This mining stock could be worth its weight in gold

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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.

Questor says: buy

Ticker: SHG

Share price at close: 10p

Update: Centamin

The gold price is firming and so is the share price of Centamin, which is benefiting not just from fresh interest in the precious metal but also from better news from its Sukari mine last month.

This is most welcome as three years of patience with the FTSE 250 stock is so far yielding a low single‑digit percentage capital return, thanks in part to subsidence at Sukari in summer 2020 and subsequent output disappointments.

An upgrade to measured and indicated resources at the Egyptian site represents the first such gain in excess of mine depletion in six years, extends the life of the mine and justifies the investment in additional drilling planned for this year.

The new exploration work and a pre‑feasibility study in the Doropo site in the Ivory Coast are potential catalysts for performance in 2023, alongside any further gains in gold prices. Centamin could yet shine after three years of dull performance. Hold.

Questor says: hold

Ticker: CEY

Share price at close: 122p

Update: ContourGlobal

The takeover of emerging markets power utility ContourGlobal by American private equity giant KKR is now complete. The deal became effective on Dec 20 and investors were due to receive their 251.4p per share in cash within 14 days of that date.

The final offer – adjusted downwards from the initial figure of 263.6p a share to reflect the subsequent payment of three quarterly dividends – leaves us with a capital gain of 100p per share, or 67pc, with 38.4p a share in dividends on top, for a total return north of 90pc.

This is most gratifying, although long-term investors may be a little frustrated that private equity has lifted the company from under their noses.

Russ Mould is investment director at AJ Bell, the stockbroker

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