SHG - Shanta Gold - sticky situation fund

SHG Shanta Gold is a gold explorer, about to turn producer. Lots of high-quality analysis has been done on
its likely value, and it appears that the company is worth a lot more than indicated by the share price.

There was an episode of the Simpsons where Homer decides to become an inventor. One of his inventions was for women who wanted to apply their makeup in a hurry. It consisted of a blunderbust which is pointed at a lady's face. The trigger is pulled, shooting out makeup over the woman, thereby requiring only an instant to apply. Homer tries to demonstrate this on his wife. Fortunately, Marge ducks just as he pulls the trigger, causing the load to splatter on the wall. It cracked me up bigtime. Alas, I haven't watched the Simpsons for a number of years, as Channel 4 seem to keep repeating old episodes over and over again, and I never know when they are showing ones that I haven't seen before.

Which leads me to my point: I'm going to eskew all the very fine work by analysts and others and present my own blunderbus approach to looking at SHG. To borrow a phrase from Joel Greenblatt, I want to be able to bungle my way into a profit on this one.

I'm basing my "valuation" that I saw by a poster called Isaac over at Stockopedia (article). The New Luika gold mine is expected to produce 175k-190k oz of gold over the first three years. Let's call it 180k oz. That's about 60k oz pa. Cost per oz is estimated at $570 - $610. Let's call it $600. Gold price is $1600/oz. So, the profit per oz is $1000. Multiply that 60k, and we're looking at profits of about $60m. That's about £35m.

"slartybarfast" estimated that at 19p, the market cap of SHG is £50m. So, that puts SHG on a PER of about 1.5.

Undoubtedly they'll be other costs to consider that will reduce the PER. New Luika is just one of 3 resources that the company owns.

Also worth mentioning is thatat the end of Dec 2010, directors had an interest of 18% in the company, and have bought into the recent share placing.

Current ask price for the shares is 23p, and FT-ALL SHARE is currently 3076. It goes into my "sticky situation" fund, which I'll present on an ongoing basis as soon as I get the programming together to produce reports. I call it the "sticky situation" fund, because I don't know if "special" or "event-driven" quite describes it accurately.