Shanta Gold to close loss-making hedge by January as programme cuts deep in Q3

SHANTA Gold forecast the closure of its hedge book by January after it delivered 15,000 ounces of gold, about 55% of third quarter production, at an average price of $1,251/oz – about $800/oz below spot prices fetched by unhedged gold producers.

The outstanding hedge book now stands at 12,000 oz, a 70% reduction from the end of 2019, the company said.

The opportunity cost of the book resulted in a non-cash loss in earnings before interest, tax, depreciation and amortisation (EBITDA) for the three-month period. Excluding this item, EBITDA was a positive $22.5m (Q2: $19.4m).

Production guidance has been kept at between 80,000 to 85,000 oz for the 2020 financial year which closes on December 31. The company operates the New Luika Gold Mine in Tanzania and had set about plans to build a new mine at Singida in Tanzania as well as the West Kenya operation which it bought from Barrick Gold earlier this year.

“First gold pour at Singida is targeted for end of 2022,” said Eric Zurrin, CEO of Shanta Gold. “Shanta has a portfolio of high-quality reserves and a pathway to organically grow to a +220,000 per annum producer,” he said.

The company returned to net debt at the end of the period to the tune of $5.1m (cash of $2.1m Q2) after paying $7.8m in cash for West Kenya.

It is also waiting on the Tanzanian government to repay some $25.5m in VAT, up from outstanding refunds of $23.2m at the end of the second quarter. “Remaining VAT receivable is subject to verification audit by the Tanzanian Revenue Authority before being available for further offsets,” the company said.

Shanta last week published details of an early stage scoping study of the West Kenya project in which average annual production of 105,000 ounces was forecast over nine-years. 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.

West Kenya has been scoped to produce gold at an all-in sustaining cost (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.