Acacia Mining rallies as Deutsche Bank lifts target price

Acacia Mining’s shares rose on Monday as Deutsche Bank reiterated a ‘buy’ rating and lifted its target price to 580p from 570p, citing progress on the company’s turnaround.

The miner last Friday reported it swung to a pre-tax profit for the third quarter and said full-year gold production is now expected to be about 5% higher than the top end of the previous output guidance.

Gold production jumped 25% to 204,726 ounces and sales of the commodity increased 24% to 206,488 ounces in the third quarter. Gold was sold at $988 per ounce, down 16% on the same quarter a year ago.

Production was driven by a strong performance at North Mara, which delivered output of 112,523 ounces, offsetting disruptions at the Bulyanhulu mine and slightly lower production at Buzwagi.

Acacia also reiterated its full year all-in costs guidance at the bottom of the $950-980 per ounce range, compared to $1,112 per ounce in 2015.

“Acacia's turnaround story is progressing well and the group increased its cash balance by another US$18m, during the quarter, to U$302m,” said Deutsche Bank.

“This should help in periods of more muted gold price performance, we maintain our ‘buy’ rating.”

Deutsche noted that Acacia’s earnings before interest tax depreciation and amortisation of $125m was materially higher than its $100m estimate, primarily due to the low-cost ounces coming from North Mara. It was also $104m higher than the third quarter of 2015.

“With total capital expenditure of $53m during the quarter and minor changes in working capital, the free cash flow of $43m was another positive outcome,” Deutsche said.

“We forecast full year 2016 free cash flows of $192m. The group pays 15% to 30% of the free cash flow as dividends.”

However, the bank said it sees downside risks include lower gold prices, higher-than-expected costs and taxes, and volatility in the Tanzanian shilling.

Deutsche also highlighted the risk related to Barrick Gold, which could further sell down its 64% majority stake in Acacia.

Shares rose 2.27% to 541p at 1109 BST.