IC View tip update - online today17 Apr 2018 22:36
Tip Update: Buy at 5.3p
Tip style
SPECULATIVE
Risk rating
HIGH
Timescale
SHORT TERM
Our previous tip
We said BUY at 6.9p on 14 Apr 2016
Tip performance to date
-23%
By Alex Newman
To Shanta Gold (SHG) chief executive Eric Zurrin, the abrupt change to Tanzania�s mining laws in 2017 proved to be a �poignant catalyst� for his company. Higher royalties and a new clearing fee might have increased the government take from 4 to 7 per cent, but the owner-operator of the New Luika mine now believes its recurring cost base will be �significantly lower than it has been historically�.
SHG:LSE
Shanta Gold Ltd
1mth
Today change
0.00% Price (GBP)
5.45
This year, all-in sustaining costs are expected to come in between $680 and $730 (�476-�510) per ounce, following the transition to underground operations. That move could yet restore Shanta�s annual production to 88,000 ounces, assuming an upper-end target is reached. It has also meant big changes in two overheads: a 41 per cent drop in headcount at New Luika, and a tapering in capital expenditure. A second tailings storage facility is now �the final large-scale infrastructure project� to complete.
That�s just as well. Although the gold price remains supportive at $1,350 an ounce, $18.1m of Shanta�s $45.2m of borrowings are due to be paid this year, which helps to explain why, on average, analysts only expect 2018 adjusted pre-tax profits and EPS to reach $21.2m and 2.3� respectively, against estimates of $13.6m and 1.4� last year.
SHANTA GOLD (SHG)
ORD PRICE: 5.3p MARKET VALUE: �41m
TOUCH: 5.1-5.5p 12-MONTH HIGH: 9.1p LOW: 2.6p
DIVIDEND YIELD: NIL PE RATIO: 12
NET ASSET VALUE: 12.4� NET DEBT: 41%
Year to 31 Dec Turnover ($m) Pre-tax profit ($m) Earnings per share (�) Dividend per share (�)
2013 66 -4.4 0.2 nil
2014 115 16.6 1.9 nil
2015 95.7 -18.1 -3.7 nil
2016 107 -4.34 -1.5 nil
2017 103 3.55 0.6 nil
% change -4 - - -
Ex-div: n/a
Payment: n/a
�1=$1.43. *Includes intangible assets of $23.3m, or 3� a share
IC View
Although the most capital-sapping projects are largely complete, working capital edged up in 2017 thanks to an increase in the VAT receivable. That�s despite the repayment of a $3.4m VAT refund in November, so investors will have been disappointed not to learn of further cash payments with these numbers. Still, the miner should now be generating sufficient cash to handle its debts; we think deleveraging should help to bring the stock closer towards Shanta�s per-share net asset value. Two years on from our original call (6.9p, 14 Apr 2016), we�re still bullish. Buy.
Last IC View: Buy, 5.85p, 19 Jan 2018
Sign In
Follow the stocks
