Gold often does well during periods of slowing growth and persistent inflation (known as stagflation) and it should also benefit from a reversal in the strong dollar which held the precious metal back in 2022.

Bitcoin’s claims to be an alternative to gold have taken a battering in recent months as the collapse of cryptocurrency platform FTX has seen the digital token more than halve from 2022 highs. That could see more people move out of bitcoin and into gold as a safe-haven asset.

Anyone looking to play anticipated gold price strength should consider investing in Shanta Gold (SHG:AIM). By purchasing shares in a gold miner, investors are exposed to operational risks but there is scope for greater reward if the company delivers.

In our view Shanta is well placed heading into 2023. The company should benefit from an improved performance at its core asset New Luika in Tanzania, the start of production at the Singida mine (also in Tanzania) and as exploration results continue to demonstrate the outstanding potential of its West Kenya exploration asset.

New Luika is seeing an improvement in grades, the amount of metal within the ore dug out of the ground, after a tough 2021. This should provide Shanta with the cash flow to complete the commissioning of Singida, expected by March, fund more drilling at West Kenya and pay dividends.

Singida is expected to double Shanta’s production to 100,000 ounces per year. The AISC or all-in sustaining cost is a key metric which shows the direct and recurring costs to mine a unit of ore. Shanta has guided for a life of mine AISC of $932 per ounce at Singida which compares with $1,207 at New Luika for the third quarter of 2022.

A lot of excitement around the stock is likely to be driven by the West Kenya project where Shanta has already enjoyed considerable exploration success. Shanta hopes to double an inferred resource of 1.5 million ounces at the project, which it describes as having ‘bonanza-grade gold intercepts’.

It is important to understand the risks of investing in Shanta. It currently generates revenue from a single project and there is no guarantee that the second mine will start operations smoothly. The gold price can be volatile and unpredictable, and a lot depends on the dollar weakening for the metal price to pick up from the current $1,777 per ounce level.

Based on Liberum’s forecasts the shares trade on an attractive 2023 free cash flow yield of 18.2%. The mining industry has already recognised the value on offer, with Shanta recently rebuffing takeover approaches from Shandong Gold and Chaarat Gold (CGH:AIM). Further takeover interest cannot be ruled out.

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