Joel’s Resource Report – Surprising Selling #SHG

Joel’s Resource Report – Surprising Selling #SHG

Hi all, trust you’re having a great week – with the days getting longer and the sun shining, things feel like they’re on the up!

One company which isn’t on the up is AIM-listed gold miner Shanta Gold.

I last covered Shanta Gold for cube (premium content) back in January when I discussed its highly inefficient dilution and placing.

As a shareholder (at that time), I was disappointed that a company would do a placing and then start talking about dividends – you should not dilute equity holders to pay dividends!

Disclosure: I recently sold out of Shanta Gold and not because I don’t like the business. It was due to my feeling that gold may not do well if yields increase.

Since I sold, the shares are down more than 15% and have started to look a little tempting to me.

Valuation?

At 12.25 pence to buy, the market cap is £128 million:

(Source: Google)

Enterprise Value (EV)

Net Cash at year end equaled $37.3 million (£27 million)

  • EV = Market Cap – Net Cash
  • EV = £128 million – 27 million = £101 million

Cash generated from operations after costs?

Assume all-in sustaining costs (AISC) including development costs of $1100 an ounce (using top end of guidance to be conservative).

  • Gold price = $1700 (conservatively using below today’s $1736 an ounce)
  • Margin = $1700 – $1100 = $600
  • 80,000 ounces * 600 = $48 million (£35 million)

My costs and other assumptions come from Shanta’s 2021 outlook.

This means that Shanta is trading at about three times the cash it could generate – pretty cheap!

Director Dealings

Investors rightly look at what Directors are doing and given what I’ve highlighted above, you might think that directors would be keen to hold onto their golden shares – not so!

On the 19th March, it was announced that:

“Eric Zurrin has sold a total of 2,045,688 Ordinary Shares (equivalent to 15% of holding) at an average price of 13.3 pence per Ordinary Share and Luke Leslie has sold 2,823,000 Ordinary Shares (equivalent to 27% of holding) at an average price of 13.2 pence per Ordinary Share”.

The company went on to state:

A significant proportion of executive compensation continues to be paid in shares and this is the first sale of shares in four years during the CEO and CFO’s tenure as Company Executives”.

It could just be a question of executives looking to sell shares when they’re not in a closed period. However if directors believed the company was genuinely cheap, would they really be doing this?

Despite their sudden keenness to sell shares, they had bought a few back in October at 16.5 pence in the recent placing:

(Source: Shanta)

Director Robin Fryer also started to offload shares shortly after buying some, he waited just two months before dumping all of his shares.

Final thoughts

Directors offloading shares isn’t necessarily a bad sign, however they do have access to far more information than ordinary investors – what the political situation is like, local relationships and how operations are performing.

Equally most people want to make money – I’m not sure directors would be selling their shares if they thought they’d be going up in the near term!

Shanta is still one of my favorite gold miners and I’ll continue to keep an eye on it. I’m somewhat tempted at current prices – 10p a share would be even more compelling!

Till next week!

 

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