Shares in East Africa-focused gold producer Shanta Gold (SHG) approached 13p in February with the gold price still then well below $1,700 per ounce. With it now well above $1,900 and looking to have, potentially much, further to go and following recent updates from the company...
The company recently announced a “Group-wide Reserves and Resources Update”, which emphasised “total group-wide reserves of 653k ounces grading 3.15 g/t across the company's two projects in Tanzania; Total resources of 3.2 million oz grading 3.58 g/t across all three projects in Tanzania (JORC compliant) and Kenya (NI 43-101 compliant)”. Of course, these are only useful if economic and recent half-year results showed a swing to profit and net cash. That was from the sale of 44,018 ounces, with an average realised price of $1,533/oz helping a net $26.8 million to be generated from operating activities. After particularly mine development expenditure, the company noted “net debt decreased by US$16.4m leaving the company in a net cash position of US$2.1m at the end of the period, with unrestricted cash of US$12.9m”. Total current assets of $42.4 million (+$3 million) compared to current liabilities of $50.9 million (+$2.9 million) and non-current liabilities of $21.6 million (-$2.5 million).
The production - 42,383 ounces - was from the New Luika gold mine (JORC compliant open pit and underground gold reserves of 410k oz grading 3.23 g/t) in Tanzania, whilst also in the country the company has the Singida project (JORC compliant open pit reserves of 243 koz grading 3.00 g/t) fully permitted and financing discussions for its development are “advanced”. The company has also recently completed an acquisition of the West Kenya gold project (NI 43-101 compliant total resources of 2.9 Mt at 12.6 g/t for 1,182k oz contained).
There are obvious operational, financing, development and political risks there, though also such upside potential. That includes from “tracking in line with 2020 gold production guidance of 80,000 - 85,000 oz… As at 30 June 2020, 27,000 oz had been sold forward to January 2021 at an average price of US$ 1,251 /oz. Since the end of the period, total forward sales commitments have been further reduced to 18,588 oz” and further progress at New Luika, Singida and West Kenya.
Financing developments and a scoping study in advance of a drilling campaign respectively are potential catalysts on the latter two, whilst there is also significant remaining exploration potential – for example, the recent update emphasising, “a track record of replacing mined ounces from its seven ore bodies at New Luika… The company is two thirds of the way through the 2020 exploration budget of US$5m and, so far, reserves have increased by 75,000 oz… Highest group-wide reserves and resources ever reported by Shanta and a proven track record of low cost exploration to replace mined ounces”, with also “reserves assume a life of mine gold price of US$1,350 /oz”. This is all in for a current market cap of circa £146 million, below $200 million and so targeting a 25p+ share price as potential catalysts from New Luika, Singida and West Kenya combine with a rising gold price and further positive gold sentiment, at a 17.25p offer price and up to 18p, buy.
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Filed under: Shanta Gold, Innovate UK, Tim Martin, Helena Horton, Surface Transforms, Abcam, Dr Michael Green
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