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The New Luika Gold Mine (NLGM) of AIM-listed Shanta Gold in south-west Tanzania has successfully transitioned to being a predominantly underground operation and is expected to produce between 82 000 and 88 000 ounces of gold in 2018 at an All-In Sustaining Cost (AISC) of US$680 to US$730 an ounce. Speaking to Modern Mining’s Arthur Tassell recently, Shanta’s CEO, Eric Zurrin, said that with the underground mine performing strongly and a period of high capital expenditure now largely behind the company, Shanta is on course to enjoy an excellent 2018.

New Luika Mesh

The underground mining is being undertaken on an owner-mining basis by Shanta using a fleet of mobile machines supplied by Sandvik.

Commissioned in 2012, New Luika, which is located 120 km north-west of Mbeya, is the only modern, commercial-scale gold mine in the  Lupa goldfield, which produced an estimated 650 000 ounces of gold between 1935 and 1959. Work on the underground project started in mid-2016 and in December 2016 Shanta announced that it had produced the first development ore. The first stope ore was produced in May 2017 and commercial production was declared on 1 June 2017.

“We’re very happy with the progress of the underground mine, which is now running at steady-state levels,” says Zurrin. “The development was undertaken in-house with all the key milestones being achieved on time and within budget, which is a tribute to the skills which we have within Shanta. We’ve now completed around 7,5 km of development and produced over 250 000 tonnes of ore at an average grade of more than 6 g/t since the project was initiated. The underground mine is designed to produce up to 45 000 tonnes/month but in December we hit 50 000 tonnes.”

He adds that the cost per metre of lateral development at New Luika is approximately US$2 600. “Some of our peers are running at three times this,” he says.

The two orebodies currently being exploited by the underground mine are Bauhinia Creek and Luika, with the portal providing access to both being located in the Bauhinia Creek pit. The mining method used is Long Hole Open Stoping (LHOS) with cemented rockfill in the Bauhinia Creek section of the mine. The Luika section is in the process of converting to LHOS after originally being mined using the cut and fill method. This removes the requirement for backfilling with cement and is expected to deliver savings of US$3,6 million a year.

The underground mining is being undertaken on an owner-mining basis by Shanta using a fleet of mobile machines supplied by Sandvik. Currently, about 220 people work in the underground mine (although the total directly-employed labour complement at New Luika is about 600.) Around 98 % of the employees are Tanzanian, with 44 % of them coming from surrounding villages. The GM of New Luika is Honest Mrema, who has 20 years’ experience in open pit and underground operations.

In tandem with the development of the underground mine, Shanta has upgraded much of the surface infrastructure at New Luika. This has included the installation of a 7,5 MW HFO power station (which has replaced a rental plant), a new tailings storage facility and a mass gravity dam on the Luika River upstream of the mine with a capacity of 350 million litres.

In terms of a revised Mine Plan adopted by Shanta in March last year, New Luika will produce 359 000 to 500 000 ounces of gold from 4 Mt of ore from 2017 through to 2023 with the underground sections accounting for the bulk of this although some open-pit mining will continue throughout this period. Compared to the ‘Base Case Mine Plan’ announced in September 2015, the revised Mine Plan delivers a 39 % increase in gold production. It incorporates additional open-pit reserves at the Elizabeth Hill deposit and additional underground reserves at Ilunga. It is currently planned that the Ilunga underground mine – which will be accessed from a portal in the Ilunga pit – will come on stream in 2020.

Over the past several months, there has been no open-pit mining at New Luika with all the ore being provided from either surface stockpiles or the underground operations but Zurrin says that surface operations will resume in March. “We need to dilute the high-grade underground ore with lower grade open-pit material to optimise the recoveries we get in the plant,” he observes.

While the revised Mine Plan only extends through to 2023, Zurrin says it is very likely that New Luika’s operations can be extended beyond this date. “We have significant resources that sit outside the current Mine Plan. In addition, we hold over 1 560 km2 of prospective ground in the Lupa goldfield – which, incidentally, is very under-explored – so there is clearly potential for us to find additional mill-feed for New Luika. We’ve had strong results from our exploration programmes in the past and, since September 2015, have more than replaced mined ounces.”

Deposits outside the Mine Plan include the Nkuluwisi Mineralised Target, located approximately 12 km north-west of the plant, which has a JORC-compliant resource of 3,97 Mt at 1,1 g/t for a total of 140 894 ounces of gold.

A substantial resource which is not owned by Shanta but which is within trucking distance of the New Luika plant is the SMP project of Helio Resource Corp, which hosts 635 koz of gold at an average grade of 2,4 g/t. Shanta, in fact, announced in June last year that it was to acquire Helio but terminated the agreement in August, citing “the potential impact on Helio of the bills signed into law in Tanzania on 10 July 2017” as the reason for its decision.

On the subject of the new legislation, Zurrin confirms it has impacted Shanta negatively. “Royalties have increased from 4 to 6 % and, on top of this, there is now a 1 % clearing fee on the value of all minerals exported from the country,” he states. “The net effect is that Shanta’s costs have increased by about US$40 per ounce of gold produced. We’ve responded by aggressively cutting our costs. In September last year we announced that we would target a US$5 million reduction of costs annually. We’ve bettered this. In fact, the savings we’ve already seen – translated to an annualised figure – amount to US$8,7 million.”

The savings are partly a result of the switch to the new mining method at the Luika underground mine but are also due to a reduction in headcount, the renegotiation of contracts with suppliers and the elimination of non-essential G&A (General & Administrative) spending. Based on the encouraging results to date, Shanta has increased its cost savings target from US$5 million to US$7 million per annum on a run rate basis. These savings exclude the lower costs of the changed mining method at Luika and are expected to be identified and executed by the end of Q3 2018.

Zurrin adds that Shanta has had some success with the vexed issue of VAT refunds, a problem for all mining companies operating in Tanzania. “During the last quarter of 2017, we received a VAT refund of US$3,4 million, which was the largest returned to any miner operating in Tanzania during the
period,” he says.

Looking forward, Zurrin says that Shanta is in constant engagement with the government on a range of issues. He notes that Shanta does not – like some of its peers – enjoy the benefits of a Mine Development Agreement (MDA) and that it has always paid full royalties, duties and levies. “Certainly, we would like to have an MDA in place, particularly given the fact that we are heading towards the development of a second mine in Tanzania.”

The second mine Zurrin refers to is Singida in central Tanzania. In a major step forward, Shanta declared a maiden JORC-compliant resource in November 2017 of 728 koz of gold for the Singida project using a cut-off grade of 1,84 g/t, with the resource being based on seven shear-zone related gold deposits with a combined strike of 4,9 km. All the deposits are situated within three Shanta-owned mining licences.

“Singida is very exciting,” comments Zurrin. “It was originally Shanta’s flagship asset and it remains a very attractive project which has the potential to produce at a rate of 30 000 oz/a for at least five to six years from open-pit operations with the ore being treated in a relatively small 60 t/h, CIL/gravity plant. The capex is modest at just US$25 million. We’ve completed a resettlement programme at the site and all the important technical studies have been completed.

“Essentially, the project is development ready and we’re now speaking to finance providers. Since we’re currently focused on debt repayment, our preference will be for asset-level financing. The business case for developing Singida is compelling, so we believe our efforts will meet with success. As regards the timeline, Singida – under a best case scenario – could be in production within 12 to 15 months.”

If Shanta is successful in bringing Singida on line, its gold production would probably exceed the 100 000-ounce-a-year mark and cement Shanta’s status as a mid-tier miner. “We would certainly like to have a second mine. Having said that, the emphasis for Shanta going forward is going to be on profitable ounces and on maximising shareholder returns. Singida apart, we have no immediate plans for further new mines – although we are always prepared to look at good opportunities,” says Zurrin.

“Shanta is in a very good place at the moment. Our primary asset, New Luika, has all the infrastructure in place to operate well into the future, our debt is coming down and we’re generating strong cash flows. We’re now ready to benefit from all the hard work put in over the past eight or so years which has seen Shanta reopening the long-neglected Lupa goldfield and establishing itself as a key player in Tanzania’s gold mining industry.”

Photos courtesy of Shanta Gold.

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