resource now stands at 725,000 ounces of gold grading 1.84 grams.

The plan is to get a third party involved to provide the money for development with Shanta retaining control.

Shanta also holds exploration properties covering over 1,560 sq km in the little-explored ex-colonial mining areas of geologically rich Lupa Goldfield surrounding New Luika as well as 12 square kilometres of prospecting licences at Songea in south-west Tanzania.

Four diamond holes were drilled recently at the Bauhinia Creek East underground mine, where there has already been historical bonanza grade intercepts.

Assays ranged between 4.6 grammes per tonne over 7.5 metres to 39 g/t gold in one narrow section.

Numis happy with second quarter.

Broker Numis expects production to hit 84,000 ounce over the full year at all-in-sustaining-costs of US$699/oz.

The underground operation delivered above the targeted rate of 1,500tpd in the second quarter and Numis expects that to rise further in the second half driven by a combination of tonnage and grade.

Shanta has delivered on promised production growth and cost savings, said the broker, which reiterated its 'buy' recommendation and 12p target price.

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