From my perspective the CEO is doing a splendid job and in the not to distant future shareholders will realise the expertise that he has been demonstrating within the company's operations. I only wish that other companies CEO's followed his approach as cash utilisation would always be at the top of the agenda.
Whilst I agree with the central premise of increasing the mine life, that is pretty much the only thing I agree with on SP Angel's note. Whilst I understand the need for using reserves as the basis the for assessing operations, it is hard to imagine that the near 1.5m oz outside the reserves are not going to have a material impact on production in the next 8 years. In particular, the resources at Singida will start to be leveraged at some point during this period. The fact that the resources there can support a 50-60k production rate on their own is enough to suggest an increasing production profile as NL will still be operating based on the resources identified there now. There is considerable exploration potential at both NL and Singida which should support an enhanced production profile going forwards. Add into that the fact that I see gold prices being wildly different to their forecasts and you should see that my expectation of revenue and profit going forwards is multiples of SP Angel's.
" Shanta Gold set for long life in Tanzania believes SP Angel 12:16 02 Feb 2017
Exploration in satellite areas and at new deposits such as Singida in Tanzania can substantially extend the production profile
Shanta Gold PLC (LON:SHG) has received a bullish write-up from SP Angel as the Tanzania-based miner switches to underground production at its New Luika mine.
The resource specialist broker believes that the move underground allied to exploration in satellite areas and at new deposits such as Singida in Tanzania will substantially extend the production profile.
In 2016, New Luika produced 88,000oz of gold at an all-in-cost (AISC) cost of $661/oz.
Guidance for 2017 is 80-85,000oz at $800-850/oz AISC.
The latest drilling results at Ilunga, the third biggest gold deposit in the portfolio, saw its resource expand to 258,000oz at 4.6/gt from 74koz at 3.5g/t , which should see a mine plan update later this year.
Singida, a potentially new mine, meanwhile, currently hosts a 0.9moz at 2.8g/t JORC resource.
Including the new commercial underground operations and Ilunga, SP Angel’s sees the total production rising to 610,000 oz from 445,000oz through to 2024.
The broker has assumed gold prices of $1,175/oz and $1,150/oz in 2017/18, and rising US interest rates, but even with these potentially adverse in fluencies Shanta can generate healthy margins as development continues and reduce debt.
Buy with a target price of 13.8p. Shares rose 5% to 10.32p.
Given the mood as reflected in the share price seems rather positive today (presumably owing to the rise in the gold price), I thought I would look forward to what promises to be the most important news due this quarter, namely the revised mine plan. One thing that has been a drag for Shanta has been the perceived short life of the mine (personally I believe that exploration around NL has indicated that the mine is going to be around for quite some time to come but this cannot be assumed). With the revised reserves at Elizabeth Hill and Ilunga, we can expect the revised plan to shift mine life over 7 years, a key metric for many investors.
Something was bugging me about the AISC quoted so I thought I would have a quick look as to why the quoted AISC is so low and yet the cash generation has not followed through. Having considered it, I believe that I understand why. Costs associated with Singida are legitimately not included as they are not associated with the current gold production. In addition, the capitalised costs associated with going underground at NL are not included in the AISC as they are classified as development. This is not in any way to imply that they are not conforming to international standards or that the underground development is not necessary (it most certainly is) but it does show the limitations of AISC calculation as without the underground development the mine life would be rather short with a sharply decreasing production level. I.e. not 'sustaining' at all!
CMCL's asset is the Blanket mine in Zimbabwe (not as bad a place to invest as it used to be but I still have my doubts). Production from this mine is about 60k oz currently and I believe they plan to increase this to 80k oz by 2021. By comparison, SHG is currently producing over 80k oz and is likely to produce at a rate of 100k ish oz in the next 18 months.
However, the big differences between the two companies are the debt and the ownership. CMCL has net cash whereas we have net debt. The difference between the two is something like $50m so that has to be taken into consideration and this is favourable to CMCL. Offsettiing this is the fact that CMCL only own 49% of the asset.
Personally I feel that SHG has more upside as enterprise value is converted to market capitalisation but both are decent investments in a rising gold price environment. I equate Blanket to be similar in terms of resources to New Luika. SHG also has Singida which is where the significant upside is to be had here. The next six months are crucial for SHG as this is when the operations are most at risk as we move underground. To mitigate this they have built up some cash resources and an ore stockpile.
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