Q1 2017 Production And Operational Update

RNS Number : 7913C

Shanta Gold Limited

20 April 2017

 

20 April 2017

Shanta Gold Limited

("Shanta Gold", "Shanta" or the "Company")

Q1 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 March 2017 (the "Quarter" or the "Period") for its New Luika Gold Mine ("NLGM"), in Southwest Tanzania.

Highlights

Operational

·     Quarterly gold production of 20,416 ounces ("oz") (Q4 2016: 18,897 oz);

·     Quarterly gold sales of 23,252 oz at an average price of US$1,249 per oz ("/oz"), compared to average spot price of US$1,219 /oz;

·     Before accounting for capital adjustments, cash costs for Q1 of US$553 /oz (Q4 2016: US$486 /oz) and All in Sustaining Cost ("AISC") of US$768 /oz (Q4 2016: US$747 /oz). There were no capital adjustments in Q4 2016; and

·     One lost time injury for the Quarter.

Financial

·     Cash balance of US$11.7 m (Q4 2016: US$15.0 m);

·     Cash generated from operations in Q1 of US$6.6 m (Q4 2016: US$0.1 m cash used in operating activities);

·     Capital expenditure of US$9.9 m (Q4 2016: US$12.9 m), before deducting US$5.1 m relating to processing of 13,946 tonnes of underground development ore (15,171 tonnes of underground development ore was mined) prior to commercial underground production at NLGM;

·     Gross debt of US$56.2 m (Q4 2016: US$57.9 m) and net debt of US$44.5 m (Q4 2016: US$42.9 m); and

·     Forward sales from April to October 2017 of 25,000 oz at an average price of US$1,292 /oz.

Development and Exploration

·     Underground project - remains on schedule and on budget. At the end of March, the underground project had developed a total of 2,297 metres;

·     The underground continued to achieve good and consistent gold grades. A total of 15,171 tonnes of ore grading 10.61 grams per tonne ("g/t") was mined in Q1;

·     The Revised Mine Plan ("RMP") was delivered as promised lifting gold production by 39% when compared to the 2015 Base Case Mine Plan; and

·     Drilling assay results released for the Nkuluwisi prospect with maiden resource expected in Q2 2017.

Corporate

·     Financing of €2.1 m (US$2.2 m) for underground equipment purchases with Sandvik agreed and expected to complete in Q2; and

·     Eric Zurrin joined Shanta Gold as its permanent CFO, effective 13 March 2017.

Guidance for 2017

·     Annual guidance reiterated for 2017 of 80,000 - 85,000 oz at All-In Sustaining Costs ("AISC") of US$800 - US$850 /oz. The RMP produces gold at an average AISC of US$736 /oz with an average production for the next four years (2017-2020) of 85,000 oz.

Toby Bradbury, Chief Executive Officer, commented:

"Shanta had a promising start to the financial year with more ounces produced, at a greater margin than planned, ensuring the Company is on track to meet its 2017 guidance of 80-85,000oz at an AISC of US$800 - 850 / oz."

"Pleasingly, the underground production at New Luika remains on track for commercial production during Q2 2017. Development is progressing as planned and we have started processing underground development ore, with 15,171 tonnes grading 10.6 g/t mined in the quarter. Due to the move underground, the Company anticipates Q2 2017 gold production to be its lowest quarter for 2017, as it moves through the ramp-up process of the underground production."

"The release of the Revised Mine Plan in March was a substantial achievement for the Company, again delivering on a major commitment to the market.  The increase in low cost reserves with the significant potential for more in the future highlights the long life potential of the New Luika Gold Mine.  In addition, the forthcoming release of a maiden resource for the Nkuluwisi prospect close to New Luika further underpins shareholder value."

"We also welcome back Eric Zurrin to Shanta.  Eric led the planning and delivery of the financial restructuring in 2016 and will play an active role in the growth opportunities of the Company."

A presentation is available for download from the Company's website: www.shantagold.com.

This announcement is inside information for the purposes of Article 7 of EU Regulation 596/2014.

Enquiries:

Shanta Gold Limited
Toby Bradbury (CEO) Eric Zurrin (CFO)	[phone]
Nominated Adviser and Broker
Peel Hunt LLP
Matthew Armitt / Ross Allister / Chris Burrows	+ 44 (0)20 7418 8900
Financial Public Relations
Tavistock
Jos Simson / Emily Fenton / Barnaby Hayward	[phone]

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 and Singida projects in Tanzania and holds exploration licences over a number of additional properties in the country. Shanta's flagship New Luika Gold Mine commenced production in 2012 and produced 87,714 ounces in 2016. The Company has been admitted to trading on London's AIM and has approximately 583 million shares in issue. For further information please visit: www.shantagold.com.

Operational

Production Summary

	Q1 2017	Q4 2016	Q3 2016	Q2 2016
Tonnes ore milled	151,378	151,827	144,930	151,698
Grade (g/t)	4.57	4.26	4.90	5.48
Recovery (%)	92.0	90.8	90.2	89.5
Gold (oz)
Production	20,416	18,897	20,580	23,896
Sales	23,252	15,285	23,426	26,134
Silver production(oz)	28,750	24,731	30,381	36,316
Realised gold price (US$)	1,249	1,187	1,301	1,246

The Run Of Mine ("ROM") stockpile at 31 March 2017 was 67,000 tonnes of ore grading 2.1 g/t which is being blended with the high grade underground ore.

Safety, Health and Environment

Safety, Health and Environmental issues remain an ongoing priority for Shanta.  One employee suffered hairline fractures in three fingers when a drill steel fell on his hand in the workshop.  This was a lost time injury, the first since August 2015.  There were no environmental incidents in the Quarter.

Financial

A total of 23,252 oz of gold was sold at an average price of US$1,249 /oz. The average realised price was above the average spot price of US$1,219 /oz for the Quarter. As of 31 March 2017, the Company had sold forward 25,000 oz to October 2017 at an average price of US$1,292 /oz.

Cost guidance for 2017 was based on processing underground development ore as it became available with the development cost reporting to capital.  On this basis, cash costs for Q1 were US$553 /oz (Q4 2016: US$486 /oz) and AISC were US$768 /oz (Q4 2016: US$747 /oz).   Conventional accounting of capital projects requires the net revenue from development ore be offset against capital.  Including the effect of accounting for underground development ore prior to commercial production, the AISC for the Quarter was US$930 /oz and capital would be reduced by US$5.1 m.  There is no cash impact of the different accounting scenarios.  Commercial production is anticipated in Q2 2017.

Unit cost performance benefited from record gold recoveries of 92% for the Quarter.

There was a US$3 m decrease in working capital in the Quarter accounted for by increases in payables (US$4.2 m) and a decrease in inventories (US$1.4 m) offset by an increase in prepayments for underground supplies (US$2.6 m). VAT paid increased by US$2.9 m to US$12.4 m. As a result of the decrease in working capital, cash generated from operations after working capital was US$9.5 m. Capital expenditure was US$9.9 m (Q4: US$6.2 m) which was predominantly related to underground development and equipment.

The Company's cash balance at the Quarter end was US$11.7 m (Q4: US$15.0 m). The decrease is due primarily to an investment in capital expenditure and increase in VAT receivables. Gross debt decreased to US$56.2 m (Q4: US$57.9 m) following ongoing repayments to Investec, while net debt increased to US$44.5 m (Q4: US$41.1 m) following the decrease of the Company's cash balance at Quarter end.

No VAT was returned to Shanta in the quarter. US$12 m VAT has been paid by Shanta over the past 11 months with the last refund having been received for April 2016. The Company is in discussion with the government around progressing the refunding of VAT.

The government of Tanzania is dealing with issues of corruption across its various ministries and departments and this work is to be commended.  There are on-going audits to flush out the problem areas and, while none of these relate to Shanta, the process has caused delays to VAT refunds.

As a result of the large sum now outstanding in VAT refunds, the Company has deferred non-essential expenditure while it completes the development of the underground at New Luika.  This applies to the Singida Pilot Mining Project, exploration drilling and community projects.  Shanta is engaged in top level discussions with Government to release the outstanding VAT and is hopeful that this matter will be resolved in the near future.

Exploration and Development

The development of the New Luika Underground continues on schedule and on budget to deliver first stoping ore during Q2 2017.  As at the end of the Quarter, 2,297 metres of underground development had been completed.  Bauhinia Creek orebody access has commenced on the 915, 900 and 880 levels with the turnout reached on the 865 level.  A total of 15,171 tonnes of ore grading 10.61 g/t was mined from development during the Period.  Three of the four raise bore ventilation shafts have now been completed with the Bauhinia Creek main fan due for commissioning in Q2 2017.

During the Quarter, drilling results were announced for Nkuluwisi, a mineralized prospect located approximately 12 kilometers ("km") northwest of the NLGM's central processing hub.

A total of 44 RC drill holes comprising 5,833 meters of drilling have been completed at Nkuluwisi, identifying mineralisation down to vertical depths of approximately 120 meters below surface. Exploration to date has covered a strike length of about 900 meters and significant portions of the regionally prominent Nkuluwisi Shear Zone remain untested and exploration work is ongoing. This encouraging mineralisation remains open along strike and at depth.  

The drilling results are currently being modelled and have been submitted to the Company's independent resource consultants for resource estimation purposes with a maiden resource for Nkuluwisi anticipated to be delivered in Q2 2017.

The RMP was delivered in the Quarter providing an update to the 2015 Base Case Mine Plan ("BCMP").  With the benefit of increased resources through exploration and reduced operating costs, reserves were increased from 2.66 Mt at 5.93 g/t for 506,000 oz to 3.64 Mt at 4.40 g/t for 515,000 oz.  Importantly, this increase is after accounting for depletion of 615,000 tonnes at 5.27 g/t for 104,000 oz contained.

The RMP delivers 500 koz at US$736 /oz after depletion compared to 443 koz at US$695 /oz in the 2015 BCMP.  Production since the BCMP accounts for 117 koz at US$645 /oz (2016 unaudited).  Production going forward under the BCMP would have been 326 koz at an AISC of US$713 /oz.  After accounting for additional reserves and depletion, the RMP has added 174 koz of production at an AISC of US$779 /oz.

As has been emphasised regularly in previous announcements, Shanta uses its plans as the basis for on-going improvement and, as it has in the past, seeks to identify and implement initiatives that deliver even better outcomes.  This applies to optimisation of operations and capital management.

In addition to the increased reserves, the resources not included in the RMP have increased to 9.47 Mt at 2.24 g/t for 683,000 oz from 6.64 Mt at 2.41 g/t for 514,000 oz in the BCMP (1 g/t cut-off for open pit; 3.0 g/t cut-off for underground).  Further work on these resources is expected to deliver additional reserves in the future to further extend the life of the New Luika Mine.

Corporate

Eric Zurrin has re-joined Shanta Gold as its permanent Chief Financial Officer.  Eric has over 4 years' experience working with Shanta across various roles in the business. In an interim CFO role in 2015 and 2016, Eric was instrumental in the planning and execution of the refinancing of the Company that included two equipment financings, the silver stream, partial repayment and restructure of the convertible notes and an equity placement.  As part of the CFO role, significant emphasis will be placed on building on the stable operating foundations to deliver exciting growth opportunities for the Company.

ENDS

 

END

 

 

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