Questor share tip: this company looks good operationally against the backdrop of suspicion of central bankers and a rise in merger activity Regular readers may cringe at seeing a gold miner at the top of this column after earlier unsuccessful stabs at the industry with Avesoro Resources, subsequently acquired and delisted; Resolute Mining, which languishes miles below our entry price in October 2019; and Centamin, which we cover below. They may be right to do so, given that spotty track record and this column’s lack of geological expertise, which means another prospecting expedition could be fraught with risk.
However, Shanta Gold catches the eye, partly because the gold price is moving higher, almost unnoticed, and partly as the precious metal producer has only just finished with shaking off the attentions of a trio of predators. Merger and acquisition activity is hotting up in the gold mining business, as evidenced by Agnico Eagle’s merger with Kirkland Lake and then Agnico’s joint bid for Yamana Gold, alongside Pan American Silver, which trumped a rival offer from Gold Fields.
Sceptics might say these deals are merely efforts by miners to extend the lifetime of their operations. Bulls will argue that they show there is value to be had in an industry that continues to attract little attention even as the economic backdrop remains a potentially fertile one for precious metals.
They seem to do best when markets lose faith in central banks and there has to be a risk that more questions are asked if they fail to deliver the promised “soft landing” while at the same time conquering inflation, given how they made a total hash of it with their argument that inflation would be “transitory”. Any one of persistent inflation, stagflation or panicked rate cuts in response to an economic downturn could yet bring gold back into the limelight.
Buying a stock solely in the hope of a bid is a mug’s game but there is more to the Shanta story than that. Operational performance should improve at its core asset, New Luika in Tanzania, and the commissioning of a second site in the same country, Singida, should lead to sharp increases in production at a lower “all-in sustaining cost”.
If all goes to plan, shareholders could be in business. If New Luika sees a repeat of 2021’s troubles or Singida is late, or both, the shares could suffer, so the risks are clear even before potential gold price volatility is taken into account. That said, there is some protection. The first-half results in August revealed net assets of $168m, or £140m at current exchange rates, so shares in the £105m company trade well below book value. Shanta could just be worth its weight in gold.