Shanta Gold Ltd (LON:SHG) has had its target price hiked to 31p from 25p by analysts at its house broker Liberum following a strong set of results from a scoping study at its West Kenya gold project in Kenya.
In a note on Tuesday, the broker also retained its ‘buy’ rating on the stock, said the results of the study were “attractive” and that based on the data the project will deliver a post-tax net present value (NPV) of US$227mln, more than the company’s present market cap.
READ: Shanta Gold posts strong numbers in West Kenya scoping study
In the results of the scoping study, Shanta envisaged an operation that will produce 949,000 ounces of gold over the life of the mine at an all-in sustaining cost of US$850 per ounce, inclusive of pre-production costs, while cash costs were set at US$582 per ounce.
The cost to construct the mine was pegged at US$161mln, while the project is estimated overall to generate US$118mln in earnings annually, with the internal rate of return of 110%, helped along by the average head grade of 9.3 grams per tonne.
Liberum said the estimates were preliminary and “may well increase”, although they added that they also expected the resource and mine life to increase as well.
“It is important to note that there is considerable growth potential at the West Kenya asset, which is not being accounted for in the economics or resources of the project”, analysts said.
The broker added that they believed Shanta “should be able to finance the bulk of the West Kenya capex with operating cashflows and still pay an attractive dividend”.
Shares in Shanta rose 7.9% to 20.5p in lunchtime trading.