Acacia Mining shifts Buzwagi mine to gold bars to avoid export ban

Tanzanian gold miner Acacia Mining said its third mine in the country is likely to start generating cash again after positive results from a trial to increase the proportion of sellable gold bars.

Having previously intended to end gold/copper concentrate production from the Buzwagi mine in the second quarter of 2018 due to the export ban on this material imposed by the Tanzanian government in March, the positive trial result has led the FTSE 250 company to decide to solely produce gold doré bars from the mine until the end of its life in 2020.

At Buzwagi, which has been producing both gold doré bars and a gold/copper concentrate, management begun to test changes to processing methods earlier in September to see if it could move away from the gold/copper concentrate that so far this year has accounted for approximately 65% the mine's output.

Acacia said on Friday the results of the trial indicated that Buzwagi should be able to increase gold recovery to around 85% using a reagent in the leaching process for not much extra operating cost, so that all of the recovered gold will be produced in doré form.

"There are no changes to group production or cost guidance resulting from this processing change, however it will result in Buzwagi being able to sell an additional 8,000-10,000 ounces per month for the remainder of the year."

Acacia said this will mean the local government will be able to double the amount of royalties and local service levies from Buzwagi for the remainder of the year due to the increase in sales compared to the last 6 months.

The company also believes the changes will move the mine from a monthly cashflow negative position to a monthly cashflow positive position, "strengthening Acacia’s balance sheet and helping to protect thousands of direct and indirect jobs that the Company supports".

Shares in Acacia rose more than 2% early on Friday to top 184p.

"Taking inspiration from Tanzania’s benevolent President John “The Bulldozer” Magufuli, Acacia celebrated a processing breakthrough at the Buzwagi mine," observed analyst Yuen Low at Shore Capital.

He added: "President Magufuli will no doubt be overjoyed that government royalties and local service levies, which are revenue-based, should more than double for said period."

Investec analysts said that as previous recovery levels at Buzwagi had been 95-97%, 10-12% of gold was now being lost, which they felt was "a ludicrous situation due entirely to the Tanzanian government - but at least ACA can derive cashflow".