Acacia talks up growth as opens new chapter

[miningmx.com] – ACACIA Mining, formerly known as African Barrick, said its ability to withstand a sub-$1,000/oz gold market positioned it to consider acquisitions, organic production growth, and a new build programme.

At least one project would be in feasibility in the next five years whilst the company, currently range bound in Tanzania, would be operating in other gold fields throughout the African continent.

This was fighting talk by a company that wrote down assets worth $727m less than two years ago and was even put up for sale by its parent company Barrick Gold, the Canadian gold producer.

Speaking at an investor day held in London, Acacia CEO, Brad Gordon, repeated comments made earlier this year that he was seeking “transformational” merger and acquisitions deals, especially as gold assets had never been as cheap.

This is following a 30% decline in the dollar price of gold since mid-2011 which has seen gold producers take emergency measures to protect their balance sheets, including write-downs, production cuts, and asset sales.

“We are getting to the end of fixing the business and this gives us potential to do M&A,’ said Gordon. “We are not interested in anything small; it would have to be large and transformational,’ he said, adding that a producing asset was preferable.

“It is currently one of the cheapest times to be buying assets,’ he said.

Acacia produces gold from three assets in Tanzania, including the kingpin Bulyanhulu asset, and North Mara. A third mine, Bugwazi, was in harvest mode with an estimated five years of production left.

The company was created following the partial demerger of Canadian group Barrick Gold’s African assets, but it failed to take-off in its first few years culminating in a $727m write-down in 2013. Barrick Gold even considered selling its shares to China National Gold Group before hiring Gordon.

Shares in Acacia are 40% higher on a 12-month return basis out-performing Gold Fields, AngloGold Ashanti and even its parent company, Barrick Gold, especially since August.

Gordon said the company was positioned to produce free cash at a gold price below $1,000/oz having reduced All-in Sustaining Costs about a third in two years from $1,700/oz to $1,100/oz. It had plans to trim a further $200/oz off its opex, he said.

CFO, Andrew Wray, said future acquisitions had to either equal or be better than the cost profiles of its existing assets. “We are not going to start on an M&A spree which I know worries investors,’ he said.

“We will look to add assets but they have to compare with growth in the business such as “Buly’ and North Mara,’ he said. Gordon forecast Bulyanhulu would produce gold at an AISC of $800/oz and said output could far exceed the project 350,000 oz/year.

“Personally, Buly has potential to go much higher than that,’ he said. “It’s all about Buly. We have turned it into a modern, mechanised underground mine. We have every confidence Buly will finally achieve its promise.’

Gordon, and his executive team, also raised expectations it would have “at least one” new project in a feasibility study in five years and that it would produce more than 700,000 ounces of gold a year. The company produced about 580,000 ounces of gold in the nine months ended September.

“It has been an extremely long journey,” he said. “Now we can start to have some fun.”

The company said it had approved a definitive feasibility study to develop the $37m Gokona underground mine at North Mara, a widely expected announcement.

However, it also unveiled a farm-in agreement with Sarama Resources in which it would spend $15m in exploration for a 70% stake in Burkina Faso’s South Hounde project.

“This appears to be a low risk foray into new territory for Acacia,’ said Investec Securities. CEO of Sarama, Andrew Dinning, was formerly head of Moto Goldmines which sold the Kibali prospect to AngloGold Ashanti and Randgold Resources.

“Dinning obviously has a nose for good project and the Burkina Faso ground holdings certainly look to be attractive,’ said Investec. “The new exploration joint venture and the new name may underscore a new chapter for African Barrick Gold,’ said SP Angel in a morning note.