Acacia Mining hedges high-cost Buzwagi gold mine

Acacia Mining has hedged the gold price it will sell most of the output from its short life Buzwagi mine with a floor price agreement.

The FTSE 250 miner has signed a zero-cost agreement to sell 136,000 ounces of production in 2016 at a guaranteed floor price of $1,150 per ounce, also providing exposure to the gold price up to an average of US$1,290 per ounce.

Directors, who are aiming to mitigate cash flow risk associated with a potential fall in the gold price, are also planning similar agreements for around 120,000 ounces of Buzwagi production in 2017.

The maximum gold production covered by the hedges represents around 15-20% of Acacia's planned group production in both 2016 and 2017.

Acacia, formerly African Barrick Gold, reiterated that its long-life assets, Bulyanhulu and North Mara, will remain fully unhedged.

“We are taking a prudent step in locking in a gold price in excess of our planning price at Buzwagi, our shortest life asset which is in harvest mode," said chief executive Brad Gordon.

"The mine generates the majority of its future cash flows over the next two years, and by putting in place these zero cost collars we reduce the gold price risk associated with this cash flow, while maintaining some exposure to future upside."

Buzwagi is a short life mine which produced approximately 170,000 oz of gold in 2015 at an all-in-sustaining cost of around $1190 per oz.

Broker SP Angel said the hedging can be interpreted as a prudent response to protect the revenues of the group’s shortest life, highest cost operation.