TIDMSHG
RNS Number : 1975C
Shanta Gold Limited
18 January 2018
18 January 2018
Shanta Gold Limited
("Shanta Gold", "Shanta" or the "Company")
Q4 2017 PRODUCTION AND 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 31 December 2017 (the "Quarter", "Q4"
or the "Period") for its New Luika Gold Mine ("NLGM"), in Southwest
Tanzania.
Highlights
Operational
-- Quarterly gold production of 21,288 ounces ("oz") (Q3 2017:
18,225 oz), an increase of 17% on Q3;
-- Annual gold production for 2017 of 79,585 oz (2016: 87,713
oz), consistent with guidance of approximately 80,000 oz;
-- Total ore mined during the period from underground production
of 143,092 tonnes (Q3 2017: 75,996 tonnes), an increase of 88% on
Q3;
-- Quarterly gold sales of 20,217 oz at an average price of
US$1,272 /oz, compared to average spot price of US$1,277 /oz;
-- Gold sales for 2017 of 79,938 oz (2016: 86,331 oz) at an
average price of US$1,263 /oz, compared to average spot price of
US$1,258 /oz;
-- Q4 cash costs of US$553 /oz (Q3 2017: US$558 /oz);
-- Q4 All in Sustaining Cost ("AISC") of US$784 /oz (Q3 2017:
US$769 /oz, restated in line with the World Gold Council with the
reconciliation provided on page 8);
-- Restated 2017 AISC of US$747 /oz in line with World Gold
Council compared to guidance of US$781 /oz restated for comparison
(2016: US$659 /oz restated for comparison); and,
-- Underground operation has produced over 250,000 tonnes of ore
at an average grade in excess of 6 g/t and development of over 7
kilometres since commencing in July 2016.
Financial
-- Cash balance of US$13.5 million ("m") (Q3: US$8.0 m);
-- Gross debt of US$53.4 m (Q3 2017: US$53.5 m) and net debt of US$39.9 m (Q3 2017: US$45.5 m);
-- Forward sales from January to May 2018 of 22,500 oz at an average price of US$1,271 /oz;
-- Capital expenditure of US$6.3 m (Q3 2017: US$9.5 m); and,
-- US$1.9 m drawn down in each of October and November from
US$7.5 m 4-year facility agreed with Exim Bank, taking the total
amount drawn down to US$5.6 m.
Corporate and strategic
-- Cost reductions of US$8.7 m per annum on an annualised basis
achieved in November (including US$3.6 m from new mining method at
Luika);
-- NGLM headcount reduced from 1,075 at the end of H1 2017 to 759;
-- Planned installation of additional pre-leach tank expected to
increase recoveries by 1.5 -2% with a payback period for the
project of 4 months;
-- Cost saving target increased in January 2018 from US$5.0 m to
US$7.0 m per annum on an annualised basis (excluding impact of new
mining method at Luika), expected to be executed by Q3 2018;
and,
-- Management to evaluate dividend policy in Q4 2018 following
ongoing deleveraging of the Company balance sheet.
Exploration and development
-- Commenced revaluation of NLGM sequencing with high-grade
Ilunga deposit potentially prioritised to increase project NPV;
-- Updated JORC compliant Resource at Singida totalling 12.3Mt,
grading 1.84g/t and containing 728koz of gold using a cut-off grade
of 1.0g/t consisting of;
o a Measured and Indicated Mineral Resource totalling 5.11Mt,
grading 2.09g/t gold and containing 345koz of gold, and;
o an Inferred Resource of 7.17Mt, grading 1.66g/t gold and
containing 383koz of gold.
-- MRE incorporates three mining licenses and seven mineralised
zones with a combined strike length of 4.9km, with widths ranging
from 5-15m and mineralisation extending approximately 500m below
the topographical surface;
-- New exploration manager, Paul Mbuya, appointed in January
2018 to develop exploration programme, with a focus on initiatives
within current mining licences as top priority; and,
-- Further exploration is planned at Singida with targeted drilling and IP during H1 2018.
VAT Repayments
-- VAT refund received during Q4 of US$3.4 m, comprising a
US$1.9 m offset against corporate taxes payable in 2016 and 2017
and a cash payment to the Company of US$1.5 m;
-- At the end of Q4, the Company had a VAT receivable balance of US$14.5 m (Q3: US$15.8 m); and,
-- Discussions continued in the quarter with the Government of
Tanzania to have the outstanding balance repaid.
Guidance for 2018
-- Annual guidance for 2018 of 82,000-88,000 oz at AISC of US$680-730 /oz.
Change in All-In Sustaining Costs Measure
-- All-In Sustaining Costs (AISC) now being calculated on an
updated basis, aligning the Company's measure with that stipulated
by the World Gold Council; and,
-- Exploration costs included in AISC calculation and financing
costs (ie interest expense) removed from the AISC calculation.
Post Period
-- Luke Leslie appointed as Chief Financial Officer on a
permanent basis effective 1 January 2018; and,
-- Numis Securities Limited appointed as Nominated Advisor and Sole Broker.
Eric Zurrin, Chief Executive Officer, commented:
"We are pleased to report a strong final quarter of 2017. The
Company expects to continue reducing its net debt and restructuring
the business to deliver improved, sustainable cash flows going
forward. With this in mind, we have increased our annual cost
saving target to $7.0 m from the previous $5 m target.
These initiatives are expected to result in another year of
deleveraging and management expects to be in a position to evaluate
the dividend policy during the fourth quarter of 2018 in
preparation for subsequent financial periods."
Analyst conference call and presentation
Shanta Gold will host an analyst conference call and
presentation today, 18 January 2018, at 09:30 GMT. Participants can
access the call by dialling one of the following numbers below
approximately 10 minutes prior to the start of the call.
United Kingdom Toll: +44 (0)2031394830
United Kingdom Toll-Free: 08082370030
PIN: 50996233#
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=131694618&PIN=50996233
A recording of the conference call will subsequently be
available on the Company's website.
Enquiries:
Shanta Gold Limited
+255 (0) 22
Eric Zurrin (CEO) 292 5148
Luke Leslie (CFO)
Nominated Adviser and Broker
Numis Securities Limited
Paul Gillam / John Prior +44 (0) 20
/ James Black 7260 0000
Financial Public Relations
Tavistock
Jos Simson / Charles Vivian +44 (0) 20
/ Barnaby Hayward 7920 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 licences 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 769 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.
Operational
Production Summary
FY 2017 Q4 2017 Q3 2017 Q2 2017 Q1 2017
------------------- -------- -------- -------- -------- --------
Tonnes ore
milled 632,287 162,233 163,109 155,567 151,378
--------
Grade (g/t) 4.28 4.48 3.83 4.28 4.57
--------
Recovery (%) 91.2 91.1 90.9 90.9 92.0
--------
Gold (oz)
--------
Production 79,585 21,288 18,225 19,657 20,416
--------
Sales 79,938 20,217 18,487 17,982 23,252
--------
Silver production
(oz) 106,238 30,049 22,915 24,524 28,750
--------
Realised gold
price (US$) 1,263 1,271 1,267 1,265 1,249
------------------- -------- -------- -------- -------- --------
Gold production increased significantly during the period to
21,288 oz (from 18,225 oz in Q3) due primarily to higher mill head
grade of 4.48 g/t (3.83 g/t in Q3) with Q4 being the highest
production quarter of 2017. During this period the number of stopes
available for production increased to two and is planned to
increase to three on a stable basis, further improving production
flexibility. This improvement contributed to the plant reaching a
new daily production record of 510 oz in December, exceeding the
previous record of 457 oz.
Underground production continued to perform in line with plan
during the period with the decline in the Bauhinia Creek deposit at
1,266 m by the end of December. Overall, a total of 143,092 tonnes
of underground ore grading 4.7 g/t was mined in Q4 compared with
75,996 tonnes of ore grading 5.83 g/t in Q3.
The Run of Mine ("ROM") stockpile at 31 December 2017 was
108,842 tonnes of ore grading 1.5 g/t (down from 123,200 tonnes
grading 1.6g/t at the end of Q3). The ROM stockpile continues to be
blended with high grade ore from the underground.
Since commencing in July 2016, the NLGM underground operation
has completed four vertical shafts, two return airway set ups and
secondary emergency egress's in addition to the wider team
commissioning and completing the CRF plant ahead of schedule. This
has enabled the NLGM workforce to produce in excess of 250,000
tonnes of ore at an average grade exceeding 6 g/t within the same
timeframe.
Safety, Health and Environment
Safety, Health and the Environment remains the top priority for
Shanta. There was one Lost Time Injury during the quarter.
Notwithstanding Shanta maintains its track record of operating one
of the safest gold mining operations among its peers.
Financial
During the Quarter a total of 20,217 oz of gold was sold at an
average price of US$1,271 /oz. This was below the average spot
price of US$1,277 /oz over the period. As of 31 December 2017, the
Company had sold forward 22,500 oz to May 2018 at an average price
of US$1,271 /oz.
Cash costs for Q4 were US$553 /oz (Q3 2017: US$558 /oz) and AISC
were US$784 /oz (Q3 2017: US$822 /oz).
There was a US$1.9 m increase in working capital in the Quarter
accounted for by an increase in payables (US$1.0 m), no change in
inventories and an increase in trade and other receivables (US$2.9
m). The increase in trade and other receivables includes VAT
receivable which decreased by US$1.3 m to US$14.5 m following the
US$3.4 m refund received during the quarter. Capital expenditure
was US$6.3 m (Q3: US$6.7 m) which was predominantly related to
underground development and equipment.
As at 31 December 2017 the Company had a cash balance of US$13.5
m (Q3 2017: US$8.0 m) and access to the remaining undrawn
unrestricted Exim Bank facility of US$1.9 m. The higher cash
position was achieved despite significant one-off payments made in
the quarter of over US$3 m in relation to termination costs.
The Company is reducing its debt and restructuring the business
to deliver improved cash flows going forward. Gross debt decreased
to US$53.4 m (Q3: US$53.5 m) following repayments including US$2.7
m to Investec. These were offset by drawdowns of US$3.8 m from Exim
Bank where the Company had a further US$1.9 m of unrestricted cash
available to draw at the end of December 2017. Nevertheless, net
debt decreased significantly to US$39.9 m (Q3: US$45.5 m).
Corporate and strategic
On 5th September 2017 the Company announced a plan to reduce
costs by US$5m per annum on an annualised basis and this was
achieved in the quarter with cost reductions of US$5.1m per annum
executed. These reductions were exclusive of the significant
standalone saving generated through replacement of the Mining
Contractor resulting from planned decline in open pit production.
Run-rate savings are expected to be fully realised by the end of Q1
2018 and will have a direct bearing on free cash flow generation
moving forwards.
An operational improvement program was also initiated which
includes targeting higher recoveries of over 93%, an improvement of
1.5-2% by H2 2018. This follows laboratory scale extended leach
test work on increasing residency time through the installation of
an additional pre-leach tank and will cost approximately US$0.5m.
This pre-leach tank will increase residency times in the plant by 8
hours and will supplement the 2.6% improvement in recoveries
achieved following installation of the previous pre-leach tank,
with an expected payback period of 4 months. Assembly and
installation is planned for April 2018 with commissioning by the
end of June 2018.
At the end of Q4 the Company's headcount had reduced to 759
people (127 contractors and 632 direct employees), a 32% reduction
from the beginning of Q1, closely aligned to the optimal
organisational structure targeted by management as part of the
value improvement initiatives rolled out by new management in early
Q3 2017. 98% of the Company's workforce are Tanzanian nationals,
with over 40% of these individuals hired from the local communities
surrounding NLGM. This is a direct outcome of Shanta's commitment
to and investment in the livelihood of the local area.
Management is committed to further reducing the Company's cost
structure and has increased its cost savings target from US$5
million to US$7 million per annum on a run-rate basis. These
savings exclude the lower costs of changing mining method at Luika
and are expected to be identified and executed by the end of Q3
2018.
During the quarter, the Company also revised its mining method
for the Luika underground from Cut and Fill to Long Hole Open
Stoping ("LHOS"). This removes the requirement for backfilling with
cement, lowering mining costs by an estimated US$3.6m in 2018, with
backfill costs having declined to $1.1m per annum on an annualised
basis (RMP: $4.7m). This approach has been assumed for the top
panel and, if successful, the rest of Luika will be changed to
LHOS.
In late Q2 the Company announced an agreement with Investec Bank
plc ("Investec") to implement a new US$50 m facility to replace the
current $40 m facility ("New Investec Facility"), subject to due
diligence, delivery of certain Conditions Precedent, and
documentation satisfactory to Investec. The Company also announced
its intention to repurchase the outstanding unsecured subordinated
convertible loan notes due April 2019 ("Loan Notes"). The Company's
authority to buy back the Loan Notes expired on 20 October 2017. As
previously announced, the Company expects to provide a further
update on the debt restructuring to shareholders and the holders of
the Loan Notes by the end of Q1 2018.
2018 is expected to be a year of deleveraging and management
expects to evaluate the Company dividend policy during Q4 2018 in
preparation for subsequent financial periods.
Exploration and Development
During the quarter the Company commenced a programme to evaluate
the potential resequencing of the Revised Mine Plan to maximise
project net present value. The probable reserve at Ilunga averages
a grade of 5.56g/t in high tonnage stopes and therefore may be
prioritised as part of this process.
A JORC compliant resource of 0.727 Moz was declared in the
quarter for Singida, increasing group gold resources to 2.1
Moz.
Singida's Measured and Indicated Resource at 14 November 2017 is
an estimated 5.11 Mt, grading 2.09 g/t and containing 0.345 Moz of
gold at a cut-off grade of 1.0g/t, with the majority of the
measured and indicated resources close to surface or not more than
120 m from the surface.
Estimated Inferred Resources total over 7.17 Mt, grading 1.66
g/t and containing 0.383 Moz of gold at a cut-off grade of 1.0
g/t.
The Singida Mineral Resource is based on seven-shear zone
related gold deposits with a combined strike length of 4.9km.
Historical drilling has identified mineralisation extending down to
500m from the surface in the Gold Tree One deposit.
Management are pleased to announce the appointment of a new
exploration manager, Paul Mbuya, a Tanzanian national, recruited in
Q4 2017 to further develop the exploration programme, with a focus
on initiatives within current mining licences. Paul is a qualified
exploration geologist and a former Alternate General Manager with
Banro and brings with him nearly 20 years of experience in
comparable roles.
Further exploration is planned at Singida with targeted drilling
and IP during H1 2018. Prior to mining, a Phase 2 drilling
programme may be necessary to infill the drill density within the
pit shell.
VAT Repayments
During Q4 the Company received a VAT refund of US$3.4 m,
comprising US$1.9 m offset against corporate taxes payable in 2016
and 2017 and a cash payment to the Company of US$1.5 m. This refund
was the largest returned to any miner operating in Tanzania during
the period.
Accumulated VAT receivables had decreased by the end of Q4 to
$14.5 m from US$15.8 m at the end of Q3. The positive impact of
this refund was mitigated by ongoing VAT payments incurred in the
ordinary course of business.
Discussions between the Company and the Government of Tanzania
continue, with the aim that the outstanding balance is repaid.
Change in All-In Sustaining Costs Measure
The Company has revised its measure of AISC to align itself with
common practice. The revised calculation includes the impact of
exploration and study costs (sustaining) and excludes interest
costs. This is now in line with the method used by the World Gold
Council in its published Guidance Note on Non-GAAP Metrics.
Restated AISC for the 2015 and 2016 financial years, Q1 - Q4
2017 and 2017 guidance have been outlined alongside previously
published comparatives as follows on a per ounce (oz) basis:
Methodology FY 2017 Q4 2017 Q3 2017 Q2 2017 Q1 2017
Actual
--------------------- -------- -------- -------- -------- --------
Previous Shanta
calculation ($/oz) 793 837 822 735 768
+ exploration
costs 21 19 21 30 20
- finance costs (67) (72) (74) (32) (91)
As restated ($/oz) 747 784 769 733 697
Methodology FY 2017 FY 2016 FY 2015
Guidance
--------------------- ---------- -------- --------
Previous Shanta
calculation ($/oz) 800 661 834
+ exploration costs
($/oz) 37 53 29
- finance costs
($/oz) (56) (55) (65)
As restated ($/oz) 781 659 798
Post Period
Luke Leslie has accepted the appointment as Chief Financial
Officer on a permanent basis effective 1 January 2018 and will
remain a Director of the Company. Luke was appointed Interim CFO on
11 September 2017, having served as a Non-Executive Director of the
Company since 2012. The Board is extremely pleased that Luke has
agreed to become Shanta's CFO on a permanent basis.
Numis Securities Limited have been appointed as Nominated
Advisor and Broker.
ENDS
This information is provided by RNS
The company news service from the London Stock Exchange
END
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