“We have a diversified portfolio of assets,” says Eric Zurrin of Shanta Gold Ltd (AIM:SHG).
“Two in Tanzania and one in Kenya.”
At this point the Tanzanian projects are the more familiar to the market, since Shanta has already established a long track record of production from its New Luika mine, and is on the cusp of adding substantially to it by bringing the Singida mine on stream.
The overall plan is to take existing production up towards the 110,000 ounces mark by the end of next year, in an expansion funded by existing cashflow, and for that output rate to last at least until 2029.
It’s a solid enough base to build a growth strategy around, especially since the company is already profitable and paying a dividend.
But there’s more to it than that.
In Kenya Zurrin has a real ace up his sleeve, as anyone who has been paying attention to recent intercepts will already know.
Among the highlights have been four metres grading 706 grams per tonne and half a metre grading five and a half kilogrammes per tonne. These aren’t misprints or typos – on the contrary, these are the second best gold grades produced by any gold exploration company anywhere this year.
The most recent results, released on 6 September, follow this pattern, with best intercepts including 2.6 metres at 23.34 grams per tonne, 4.7 metres at 117.39 grams per tonne and one metre at 23.5 grams per tonne.
Why are these grades so high?
Zurrin puts this down to the regional context. Although in southern Kenya, the geological context of the West Kenya project puts it firmly inside of the Lake Victoria Goldfields district in south-east Africa, an area responsible for the production of more than 40mln ounces of gold over the past 30 years.
Many of the most famous mines in this district like North Mara, Bulyanhulu and Geita lie on the Tanzanian side of the border, but West Kenya isn’t far away.
And, as Zurrin points out, mining high grades at Bulyanhulu was common enough and delivered rich enough ore that the stopes had to be barred off to prevent theft of the native rock.
“This is the quality you find in the Lake Victoria area,” he says.
And it’s on the basis of these high grades Zurrin believes the real upside inside Shanta now lies at West Kenya.
“Everyone likes to focus on the production,” he says.
“But I think the real value is in the exploration. I think West Kenya is where the most value is.”
When the time comes, it’ll need to be mined with skill and care, though, which is one reason why the ailing African company Barrick dispensed with it last year, and offloaded it to Shanta for a bargain basement price of US$14mln, half of which was payable in shares.
Barrick would argue too that overall the project was unlikely to hit their typical size threshold, and it is true that as it stands the 1.2mln ounces currently delineated at West Kenya might not pass muster for a major mining company looking for really large scale investments and cashflows.
But for a company like Shanta, already expert at mining on a smaller scale in the region, it looks like a perfect fit.
The grades look set to deliver huge margins once any mine gets up and running, and there is some possibility, in time, that the overall resource number will go up too. An initial resource update is expected imminently, with another one due out in the new year.
And while these resource updates are intended primarily to increase certainty about the ounces already delineated, the company is identifying new zones too.
What’s more, unlike so many junior explorers we could name, in this developing situation Shanta is very much the master of its own destiny. It has strong, and well-established cashflows, and no debt. Its operations are making decent margins on today’s gold price of around US$1,800 (give or take), with the most recent all-in cost of US$1,338 per ounce including nearly US$200 per ounce of development costs.
Funding ongoing exploration work and a significant part of any development at West Kenya is therefore unlikely to prevent any real problems to Shanta, especially now that the gold bears are, for now at any rate, in retreat.
It hasn’t always been easy, of course. Encountering an unanticipated fault at New Luika knocked a hole in production targets for the first half of this year, but it’s a sign of a quality company that Shanta was able to recover its poise without much fuss.
“Mining companies don’t go in straight lines,” says Zurrin philosophically.
“We hit a fault that wasn’t expected, but a company like Shanta has to makes sure it’s in a strong enough position to weather surprises. And we’ve done just that.”
A lot of junior miners live from hand to mouth. But Shanta isn’t one of them. There’s a five-year production plan, and a longer term vision for growth that involves some of the highest gold grades anyone’s finding anywhere.
The shares took a dive in July, but already they’re beginning to make up the lost ground. More positive news is likely to continue that trend.