Shanta Gold reported a net loss of $7.3 million (Sh874.7 million) in its West Kenya project last year, reflecting the capital expenditure it is making with a goal of starting production in the future.
The loss in the local operation rose nearly eight times from $947,000 (Sh113.1 million) the year before, according to the company’s latest annual report.
The multinational has found commercially viable gold deposits in the area.
The West Kenya project did not have revenues in the two years when Shanta Gold has been spending heavily on feasibility studies to determine the full scale of gold deposits and whether to proceed to production.
The area is estimated to have resources of 1.6 million ounces of gold.
“The latest phase of drilling at West Kenya has continued to deliver consistently high-grade results that are indicative of the vast potential West Kenya offers in the Shanta Gold growth story,” Shant Gold’s chief executive Eric Zurrin said on August 3.
“The 2022 drilling campaign is two-part, focused on upgrading existing resources to the indicated category and resource expansion across our numerous targets.”
Shanta Gold disclosed in the annual report that it has received tax demands from the Kenya Revenue Authority (KRA), adding that it has transferred the potential liabilities to Barrick Gold Corporation from which it acquired the West Kenya licences in 2020.
A subsidiary, Shanta Gold Kenya Limited, received an income tax demand of an undisclosed amount on November 15, 2021, from KRA in respect of Barrick’s sale of its interests in the West Kenya project.
“The key finding highlighted within the correspondence being in respect of corporation tax falling due on an assessed net gain arising upon an assessed indirect transfer of interest in the West Kenya Project,” the multinational said.
“Subsequent to year-end, Barrick reached a settlement with the KRA, thereby settling all related obligations.”
The local subsidiary also received a withholding VAT demand of an undisclosed amount on December 23, 2021, relating to its alleged failure to collect a two percent withholding tax on payments to suppliers.
Shanta Gold says it is fighting the claim, adding that it is ready to call on Barrick Gold to settle any tax liabilities in the project based on the special purchase agreement (SPA).
“Furthermore, in the unlikely event any amount becomes payable … the company can make a breach of warranty claim for any tax that becomes payable subject to the aggregate financial limits set out under the SPA being $2 million (Sh239 million).
Barrick Gold sold its gold mining licences to Shanta Gold in a cash-and-stock transaction worth a total of Sh1.4 billion. Shanta Gold also agreed to pay Barrick Gold a royalty rate at a rate of two percent, based on actual gold production in the future.
The deal saw Shanta Gold take over the rights to mine gold over a 1,161 square kilometre area straddling Kakamega, Kisumu, Siaya, and Vihiga counties.