The Shanta Gold share price has doubled in 5 years. Can it keep going?

Sometimes, slow and steady wins the race. As a long-term investor, I always try to see the big picture over the years. Take Five Golds (LSE: SHG) is an example. Shares are sold for just a penny. But they are up 17% over the past year. In five years, Shanta Gold’s share price has doubled, rising 118%. There are also dividends, although the annual yield of 1.8% is quite modest.

Could this be a great piece to include in your portfolio for years to come?

Positive development

Lately a few things about Shanta have caught my eye.

Last month, the company updated the market on reserves and resources. For the fourth year in a row, it has extended the mine life at the New Luka project in Tanzania by at least one year, due to exploration. The project currently has 394,000 ounces of proven and probable reserves.

By increasing the reserves and extending the life of the mine, the company can benefit from a larger sales volume than it would otherwise. Extending mine life also means that development costs can be spread over longer production periods, helping to increase profitability.

Last autumn, Shanta announced that it had received approaches from three separate companies that could lead to a potential offer for the company.

In the end, no offer was made. But the fact that a trio of mining companies have applied the slide rule in Shanta and are considering the potential appeal of outright buying makes me rethink the investment case for the company in more detail.

Stock price changes

A bid can push up the company’s share price (although that is never guaranteed and sometimes the bid has resulted in me receiving less money for the shares than I have paid to buy, for example, in the case of Stagecoach). But as a long-term investor, I buy stocks based on a company’s financial prospects, not its potential for future takeover bids.

Share price changes of Shanta Gold Corporation in US Dollar during the last year. That can continue to grow with continued exploration.

The stock also benefited from strong gold prices. However, with a strong focus on the yellow metal, Shanta’s profits have been huge. In 2021, the company lost $6.2m, but made a profit of $17.2m the previous year.

With a market capitalization of around £115m at current prices, I think that the potential for earnings when gold prices are high means that the stock could offer value.

But clearly, changes in the price of gold are also a major risk to the profitability and profitability of the business. With economic uncertainty around the world continuing to fuel demand for gold, prices could remain high. If that happens, I think the stock price could continue to rise.

However, the company cannot control the price of gold.

The operation is concentrated in two east African countries. I think this means facing a higher political risk than larger miners with larger portfolios. Shanta doesn’t meet my risk profile so I won’t invest.