The world’s central banks own more than 35,000 tons of gold, collectively worth trillions of dollars.
Many have been adding to their coffers in recent months, including China, which has picked up nearly 155 tons this year alone. Central banks buy gold as protection – against political turmoil, economic volatility and financial risk. And, in the current climate, their interest in gold will almost certainly increase.
The price has surged over the past five years, soaring 9 per cent in the past three weeks alone to almost $2,000 (£1,650), as turmoil in the Middle East intensifies. Many believe the price will stay at or around these levels for the next couple of years at least, driven by a host of factors, from inflation in the West to power-grabbing in the East.
Shanta Gold has two mines in Tanzania, producing around 100,000 ounces a year. The company owns a project in Kenya too, at a relatively early stage now but expected to deliver serious amounts of gold over time. Midas recommended Shanta in 2021, when the shares were 8.25p, there were no dividends and the group had one producing mine.
Since then, a second mine has come on stream, production has increased and chief executive Eric Zurrin has started to pay dividends, with 0.2p shelled out last year and the same again expected for 2023.
Flow of profits: Shanta Gold is paying dividends as production steps up
Shanta shares have increased by more than 25 per cent to 10.6p since 2021 but there is plenty more upside to come. Production is rising, the Kenya mine is likely to yield substantial rewards and gold is in vogue. Zurrin, a former banker, has been involved with Shanta on and off for the past decade, including six years in the top job.
During that time, he has steadily devolved responsibility for day-to-day operations to local people so today the vast majority of Shanta’s 1,000-strong workforce have local roots. The approach has delivered results with staff committed to making Shanta’s mines as efficient and effective as possible.
Earlier this year Zurrin announced he would be leaving. But he has since confirmed he will stay on until the right successor can be found and chairman Anthony Turrant is a seasoned mine hand, with a wide network of industry contacts.
With or without Zurrin, the group intends to increase production at both Tanzanian mines and develop the Kenyan mine, where early signs are highly encouraging.
Shanta throws off plenty of cash too so it should be able to bring the new mine to production without recourse to shareholders. There may even be some special dividends along the way.
Brokers expect sales of $190 million this year, rising to more than $220 million by 2025. Profits of $41 million have been forecast for 2023, increasing to almost $50 million over the next two years.
Midas verdict: Shanta shares soared to 13.9p when the group’s second mine came into production earlier this year. They trickled down over the summer, as a large shareholder was forced to sell for reasons entirely unconnected to Shanta. Now, the price should move ahead once more, propelled by strong figures, a robust gold price and solid prospects. At 10.6p, this stock is a keeper.
Traded on: AIM Ticker: SHG Contact: shantagold.com or +255 22292514850
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