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A lot of disappointments hurled at Shanta Gold Limited (LSE:SHG) today as the company revealed it is nearly out of cash to keep itself afloat after a loan provider deferred commitment to provide funding, following the gold explorer’s poor production performance brought about by operational issues at its Luika mine in Tanzania.
Shanta is now faced with a US$42 million worth of obligations that need to be met before the year ends and the company only has about US$3 million in cash (and cash equivalents, for that matter) and an expected sales of its produced gold estimated at US$9 million during the current quarter.
That leaves the company US$30 million short, hence, the AIM-listed producer of the malleable metal is to raise at least the same amount through an issue of new ordinary shares equivalent to at least 24% of the current capital stock.
The equity financing the company announced today was a result of FBN Bank (UK) Limited deferring to provide the US$40 million debt facility with Shanta until the Luika mine is able to produce gold in commercial quantity.
Whatever happened?
Shanta’s flagship project, Luika mine promised to produce between 13,000 and 17,500 ounces of gold by the last quarter of 2012, yet as revealed today in the company’s update, the said mine has so far produced only about 769 ounces – 199 ounces in September and 570 ounces as of 14th October.
Now the shareholders know why back on 3rd September 2012, the company opted not to include the actual volume when it announced the first gold pour, even as Shanta also said it has about 100,000 tonnes of ore containing about 22,000 ounces of this US$1,700 per ounce precious metal.
Shanta blamed issues in the processing of the ore resulted to reduced recoveries and “lock up” of gold in the plant after a successful wet and dry commissioning of the plant.
The company has already been plagued by delays in the beginning of the year that pushed back the timetable of gold production and the recent issues identified in the processing plant is now pushing the schedules anew, with the company saying it will only produce about 6,000 ounces a month during the fourth quarter of 2012.
Market Reaction
Promising potential is one thing. Delivering actual performance is another. On the London Stock Exchange, shares of Shanta dropped 18% to 17.125 pence by 11:10 AM GMT, in a disappointing reaction to the company’s recent plan to dilute equity to sustain operations.
Shanta’s promise of a higher production than projected by 2013 did nothing to appease investors as over 6 million shares were disposed three hours after the market opened earlier today.
Much pressure is now placed on Shanta’s new Chief Executive, Mike Houston, who is now on its 17th day in office, to turn the company around and restore investor confidence.
