SHANTA Gold’s plans to diversify its production base received a boost today after it announced the results of an early stage scoping study of its West Kenya project in which average annual production of 105,000 ounces was forecast over nine-years.
Shares in the company moved to a new all-time high on the news, gaining about 5% on the London Stock Exchange, valuing the company at nearly £169m.
Assuming all things equal, the project would significantly lift annual production which is expected to be 80,000 to 85,000 oz in Shanta’s 2020 financial year. The company currently mines a single asset: the New Luika Gold Mine in Tanzania.
The scoping study, however, is an early stage estimation of the project which would still require a pre-feasibility and bankable feasibility study before construction approval, a process that could take up to three years, according to Shanta Gold CEO, Eric Zurrin.
“The board is committed to making the investment to confirm the viability of a mine with a construction decision expected within three years,” he said.
West Kenya has been scoped to produce gold at an AISC of $681/oz (and $850/oz including pre-production costs) compared to 2020 AISC which has been guided to $830 to $850/oz. The project has a pre-production cost of $161m.
The project was bought from Barrick Gold in February for $14.5m in cash and shares. In addition to West Kenya, Shanta Gold is also investigating the Singida project in Tanzania where production is currently estimated at 32,000 oz/year.
The ore from West Kenya will be accessed through open pit mining for the first two years before proceeding to underground operations, according to the study. The projected life of mine production excluded the possibility of finding new resources to support an expansion.
Assuming a gold price of $1,700/oz, the life of mine earnings before interest, tax, depreciation and amortisation (EBITDA) was calculated to be just over $1bn, averaging $118m annually. Life of mine free cash flow was estimated to be $531m.
The West Kenya Project is located in western Kenya, some 300 kilometres north-west of Nairobi, the capital of Kenya.
2020 is proving to be a good year for Zurrin and Shanta Gold.
Commenting on its second quarter numbers in July, the company said it had become net cash to the tune of $2.1m (excluding $3.6m held in gold doré at period end) – the first time in its history – after paying down $17.2m in gross debt, a reduction of 34% to $13.4m gross debt. Shanta’s net debt was $38m two years ago.
Shanta also has some $23.2m in VAT refunds owed by the Tanzanian government.