Shanta presents a golden opportunity

Full-year results are set for publication on 25 April, although the numbers should contain few surprises. Shanta sold 80,622 ounces (oz) of gold last year, and expects production of between 82,000 and 87,000 oz in 2016, at an average all-in sustaining cost - which includes capital expenditure, interests, royalties and corporate costs - of $750-$800. That cost also covers exploration, which recently brought encouraging news from the Askari deposit and the Elizabeth Hill prospect at its key asset, the New Luika mine.

New Luika is located in the Lupa goldfield in south-west Tanzania. As of July 2015, it had 1.3m oz of indicated and inferred resources, although the company continues to explore the surrounding area to extend the project's life. Recoverable reserves from existing open-pit mining operations should keep Shanta busy until mid-2018, by which point a planned underground mine will be up and running to recover the remaining reserves by 2022.

That development will cost Shanta around $53m (£38m). This construction can be covered by operational cash flows as long as there's no major gold price weakness. But the crucial test for Shanta will be to balance this outlay with the repayment of a $25m convertible loan note next April. This will require some additional short-term financing, but based on a gold price of $1,100 per ounce or more, broker Finncap thinks this is unlikely to present a problem - and spot prices have remained well above this level since January.

The reason for $25m of convertible debt - which is unlikely to dilute the equity owing to its 29p conversion price - dates back to 2012 when Shanta's new management team decided the then poorly constructed New Luika mine needed rebuilding. That was also the year when funds managed by Crispin Odey, the star hedge fund manager, first publicly disclosed their holdings, since then taking its stake to 20 per cent.