JUST PUBLISHED - IC SHG TIP UPDATE20 Jan 2018 11:03
Tip Update: Buy at 5.85p
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
-15%
By Alex Newman
After a tough year, Shanta Gold (SHG) appears to be turning a corner. As investors will have hoped when former CFO Eric Zurrin moved into the top job in August, there has been a concerted focus on the financial position.
SHG:LSE
Shanta Gold Ltd
1mth
Today change
-3.42% Price (GBP)
5.65
So despite a hike in royalties, and a near-doubling in underground tonnage mined, $5m (�3.6m) of annual costs were stripped out in just two months, keeping fourth quarter all-in sustaining costs down at $784 an ounce. A reduction in capital expenditure has certainly helped the Tanzanian miner�s cash flow, as has the careful management of government relations. Recent meetings with various ministers have also had the desired effect: Shanta was the first miner in Tanzania to be paid back an instalment of overdue VAT receipts, and has been reassured it will see the remaining $14.5m it is owed.
IC View
That will further help to strengthen the balance sheet, which finished 2017 with a $13.5m available cash position, and a $5.6m quarter-on-quarter drop in net debt. Investors reportedly want Shanta to unwind its hedging position, so the full benefit of $1,300 gold prices can be felt. As the company is in capital preservation mode, a two times enterprise value to cash profits multiple may seem an appropriate valuation, but with margins improving and VAT receipts promised, that ratio could quickly drop, pushing the shares back up above our initial call (6.9p, 14 Apr 2016). Buy.
Last IC View: Buy, 3.4p, 22 Aug 2017
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