© 2024 Alpha Spread Limited. All Rights Reserved.
www.alphaspread.com is not operated by a broker, a dealer, or a registered investment adviser. Under no circumstances does any information posted on www.alphaspread.com represent a recommendation to buy or sell a security. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, investment advice or recommendations. The information on this site is in no way guaranteed for completeness, accuracy or in any other way. In no event shall Alpha Spread Limited be liable to any member, guest or third party for any damages of any kind arising out of the use of any content or other material published or available on www.alphaspread.com, or relating to the use of, or inability to use, www.alphaspread.com or any content, including, without limitation, any investment losses, lost profits, lost opportunity, special, incidental, indirect, consequential or punitive damages. Past performance is a poor indicator of future performance.
You don't have any saved screeners yet
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Good day, and welcome to the Shanta Gold Conference Call. Today's conference is being recorded. [Operator Instructions] At this time, I would like to hand the conference over to Eric Zurrin, CEO. Please go ahead.
Thank you very much, operator, and good morning, everyone. Thanks for dialing in to today's Quarter 2 2022 production and operations report for Shanta Gold. As a reminder, Shanta is an East African gold producer and Explorer in Kenya and Tanzania.
The second quarter has been a strong quarter for Shanta, thanks to the teams on the ground in Tanzania and West Kenya. At New Luika, the initial Crown Pillar mining has been delivered safely, resulting in production being up 54% in Q2 versus Q1 which exceeded our internal expectations and that -- which we set out to the market back in June. Over at Singida, our second asset in Tanzania, we're making really steady progress, construction is on schedule for first production in Q1 '23. Progress is now 63% complete, and Singida will transform Shanta into a 100,000-plus ounce gold producer in a little over 6 months giving us a diversified resource base and cash flow stream.
And then finally, Shanta continues to go from strength to strength. We have a strong balance sheet underpinned by our new $20 million senior debt financing with Standard Bank that we closed and had dispersed on Friday. And really, this has been an encouraging for 6 months for us, and we are reiterating our full year guidance of 68,000 to 76,000 ounces.
Now let's move on to Slide 3 of the presentation and have a little bit of an introduction on us. I think a lot of you know us already. But just to reiterate, our portfolio of assets stands at a value of about $500 million of NPV across 3 assets in 2 countries. July this year, July 2022 marks the 10-year anniversary of Shanta's first doré bar, [indiscernible], at the New Luika goldmine. This is a big milestone for us. And fortunately, the feature is brighter today than it was 10 years ago, even at the commencement of our operation.
We've operated in Tanzania for 20 years. As I said, we've been in production for 10. And over the last few years, we've undergone a major transformation to broaden our asset base, get the job done in terms of transforming our assets into more robust, resilient production basis and now setting the bar above 100,000 ounces for the first time in our history.
Our attractive valuation is supported by dividend yield of 2.5%, and our balance sheet is very strong now with -- as we sit today, I think it's over $30 million of cash following the recent $20 million debt facility with Standard Bank.
On to Slide 4 for a bit on our outlook and then we'll go into some of the quarter -- some of the details from the quarter. Production over the next 4 years is north of 400,000 ounces. And as I said, in a little over 6 months, Singida will transform us into a plus 100,000 ounce gold producer. Beyond that, in Tanzania, we have the highly compelling West Kenya project, which is delivering a lot of options now for us. We have drill rigs active over 4 different deposits across 2 mining camps. And as you can see on this chart, production overall for Shanta is set to grow rapidly.
Turning to Slide 5 and a few points on the second quarter. During the quarter, we produced 17,527 ounces, had a blended grade of 2.83 grams per tonne. As we already guided in January, quarterly gold production was forecast to increase throughout the year with H2, so the second half of the year representing about 65% of our total production. We reiterate guidance of 68,000 to 76,000 ounces for 2022.
Pleasingly, during the quarter, mining from the Crown Pillar commenced on April 19. This was about a month earlier than planned. And this significantly derisked the overall production plan for 2022. Liquidity is strong. At the end of the quarter, we had $14.5 million of liquidity, so that's cash and available liquidity. And since then, we've drawn the $20 million from Standard Bank.
During the quarter, we invested $10.9 million into our assets being the construction of Singida, West Kenya drilling and capital in New Luika. This follows on from $9.4 million invested in CapEx in Q1. And you can see clearly, as we've invested $20 million over the last 6 months into our assets, we are in growth mode in 2022, which we've said repeatedly and expect our growth investment to reduce in '23 and Shanta to move back into free cash flow harvesting when Singida comes online.
In April, we said we would see a boost in production and cash flow from the Crown Pillar mining during Q2, and that's exactly what happened. We added more liquidity despite the investment in CapEx and the Crown Pillar mining has, in fact, boosted our production by over 50% this quarter as we blended it with other areas for mining. We have a lot of flexibility in financing our growth plans over the next 12 months, including cash from operations in what looks like a pretty strong second half from the numbers I've seen and from the cash on our balance sheet.
On to Slide 6, in terms of some of the key metrics to look at and key numbers from the second quarter. Physicals, these are the volumes we've mined from combined underground and open pit sources has had a new record during the quarter. We mined 225,000 tonnes, which is something we've never done before. So well done to the team on the ground. This is a great accomplishment and a great achievement for our operations at New Luika.
At the processing plant, the third mill is delivering as expected, and we're running at about 875,000 tonnes per year run rate of tonnes through the plant as we sit today. So overall, the assets are performing despite them being 10 years old, in some cases, they're performing as we expected, and these are some of the best rates we've seen ever at New Luika in terms of physicals.
On to the underground, what do we actually mine and how is it going against plan? Well, underground actual mined ore grade reconciled well in Q2 and year-to-date, reconciliation is plus 5% in terms of grade versus the grade control model that we predicted. So to put this in another context, we did grade control drilling last year to effectively plan for 2022. And what we're mining is in terms of grade is about 5% better than we expected. So this is an improvement on the plus 3% we reported at the end of Q1. And what this tells me is the investment we've made in grade control drilling is paying off which gives us excellent predictability for our planning, which is really important as we are investing.
Overall grade during the quarter was 2.83 grams per tonne, which is a function of the blending we did from underground, open pit and run-of-mine stockpile sources. Open pit mining availability of equipment has improved since Q1. We're working hard to get it back to where we think the contractor should be delivering in terms of tonnes mined per day, but there's still a little bit of work to do. And then finally, a bright spot, on the gold sales as we've sold gold at an average of [ $1,886 ] per ounce in Q2, which is another all-time record for Shanta in terms of quarterly gold prices.
On to Slide 8, a few points on Singida. Mine construction is on track for Q1 2023 production. Our plans show that the first bar will be poured in March '23, but that's getting into the granularity. So that's what we're planning for from here on forward. Construction is now 63% complete, up from 51% at the end of Q1. As we reported before, the key activity from now to the first production really is moving physicals. So this is actual ramping up the mining activity on the ground and that will consume a disproportionate amount of the required capital remaining for construction.
Key infrastructure is in place as planned and on track. So we've had now that crusher -- and crushing and grinding circuit installed. And the next one is really having the mill installed and commissioned.
In terms of cost at Singida, I get this question a lot, what are we seeing on inflation. It's quite interesting. We know that the inflation increase we're seeing in costs at New Luika. RNS, predominantly from consumables and power. This is oil. But at Singida, we haven't really seen it yet, partly for 2 reasons. One is we placed orders on long -- so on key infrastructure, long lead items, the orders we placed were before the recent surge in inflation and operating costs on site are largely labor and local consumables. So it's been a nice reprieve at Singida, but I'm sure can't avoid it once we go into production in terms of consumables.
Mining at Singida [ bore ] continues well. The stockpile now sits at about 6,600 ounces, creating 2.11 grams per tonne, which we estimate will increase to about 10,000 ounces of stockpile by the start of production in Q1. And that turn stockpile is about double what it was at the end of March. So we're mining ore as we strip the bits to construct the TSF.
On to Slide 9 -- sorry, Slide 8, I should say, which is the West Kenya production -- sorry, West Kenya operation. Recall, we announced an excellent year in mineral resource update in March, end of March, so about 1.6 million ounces at West Kenya, including new indicated resources of 378,000 ounces grading 11.7 grams per tonne. So all very encouraging. And then again, we announced an oxide resource at West Kenya at 67,000 ounces, rating 15.84 grams per tonne. So these are really, really remarkable grades that we are seeing and expansion of resources. So all really encouraging.
The strategy at West Kenya is to expand the resource and to infill the existing resources so we can upgrade to indicated. So it's a 2-part strategy. We're doing both simultaneously across 3 drill rigs. And we're spending roughly about $1 million a month at West Kenya. We're now actively drilling across 4 targets being Isulu and Bushiangala. So these are the 2 targets that host the most of the resources in the Liranda Corridor. And then the Ramula complex and a new target called [indiscernible]. Those are both being drilled, and we believe we'll be able to declare some indicated resources at Ramula. This is the open pit target later on this year.
Additional drilling, as I said, has restarted at Ramula. It started on June 23. Recall, this is after already declaring 434,000 ounces of inferred resources last quarter. And to date, at Ramula, all 5 infill diamond holes have intercepted realized zones at the expected depth of returning visible gold in the 7 previously identified zones and 1 new zone. So Ramula is on track. It's doing what we expected it to do in terms of the drilling. Assets are pending, which we'll announce in Q3. And so far, we're about 25% of the way through the drilling that we've planned at Ramula. Again, the objective with Ramula is to upgrade it to an inferred -- sorry, an indicated resource, so all on track at Ramula.
Now to conclude on Slide 9, a few key catalysts over the next 3 months. Really, these are centered around growth in 2022, as you can see. We have some drilling out from West Kenya and possibly New Luika. We're really going to -- the drilling will really restart in earnest on August 1 at New Luika. And then we'll have a Singida construction update. But so far, I've told you everything I know about Singida, which is it's on track for Q1 and it's 63% completed and most importantly, fully financed. There is no financing risk with Singida.
With that, we look forward to continuing to keep the market and investors updated over the next couple of months. And we'll do so in due course.
Operator, thank you. That's the end of the formal portion of the presentation. And I'd like to hand back to you to open up for any Q&A.
[Operator Instructions] We will take the first question from Ben Davis from Liberum.
Congrats on a good quarter. Great to see these grades picking up. Just a few question for me. Just in terms of the rest of the year, how does it look now for great profile? Is it -- I presume it's still a bit more to go at. [Audio Gap]
at Crown Pillar for the rest of the year. And what we're doing is we're kind of drawing from the Crown Pillar not all at once. It's an incredible sweetener. I think they're going to be blasting 30,000 tonnes at about 10 grams per tonne very shortly and that will give us a continual feed from the -- to the end of the year and possibly into Q1. So it's sort of like you're feeding into the blend.
In terms of the actual forecast, I mean the numbers we're looking at are sort of like 7,000 ounces a month for the next 6 months, something like that. That obviously moves around, but we have flexibility to control the grade as we wish because there's a big variability between Crown Pillar mining and open pit mining. And then in terms of next year, we -- it's pretty much similar to what we saw in the 5-year plan. So I would probably reference that as a forecast for 2023.
Got you. Got you. Okay. Great. And in terms of Singida, so the 63%, I mean, should that be viewed as also kind of how much CapEx has been spent -- I mean how much it is, i.e., is it 37% less to spend on there? And how much of that falls into 2023? .
Yes, it's a good question. I mean I wouldn't -- it's one of these numbers we put out there, and then it kind of begs a lot of questions around it as you're doing now. It's just sort of charged with all sorts of questions when you put one of those numbers out. The reality is -- so this year, we've planned for, I think it was about $26 million of CapEx at Singida. And year-to-date, I think it's about well $11 million or $12 million. And so there's, call it, $14 million left for the year. And I would say there's not that much left in Q1 next year.
The bulk of the spending at Singida is around mining once they're going to get the earthmoving trucks in there pretty shortly and is settled, that will just come with the cost. So the way we plan Singida is that we wanted to really get the Standard Bank financing completed. It gives us a huge cushion. Our numbers show that we basically didn't even need the Standard Bank financing, but I spent 6 months putting it all together, you never really know what's going to happen with the gold price in the short term. And it just gives us a huge amount of financial flexibility to make sure Singida is on track in terms of timetable. So it's just we think it was a prudent thing to do.
That's for sure. Who knows where we go from here? I mean just on that those mining activities on Singida, is that create a working capital release for Singida in 2023? Or was that creating a level of stockpiles that you want in practice for the money at the mine?
Yes. So it's really around building the TSF, embankment walls. And to do that, we have to source waste material. And then as we source the waste material, we're mining ore at the same time as you go deeper in the pits. So the plan is -- I mean, the numbers I've seen are -- to build a TSF, we need to move a certain amount of waste, which will generate about 10,000 ounces of stockpile. It's not like we're targeting the stockpile. The stockpile is sort of the result of building TSF.
Yes. So [indiscernible].
Yes. To your point, it will -- that stockpile as we go through it, that will release -- the working capital inventory will be released into the plant. We'll get down to a stockpile. Probably, I would say as to look at the numbers, probably about us, we'd like to have about a 6-week stockpile, which is, call it, 4,000 ounces of gold on stockpile, give or take. And that's where we'll try and get to.
Okay. Got you. So assume that's [indiscernible] in terms of the actual -- you have gold dore ounces, I think, at about 3,000. Is that not -- that's -- is that finished product or is that ore stockpile?
We all know the dore is -- I think we reported just over 3,000 you said that's in the plant. And then on the stockpile of the actual ore, I think there's about -- I think it was about 6,000 ounces now. It's really by tonnes, it's about 120,000 tonnes, which is 6 weeks of processing.
Got you. Great. Just one -- quick last one for me. I don't know as you -- there's probably not much that we said on the VAT receivable. But have you got any hints of whether we're closer to a resolution at all?
Yes. A lot of work happening in the background. I had an update earlier in the week, various senior meetings, I just -- I think it's a patience game. But there's -- if there was nothing to report, we would say like conversations aren't progressing, but there are -- they are just -- it's just not the focus of this quarter for this opportunity. Yes.
Fair enough.
[Operator Instructions] We'll now take the next question from David Butler from Tamesis Partners.
David here. I just -- it sort of follows on from Ben's question, but what sort of grade are you actually achieving in the fresh -- outside the Crown Pillar, but underground at NLGM? And then with that in mind, how do you sort of offset the fade in grade as the Crown Pillar gets mined out for next year? Because I think you've got more ounces coming out next year from NLGM. I was just wondering how those plans were sort of shaping up.
Yes. No, good question. Okay. I'll give you an example here. So second half of the year at the Luika underground. So this is from the Crown Pillar. The grades there are planned at 4.2 grams at Luika. And then when you look into 2023, the Luika source grades there are 3.25 from Luika. And what we're trying to get to is the reserve grade of overall 3 grams at New Luika.
So what you saw in 2021 was basically, when you had the downgrade, that was mining from the end of Bauhinia Creek. That was the Bauhinia Creek showing its tail. And going forward, where we are today and into 2023 is really the resurgence of mining from Luika. I mean that was a completely -- obviously, it's next door to be in a great deposit, but it's a completely different source. And those are wider stopes, then tail end at Bauhinia Creek and we've done great control drilling in this area. So we have confidence in the grades. But it's obviously not as juicy, so to speak, as the Crown Pillar.
Yes. And are you planning to -- is BC North part of this or [indiscernible] South or?
Yes. So when we look at the overall blend, we think about underground versus open pit, and so for example, BC North next year, it's relatively small. It will contribute some ounces, but not material. The source really of, of next year's underground and going forward is Luika underground. And then when we look at the blend from the open pits, going forward, the majority of the material is coming from the Elizabeth Hill pit which is right next to the TSF and very close to the processing plant.
And the grades from Elizabeth Hill pit next year 2.1 grams there's, call it, 17,000 ounces from Elizabeth Hill contained. So the way to think of the future, at least 2023 going forward, is a little bit left from the Crown Pillar, steady production from Luika underground at 3.25 and then you have topped that up from Elizabeth Hill at 2.1. And kind of there's your tonnes and ounces profile for '23.
[Operator Instructions] As there are no further questions in the queue, I'd like to hand the call back over to Mr. Zurrin for any closing remarks.
Thank you, operator, and thank you, everyone, for dialing in. We look forward to keeping you updated throughout the next 3 months with additional updates, and we'll provide those in due course. Thank you.
Thank you. That will conclude today's conference call. Thank you for your participation. Ladies and gentlemen, you may now disconnect.