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Shanta Gold eyes growth as gold prices buoy prospects

Snapshot

  • Tanzania-focused gold miner
  • 2020 production forecast between 80- 85,000oz
  • Proposal to IPO Singida asset to raise US$20mln for construction
gold

Quick facts: Shanta Gold Limited

Price: 16.75 GBX

AIM:SHG
Market: AIM
Market Cap: £142.14 m
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How it's doing

In late September, the company said it is planning to expand processing capacity at the New Luika gold mine in Tanzania, with the integration of a new pilot plant started, and commissioning scheduled for January 2021.

The group said milled throughput nameplate capacity will increase by 14%. The cost has been pegged at US$1.2mln, and will easily be funded by existing cashflow from production, it added. Following commissioning, the annual nameplate processing capacity at New Luika is expected to increase to a baseline of 708,000 tonnes per year, up from current nameplate capacity of 620,000 tonnes, with the projected annual processing rate increased to a baseline of 783,000 tonnes, up from 695,000 tonnes.

The New Luika plant upgrade will focus on increased ball mill power, with upgrades to other components including an increase to pumping capacity, a tailings discharge system, and additional leach capacity to support the higher throughput and increase operability.

Increased plant capacity will provide New Luika with the flexibility to reduce cut off grades, thus lowering the hurdle for resources to be converted to minable ounces.

The company has also said its new West Kenya project could contain a number of large, high-grade deposits with district-scale gold potential. The Kenya ground is situated on the northernmost greenstone belt in the Lake Victoria Goldfield, the Archaean Busia-Kakamega (ABK) belt.

In July, Shanta revealed it produced 22,216 ounces of gold from its New Luika mine in Tanzania during the second quarter of 2020 compared to 20,167 ounces produced in the first quarter.

The company said it has also been working up the resource at Singida, which now stands at 243,000 ounces.

Shanta added that annualised Q2 2020 underlying earnings (EBITDA) at spot gold was “just under $100mln per annum from the New Luika mine with margins expanded from lower costs and a rising gold price”.

The company also noted that it had net cash of US$2.1mln at the second quarter-end, the first such occasion in its producing history having had net debt of US$15.1mln at the end of the first quarter in 2020, which furthermore excluded US$3.6m of doré available for sale.

Unrestricted cash at period’s end was US$12.9mln (Q1 2020: US$5.3mln), with US$2.5mln available to draw from its working capital facility.

In its last set of results for the six months to June 30, 2020, the company booked revenue of US$73mln, up from the US$53.6mln booked in the corresponding period in 2019.

All-in sustaining costs ran at US$817 per ounce. Profit before tax was US$15.3mln.

The company also moved into a net cash position, with cash at period end amounting to US$2.1mln.

Gold production during the period rang in at 42,383 ounces.

Singida float

Plans to float its Singida gold mining asset in Tanzania on the Dar es Salaam stock exchange are progressing.

The gold miner wants to raise US$20mln to develop Singida, with the IPO documents now lodged with the Tanzanian authorities.

Shanta will retain at least 51% ownership of Singida and will operate the project with the money to be used to start production and for exploration to expand the resource.

Newly published project economics suggest production will average 26,000oz per annum for an initial six-year period.

 

Executive interview - CEO Eric Zurrin 

 

Inflexion points

  • Details of Singida IPO
  • Development of capacity at New Luika
  • Gold price continues to rise

 

What the broker says

In a note on September 9, 2020, initiating the stock with a 'buy' rating and a 23p target price, analysts at Liberum said the company has “positioned itself very well to take advantage of high gold prices” and that the miner is capable of “delivering capital efficient near-term growth and a solid dividend”.

The house broker said efforts by management over the past few years meant it “can deliver on many fronts simultaneously” which should drive a re-rating of the shares.

Liberum’s analysts also said cash flow and resource size from the company’s Singida project, which will deliver 31 kilo ounces of low-cost gold per year from 2022, “should allow further phases of exploration and expansion from then on”.

Meanwhile, the broker said Shanta’s West Kenya resource could be “transformative” for the company and “was a bargain and brings geographical diversification”.

“[West Kenya] is believed to be one of the highest grading deposits in Africa greater than 1mln ounces, with inferred resources currently at [1.18mln ounces at 12.6 gram per tonne]. There are signs of mineralisation beyond what has been explored so far, so we expect further exploration will significantly increase resources”, Liberum said, adding that a scoping study due in the coming months will underline the potential of the asset.

The broker also highlighted that Shanta “capable of paying attractive dividends”.

“With the group expected to turn considerably net cash in the coming years, supported by the lofty gold price and robust production at [the New Luika gold mine in Tanzania], we expect it to start paying a dividend. We have assumed a maiden dividend at full-year results with a payout ratio of 25% going forward. This would mean a yield of 3.8% in 2021 and 5.9% in 2022, which will help the share re-rate”, analysts said.

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