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Shanta Gold Limited - Shanta starts construction of the Singida Project

RNS Number : 2998B
Shanta Gold Limited
07 October 2020
 

7 October 2020

 

Shanta Gold Limited

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


 

Shanta Gold starts construction of the Singida Project, Tanzania

 

Shanta Gold (AIM: SHG), the East Africa-focused gold producer, is pleased to announce the beginning of construction work together with updated Project Economics for the Singida Gold Mining Project ("Singida" or "the Project") in central Tanzania.

 

Highlights

 

·    Construction of Singida is underway;

·    Reserve-based mine plan gives post-tax NPV8% of US$73 m and IRR of 59% at US$1,900 /oz (approximate current gold spot price);

·    Average annual Life of Mine ("LOM") gold production of 32,000 ounces ("oz") at an All In Sustaining Cost ("AISC") of US$869 /oz;

·    Increases Shanta's group production to c.110,000 oz in the first full year of operation;

·    Total capital investment of US$26 m over a 24-month construction period, excluding pre-stripping;

·    Investment funded from internally generated cash flow;

·    Over 90% of existing reserves are only 120 metres below surface;

·    Resources of 9.8 Mt grading 2.11 g/t for 664,000 oz currently sit outside the project economics (but within the Mining Licences), giving significant upside potential; and,

·    Expected transformation of the Ikungi region in central Tanzania to benefit local communities.

 

Early Work Construction Activities

 

·    Tanesco grid power connected to site;

·    Camp upgrade underway to accommodate 70 people for the initial construction team;

·    Working group in place and discussions to be initiated with Tanroads to upgrade local bridges for the movement of plant and equipment;

·    Investment in water security advanced with access to wholly-owned boreholes;

·    Tender for sterilization drilling contract in progress;

·    Tender for TSF facility design contract in progress;

·    Front end engineering design ("FEED") commenced in early Q3 2020; vendors selected and work is underway; and,

·    Concurrent with onsite activities, Shanta's engineering team continues to complete detailed designs for Elution Circuit, Water and Sewer Treatment Plants in preparation for procuring these long lead items.

 

Project Highlights

 

Economics

Using a Life of Mine ("LOM") gold price of US$1,700 /oz:

·    LOM free cash flow of US$94 m;

·    Post-tax NPV8% of US$56 m, an increase of US$25 m since the previous published estimate of US$31 m1 (December 2018), which was prior to the reserve-based mine plan and revised capital costs;

·    Unlevered IRR of 49% and return on investment multiple of 2.5x;

·    Project payback period of 40 months; and,

·    Average annual EBITDA of US$27 m over the LOM.

 

Using a LOM gold price of US$1,900 /oz, these financial metrics improve to:

·    LOM free cash flow of US$119 m;

·    Post-tax NPV8% of US$73 m, an increase of US$42 m since the previous published estimate;

·    Unlevered IRR of 59% and return on investment multiple of 3.2x;

·    Project payback period of 37 months; and,

·    Average annual EBITDA of US$33 m over the LOM.

 

Production and Upside Potential

·    LOM gold production from open pit mining of 221,000 oz with average annual gold production of 32,000 oz for an initial seven-year mine life through to at least 2029;

·    91% of contained ounces in the LOM Plan are within 120 metres of surface;

·    All gold resources at Singida sit within existing mining licenses; and,

·    Significant further upside potential from substantial resources (9.8 Mt grading 2.11 g/t for 664,000 oz) currently sitting outside the reserve-based project economics.

 

Costs

·    LOM cash costs of US$843 /oz and AISC of US$869 /oz (AISC of US$885 /oz at US$1,900 /oz gold price); and,

·    Average cash costs of US$820 /oz and average AISC of US$837 /oz during first three years of production.

 

Development Capital

·    Estimated pre-production capital cost of US$26 m for mine construction, including mining, processing infrastructure, TSF, and all civils but excluding pre-production stripping;

·    Estimated pre-production stripping cost of US$10 m resulting in approximately 10,000 oz of contained gold in Run Of Mine ("ROM") inventory prior to the commencement of ore processing;

·    Conventional CIL processing plant with annual processing rate of 365,000 tonnes ("t"); and,

·    Anticipated 24-month construction period; first gold pour expected at the end of 2022.

 

Funding

 

·    The Company has advanced a number of financing discussions, including an IPO on the Dar es Salaam Stock Exchange and local debt financing; and,

·    Management has taken into account the strength of the Company's balance sheet together with other considerations and concluded that the best option is to finance the construction of Singida from operating cash flow.

 

Attractive geology and opportunities for further value accretion

 

·    Singida orebodies open along strike and at depth with numerous previously identified parallel structures;

·    The mineral resource estimate is hosted in a greenstone deposit that incorporates three mining licenses and seven mineralised zones with a combined strike length of 4.9 km;

·    Widths range from 5-15 metres and mineralisation extends approximately 500 metres below the topographical surface;

·    Historical drilling announced in April 2018 indicates high grade intersections which will be explored further once Singida is in production, including 10 metres @ 20.82 g/t gold from 138 metres in hole SC702 at Gold Tree, including 3 metres @ 57.13 g/t gold from 138 metres;

·    Total resources outside of the project economics of 664,000 oz grading 2.11 g/t, with the potential to assess underground mining;

·    Pit shell designs have been developed based on a long-term gold price of US$1,350 /oz, providing gold price optionality to bring additional ounces into the mine plan; and,

·    Designing pit shells using a long-term gold price of US$1,750 /oz results in a 12% increase in mineable reserves.

 

Community Benefit

 

·    The Singida Project currently employees 60 people, expected to increase to 300 at steady state production;

·    The Company is targeting a workforce comprising 100% of Tanzanian nationals;

·    Shanta's local content plan will directly benefit an estimated 100 local suppliers and indirectly benefit hundreds more; and,

·    Shanta's CSR program will focus on improving economic livelihoods, education, health and water for the communities surrounding the mine.

 

1 Avg LOM gold price of US$1,700 /oz (Sep 2020) vs. US$1,384 /oz (Dec 2018, using forward curve)

 

Eric Zurrin, Chief Executive Officer, commented:

"The Singida project has very attractive economics for Shanta with considerable upside through potential conversion of mineral resources currently outside of the reserve-based mine plan. The project will increase Group production to over 110,000 oz per year while maintaining our attractive cost base.

 

Singida is hosted in a greenstone deposit lending itself well to upside exploration potential. Future exploration will target the extension of reserves and will be funded by cash flow from production at Singida. Successful future exploration could justify an increase in the size of the plant to increase both throughput and production.

 

Singida will have a major positive impact on the Ikungi region. Shanta intends to roll out its well-regarded CSR program into the surrounding villages which will lead to improvements in livelihoods, water, health and education."

 


Enquiries:

 

Shanta Gold Limited

 

Eric Zurrin (CEO)

+44 (0) 14 8173 2153

Luke Leslie (CFO)

 

 

 

Nominated Adviser and Broker

 

Liberum Capital Limited

 

Scott Mathieson / Clayton Bush / Louis Davies

+44 (0) 20 3100 2000

 

Broker

 

Tamesis Partners LLP

 

Charlie Bendon/ Richard Greenfield

+44 (0) 20 3882 2868

 

 

About Shanta Gold Limited

Shanta Gold is an East Africa-focused gold producer. It currently has defined ore resources on the New Luika and Singida projects in Tanzania and holds exploration licenses covering approximately 1,200km2 in the country. Shanta Gold also owns the West Kenya Project in Kenya with defined ore resources of 1.2Mt grading 12.6 g/t. Shanta's flagship New Luika Gold Mine commenced production in 2012 and produced 84,506 ounces in 2019. The Company has been admitted to trading on London's AIM and has approximately 849 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.

 

Singida Project Economics

 

The strategy for Singida is to mine existing reserves within the Company's mining licenses and to fund Singida's future growth through project cashflow. The project economics are based on internally prepared management estimates using the Singida Internal Owners Team, formed of professionals from New Luika and Singida across all disciplines. The project economics have not been independently verified but consist of third-party quotes from well-known vendors, some of which already supply the company, for major capital items.

 

Internally estimated project economics provide for the processing of 2.5 Mt of ore from surface mining at an average grade of 3.0 g/t for the production of 221,000 oz of recovered gold, over an initial seven-year mine life. Mineable ounces incorporated into the mine plan are based on the Project's JORC 2012 Reserve reported on 26 May 2020.

 

This assessment of Singida's economics, using the base case assumptions outlined in Table 1 below, demonstrates the economic viability of the Project. Using a projected gold price of US$1,700/oz, a post-tax NPV of US$56.3 m has been determined at an 8% discount rate (NPV8%), alongside an unlevered IRR of 49%. This represents a compelling business case and a significant value lever for Shanta.

 

The Singida project economics include the below key metrics.

 

Table 1 - Singida Project economics summary

 

Metrics

Units

Results

Gold price

US$/oz

1,700

LOM (excluding construction)

years

7.0

Total material mined

t

36,711,000

Contained gold mined

oz

243,000

Strip ratio

w:o

14.2:1

Mill throughput

tpy

365,000

Head grade

g/t

3.0

Processing recovery - Gold

%

91.0

Gold production

oz

221,000

Mining costs

US$/oz

430

Processing costs

US$/oz

224

Royalties & selling expenses

US$/oz

128

G&A and other operating costs

US$/oz

61

Total cash costs

US$/oz

843

Total pre-production capital expenditure

US$m

36.8

Sustaining capital expenditure

US$m

2.9

NPV8% (post-tax)

US$m

56.3

Unlevered IRR (post-tax)

%

49%

Average annual EBITDA over LOM

US$m

27.0

 

At the current prevailing gold price of c.US$1,900 /oz, the key financial metrics improve to:

 

Metrics

Units

Results

Gold price

US$/oz

1,900

NPV8% (post-tax)

US$m

73.3

Unlevered IRR (post-tax)

%

59%

Average annual EBITDA over LOM

US$m

32.8

 

 

Pre-production capital expenditure required to develop Singida through to first gold pour is estimated to be US$26.4 m with an additional US$10.4 m for pre-production stripping. Estimated pre-production construction costs are listed within Table 2. An estimated US$2.9 m of sustaining capital is expected to be incurred over the seven-year mine life.

 

Table 2 - Pre-Production Construction Capex

 

Capital item

Estimated Capex (US$m)

Processing plant

 14.3

Support services, labour and equipment

 2.9

Standalone power supply

 2.8

Tailings storage facility

 2.5

Mining infrastructure

 1.4

Other infrastructure

 1.3

Commissioning stock

 1.1

Total

26.4

 

 

Processing plant capital relates to a plant with a nominal annual throughout of 365,000 t. The processing plant will be conventional CIL with gravity concentrator. The estimated cost is based on third-party procurement and an internally managed construction and installation schedule led by in-house expertise.

 

External quotations for capital expenditure have been procured and received, with a substantial planned input from local suppliers in line with Shanta's philosophy of local content. The pre-production capital estimate has significantly benefited from previous capital spend at the Project, including:

·    Construction of the mine camp;

·    Resettlement, including financial compensation and re-housing of families from the project site; and,

·    Drilling and testing of water supply boreholes.

 

Capitalised pre-production stripping relates to mining activities prior to first ore being delivered to the processing plant, of which 135,000 t of ore and 4,300,000 t of waste will be mined to establish a reasonable stockpile (equivalent to 4.5 months) ahead of operations commencing. Waste rock will be used for the construction of the tailings storage facility (TSF). All contractor mobilization and setup costs are included in the pre-production capital allowance.

 

Project economics are based on externally validated assumptions including metallurgical test work, mineral resource estimates, and capex and opex quotations. The Project is expected to enter commercial production within 24 months of becoming fully funded. As a result, Project IRR stands at 49%.

  

Table 3 - Key Financial Estimates1

 

Units

LOM Total

Gold Revenue

 

 

   Gold Price

US$/oz

1,700

   Gold Sales

koz

221

   Gold Sales Revenue

US$m

376

 

 

 

Operating Costs

 

 

   Mining

US$m

95

   Processing

US$m

49

   Royalties & Selling

US$m

28

   G&A and Other

US$m

14

   Total Operating Costs

US$m

187

 

 

 

EBITDA

US$m

189

 

 

 

Capital

 

 

   Pre-production construction

US$m

26

   Pre-production stripping

US$m

10

   Sustaining capital

US$m

3

   Total Capital (LOM)

US$m

39

 

 

 

Project Valuation

 

 

   Project Net Cash Flow, pre-tax

US$m

160

   Project Net Cash Flow, post-tax

US$m

94

   Post-tax NPV8%

US$m

56

   IRR

%

49

   Payback Period

yrs

3

1 Figures may not total exactly due to rounding

 

 

Table 4 - Updated Project Economics Comparison1,2

 

Metrics

Units

Dec 2018

Sep 2020

% Change

Measured & Indicated Resource

koz

382

484

+27%

Probable Reserve

kt

-

2,514

N/a

g/t

-

3.00

N/a

koz

-

243

N/a

LOM production

koz

158

221

+40%

Average annual production

koz

26

32

+23%

LOM

yrs

6

7

+17%

Pre-production construction capex (including stripping)

US$m

19

37

+US$18m

Average annual EBITDA

US$m

13

27

+108%

NPV8% (post-tax)

US$m

31

56

+81%

Unlevered IRR

%

67

49

-27%

 

1 June 2020 economics based on reserves; Dec 2018 economics based on mineable resources

2 Avg LOM gold price of US$1,700 /oz (Sep 2020) and US$1,384 /oz (Dec 2018, using forward curve)

 

At the current gold price of c.US$1,900 /oz, average annual EBITDA increases to US$33 m, a 154% increase vs Dec-18 estimates; NPV8% (post-tax) increases to US$73 m, a 109% increase vs Dec-18 estimates; and, Unlevered IRR increases to 59%, a 12% reduction vs Dec-18 estimates.

 

 

Value Sensitivity

 

Table 5 - NPV (post-tax) sensitivity to Discount Rate (US$m)

 

Gold price

Discount rates

0%

8%

10%

US$1,500 /oz

69

39

34

US$1,700 /oz

94

56

50

US$1,900 /oz

119

73

65

US$2,100 /oz

144

90

81

 

It is anticipated that the first corporate tax charge for the Project will become payable in the second year of gold production. Payments are expected to be partially offset by accumulated tax losses until the second year of gold production.

 

Table 6 - IRR sensitivity to Gold Price (%)

 

Gold price

IRR (%)

US$1,500 /oz

38

US$1,700 /oz

49

US$1,900 /oz

59

US$2,100 /oz

68

 

 

Production Schedule

 

Annual production for the first seven years is expected to average 32,000 oz. A cut-off grade of 1.0 g/t has been utilised for each of the deposits. There are lower grade areas that currently fall outside the mine plan, but which could be mined with no additional development, thereby providing gold price optionality. Engineered pit shell designs have been developed based on a long-term gold price of US$1,350 /oz. Mining activities at Singida will utilize conventional open-pit mining methods.

 

 

Table 7 - Production Schedule by Deposit

 

PRODUCTION

 

Year 1

Year 2

Year 3

Year 4

Year 5

Year 6

Year 7

Year 8

TOTAL

 

 

 

 

 

 

 

 

 

 

 

Open Pits

 

 

 

 

 

 

 

 

 

 

Material Mined

t

4,464,832

6,680,000

5,310,000

3,340,000

4,532,896

4,565,533

4,477,029

3,340,649

36,710,938

Ore Mined

t

 135,209

 326,289

 367,735

 364,202

 450,383

 184,932

 447,559

 238,112

2,514,421

Strip Ratio

x

 32.91

 20.02

 13.83

 8.42

 9.54

 24.64

 9.32

 14.01

14.16

Grade

g/t

 2.29

 3.39

 3.23

 4.04

 3.34

 2.06

 2.42

 2.12

3.00

Contained Gold

oz

 9,972

 35,519

 38,185

 47,299

 48,413

 12,240

 34,832

 16,206

242,666

 

 

 

 

 

 

 

 

 

 

 

Processing

 

 

 

 

 

 

 

 

 

 

Tonnes Milled

t

-

 365,000

 365,000

 366,000

 365,000

 353,362

 365,000

 335,059

2,514,421

Head Grade

 g/t

-

 3.27

 3.22

 4.02

 3.52

 2.22

 2.65

 1.99

3.00 

Recovery

 %

-

 91.0

 91.0

 91.0

 91.0

 91.0

 91.0

 91.0

91.0%

Total Gold Produced

oz

-

 34,902

 34,439

 43,073

 37,552

 23,730

 28,310

 18,819

220,826

 

 

Table 8 - Material Mined by Deposit

 

MATERIAL MINED

 

Year 1

Year 2

Year 3

Year 4

Year 5

Year 6

Year 7

Year 8

TOTAL

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deposit

 

 

 

 

 

 

 

 

 

 

Cornpatch

t

 -  

 -  

 -  

 -  

 -  

 -  

 134,353

 -  

 134,353

Cornpatch West

t

 -  

 -  

 -  

 -  

 278,080

 16,283

 -  

 -  

 294,363

Gold Tree

t

 135,209

 326,289

 367,735

 364,202

 172,303

 -  

 -  

 -  

 1,365,738

Gustav

t

 -  

 -  

 -  

 -  

 -  

 -  

 124,011

 4,857

 128,868

Jem

t

 -  

 -  

 -  

 -  

 -  

 168,649

 155,503

 -  

 324,152

Kaizer Chief

t

 -  

 -  

 -  

 -  

 -  

 -  

 33,692

 108,602

 142,294

Vivian

t

 -  

 -  

 -  

 -  

 -  

 -  

 -  

 124,654

 124,654

Tonnes Mined

t

 135,209

 326,289

 367,735

 364,202

 450,383

 184,932

 447,559

 238,113

 2,514,422

 

 

 

 

 

 

 

 

 

 

 

Deposit

 

 

 

 

 

 

 

 

 

 

Cornpatch

oz

 -  

 -  

 -  

 -  

 -  

 -  

 8,112

 -  

 8,112

Cornpatch West

oz

 -  

 -  

 -  

 -  

 31,525

 1,188

 -  

 -  

 32,713

Gold Tree

oz

 9,972

 35,519

 38,185

 47,299

 16,888

 -  

 -  

 -  

 147,863

Gustav

oz

 -  

 -  

 -  

 -  

 -  

 -  

 6,715

 345

 7,060

Jem

oz

 -  

 -  

 -  

 -  

 -  

 11,052

 18,791

 -  

 29,843

Kaizer Chief

oz

 -  

 -  

 -  

 -  

 -  

 -  

 1,214

 6,329

 7,543

Vivian

oz

 -  

 -  

 -  

 -  

 -  

 -  

 -  

 9,532

 9,532

Contained Gold

oz

 9,972

 35,519

 38,185

 47,299

 48,413

 12,240

 34,832

 16,206

 242,666

 

 

 

 

 

 

 

 

 

 

 

 

A summary of operating costs is provided below.

 

Cost / tonne ore milled

 

Year 1

Year 2

Year 3

Year 4

Year 5

Year 6

Year 7

Year 8

TOTAL

 

 

 

 

 

 

 

 

 

 

 

Open Pit Mining

US$/t

-

46

44

47

43

31

42

27

38

Processing

US$/t

-

20

20

20

20

20

20

20

20

Royalty & Selling

US$/t

-

12

12

15

13

9

10

7

11

G&A

US$/t

-

6

6

6

6

6

5

4

5

Cash Operating Cost

US$/t

-

83

81

87

81

65

77

57

74

 

Cost / oz produced

 

Year 1

Year 2

Year 3

Year 4

Year 5

Year 6

Year 7

Year 8

TOTAL

 

 

 

 

 

 

 

 

 

 

 

Open Pit Mining

US$/oz

-

481

468

399

413

463

539

472

430

Processing

US$/oz

-

206

208

167

191

293

253

350

224

Royalty & Selling

US$/oz

-

128

128

128

128

128

128

128

128

G&A

US$/oz

-

59

59

49

55

82

69

72

61

Cash Operating Cost

US$/oz

-

873

863

743

787

965

989

1,022

843

 

 

Future upside potential at Singida

 

Total resources that presently sit outside of the reserves-based project economics amount to 9.8 Mt grading 2.11 g/t for 664,000 oz and these will be explored following the commencement of gold production, expected in late 2022. Pit shell designs have been developed based on a long-term gold price of US$1,350 /oz. In the current gold price environment, these factors provide significant scope for additional ounces to be brought into the mine plan in the future.

 

 

ENDS

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