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Shanta Gold is lean and hedged

VAT issues and a weak gold price are the two downsides to a resilient performance
August 17, 2018

Shanta Gold (SHG) remains in a precarious position. Despite encouraging signs at the end of 2017, the Tanzanian government failed to return any VAT owed to the miner in the first half of 2018. Those receivables have now climbed to $17.9m (£14.1m) and contributed to a $9.5m increase in working capital in the period. And while net debt declined, drawdown of the final $1.9m tranche from Exim Bank was needed just to prop up cash flows.

IC TIP: Buy at 4.85p

A higher average selling price provided some respite, though investors will have noted a 9 per cent drop in the gold price since the start of June. Fortunately for Shanta, some 37,000 ounces – equivalent to at least three-quarters of second-half production – has been forward-sold at $1,264 an ounce. That’s a 7 per cent premium to the yellow metal’s current spot price.

Full-year earnings should also receive a bump from ongoing self-help measures. All-in sustaining costs averaged $757 an ounce in the first half, but Shanta continues to guide for $680-730 an ounce on an annualised basis, as underground mining at New Luika ramps up. With one eye on near-term development opportunities, output from the Ilunga underground mine has also been fast-tracked to “mid-2019 instead of late 2020”.

On average, analysts expect full-year adjusted pre-tax profit of $17.8m and EPS of 2¢, rising to $19.7m and 2.3¢ in 2019.

SHANTA GOLD (SHG)   
ORD PRICE:4.85pMARKET VALUE:£37.8m
TOUCH:4.7-5p12-MONTH HIGH:7pLOW: 2.63p
DIVIDEND YIELD:NILPE RATIO:3
NET ASSET VALUE:13.3¢*NET DEBT:37%
Half-year to 30 JunTurnover ($m)Pre-tax profit ($m)Earnings per share (¢)Dividend per share (¢)
201752.7-0.65-0.36nil
201850.28.450.92nil
% change-5---
Ex-div:n/a   
Payment:n/a   
£1=$1.27. *Includes intangible assets of $23.3m, or 3¢ a share.