ACACIA Mining has its work cut out after telling investors today it would produce up to 43% less gold in its 2018 financial year following the closure of its Bulyanhulu mine amid a tax dispute with the Tanzanian government.
Described by interim CEO, Peter Geleta, as a “step-down”, gold production would be between 435,000 to 475,000 oz this year at an all-in sustaining cost (AISC) of as much as $985/oz. Were this the number, it would represent a 13% increase year-on-year increase in AISC. Net cash as of December 31 was $81m which compares to $318m the year before.
The company, in which Canada’s Barrick Gold is a 64.9% shareholder, is embroiled in a dispute with Tanzanian president John Magufuli’s government over alleged unpaid taxes totalling $190bn, including penalties and interest. Barrick has conducted negotiations with the Tanzanians, and in October set down a framework agreement with the government in which Acacia is to pay $300m subject to the agreement of its minority shareholders.
The Tanzanian government also enacted a number of changes to its mining regulations which include an increase in royalties and a requirement that shares be made be available to the state on a free-carry basis. Geleta said in notes to Acacia’s year-end numbers that the company was abiding by the new rules under duress.
Acacia’s numbers made for some horrible reading in parts. Following an impressive operating performance in its 2016 financial year, the Tanzanian government’s decision to impose an export ban on gold, copper and silver in concentrate – which it claimed had not been subject to correct taxation for nigh-on 20 years – saw 185,800 oz of gold, 12.1 million pounds of copper, and 158,900 oz of silver contained in concentrate embargoed.
The outcome of the embargo was that Acacia suffered a net loss of $707m of which $644m consisted of a write-down on the carrying value of the firm’s assets. It predictably passed the dividend, and said it would not produce gold-in-concentrate this year. It will, however, continue to export doré, a more refined version of the metal which has not attracted any tax claims from the Tanzanian government.
Acacia has made representations to international arbitration but its future turns on discussions between Barrick and the Magufuli administration. Barrick said it hoped to conclude matters in the first half of this year.
“Our focus remains on delivering optimal performance from all aspects of the business within our control in the current operating environment, returning the business to free cash generation and delivering value for all of our stakeholders,” said Geleta in notes to the firm’s financial figures. “We are supporting efforts towards achieving a negotiated resolution with the Tanzanian Government,” he said.
Shares in Acacia Mining fell 14% on the London Stock Exchange taking the 12-month performance to a negative 68%.