Shares in AIM-quoted gold miner Shanta Gold (SHG:AIM) jumped over 5% to 11.6p on Monday 10 February after a ‘potentially transformative’ deal with Canadian giant Barrick Gold.
The junior miner has acquired a gold deposit in West Kenya, paying $7m in cash to Barrick and another $7.5m in shares, meaning Barrick is now the fifth largest shareholder in the business.
Shanta said the asset is one of the highest grade gold deposits in Africa, estimated to contain 1.18m ounces of gold at a grade of 12.6 grams per tonne.
In the mining world, any grade over eight grams of gold per tonne in an underground deposit is generally considered to be very good.
The transaction is expected to complete in mid-2020, followed by a scoping study and economic analysis to get a better idea on the grades and value of the project.
‘TRANSFORMATIVE’ PRODUCTION PROFILE
Overall it could take up to 36 months before a decision is reached on whether to starting a building a mine at the site.
Shore Capital analyst Yuen Low said the transaction is ‘potentially transformative’ for Shanta, at least in terms of how much more gold it could potentially be able to produce.
He added the deal would also help it diversify its country/political risk, with all of its assets at the moment based in neighbouring Tanzania.
‘MORE VALUABLE IN OUR HANDS THAN BARRICK'S’
Shanta Gold CEO Eric Zurrin told Shares his company had been looking at the West Kenya project for around 12 months, and decided to act having been able to significantly reduce its debt.
Zurrin said: ‘We’ve spent the past three years putting the company into a strong position, and we’ve repaid nearly 70% of net debt. Where we sit today, we have a responsibility to pursue value driven growth.’
He added that the project, bought from Barrick for what he called ‘the right price’, is ‘more valuable in our hands than Barrick’s’ because it is more of a specialist in low cost mining, with the project also smaller in size than other Barrick assets.
Zurrin explained: ‘Barrick is the second biggest gold miner in the world, so it has a higher production threshold, higher cost base, higher overheads, bigger equipment, etc.
‘We’re quite nimble, we’ve got a smaller cost base, lower overheads, and we can mine profitably at 80,000 ounces of gold a year, which gives us an advantage.’
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