East Africa-focused gold producer, developer and explorer Shanta Gold reports that its New Luika gold mine, in Tanzania, remains on track to start commercial underground production during the second quarter of this year.

The development also remains within budget.

As at the end of March, 2 297 m of underground development had been completed, while the Bauhinia Creek orebody access has started on the 915, 900 and 880 levels with the turnout reached on the 865 level.

“We have started processing underground development ore, with 15 171 t grading 10.6 g/t mined in the quarter,” Shanta CEO Toby Bradbury said in a statement last month.

Three of the four raisebore ventilation shafts have also now been completed, with the Bauhinia Creek main fan due for commissioning in the second quarter.

Underground mining was expected from Bauhinia Creek, Luika and Ilunga to depths below surface of 350 m, 315 m and 250 m respectively, with mining methods predominantly longhole openstoping, with backfill where warranted, Mining Weekly reported last month.

The mine’s access to high-grade orebodies through underground operations will provide the bulk of plant feed, with 2.4-million tonnes at 5.8 g/t for 444 500 oz over the life of the mine.

However, owing to the move underground, Shanta expects second-quarter gold production to be its lowest for 2017, as it moves through the ramp-up process of the underground production.

Meanwhile, the New Luika mine produced 20 416 oz of gold in the quarter ended March 31, improving the company’s margins and keeping it on track to meet its 2017 guidance.

“Shanta had a promising start to the financial year with more ounces produced, at a greater margin than planned, ensuring that the company is on track to meet its 2017 guidance of 80 000 oz to 85 000 oz at an all-in sustaining cost (AISC) of $800/oz to $850/oz,” Bradbury said in the same statement.

The company achieved quarterly gold sales of 23 252 oz at an average price of $1 249/oz, above the average spot price of $1 219/oz for the period.

Unit cost performance benefited from record gold recoveries of 92% for the quarter.

The run-of-mine stockpile at the end of the quarter was 67 000 t of ore grading 2.1 g/t, which is being blended with the high-grade underground ore.

As of March 31, Shanta had sold forward 25 000 oz to October at an average price of $1 292/oz.

Cash costs for the first quarter were $553/oz, compared with $486/oz in the fourth quarter of 2016, while AISCs were $768/oz, compared with $747/oz in the fourth quarter of 2016.

Shanta’s cash balance stood at $11.7-million at the end of the quarter, down from $15-million in the fourth quarter, primarily as a result of a capital expenditure investment and an increase in value-added tax receivables.

The company’s gross debt decreased to $56.2-million, from $57.9-million in the previous quarter, following ongoing repayments to financial institution Investec. Net debt increased to $44.5-million, from $41.1-million in the previous quarter, following the decrease of the company’s cash balance.

Bradbury further noted that the forthcoming release of a maiden resource for the Nkuluwisi prospect, which is close to New Luika, “further underpins shareholder value”. The drilling assay results, which will inform a maiden resource for the prospect, are expected in the second quarter.

A total of 44 reverse circulation drill holes comprising 5 833 m of drilling have been completed at Nkuluwisi, which identified mineralisation down to vertical depths of about 120 m below surface.

Exploration to date has covered a strike length of about 900 m and significant portions of the regionally prominent Nkuluwisi shear zone remain untested and exploration work is ongoing, Shanta reports.

The “encouraging mineralisation” remains open along strike and at depth, the company notes.