Join our community of smart investors

Shanta Gold plays VAT waiting game

Operationally, the Tanzanian gold miner ticked the boxes in 2018, although un-refunded VAT receivables continue to rise
March 1, 2019

Against a flat gold price and a slight dip in recoveries at its New Luika mine, Shanta Gold (SHG) managed to double post-tax profits in 2018, thanks to a steely eye on cash costs and a sharp pull-back in capital expenditure. At the same time, net debt was reduced by $8m (£6m) to $31.5m – the lowest level in six years.

IC TIP: Buy at 5p

The operational momentum shows little sign of slowing. After surpassing production guidance for 80,000 ounces last year, Shanta now believes output could rise to as much as 84,000 ounces in 2019, while containing all-in sustaining costs between $740 and $800 an ounce. Asset-level funding has also been sought for the 26,000 ounce-a-year Singida project, which Shanta believes could provide an internal rate of return of 67 per cent.

There is evidence, therefore, to back up chief executive Eric Zurrin’s claim that 2018 was "a transformational year" from both an operational and financial standpoint. But you wouldn't know this from Shanta’s share price. That’s because un-refunded VAT receivables rose another 48 per cent to $21.8m, further stretching the gold minnow’s balance sheet and cash position.

Numis forecasts a pre-tax profit of $7m and earnings per share of 1¢ this year, rising to $24m and 2¢ in 2020.

SHANTA GOLD (SHG)   
ORD PRICE:5pMARKET VALUE:£ 39m
TOUCH:4.9-5p12-MONTH HIGH:6.5pLOW: 3.8p
DIVIDEND YIELD:NILPE RATIO:6
NET ASSET VALUE:13.5¢*NET DEBT:30%
Year to 31 DecTurnover ($m)Pre-tax profit ($m)Earnings per share (¢)Dividend per share (¢)
201411516.61.9nil
201595.7-18.1-3.7nil
2016107-4.3-1.5nil
20171023.50.6nil
201810413.11.0nil
% change+2+271+68-
Ex-div:n/a   
Payment:n/a   
£1=$1.33. *Includes intangible assets of $23.3m, or 3¢ a share.