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Shanta Gold

2020 Mining Investor Forum

16 Nov 2020 / Corporate research

Shanta Gold (SHG) is a low-cost, high-grade East African gold miner, which is transforming from a single-asset to a multi-asset producer. Production guidance for its flagship New Luika Gold Mine (NLGM) in 2020 is 80-85k oz. The commissioning of Singida in 2022 will see a resumption of growth from the current plateau. The recent West Kenya acquisition has taken total gold resources to 3.2m oz. After cutting net debt by $44m since end-2017, SHG raised $42.1m last month to accelerate development of the ca.100k oz p.a. West Kenya project.

  • NLGM: SHG’s flagship gold mine has consistently produced 80-88k oz p.a. of gold since 2014. Production is planned to continue to at least 2024, although the current mine plan excludes an additional 531k oz of resources. Furthermore, only three of seven potential deposits are currently in production.
  • Singida – moving off the plateau: Construction of the near-surface Singida mine has begun, with commissioning due in 2022 – almost 32k oz p.a. production will increase group production to at least 110,000 oz p.a. Significant upside derives from the 664k oz of gold resources outside the current seven-year mine plan.
  • West Kenya acquisition: SHG paid $14.5m, or a modest $12/oz, for a project with an estimated 1.182m oz of resources and $55m of historical exploration. The average gold grade of 12.6g/t is unusually high, bordering on spectacular. A new resource estimate and construction decision are expected within 36 months.
  • Risks: SHG faces the normal risks for a junior miner, albeit without the funding risk faced by explorers. These risks include volatility in gold prices, political risks, environmental risks, and operational risks in successfully executing the mining plan and operating downstream processing facilities.
  • Investment summary: Our provisional valuation for SHG of 31.7p is based on aggregating our NPV valuations for NLGM, Singida and West Kenya. The valuation incorporates a conservative long-term gold price of $1,700/oz and a discount rate of 8%. The model currently excludes 1.49m oz of future gold production represented by resources outside the current mine plans.
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