Berenberg initiates coverage on Acacia and Centamin

Berenberg initiated coverage on African gold miners Acacia Mining and Centamin on Friday, with its analysts hitting the Tanzanian-focussed outfit with a 'sell' rating right out of the gate and its Egyptian peer with a 'hold'.

The investment bank's analysts said the cost for Acacia of continuing to operate made investment in the company a "risky trade", as the collapse of the group's relationship with the government of Tanzania is likely to lead to a $300m cash payment and 16% equity stake in the mines.

Considering the possible valuation scenarios relating to the resolution of the government's ban on concentrate exports, the analysts felt posed an "asymmetric risk to the downside".

"The dispute and the ongoing negotiation between Barrick Gold, Acacia and the Tanzanian government encompasses a $190bn tax claim, a $170m VAT receivable (owed to Acacia) and the concentrate export ban, including the ~$240m of net value of concentrates sat waiting for export.

"We feel there is a fundamental distrust between the government and the company (enough to make considering a sale of the assets worthwhile), and that the government is, therefore, looking to guarantee a greater share of the economic value of the mines," wrote analyst Michael Stoner.

In addition to the sell rating, Berenberg issued Acacia with a 140p target price, saying the stock sits in the upper end of its 31p-167p valuation range, which implies 80% downside and only 20% upside from current levels. "A case of asymmetric risk needs to be skewed to the upside when considering trades with this level of uncertainty."

Centamin, in short, "offers some growth, but lacks diversification, so the core focus here should be on the potential for it to continue to accelerate shareholder returns".

At its full-year results the company made clear its intention to address shareholder questions surrounding the ever-growing cash pile, declaring a total 12.5p dividend for 2017 that will cover all the free cash flow generated last year but still leaves $418m of cash and liquid assets.

"Many assume the growth story at the Sukari deposit in Egypt is tapped out, but with 23% growth to come through in the next three years we would argue otherwise."

That said, Centamin is seen to be fully valued, hence the 'hold' rating and a 156p prince target.