Shanta Gold looks a potential takeover target after gold production from its Tanzanian mines hit an annualised 100,000 ounces per year.
The company has two mines. New Luika has been in production for several years, while Singida is a recent new addition.
It’s the gold ounces from Singida that’s taken Shanta up into that 100,000 ounces producer club.
But while that’s a tasty looking prospect, it’s what happens next that will really whet the appetite of any potential acquiror.
First off, with the gold price riding high, cash is rolling into the company, and debt is falling so rapidly it’s likely to be all gone by the end of the year.
Bright acquisition: Shanta Gold looks a potential takeover target after gold production from its Tanzanian mines hit an annualised 100,000 ounces per year
That prompts the obvious calculation: Shanta’s annual revenues will amount to the quantity of gold it produces multiplied by the gold price.
On current trends that works out at a cool $200million per year for the next five years.
Or, if you want to look at it another way, between now and 2028, Shanta is likely to book a total of around $1billion in revenues.
That means Shanta will have plenty to allocate to exploration, both in and around its existing producers, where the discovery of further ounces is quite likely, and at the much bigger exploration prospect across the border at West Kenya.
West Kenya’s already known to be big.
Another round of concerted drilling is likely to make it even bigger.
There’s a chance, even, that in time it may go to as much as five million ounces of gold.
That sort of resource is a little way off yet, but it’s becoming a realistic number to talk about, which is why the bigger companies in the sector may be about to show an interest.
That, and the market’s current lack of appreciation for Shanta (currently 9.8p).
Still, Shanta doesn’t need to tout itself as an acquisition target.
It’s got strength in depth on its own terms.
There’s that annual $200million revenue, for a start.
Debt at the end of June 2023 stood at just $8.7million, down more than 50 per cent quarter-on-quarter, and shortly going to nil.
New Luika has another five years of official life left, but in recent years the life has been extended every year.
This isn’t that uncommon in the mining industry, but be that as it may, the simple fact is that the gold keeps coming, and that gold in turn means dollars into the company.
Singida, for its part, boasts an official mine life of seven years, but as Shanta’s chief executive Eric Zurrin notes, it sits in an area ‘that’s completely underexplored.’
Would it be any surprise if the Singida mine life also got pushed out consistently as the years rolled by? – it would not.
‘Singida’s been very under-drilled,’ says Zurrin.
‘It’s likely to get either (a) an extended minelife, (b) a bigger throughput, or (c) both.’
As it stands, the official projection for average production from both mines combined over the next five years is 103,000 ounces, although there will be some variation within that timeframe.
The next question is margin.
Here, there’s plenty of grounds for encouragement too.
All-in sustaining costs are currently allowing for a $700 margin per ounce of gold production, which nets out at EBITDA of around $350million over the next five years.
That’s a big enough number by anyone’s standards, and worth noting too that with the paying off of the debt, the ‘I’ in EBITDA becomes largely immaterial.
Hardly surprising then that a major Chinese company has already run the rule over Shanta, and that many in the market think that the company may shortly go into play again.
West Kenya remains the real game changer. Here, Shanta has already booked a handsome 1.8 million ounces of gold and looks likely to push on past the two million mark later this year as a $7million drilling campaign continues.
No question that West Kenya easily has the potential to double Shanta’s existing production and possibly to take it higher even than that.
If Shanta does remain an independent entity, though, it will likely push towards an early production scenario at West Kenya and work up the additional ounces later.
This is the approach it’s taken at Singida and it seems to be paying off – the dollars are rolling in and the company is well positioned for further growth.
The one real uncertainty is at the top of the company, where Zurrin has announced his intention to seek new challenges, and the appointment of a replacement is underway.
Zurrin has undertaken not to leave until the new appointee is firmly ensconced, but he does think that leaving Shanta in much better shape than he found it is a suitable enough legacy.
If things continue as they are, it will be hard to argue with that.
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