ACACIA Mining sought to further minimise the impact of an export halt on minerals in concentrate from its Bulyanhulu and Buzwagi mines in Tanzania by buying put options for 210,000 ounces of gold at a strike price of $1,300/oz.
The UK-listed firm said today that the put options would provide a minimum price for the majority of its doré gold production for the next six months above the firm’s budgeted price of $1,200/oz. There was “full exposure” should the price continue to trade above $1,300/oz, it said.
Gold doré is largely produced at Acacia’s North Mara mine which is unaffected by the trading halt imposed by the Tanzanian government. The government alleged in April that Acacia had long under-estimated the value of its concentrate exports and therefore owes the state tens of billions of dollars in unpaid levies.
The options will expire in equal instalments of 35,000 ounces per month over the period. The total cost of the options was $3.2m, Acacia said.
Earlier this week, Acacia said it would cut back production from Bulyanhulu in order to protect its overall cash flows, a step that lowers group production 100,000 oz and affects up to 2,000 full-time employees and contract workers at the mine. Buzwagi would continue to operate as it neared the end of its economic life.
The cut in Bulyanhulu production would result in a 65% to 67% reduction in net income for the firm’s 2018/19 financial year, somewhat approximating the 60% fall in its market capitalisation since the concentrate ban started six months ago. “The cash bleed can now be contained, although the uncertainty remains,” said Investec Securities.
Commenting on the purchase of put options, Investec said: “A prudent strategy, particularly given the ongoing decline in the company’s cash position. Acacia has been running its budget at $1,200/oz and for a cost of $15/oz it gets to lock in its next month of dore sales at $100/oz more than this”.
Discussions between Barrick Gold, Acacia’s 64% shareholder, and the Tanzanian government began at the end of the previous month but have yet to yield any positive results.
