In early March, Tanzania banned the export of gold and copper concentrate. Shanta Gold (SHG), which operates the New Luika gold mine in the country’s south-west, was quick to inform the market that, unlike larger peer Acacia Mining (ACA), it would not be affected by the ruling. Four months on, and the spat between Acacia and the government has mutated into legislation that most likely will affect Shanta’s production and export of gold as doré (or unrefined bar) form.
In its latest trading update, Shanta said changes to royalty rules meant its next shipment was likely to incur a 6 per cent government take, in addition to a 1 per cent clearing fee imposed in June. That’s up from a nominal 4 per cent royalty payment, and enough to force Shanta to launch a review of its operations and cost base.
The news is particularly disappointing for shareholders, as Shanta has made a big effort in recent months to keep a lid on outgoings. In the three months to June, and despite being hampered by the ramp-up in underground production, all-in sustaining costs were 4 per cent down on the first quarter at $735 an ounce.
While that led to a strong uptick in cash generation, the strain in working capital has also increased. Higher inventories and receivables, lower payables and a 13 per cent increase in unpaid VAT rebates to $14m have led to a cash squeeze and an indefinite suspension of work on the Singida pilot project. The company has now asked authorities for corporate tax payments to be offset against 14 months of VAT rebates Shanta says it is owed.
