Shouldn't I? Shanta I? Yes I Shanta!

20th Jun '17 by mojomogoz

11 comments 8950 reads

I'll try follow up with some more detailed analysis but this is just a quick note to see if there is any insight/opinion out there on Shanta Gold (LON:SHG).

Just bought Shanta Gold (LON:SHG) today on news on adjacent property acquisition and refinancing with Investec.

I know the company a little and already had a small piece at price similar to today's 6p (bought sometime in last 2 years as a feeler and note to self to do more work) but today took it to a full weight.

Operational turnaround going well, prospective cash-flows look strong and the neighbouring resource acquisition looks cheap and sensible. Cost of production is relative low at $750 all in sustaining cost.

Turnaround, value sort of play but with great production, earnings and cash flow growth.

Quick bit of work by me to go full in and need to now check. But looked to me like today was a buying opportunity for something with high upside.

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mgdigital

21st Jun '17

Good luck! I jumped the gun and bought on the dip in April. Sitting on a 30% loss now but hanging on as I still have conviction about it.

mojomogoz

Whether its right or wrong over the next few years its definitely going to move around a lot. Hopefully we are near the bottom of that.

What do you like? Like I said, I am doing more detailed work to firm up my spur of the moment (partially informed) decision.

Yes I expected volatility when I went in but should learn to sit on my hands longer. I wanted to pick up a couple of small cap gold miners to benefit from what I hope will be a new bull market in gold in the next few years. I had spotted that Shanta had a few institutional investors so unlikely to be cowboys, and seen them tipped in a couple of places. I think you probably got a great entry point but we'll see!

22nd Jun '17

Hi again, Odey has 20% and Majedie 10%. I know both firms from the past and rate them highly. That said £7m and £3.5 holding is potentially insignificant in their portfolios and the motivation could be very speculative in the sense that they see it as a bit of money spent on an option for upside and/or portfolio protection (role of gold in a potential market, debt and/or monetary crisis).

The Helio acquisition looks like a great deal for more assets. I suspect they have had an eye on that for a long time and have watched Helio fall in value. There's a bear market for assets like this at the moment so Helio looked stuck with a find that they couldn't develop and couldn't sell right on Shanta Gold (LON:SHG) doorstep. I am not informed enough on Shanta to understand what capacity there is to raise production beyond the current run rate. It looks like they don't have the infrastructure for that
so it would require investment (shareholders are saturated with that at the moment!). But even if throughput is capped at the moment the free cash that comes as the current investment subsides is very high and should pay back the current debt quickly.

Shanta can even tolerate falls in the gold price and surprise to the upside. The current share price seems to be in denial that successful investment has been made and that operational performance is good. Market is pricing it as if its a very speculative and non producing company in need of investment to bring it to decently operational level. I suspect its the debt optics that are the brake but that can change very rapidly (I need to do more work to see if its a 2017 or 2018 event).

I will report back when I have done more. At the moment I feel like this is a fairly low risk multi bagger.

To a large extent the insurance aspect is the attraction, aside from the large upside potential - it's mitigating the loss in the rest of my portfolio in the event of some crisis or crash, though granted I didn't expect it to drop this low - it's a shame I didn't pick up at this price! Another gold play I've spotted and took a small stake in was Trans-Siberian Gold (LON:TSG), from reading news releases and bulletin boards they appear to be well run and popular with their shareholders, with the StockRank unusually high for this category of company.

jonesj

Some might call that confirmation bias?

One could say that, as a company outsider, all interpretations of events are some form of confirmation bias (either negative or positive)?

gus 1065

I hold a small position in Trans-Siberian Gold (LON:TSG) and did hold Shanta Gold (LON:SHG) and a couple of other gold tiddlers such as Ariana Resources (LON:AAU) and Solgold (LON:SOLG) until a recent Damascian conversion saw me turf out most of my "red" Sucker Stocks and their ilk to try and tidy up my portfolio. I was reasonably happy with Shanta Gold (LON:SHG) but felt they were always likely to keep tapping shareholders with dilutive placements so will wait until they're a bit more of a "jam today" stock before investing again.

Trans-Siberian Gold (LON:TSG) survived the cull by dint of its strong Stock ranks (although they have been higher in the past) and the recent moves to put themselves in a position to pay out dividends. One thing to be aware of is that they have a small group of dominant shareholders (management and a Russian investment fund now hold over 75% of the shares) so liquidity is thin and there is the risk of behind the scenes jiggery-pokery although I have not detected anything of the kind to date.

Further up the size spectrum, I've also held Centamin (LON:CEY) for a couple of years which has done well as gold recovered from the lows of a few years ago and has a decent dividend yield.

Gus.

Hi Gus

I am not a gold bug and I'm far from a gold company expert. That said, I have decent one step removed experience on the sector as in a previous life I ran a very specialist fund of funds and basically researched and interviewed the weird and wonderful fund managers of the world including gold/precious metal focused ones. I don't have the expertise to assess pre-production assets either in terms of the resource or the all important logistics around them. This means that I have tended to look at companies that have a production profile and some infrastructure on the ground and operational experience.

So, I am going to miss the chance of the mythical 100 bagger exploration gold stock (if you know what you are doing you can find these). However, I got into the sector properly in H2 2015 around its lows (I had held a small diversified tactical/curiosity position for about 18 months before that and lost a little money as it bottomed but not much) as I could see it was hated for historically legitimate reasons...but hate is backwards looking and lazy! Looking forward it is my opinion that gold miners are one of the very few sectors in the market (US or European) that have gone through the low of the capital cycle (whereby they pay the price of folly and hubris) and was on the positive up cycle whereby they have cleaned up, gone the wall, manage more conservatively, etc. Investors are always slow to appreciate this change as at the low it looks very bad and plenty people have been hurt.

I did own Centamin (LON:CEY) too. I confess I sold out at less than half the current price for a small gain. That's as I concentrated a much more diverse portfolio of small holdings into a concentration of chunky ones - Pan African Resources (LON:PAF), Caledonia Mining (LON:CMCL), Shanta Gold (LON:SHG) and Ruffer Gold fund. Shanta was small until this week and all in I'm 5% down on that stock and expecting plenty volatility as perceptions on it work through. If I have bought near the bottom I am very lucky but it is more likely I will need to wear some pain (if my current more detailed analysis says good and the company is executing I will top up). The others I have more than doubled...and at one point they had trebled but I held and didn't sell.

Caledonia Mining is my favourite stock of any sort. There are two very specific and binary risks 1) Its based in Zimbabwe and 2) Its a single shaft miner. That means that catastrophe risk must be assumed. Push that aside (and it explains why so cheap) and the upside through strong cash flow, targeted investment program and production growth leading to more cash and earnings and its a stock that I believe will move a lot more from here.

Ruffer I like as a gold fund as it value and conservative biased and gives me a spread of small producers and assets that i cannot get round to myself. Pan African looks good quality asset to me with and embedded turnaround story and good investment program that should lead to good growth (but it is a bit more gold price driven than the others).

I do have an ugly legacy position in an Australian company operating in Philippines called Medusa. It was part of my old diversified portfolio so I only bought a small stake...but still have lost 75% of what I put in. I should really tidy up and work out whether it sticks or goes (my shallow appraisal is that it looks good asset but operational and jurisdictional problems that I am not around).

Good luck
Paul

bsharman

Hi all,
Great discussion around gold mining stocks. Thanks for all contributions.
Have any of you looked at Hummingbird Resources (LON:HUM) ? I hold, I bought a bit too early but they have a good low cost resource and should start producing before the year end. The management team have delivered so far and seem more than competent. Perhaps a major will take them over once all the hard work has been done!
Cheers,
Ben

Hi Ben
No view. It's a situation outside my comfort zone lacking mineral and operational knowledge in sector.
Looks interesting and if you are right lots of upside
Best wishes
Paul

Shouldn't I? Shanta I? Yes I Shanta!

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Mojomogoz

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