TIDMSHG
RNS Number : 0935V
Shanta Gold Limited
19 July 2018
19 July 2018
Shanta Gold Limited
("Shanta Gold", "Shanta" or the "Company")
Q2 2018 PRODUCTION & OPERATIONAL UPDATE
Shanta Gold (AIM: SHG), the East Africa-focused gold producer,
developer and explorer, announces its production and operational
results for the quarter ended 30 June 2018 (the "Quarter", "Q2" or
the "Period") for its New Luika Gold Mine ("NLGM" or "Luika"), in
Southwest Tanzania.
Q2 Highlights
-- The mining operation performed according to plan during the
Period, with the underground mine delivering an average of 46,300
tonnes per month of high grade ore from the Bauhinia Creek and
Luika deposits;
-- Production at the Ilunga underground mine has been
accelerated in the life of mine plan, increasing NPV, with surface
infrastructure to be completed by end of August;
-- Ore stockpiles significantly increased allowing the Company
to 'stand down' the open pit mining fleet from end of August;
-- The full benefits of cost saving initiatives, executed in Q4
2017, were realised in Q2, reducing All In Sustaining Costs
("AISC") to $748/oz (Q1: US$776/ oz);
-- The full benefit of the 2018 cost reductions will be realised from Q3 2018:
-- Quarterly gold production increased to 20,544 ounces ("oz") (Q1: 17,663 oz);
-- Full year guidance of 82,000 - 88,000 oz and AISC of US$680 - 730 / oz, reiterated;
-- Agreement to buy back 33.33% of the Convertible Loan Notes
held by third parties (the "Notes") in April 2019 at par value, and
to extend the remaining Notes to April 2020;
-- Capital expenditure of US$4.5 million ("m") (Q1: US$3.3 m);
-- Encouraging drilling results at Singida increasing Measured
Resources by 56%. Total Measured & Indicated ("M&I")
resources are now 381 koz at 2.08 g/t; and,
-- Singida is in the process of being positioned into a separate
legal entity in preparation for a potential future asset level
financing.
Post Period Highlights
-- US$2.1 m cost savings executed, equivalent to approximately
US$25 /oz on a recurring basis and 3 months ahead of schedule;
-- Company sold forward an additional 15,000 oz bringing the
total forward sales to 27,000 oz at an average price of US$1,262
/oz; and,
-- High grade exploration results announced at Bauhinia Creek
underground deposit, confirming high grade mineralised orebody
extension to the east, adjacent to the existing high-grade
underground mine at Bauhinia Creek.
Financial
-- Cash balance of US$8.9 m (Q1: US$11.7 m);
-- Gross debt of US$47.0 m (Q1: US$49.2 m);
-- Net debt of US$38.1 m (Q1: US$37.5 m);
-- Gold inventory of US$13.6 m (Q1: US$8.1 m);
-- Final US$1.9 m Exim Bank loan facility drawn down from the US$7.5 m 4-year facility;
-- Forward sales to July 2018 of 12,000 oz at an average price
of US$1,264 /oz (Q1 2018: 17,600 oz at US$1,287 /oz);
-- At the end of Q2, the Company's VAT receivable was US$17.9 m (Q1: US$16.2 m); and,
-- 2017 financial year audited results published in April 2018.
Operational
-- Quarterly gold sales of 19,475 oz at an average price of US$1,302 /oz;
-- Cash operating costs decreased to US$505 /oz (Q1: US$599 /oz);
-- AISC of US$748 /oz (Q1: US$776 /oz);
-- Underground operation delivered an average of 46,300 tonnes
per month of high grade ore at 5.23 g/t, with open pit mining
contributing an additional average monthly feed of 19,400
tonnes;
-- Ore held in stockpiles increased by 41% to 143 kt at 1.54 g/t
increasing mill feed flexibility;
-- New record for monthly underground production was achieved in
June of 51,130 tonnes at 5.30 g/t for 8,705 oz contained gold;
-- Open-pit mining fleet preparing to stand-down at the end of
August for 6 months following build-up of ore held in stockpiles;
and,
-- Second Tailings Storage Facility ("TSF2") commissioned in April 2018.
Cost savings initiative update
-- US$7.2m of recurring cost reductions achieved since cost
optimisation initiatives announced in September 2017, executed in
Q4 2017;
-- Includes an additional US$2.1 m of recurring cost savings per
annum executed three months ahead of schedule in early July 2018,
equivalent to approximately US$25 /oz; and,
-- Cash operating costs reduced by approximately 11% to US$505
/oz compared to the average of the preceding 4 quarters, which was
US$566 /oz.
Ilunga development update
-- Decision to bring the Ilunga underground mine into production
earlier with first production expected in mid-2019 instead of late
2020. The resequencing increases project Net Present Value ("NPV")
and overall production flexibility;
-- Pre-production capital expenditure estimated to be US$4 m,
reduced significantly following extensive re-optimisation process
carried out during the first half of 2018;
-- Power and civil infrastructure has been completed at Ilunga,
in preparation for first blast of portal during Q4 2018; and,
-- Targeting final permitting of Ilunga in Q4 2018. Development
ore expected to contribute to Mine Plan from Q2 2019.
Exploration
-- Two phases of Singida exploration drilling results announced with encouraging intersections;
-- Planning completed for ground geophysical work ("IP") at
Singida testing the potential of the 2 km strike between Cornpatch
and Cornpatch West targets, expected to take place at the end of
Q3;
-- Phase 1 underground drilling at Bauhinia Creek completed in
early Q3 2018 confirming the extension of high-grade mineralisation
to the east of the Bauhinia Creek and adjacent to the existing
underground mine; and,
-- Phase 2 drilling at Bauhinia Creek East planned for H2 2018,
with 1,000 metres of drilling currently planned.
Singida
-- New JORC resource estimate announced including a 56% increase
in Measured resource. Total M&I resources are now 381 koz at
2.08 g/t;
-- Confirmation received that Singida project will be connected
to the Government (Tanesco) power grid, expected by end of
2018;
-- Corporate restructuring process to transfer Singida mining
licences and assets into a new company, 100% owned by Shanta Mining
Company Limited ("SMCL") is in process in preparation for a
potential future asset level financing; and,
-- IP at Singida expected to commence at the end of Q3.
CSR and Government engagement
-- Almost 99% of the global workforce are now Tanzanian nationals;
-- Additional Livelihood Programmes initiated during the period
following the success of programmes in late 2017 which are now
fully rolled out; and,
-- Advanced adoption of the government's Local Content
Legislation, with Local Content Plan submitted to the Minerals
Commission in April 2018.
Corporate and strategic
-- The Company and Investec Bank plc mutually agreed not to
proceed with the US$50 m refinancing announced in Q2 2017; and,
-- The Company agreed to a partial buyback of 33.33% of the
Convertible Loan Notes held by third parties (the "Notes") in April
2019 at par value, and to extend the remaining Notes to April
2020.
Eric Zurrin, Chief Executive Officer, commented:
"The cost saving initiatives that were executed in Q4 2017 are
now beginning to have a significant impact on both costs and
cashflow. The full effect of additional savings executed in Q2 2018
will be seen over the coming months."
"This was a strong quarter for the Company, with operations
performing to plan, an increase in gold production, and
importantly, we continue to reiterate our production guidance for
the year of 82,000 - 88,000 oz. We are also pleased to announce
that we are now expecting first ore from Ilunga by mid-2019 instead
of late 2020, which increases both the project NPV and overall
production flexibility for New Luika."
"We are continuing the development programme at Singida
following the announcement of a new JORC resource estimate, which
included a 56% increase in Measured resource."
Analyst conference call and presentation
Shanta Gold will host an analyst conference call and
presentation today, 19 July 2018, at 09:30 BST. Participants can
access the call by dialling one of the following numbers below
approximately 10 minutes prior to the start of the call.
UK Toll-Free Number: 08082370030
UK Toll Number: +44 (0)2031394830
PIN: 60191776#
The presentation will be available for download from the
Company's website: www.shantagold.com or by clicking on the link
below:
http://www.anywhereconference.com?UserAudioMode=DATA&Name=&Conference=131698299&PIN=60191776
A recording of the conference call will subsequently be
available on the Company's website.
Enquiries:
Shanta Gold Limited
+255 (0) 22 292
Eric Zurrin (CEO) 5148
Luke Leslie (CFO)
Nominated Adviser and Broker
Numis Securities Limited
+ 44 (0)20 7260
Paul Gillam / John Prior / James Black 0000
Financial Public Relations
Tavistock
Charles Vivian / Barnaby Hayward / +44 (0)20 7920
Gareth Tredway 3150
About Shanta Gold
Shanta Gold is an East Africa-focused gold producer, developer
and explorer. It currently has defined ore resources on the New
Luika project in Tanzania and holds exploration licenses covering
approximately 1,500km(2) in the country. Shanta's flagship New
Luika Gold Mine commenced production in 2012 and produced 79,585
ounces in 2017. The Company has been admitted to trading on
London's AIM and has approximately 779 m shares in issue. For
further information please visit: www.shantagold.com
This announcement contains inside information for the purposes
of Article 7 of Regulation 596/2014.
Q2 2018 PRODUCTION & OPERATIONAL UPDATE
Financial
During the Quarter, a total of 19,475 oz of gold was sold at an
average price of US$1,302 /oz. As of 30 June 2018, the Company had
sold forward 12,000 oz to July 2018 at an average price of US$1,264
/oz. Subsequent purchases post period increased the hedge book to
27,000 oz at an average price of US$1,262/oz.
Cash operating costs for Q2 of US$505 /oz (Q1: US$599 /oz). AISC
for Q2 of US$748 /oz (Q1: US$776 /oz). The AISC calculation since
Q3 2017 includes the impact of higher royalties (c. US$40/oz).
Development costs at the Bauhinia Creek and Luika underground
operations are not included in AISC.
Working capital in the Quarter increased by US$8.0 m, accounted
for by a decrease in trade and other payables (US$1.2 m), an
increase in inventories (US$5.2 m) and an increase in trade and
other receivables (US$1.6 m). The increase in inventories includes
Run of Mine ("ROM") stockpile which increased by US$3.1 m and gold
doré which increased by US$1.3 m. The increase in trade and other
receivables includes VAT receivable which increased by US$1.7 m to
US$17.9 m.
Capital expenditure was US$4.5 m (Q1: US$3.3 m) which was
predominantly related to underground development and equipment
including Ilunga pre-production capital expenditure.
As at 30 June 2018 the Company had a cash balance of US$8.9 m
(Q1: US$11.7 m). This decrease reflects the decision to accelerate
the development of Ilunga and to increase stockpiles allowing the
open pit mining fleet to stand down sooner than initially planned.
The volume of ore held on the stockpile increased by over 40%
(equal to US$3.1 m). Ounces produced during the Period were also
1,069 oz higher than ounces sold during the period.
Gross debt decreased to US$47.0 m (Q1: US$49.2 m). Net debt
increased to US$38.1 m (Q1: US$37.5m).
The 2017 financial year audited results were published in April
2017. An annual profit after taxation of US$4.2 m was recorded
following a successful transition to underground mining in the
year.
Operational
Production Summary
Q2 2018 Q1 2018 Q4 2017 Q3 2017
Tonnes ore milled 157,426 149,711 162,233 163,109
-------- -------- -------- --------
Grade (g/t) 4.55 4.14 4.48 3.83
-------- -------- -------- --------
Recovery (%) 91.5 91.2 91.1 90.9
-------- -------- -------- --------
Gold (oz)
-------- -------- -------- --------
Production 20,544 17,663 21,288 18,225
-------- -------- -------- --------
Sales 19,475 16,943 20,217 18,487
-------- -------- -------- --------
Silver production (oz) 20,170 25,556 30,049 22,915
-------- -------- -------- --------
Realised gold price
(US$/oz) 1,302 1,308 1,271 1,267
-------- -------- -------- --------
Gold production during the period was 20,544 oz (up from 17,663
oz in Q1), which included a record month in June during which
51,130 t at 5.30 g/t was processed, producing 8,705 oz of contained
gold. Overall, a total of 197,020 tonnes of ore grading 4.15 g/t
was mined in Q2 compared with 142,784 tonnes of ore grading 4.40
g/t in Q1.
The ROM stockpile at the end of Q2 was 143,123 t of ore grading
1.54 g/t (up from 101,639 tonnes grading 1.50 g/t at the end of
Q1).
Open-pit mining has delivered according to plan since its
reintroduction in March, supplementing the underground operation
with an average 19,400 tonnes per month throughout the Period and
increasing production flexibility. Open pit mining will be
temporarily halted for 6 months at the end of August 2018 as
sufficient ore is expected to be available from the underground
mining operations and the ore stockpiles.
Following approval for use in March, TSF2 was successfully
commissioned in April at New Luika. This has enabled the
decommissioning of the first Tailings Storage Facility ("TSF 1").
All major project work at New Luika is now completed, commissioned
and in use.
Safety, Health and Environment
There were no Lost Time Injuries during the quarter. Shanta
maintains its track record of operating among the safest gold
mining operations of its peers and in Q2 had a total recordable
injury case rate (per 1 million hours worked) of 2.25,
significantly below industry average.
Cost savings initiative update
Since announcing its target to reduce annualised costs by a
further US$2 m in January 2018, the Company has achieved US$2.1
million of recurring cost reductions, taking the total annualised
cost reductions achieved to US$7.2 million compared to those prior
to commencing its core initiatives announced in September 2017.
This has been achieved three months ahead of schedule and is
largely the result of renegotiated contracts with suppliers and the
elimination of non-essential G&A spend.
Importantly, the underground operation has been ringfenced
during this exercise to ensure that underground production
continues as planned.
Ilunga development update
The decision has been made to accelerate the start of mining at
the Ilunga underground mine. Ore production is due to commence in
mid-2019, rather than late 2020 and will enhance project NPV and
increase production flexibility by contributing a third source of
high grade underground ore feed.
Pre-production capital expenditure is estimated to be
approximately US$4 m, reduced significantly from US$8.5 m in the
March 2017 Revised Mine Plan, following an extensive
re-optimisation process carried out during the first half of
2018.
Infrastructure for the power supply and civil requirements at
Illunga have been completed and first blast of the new portal is
projected to take place during Q4 2018. The Illunga underground
mine is currently undergoing the latter stages of permitting
resulting in development ore expected to begin supplementing
existing operations from mid-2019.
Exploration
The Company announced an updated JORC compliant Mineral Resource
Estimate at Singida in early June which showed an increase in
M&I resources to 5.71 Mt of gold at 2.08 g/t for 381,000 oz of
gold. This also included a 56% increase in Measured resource.
The Singida Mineral Resource incorporates three mining licences
and is based on seven-shear zone related gold deposits with a
combined strike length of 4.9 km. Only two of the seven targets
within the Project mining licences were tested during these
drilling campaigns with encouraging mineralized drilling
intersections achieved, including:
-- 10 m @ 20.82 g/t gold from 138 m in hole SC702, including 3 m @ 57.13 g/t gold from 138 m;
-- 5 m @ 10.35 g/t gold from 120 m in hole SC713;
-- 5 m @ 8.06 g/t gold from 62 m in hole SC709;
-- 8 m @ 5.96 g/t gold from 117 m in hole SC708;
-- 8 m @ 3.86 g/t gold from 123 m in hole SC705;
-- 7 m @ 4.69 g/t gold from 124 m in hole SC706; and,
-- 4 m @ 5.48 g/t gold from 61 m in hole SC712.
The Company will be commencing ground geophysical work in Q3 to
delineate further resources and potentially upgrade the inferred
resources near to surface in the Cornpatch and Cornpatch West
targets.
Drilling results from exploration core drilling carried out at
Bauhania Creek have been announced in July 2018, with Phase 2
drilling at Bauhinia Creek planned for H2 2018.
Singida
A new JORC-compliant resource estimate was announced in the
Period following encouraging mineralised drilling intersections
achieved during the recent drilling campaign. This included a 56%
increase in Measured resources, with total M&I resources now
381 koz at 2.08 g/t.
Confirmation has been received that the Singida project will be
connected to the Government (Tanesco) power grid, expected to be in
place by the end of 2018. This infrastructure will help to minimise
the infrastructure cost for power requirements at the project. The
internal Owners Team is conducting necessary works to ensure that
all such available cost efficiencies are utilised as the Company
gears up towards securing asset level financing for the project in
the future.
Internally estimated Project NPV at Singida has been enhanced
following re-optimisation of the mine plan and improvement in
forecasted energy costs. IP at Singida is expected to commence
towards the end of Q3 2018.
A corporate restructuring process was commenced during the
Period to transfer Singida mining licences and assets into a
stand-alone company, 100% owned by SMCL, in preparation for a
potential future asset level financing.
CSR and Government engagement
The Company reiterates the importance of engaging with local and
national government and continues to dedicate substantial time in
constructive dialogue. Many of these discussions take place in
Tanzania's capital, Dodoma, particularly in relation to the
reimbursement and/or offset of the Company's outstanding VAT
receivable.
Several new Livelihood Programs have commenced during the
Period, which supplement those initiated in 2017. Works carried out
at Maleza Primary School, a short distance from New Luika, have
included the construction of three new classrooms, sanitation
facilities and renovation of four additional classrooms. Planned
improvements to the school are now completed. Furthermore, a solar
power unit has been installed at the Maleza dispensary which will
enable the community to access health services twenty-four hours a
day.
The second phase of the local farming project initiated in 2017
has resulted in the production of 75 tonnes of Sesame. Preparations
for the coming rainy season will begin in September during which
time local farmers will receive more training on how to maximise
their harvest.
Almost 99% of the entire workforce across the business are
Tanzanian nationals. The Company has elected to adopt the
government's Local Content Legislation early, with a Local Content
Plan submitted to the Minerals Commission in April 2018. Conducting
business as a responsible corporate citizen and aligning both
national and internal values is central to Shanta's operating
approach.
Corporate and strategic
In Q2 2017 the Company announced an agreement with Investec Bank
plc to implement a new US$50 m facility to replace the current $40
m facility ("New Investec Facility"). Shanta and Investec Bank plc
mutually agreed to not proceed with this refinancing agreement. The
Company has instead agreed to the repurchase of 33.33% of the
Convertible Loan Notes currently held by third parties, at par,
through a subsidiary of the Company (Shamba Limited), and to extend
the maturity of the Loan Notes to April 2020.
This arrangement will provide the Company with increased
flexibility to develop Ilunga, conduct exploration at NLGM and to
identify targets close to the mine. The Board considers the
Arrangements a positive outcome, resulting in reduced overall
indebtedness of the Company, with no associated fees.
Post Period
As announced in early July, the Company has achieved an
additional US$2.1 million of recurring cost reductions. This has
increased the total annualised cost reductions achieved since
commencing its core initiatives in September 2017 to US$7.2
million. The additional cost savings equate to approximately US$25
/oz on a recurring basis and were executed 3 months ahead of
schedule.
Since the end of the Period, the Company has sold forward an
additional 15,000 oz, bringing the total forward sales to 27,000 oz
at an average price of US$1,262 /oz.
Encouraging exploration results have been achieved at the
Bauhinia Creek underground deposit, following targeted drilling
into an area adjacent to the existing reserves. This area is
currently outside of the Mine Plan and the exploration works
conducted have confirmed that the high grade mineralised orebody
extends to the east, adjacent to the existing high-grade
underground mine at Bauhinia Creek.
Assay results from the drilling campaign at Bauhinia Creek have
shown encouraging results, which are currently being modelled. The
results will be used to plan Phase 2 of the drilling campaign, due
to take place during the second half of 2018. The new high-grade
intersections are situated at depth and adjacent to an existing
intersection of 6 metres, averaging 43.98 g/t Au. These drilling
results are over a strike length of 80 metres with holes spaced at
40 metres sections and will contribute to the overall objective of
the drilling programme which is to upgrade the mineral resources at
New Luika.
ENDS
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END
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