Broker Liberum has hiked its share price target for Shanta Gold Limited (LON:SHG) after its began construction at its second Tanzanian asset, Singida.
The asset will be financed from operating cashflows and has compelling economics at current gold prices, the company said on Wednesday, with an internal rate of return of 59%.
Construction is expected to take 24 months and will then rapidly ramp up to deliver 32koz per annum at an all-in sustaining cash cost of $869 per oz.
“Based on existing reserves, the mine life is seven years but with the large resource base and conservative conversion assumptions, it should stretch to over 20 years,” the analysts said.
Offsetting the NPV upgrades from the higher grades, is that the pace of the build out is estimated at 24 months, instead of the 15 months the analysts had previously assumed.
“The reason being that the timeline has been extended so that it can be funded via cashflows from existing production at New Luika, rather than using debt or raising funds from an IPO on the Dar es Salaam stock exchange.
“Given that the company has chosen not to hedge any further gold production, we believe this to be prudent.”
The target price from Liberum, which is 'house' broker to the company, was upped to 25p from 23p, with the shares closing the previous day at 18.75p.