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UPDATE: Shanta Gold closes oversubscribed cash call

Published: 11:43 18 Oct 2012 EDT

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Shares in Shanta Gold (LON:SHG) climbed more than eight per cent today after it closed its latest share placing which was oversubscribed and raised US$35 million.

A total of 73.5 million new shares were issued at a price of 17p each - an 18.6% discount.

This comes after a number of board changes which includes the appointment of a new chief executive, Mike Houston, and the departure of former chairman Walton Imrie and former chief executive Gareth Taylor.

Shanta poured first gold from the New Luika mine earlier this year and it is currently working through the ramp up of the mining operation. 

The newly raised capital will support this work.

"Having to raise equity finance at the beginning of my tenure as CEO has not been an ideal start,” Houston said in a statement.

“However I have been hugely encouraged by the levels of support we have received from the vast majority of our existing shareholders, and from a wide range of new institutional shareholders. 

“We have executed a well oversubscribed financing which will now allow us to deliver on our business plan; whilst also bringing on valuable new board members and advisors in the process. 

“On a more personal level, I particularly welcome the significant investments made by members of our operational management team. 

“To my mind this is a strong endorsement of our collective belief in the Shanta story."

Shanta yesterday said it had deferred a US$40 million debt facility until it reaches commercial production levels.

It instead opted for the share placing to meet its immediate needs. It also revealed there may be alternative sources of finance subject to a successful production ramp-up.

Operationally, the company has identified and is in the process of resolving “operational issues” in the ramp up of its New Luika gold plant in Tanzania.

On a positive note, Shanta has said there is the potential to increase 2013 production beyond the projected 70,000 ounces of the precious metal at a very competitive cash cost of US$620 an ounce.

It also expects total output in the first three years to exceed the current forecast of 225,000 ounces. 

An upgraded mine plan for New Luika is expected at some point before the year-end.

In the two weeks to October 14 output from the mine was 570 ounces compared with 199 ounces for September as a whole.

Shanta also said that it will have enough financial headroom to take advantage of “potential value enhancing corporate opportunities”.

Broker Westhouse rates the stock a 'strong buy' and gives a target price of 69 pence.

It said due to its conservative modelling the delay in the ramp-up had not effected its forecasts.

"..with the increased forecast from 175-190,000 ounces to 225,000 ounces over the first three years, we are maintaining our Strong Buy recommendation and 69p target price while awaiting further details over the financing," it said in a note.

Shanta shares rose 8.45 per cent, to stand at 19.25 pence.

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