Earnings beat from new Shanta Gold mine

Build it and they will come. Profits, that is. Shanta Gold (SHG) finished its new Singida mine in the first half and it has immediately revved up cash flow, avoiding the usual ramp-up dramas and disappointments. The Tanzanian company posted a half-year cash profit of $34mn (£27mn), more than double last year and 11 per cent above broker Liberum’s forecast. 

This was a reflection of the higher gold price and production level and lower costs. 

Singida is not a massive operation but it took Shanta to record first-half production of 44,771 ounces (oz) of gold and underpinned full-year expectations of around 100,000oz. Singida contributed 10,000oz for the period, and as it only hit commercial production levels in June, the full-year figure will show further increases. 

Chief executive Eric Zurrin said there was scope for the mine to grow well beyond its current 30,000oz a year outlook as exploration drilling has restarted this week. “I think it's been underestimated, the potential [of Singida], he said. “The reserve is really small but that’s only because there has been a lack of drilling.” 

Shanta’s balance sheet is healthy for a company still working on growth, specifically through the West Kenya project. Capital expenditure in the first half was $15mn, which included $9.5mn at Singida. Work on West Kenya slowed to balance the mine build costs in the first half, but drilling there has restarted. A feasibility study is in prospect and the company will start the application process for mining licences next year. 

This gold miner is in a good position to keep growing while paying a dividend. Buy. 

Last IC View: Buy, 11p, 2 Mar 2023