Shanta Gold Limited (LON:SHG) has “positioned itself very well to take advantage of high gold prices” according to analysts at its house broker Liberum, who said the miner is capable of “delivering capital efficient near-term growth and a solid dividend”.
In a Wednesday note initiating the stock with a ‘buy’ rating and a 23p target price, the broker said efforts by management at the AIM-listed firm over the past few years meant it “can deliver on many fronts simultaneously” which should drive a re-rating of the shares.
Liberum’s analysts also said cash flow and resource size from the company’s Singida project in Tanzania, which will deliver 31 kilo ounces of low-cost gold per year from 2022, “should allow further phases of exploration and expansion from then on”.
Meanwhile, the broker said Shanta’s West Kenya resource could be “transformative” for the company and “was a bargain and brings geographical diversification”.
“[West Kenya] is believed to be one of the highest grading deposits in Africa greater than 1mln ounces, with inferred resources currently at [1.18mln ounces at 12.6 gram per tonne]. There are signs of mineralisation beyond what has been explored so far, so we expect further exploration will significantly increase resources”, Liberum said, adding that a scoping study due in the coming months will underline the potential of the asset.
The broker also highlighted that Shanta “capable of paying attractive dividends”.
“With the group expected to turn considerably net cash in the coming years, supported by the lofty gold price and robust production at [the New Luika gold mine in Tanzania], we expect it to start paying a dividend. We have assumed a maiden dividend at full-year results with a payout ratio of 25% going forward. This would mean a yield of 3.8% in 2021 and 5.9% in 2022, which will help the share re-rate”, analysts said.
Shanta shares were 0.4% higher at 17.1p in mid-afternoon trading.