Totally Shanta'd (updated)

2nd Jul '17 by mojomogoz

9 comments 4255 reads

Update - Tanzanian parliament passes new natural resource laws "enabling renegotiation of mining contracts"

https://www.bloomberg.com/news...

This is all expected. I would parallel what's going on here with what happens when, say, a regulator announces something wrong happened or its unhappy with something. Great uncertainty is created, a lot of people run away as it is uncertainty rather than 'risk' and a period of angst follows that see share price tank and the worst outcome overweighted.

Tanzania is right to get a better grip on its resource sector and hopefully it does it with transparency and public mindedness rather than cronyism for the new head boys. I do think its the former but only time will tell.

The most concerning thing in this for me is the requirement to bank earning in Tanzania. If this is turns into an absolute rule then its a disaster. However, I remain of the view that Tanzania will not want to self-harm and that the banking rule along with the push against exporting mineral concentrates is a way to ensure they have a better handle on $s produced. They will see that the cash earnings from established mining can way out run the accounting earnings. There is a negotiation to be had on what the right level of tax is...in the end taking it off the top as they have done with the 1% export tariff is simpler and less easily gamed. And I doubt there are many foreign companies running economically marginal operations in Tanzania due to the perceived risk and need to be compensated for it so taking from the top of earnings stack is unlikely to harm current or future investments much (or at all if they provide breaks for prospective investment). Note, Shanta Gold (LON:SHG) can make sustainable free cash flow that is near 25% of revenue in the next few years so not very sensitive to a few percent govt take.

What happens to price from here for Shanta Gold (LON:SHG) ? Well, it may suffer some more as its a micro cap current events just lead to punters totally ignoring. The thing to move Shanta price is results. H1 2017 has last bit of capital investment for new underground mining plus the danger of operational shortfall due to any hitches…

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gus 1065

2nd Jul '17

Hi Paul.

No particular knowledge on Tanzania, but I fear for the worst and will sit on the sidelines until the position is clearer. Currently hold a couple of resource stocks with country risk exposure to Zimbabwe (long term basket case) and South Africa (showing potential to be the next Zimbabwe) given the "politics of envy" that seems to be coming to the fore under JZ and his cronies. Rather than trying to help make the cake larger the fashion seems to be requisitioning an increasingly larger slice of an ever diminishing cake to the extent that no further (much needed) foreign capital investment will be forthcoming. Short sighted and damaging to the economic prospects to the local population that are most in need of decent employment. I hope for a brighter future but fear further deterioration in the situation short to medium term.

Gus.

mojomogoz

3rd Jul '17

Hi Gus

Your view may be right and there is catastrophic risk potential. I don't know but my guess is that Tanzania is not going down a Zim route.

Among Tanzania's problems is a persistent budget deficit and a need for govt lead infrastructure investment. The current president who is causing the fuss with foreign natural resource companies seems to be seeking to reduce waste and corruption whilst boosting investment (note he just knocked on the head plans for more major hotel complexes saying that industrial investment is what is needed).

I do not know if he is capable or truly genuine but IMO he's right...and it is correct that Tanzania needs to make more of its mineral wealth. Let's call it rational resource nationalism. So, these companies pay tax but the taxing of mining companies is quite complex and there is scope to reduce reported profits even if cash flows are high due. I think this is an issue they are struggling with and they are going to go more directly for the revenue (or ownership shares). This is a potentially good outcome and so far, despite heat and thrash with a bit of populism thrown in, this is where I think it will go. They are very clearly and actively looking for foreign investment.

I'd say that president Magufuli is sort of a Tanzania Blair (his party is a 'reforming socialist' party). Crazy things happen as politicians try to keep favour and power but with the lessons of Zim on the doorstep they probably have learned from that (and Tanzania is a partial democracy so Magufuli's party probably doesn't fear losing power).

Plenty of scope for me to be embarrassingly wrong!

Best wishes
Paul

Alphaflight

20th May '20

Anybody have an opinion on Shanta Gold [LON:SHG]

Investors Chronicle have this stock going to 19.59p.

I see that Odey Asset Management own 147,045,785 (18.7% of the company). Odey famously made a fortune in 2008 with the last crisis of course...

Eric Zurrin (guy giving this presentation on the YouTube video below) obtained a lot of stock in March. Note that their debt is about to go to zero over the coming months as they have been pulling a lot of gold out of the ground.

https://www.youtube.com/watch?v=GBnaLw8W6i4

Their NPV implies a share price of > 20p according to my (admittedly rough) calculations and this is completely ignoring their new Kenya / barrick gold acquisition.

21st May '20

Hello CP001

Responses to some of your questions:

1) Don't believe anything put out by Investors Chronicle - they are muppets and spivs on the whole - I still read them to see what they're peddling so as I can understand why XYZ illiquid micro cap just went ballistic. (Are we sure they are not getting paid for some pump and dump on dodgy cos)

2) Odey have owned for years through much up and down crap...There's going to be a risk they are sellers

3) Mgt gets paid in stock

Other points:

They had half of production 40k oz hedged at c.$1240. This has carried through a significant negative impact on 2019 earnings. The reason for hedging rational as to ensure that they could pay down high debts from much improved operational cash flows...but it means they aren't getting the high payback today for high gold prices which would ironically let them pay down debt even quicker! The last time they reported they had rolled down the hedge to 27k oz its probably lower still now. The 2019 impact of this hedge was nearly -$10m on earnings.

Nevertheless they are doing good job paying down the excessive debt and overall I view it to be a rational hedge. Note, the gold miners have a history of inept hedging but I don't see this as an example.

The recent global Covid crisis could have gotten really nasty for Shanta if they had to stop production but yet still owed money on hedging and had to pay back debt. That was a potentially fatal bullet that could have seen them come back to market for a capital raise. I'm not sure that was in people's thoughts on the stock as it merely priced down with general gold miners.

I feel that the price moves on Shanta indicate that its held by a lot of hot hand punters...perhaps in the gold hope trade rather than paying attention to the Shanta specifics.

As Shanta deleverages (and sheds hedge) I think forward earnings expectations are too low and rather than being on 5.5x 2021 earnings it more like <3x (pre Kenya project) assuming current gold prices. Given that it has relatively low cost growth potential too this seems very low. That said, I don't think 20p happens suddenly unless gold price jumps to $2000+ as 20p probably assumes that the asset value (ie gold in the ground) of Kenya acquisition gets priced and that doesn't seem likely to me in Africa and it'll be treated as a cost until it starts producing. I think any near term price rise is likely to be driven by news that hedge is rolled off and more debt paid down plus maybe a bit extra from finally get the Singida project financed without any pull on shareholders (I don't think a positive there is in the price).

Its risky as its Africa....but I think its a good time to take some Africa risk. I first bought at 6p, bought more around 4p and I think I'm going to get a good few more turns on my money. Obvs gold miners are a wasting asset but the evidence IMO is that they can replace ounces at good cost....which should at least let the price run through appreciating the deleveraging

25th May '20

Hi mojomogoz,

Thanks very much I appreciate you replying to me.

It’s very interesting to hear your opinion of IC. I’ll take note of this thanks, I was looking for an excuse to cancel my subscription anyway...

I agree with your comments here, the virus could be an issue for Shanta however so far I believe they are 100% fine. If their debt is indeed zeroed in the coming months then the market will presumably look at them more favorably (I definitely don’t think this is fully priced in yet) so I’ll buy SHG with that in mind. As for gold going to >=$2000/oz I think it is likely, fiat currencies aren’t going to do well in this money printing environment, purchasing power (in fiat terms) will continue to fall I believe. Moreover there will invariably be more panic and bad news pertaining to C-19, we might even get high inflation.

You did well buying in at ~6p, I think you stand to double your money a few more time to tell you the truth! I did well out of HGM and polymetal but sold out of them a few weeks ago (to vault the proceeds as I prefer physical, my hope is to do the same here with Shanta).

mariners18

18th Oct '22

What a great and interesting article . The big difference between Acacia and Shanta is obvious. I'm afraid I support strongly the Tanzanian Government position on export. The word to remember is BENEFICIATION. Foreign companies should, in my opinion, be made to, not only mine, but, refine the metals they extract from the ground, not only in Tanzania but anywhere. If they won't, or can't then there should be an incremental tax on exports that have had little or no BENEFICIATION. Gold is a good example to use. Why should the refineries, around the World, not pay back a percentage of the profit they make from a semi-processed "base" product, whether it is gold or copper, etc? Just look at the automotive/car industry to see it work in reverse!

Snowbum

19th Oct '22

Not sure if I've read the RNS flow today correctly, but....

Can anyone shed any light on why institutions appear to have taken out large short positions in Shanta Gold (LON:SHG), interests declared today.... do they expect there to actually be no firm offers for the company despite the declared interest of 3 separate parties? Are they trying to suppress the price or even hedging long stock holdings?

Or do they expect the offers to value Shanta Gold (LON:SHG) at a lower level than current SP and for it to be immediately marked down again on further offer news?

Interested in others take on this (I hold).

peterg

They are not short positions. If there is an offer possilbe then anyone with 1% or more of the stock has to declare their holding. So these are institutions declaring interests that did not need declaring normally, but which do once a possible offer is made.

Ah.... I see. Many thanks for explaining, I wasn't aware of that requirement in respect of takeover rules. Cheers.

Totally Shanta'd (updated)

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Mojomogoz

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