RE: Mail on Sunday (Midas share tips): BUY Shanta Gold.31 Mar 2024 08:59
Previously tipped (ab a week ago) by The Telegraph’s Questor share tips:
Shanta Gold
Whether a 10pc increase in the offer price from bidder and global conglomerate ETC Holdings (Mar 19) is enough to sway shareholders in Shanta Gold (SHG:AIM) remains to be seen.
If the deal does go through at 14.85p a share, with a dividend of 0.15p a share on top, we will bag a total return in excess of 50pc (Questor, Jan 10, 2023).
Given this column’s dismal record with junior miners, would be more than enough to keep us happy. That said, we can see why some shareholders may feel that even the higher bid represents a bit of a low-ball price.
It equates to a market value of £156m for a firm whose net assets are £133m , according to the last set of published results.
They were the first-half figures for 2023 that were released back in September.
That price tag implies a price-to-book, or price-to-net-asset-value, multiple of 1.17 times.
However, Newmont’s (NEM:NYSE) bid for Australia’s Newcrest in 2023 valued its target at 1.7 times and there is a good possibility of Shanta Gold growing its book value in future, should retained earnings flourish as expected, thanks to both increased output from its New Luika and Singida mines in Tanzania and an all-in sustained cost (AISC) of production of $1,200 (£949.26) to $1,400 an ounce.
With gold trading at $2,175 an ounce, profits should start to pour out of the ground, if all goes to plan, and the metal’s price stays firm.
There are caveats to this. Newcrest is a much more mature and bigger operation than Shanta, with 2.1 million ounces of annual gold output at an AISC of $1,093 at the last count and the stock offered a higher dividend yield than Shanta’s before the acquisition by Newmont.
Investors are also always likely to place a higher multiple on operations in Canada and Australia relative to ones in Africa, for geopolitical reasons, even if Tanzania is one of the most politically stable nations on the continent, in contrast to say Mali or Burkina Faso, where coups in 2021 and 2022 continue to weigh on investor sentiment toward gold diggers such as Resolute Mining (RSG) and Endeavour Mining (EDV).
Intriguingly, EQT’s bid for Shanta is the latest in a growing list of merger and acquisition deals in the gold mining industry. Barrick Gold (BAG:NYSE) swallowed up the then FTSE 100 constituent Randgold Resources in 2019, when Newmont snapped up GoldCorp in 2019.
Agnico-Eagle (AEM:NYSE) and Kirkland Lake Gold merged in 2021 and then in 2023 Agnico-Eagle and Pan American Silver (PAAS:TSX) bought and split up Yamana Gold before Newmont pounced on Newcrest.
The New York Stock Exchange’s Arca Gold Bugs index is trading no higher now than it did in November 2003, when the gold price was $390 an ounce.
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