Shanta Gold Ltd

Shanta Gold Ltd (LON: SHG) is an FTSE AIM All-Share listed Company, which is involved in gold exploration and production in Tanzania.

Investment Rationale – SELL at GBX 8.25

• Price Resistance: Following its positive New Luika Gold Mine reserves update on 1 February 2022, SHG’s price has suddenly surged and can face resistance in the short term.
• Subdued Gold Prices: The Gold futures reported the biggest monthly drop in January 2022 since September 2021, and investors are maintaining a cautious stance ahead of the Central Bank policy decisions this week.
• Weak Fundamentals: SHG reported a significant decline in top-line and bottom-line in H1 FY21.
• Technical Indicators: From a technical standpoint, the current market price is hovering below the 50-day EMA (GBX 9.19), reflecting a bearish price pattern.
• Underperformance Against Index: SHG has fallen ~50% in the last year, showing significant underperformance against the FTSE AIM All-Share benchmark index.

Key Risks

• Gold Price Volatility: The interest rate hikes, and rising US Treasury Yield can cap the gains of gold prices.
• Business and Macroeconomic Risks: New Luika mine is the sole source of revenue and change in mining rules can increase the State’s royalty take. The Group is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the Tanzanian Shilling, Euro and Sterling.

Q4 FY21 Production and Operational Update (for the quarter ended 31 December 2021, as on 24 January 2022)

• Operational Safety: SHG recorded zero lost-time injuries during Q4 FY21 while delivering annual throughput of 834,607 tonnes in FY21.
• Production: It delivered the total gold production of 55,280 ounces ("oz"), which was in line with the revised guidance of 55,000 - 57,000 oz announced for FY21.
• Liquidity: At the end of Q4 FY21, SHG reported cash and liquidity of US$15.9 million.

One Year Share Price Chart

 (Data Source: REFINITIV, Analysis done by Kalkine Group)

Valuation Methodology: Price/Cash Flow Approach (FY21) (Illustrative)

Conclusion

Based on the macroeconomic uncertainties, weak fundamentals, and bearish technical indication, we have given a “SELL” recommendation on Shanta Gold Ltd at the current price of GBX 8.25 (as of 1 February 2022, at 2:20 PM GMT).  

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

Note 3: Dividend Yield may vary as per the stock price movement.

Note 4: Target Price refers to a price level which the stock is expected to reach as per the relative valuation method and or technical analysis taking into consideration both short-term and long-term scenarios.

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