Acacia Mining hopeful of Tanzania resolution soon

Acacia Mining hopes to speak to the Tanzanian government in the coming "one to two weeks" to resolve a dispute in which the gold miner was accused of under-reporting the amount of gold it was exporting.

The FTSE 250 company said it was continuing to operate its two affected mines as per usual, stockpiling the unearthed gold/copper concentrate, while its third mine in Tanzania produced and continued to sell its gold doré.

Having setting up an initial expert committee that went on to accuse Acacia of undervaluing the gold in its shipping containers by a factor of 10, Tanzanian President John Magufuli then fired his mines minister, dissolved the audit committee and set up a second committee which has been examining "economic and legal issues associated with historic exports of gold/copper concentrates".

Acacia, which had $165m cash in the bank at the end of May, down from $196m at the end of the first quarter, said on Friday it had provided "extensive information" to this second committee and provided access to each of its mine sites.

"We believe that the second committee is close to completing its work, following which we would welcome the opportunity to discuss the findings directly with the government. We remain hopeful that we will be able to reach a resolution to the current situation with the Government so that we can continue to deliver strong performance from our mines for the benefit of all."

Chief executive Brad Gordon told analysts at reporters on a conference call later on Friday that he expected talks following the publication of the second report "within the next one to two weeks".

“We remain hopeful we’ll be able to agree a resolution to the current export ban with the government but we continue to consider all of our options,” he said, adding that talks with other figures in the country indicated there was "concern in the country in terms of the damage to its reputation in terms of international investment" and that there was an effort to "ensure they protect their longer-term reputation".

Cash pile remains solid

While shrinking, Acacia's cash levels remained substantial, having refunded $22m of advanced payments for concentrate it had received prior to the Tanzania export ban in March and endured a cash outflow of $15m per month in the absence of the resumption of the sale of concentrate. The situation has been exacerbated by “a continuing lack of VAT refunds”.

Acacia has ongoing disputes relating to reclaiming an outstanding VAT receivable and also faces pressure to change the ownership of its local operating companies to include a 30% holding by Tanzanian nationals, while analysts have suggested that ultimately what the government wants is for ACA to resume exports but with adjustments to the amount of cash tax and royalties being paid.

Despite the impact on productivity levels due to the “increased levels of uncertainty”, the company remained confident enough to maintain its full-year 2017 guidance, which is to produce 850-900koz at $880-920 per ounce all-in costs.

Analyst Yuen Low at Shore Capital wondered whether mine shutdowns and layoffs would be use as a ‘stick’ to the company’s proffered ‘carrot’ of offering to “support and partner” with the Tanzanian government in studying “the economic potential of building of a smelter in Tanzania”.