The announcement by Shanta Gold (AIM: SHG), the East Africa-focused gold producer with assets in Tanzania and Kenya, that it would be paying its maiden dividend of 0.10 pence per share in April seems to have piqued investor interest.
The share price, currently at 17.50p (1 June), has gained 49% since the announcement on 29 March, recovering most of the ground lost since January, when the shares stood at 18.90p, and leaving Shanta Gold shares down 3.23% YTD. Over 12 months, however, shares have gained 50.68%, reflecting an almost 100% surge in the latter half of 2020, when shares peaked at 20.25p.
Positive news flow has also been driving Shanta Gold shares
Shanta Gold shares have been further boosted by positive news flow, including the confirmation of a total resources increase at the Luika deposit of 23% to 425,341 oz and an overall resource grade increase of 14% to 3.47 g/t, compared with December 31st 2020. Shanta also owns defined ore resources at the Singida Gold Mine Project in Tanzania, with exploration licences covering 1,100 km2 in the country, and the West Kenya Project, with defined ore resources of 1.2 Mt grading 12.6 g/t and holding approximately 1,121 km2 in exploration licences.
Construction at the Singida mine started in October last year, will take two years and is projected to increase Shanta’s group production to 110,000 ounces in the first full year of operation, with average annual underlying earnings of $27mln. This year Shanta Gold is also ramping up drilling campaigns at the West Kenya mine, with the aim of upgrading the inferred resources at Isulu and Bushiangala to the indicated category.
Shanta Gold is now in a strong cash position
For the first time, Shanta Gold is in a strong cash position, highlighting how its balance sheet has undergone a huge transformation over the past few years. From having a debt pile of some $70m, last month Shanta Gold had a gross debt of $1m and $37m of net cash.
The full year results for the year ended 31 December 2020 showed revenue stood at $147.4m, up more than 30% on 2019, driven mainly by higher spot gold prices during the year. The improved gold price also pushed up the operating profit to $43.8m, up from $5.1m in 2019. Shanta’s cash position also benefited, with a year-end reserves of $41.6m (2019: $3.5m). By the end of 2020, Shanta had sold 83,228 oz of gold (2019: 80,926 oz), and for this year has set an annual production guidance at New Luika of 80,000 oz.
Odey Asset Management has been buying into Shanta
Shanta Gold has been attracting institutional investor interest, including hedge funds, despite only having a market capitalisation of $140m, which reflects well on the management’s efforts to transition the company from being a junior miner to a more mature mid-cap. But it also puts the management under more pressure to create value and ensure a higher share price in the short or medium term.
The leading institutional shareholder in Shanta Gold (as at 31 March 2021) is Odey Asset Management (13.3%), while the significant presence of Sustainable Capital (6.0%) indicates their approval of Shanta’s commitment to sustainable investing. Other fund managers with shareholdings of between 2% and 5% are River & Mercantile, Canaccord, Lombard Odier, BlackRock and Fidelity. Most of the shares are held by retail investors (57%), while insiders own about 9%.
The outlook for Shanta is strong, with its broker Liberum forecasting its value could double over the next 12 months. With a strong cash position, Shanta is well placed to accelerate its exploration and development operations, at a time when the price of gold looks set to remain strong over the short to medium term.
