Gold Miners With Clear Catalysts: Shanta, AAZ, And Petropavlovsk

24th Jul '20 by Jack Brumby

39 comments 6840 reads

Gold is the gift that keeps on giving. This may change at some point but for now the signs continue to look promising.

A lot’s been happening here in recent days. Initially I wanted to cover three new miners as opportunities abound (Shanta Gold, Highland Gold, and Caledonia Mining, with Serabi and Pure Gold also waiting in the wings).

But there is new news this week for two previously mentioned stocks: AAZ and POG. Shanta Gold has also just announced its second quarter results, so I’ll focus on these three today. Users have just posted about Serabi (here) and Pure Gold (here) so those might be worth a look for anyone interested.

In the meantime, this Edison report is thought provoking. The key point is that the research house calculates a very strong correlation (0.909) between the price of gold and the US total monetary base since at least 1968. Basically, the more dollars in circulation, the higher the expected gold price.

Applying that correlation to the Fed’s huge asset-buying binge post-COVID implies a powerful tailwind.

After all the post-2008 concern around never before seen levels of QE, the Fed has gone and increased its monetary base by some 58% in just eight months to $5.2tn. Given that, and using its 0.9 correlation, Edison touts an implied gold price of $1,892/oz with an upper range figure of $3,000/oz.

At the current rate of monetary expansion, that $1,892 figure should continue to increase by $500 per ounce per year. Let’s see if the linear relationship holds in such an extreme environment...

Either way, it shows that if you’re concerned about the economic impact of lockdowns in 2020, gold is one of the primary ways to address that concern.

Shanta gold (LON:SHG)

Share price: 15.25p
Market cap: £129m
Forecast revenue: £92.2m
Production ounces: 80,000-85,000oz
All-in sustaining cost: $771

Shanta Gold (LON:SHG) is an East Africa-focused mining operation with a ‘highly compelling’ growth pipeline. This profitable and (now) net cash miner has three projects across Kenya and Tanzania.

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Source: company presentation

The management team has worked together for a decade or more and they, along with other insiders, own 9.3% of the £129m company.

The key point to this one is that up until the most recent quarter, Shanta had been focused on reducing its net debt position. Now,…

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HollandSmith

26th Jul '20

Very interesting to see 3 Gold mining ETFS at the very top of the 200MA list of the ETF universe!

5f1d6daa416e4Screenshot_2020-07-26_at_12

mojomogoz

Perhaps the greatest underpriced optionality in Shanta Gold (LON:SHG) is the relative prospectivity of Tanzania, low number of other operators, Shanta's seeming closeness/favour with the government and the fact that this is a country that has recently lost interest from outside operators due to the furore around Acacia (I think the company appears to have deserved some grief).

If we move into a sustained gold bull market then Shanta's potential ability to acquire rights to prospective land and co-sponsor and 'oversee' exploration with partners (using their Tanzania badge of approval) gives them a potential route to a lot of low cost ounces.

As narratives and perceptions around gold and the value of operating in Tanzania shift positively then the optionality in Shanta could be massive. This is not a forecast, just a sight at how far the trash to glam move could go.

Zimbabwe is an even more troubled country...but in many respects that makes the potential upside to Caledonia Mining (LON:CMCL) even more marked.

A well worn fear is expropriation by govt in these countries. This is definitely a risk however I think it is more a rearview risk than an acute forward one. For sure rising gold price and activity will see governments seek ways to keep their take high....but countries like Tanzania and Zimbabwe have had some tough lessons on how bad for them it is to try and take over the laying of the golden goose's eggs all by themselves.

Not for the fainthearted...but one of the more extreme perception transformation out there beyond simple big discoveries. In Zim the stuff is known and in the ground so not so much discovering needed...its being able to operate in the country that is the skill. Tanzania requires more relative prospecting but general belief is that the gold is there and reasonably abundant and accessible.

LongValue

27th Jul '20

Just a little perspective. But when Anglo Asian Mining (LON:AAZ) announced its Irish Gold mining deal some eyebrows may have been raised. However, I suspect that most investors are probably unaware that Ireland hosts the largest Zinc mine in Europe - the Tara mine. In terms of Zinc, it’s highly prospective with more Zinc discovered per square kilometre than anywhere else on the planet. Basically, Ireland has a very established mining industry.

Incidentally, Shareprophets has just produced an online event “Mineprophets” that is probably worth a look. The link is here https://www.mineprophets.com/. It includes a long interview with Peter Hambro, co-founder of Petropavlovsk (LON:POG) as well as a variety of other speakers discussing the outlook for the Gold industry.

peterg

I know very little about the gold industry in Tanzania, but I do hold a gas E&P whose operations are there, and they've been plagued with problems getting decisions made and agreements signed off. I think foreign owned mineral extraction has become such a hot potato, very much including the Acacia affair, that there's almost a paralysis of final decision making, and that's not good news for those operating there. There are signs that is finally being worked out, but those might yet prove to be false.

Is the risk priced? Shanta Gold (LON:SHG) appear to have created an ability to operate with a favourable light from govt. They'll probably never get their large VAT receivable back...but they might get some 'favours' for writing it off.

As owner of stock operating there I feel compelled to criticise govt for expropriation....however, trying to be objective I think that there has been a lot of abuse of mineral rights (from govt and cos) and that some of the recent heat is a rational attempt (maybe badly executed) to rectify this situation and ensure Tanzanian gets paid better for its bounty. I'm not saying that the current regime is good or not corrupt....

Nevertheless, Tanzania needs its mineral businesses to work as it needs the jobs and income they create. Shanta appear like they have got themselves on the inside track.

Highly risky obvs

Alphaflight

Gold legend Alasdair Macleod is expecting the gold futures market to fail before the end of the year due to COMEX et al physical delivery issues (they don't have sufficient gold to settle contracts in physical metal). If he is right, the gold price would shoot up in USD terms much faster that the market is pricing in.

https://www.youtube.com/watch?v=XliHE6QgljY&t=1948s

Note: Gold remonitised would be worth about$32,885 /toz i.e. 17 times current spot price:

https://www.usdebtclock.org/gold-precious-metals.html

HumourMe

Well that is alarming, recorded 14 Jul. Crisis starting as close to two weeks. So that is tomorrow. I'm not sure my gold ETFs will be much use unless I can exchange them for a fully stocked bunker.

28th Jul '20

Hi HumourMe

Haha you're not wrong!

I expect the proverbial can to be kicked down the road a little bit further though but then again Alasdair Macleod certainly has a better handle on this than me so he is worth paying attention to.

We came off the Gold Standard in 1971, it wasn't that long ago really. These fiat currencies are all in a race to the bottom, when they start to collapse the odds are that the central banks will have to revert back to the previous system (Gold Standard), hence why central banks hold so much gold.

Howard Marx

"the odds are that the central banks will have to revert back to the previous system (Gold Standard), hence why central banks hold so much gold."

Though large in absolute terms, US central bank holdings of gold are less than 5% of US money supply. So a return to a gold standard seems unlikely.

Fiat money allows a central bank to spend, spend, spend - effectively like a teenager with a credit card.

A gold standard only allows a central bank to spend within its means ie it is more like a debit card, than a credit card

In these terms, it's a surprise that the gold standard lasted as long as it did.

Howard Marx:

Very true, central banks love their fiat currencies. Meanwhile they accumulate gold.

The BIS (the bankers’ bank) up until recently only measured things in troy ounces, they didn’t even bother with the charade of fiat currencies.

I doubt the proletariat will trust fiat currencies again for at least few generations post a fiat collapse (which in my opinion is coming hence why accumulating gold and other gold related assets).

pka

"We came off the Gold Standard in 1971."

According to Investopedia: "Britain stopped using the gold standard in 1931 and the U.S. followed suit in 1933 and abandoned the remnants of the system in 1973."

Pka:

As per Bretton Woods, the US government held the $35 per ounce price until August 15, 1971, when President Richard Nixon announced that the United States would no longer convert dollars to gold at a fixed value, thus completely abandoning the gold standard.

Aren't we lucky that Gordon Brown sold half the UK's gold reserves 20 years ago at what turned out to be the lowest point in its price since then?

https://www.bullionbypost.co.uk/gold-news/2019/may/07/worst-deal-uk-history-20-years-brown-sold-britains-gold/

30th Jul '20

Hi HollandSmith,

That's a very interesting extract you put in your post of the top of the 200MA list of the ETF universe. Is there a free source of that information available on the web?

31st Jul '20

Crazycoops wrote:

"I own a decent chunk of Royal Mint Physical Gold ETC Securities (LON:RMAP) (or Royal Mint Physical Gold ETC Securities (LON:RMAU) for the dollar version)"

Does anyone have any views on the pros and cons of owning the pound version of this physical gold ETC, RMAP, versus owning the dollar version, RMAU? I own some RMAP at present but I'm wondering whether I should sell that and buy RMAU instead.

Brilliant Leader

I own the GBP version also. The way I see it is that the exchange rate will have a similar effect on value either way and ultimately, all my investment/expenditure needs are in GBP. I would also be interested in a good argument for the USD version if anyone has one.

Welshborderer

Well that was short-lived! Highland Gold Mining (LON:HGM) taken out just like that. While the 24% profit was great to have it is irksome to feel that others will benefit from the long term growth that seemed to be there. It happened recently to me with Rockrose Energy (LON:RRE) as well so reeling a little from the obvious fact that when it comes to the Stock Market it is often the hidden game that matters.

Hi Crazycoops,

There's an article in today's Investors Chronicle entitled "How to hold gold" which says:

"Choosing between hedged and unhedged share classes [of physical gold ETFs] will also influence returns, because gold is a dollar asset. When the dollar is strong versus sterling, this will flatter unhedged returns. A hedged share class will suffer when the dollar is strong but pays off if it weakens against sterling. However, this is complicated by the fact that gold generally performs well when the dollar is weak."

This is what led to my query about what people think about whether it is better to hold the GBP or USD version of the Royal Mint Physical Gold ETC.

23rd May '21

Full year results for Anglo Asian Mining (LON:AAZ) were published this week and notably, the Stockopedia quality ranking has risen from mid 70s to 99. For once, the share price has reacted positively to these record results, even though they have been broadly known since the raw figures were announced in January. I believe the touch paper has been ignited by forward looking matters which are indicated by the company’s management in this Proactive interview https://www.proactiveinvestors.co.uk/companies/news/950115/anglo-asian-mining-present-record-revenues-and-outline-opportunities-ahead-950115.html

To summarise:

- Producing mines at Gedabek and Gosha generate excellent free cash flow with AISC of $700 /oz versus current gold price of $1880 /oz, some $200 higher than is being used by the company in their 2021 production targets.

- Awaiting access to 3 newly restored contract areas following the conflict with Armenia (the Chief Geologist has visited one of these already, as covered in the Proactive video).

- The other CA is Ordubad which going forward will have road/rail access to mainland Azerbaijan

- The company also hopes to acquire additional CAs in Azerbaijan and had hoped to announce these alongside FY results but negotiations are not yet finalised. One would imagine this announcement will be in the near term. Previously the company have said they hope to join up Gosha and Gedabek CAs but we will just have to wait and see what transpires.

- From the earlier airborne ZTEM survey of Gedabek/Gosha, 32 new mine targets were identified, 5 of which are being fast tracked. One of these is Zafer (production 2022) is described in the Proactive interview as game changing alongside an indication of the numbers that will support a maiden JORC report next month. Another of the 5 mines being fast tracked could come into production this year.

It is my largest holding, so obviously please take everything I say with a large pinch of salt and DYOR

Cheers
Simon

mariners18

18th Oct '22

I have been fearful of the current attempt to "grab" Shanta Gold! The share price has, in my opinion, been held down for some time. When you read the excellent reports from the company, the price doesn't tally!

This is an opportunistic attempt that has been planned for some time, in my opinion. They cannot be allowed to get away with it unless the "true"price is recognised and, that price, is a long way from the current "false" market!

The regulatory authorities, I trust, will examine what is going on here, with great interest.

Gold miners with clear catalysts: Shanta, AAZ, and Petropavlovsk

Shanta gold (LON:SHG)

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Jack Brumby

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