Tanzania accuses Acacia Mining of 'mining illegally', not declaring gold exports

Acacia Mining has been accused of operating in Tanzania illegally, as a second presidential mining committee alleged the company had been understating its level of exports for several years to avoid "tens of billions of US dollars".

A second presidential committee set up by Tanzania's President John Magufuli to examine London-listed Acacia's disputed gold-copper concentrate exports accused the company of operating outside proper Tanzanian law and even of not being properly licensed to operate in the country.

At a public reading of the report in Dar es Salaam, committee chief Professor Nehemiah Osoro accused Acacia of "mining illegally" and more generally accused owners of mining companies in the country of having "committed various crimes", while also laying blame at local officials for signing deals that allowed wide-scale tax evasion.

One of the report's recommendations was that the Tanzanian government build smelter in order to prevent the need for it to monitor concentrate exports, something with which Acacia has previously offered to help, though analysts have said they do not think the country is producing enough concentrate to justify its own smelter.

Osoro's recommendations also included the government taking a greater ownership in the mines, the payment of newly calculated taxes and royalties, re-negotiation of large-scale mineral development agreements and the continuation of the export ban.

Acacia refuted the allegations, countering that the report's findings were based on those of the earlier investigation in May that the company also refutes as the findings were based on samples from 44 containers and ran counter to "more than 20 years of data".

"Acacia strongly refutes these new unfounded accusations," the FTSE 250 company said later on Monday. "We have always conducted our business to the highest standards and operated in full compliance with Tanzanian law.

"We re-iterate that we have declared everything of commercial value that we have produced since we started operating in Tanzania and have paid all appropriate royalties and taxes on all of the payable minerals that we produce. In addition, our published accounts are annually audited to an international standard in accordance with IFRS."

LOST MILLIONS

Magufuli, nicknamed 'the bulldozer', commissioned a second presidential committee to look into the "economic and legal aspects of historic exports of metallic mineral concentrates" after an initial committee accused Acacia of under-reporting the amount of gold concentrate for export by a factor of 10.

Acacia has been banned from exporting gold/copper concentrate since March and said it is losing around $1m a month as the ban effects two of its three mines in the country.

On Monday the committee said a large number of containers were shipped from Tanzania between 1998 and 2017 without being listed and so calculated that it had lost an average of 108trn shillings (£38bn) and 188trn through gold, copper concentrates export between 1998 to 2017.

Acacia, which saw its own cash in the bank slip to $165m at the end of May from $196m at the end of the first quarter, has provided the second committee with access to each of its mine sites and all available mineral data, while arguing that the findings of the first committee "contain significant discrepancies compared to the more than 20 years of data".

Acacia highlighted that 96% of the workers at its mines are Tanzanian and that it and its shareholders have funded $4bn of investment in the country to date.

"Acacia remains open to further dialogue with the Government regarding this issue and continues to assess all of its options. We will provide a further update to the market as soon as practical," the company said.

Some analysts believe Acaica will have to pay a large sum to resolve the dispute, while other think the Tanzanian government's demand may be more complicated.

It was reported on local media over the weekend that Acacia confirmed it is in the process of retrenching its workers at its mines, though mostly in the security section.

REACTION AND ANALYSIS

Shares in Acacia fell 15% to 255.2p by Monday afternoon.

RBC Capital Markets said it was not surprised that the results of the second committee concludes that Acacia has underpaid historical taxes and royalties.

"The issuance of recommendations around remedies, albeit including claims of 15+ years of incorrect taxes‎ paid based on the refuted concentrate container results, could create a path to resolution," analysts said, adding that the potential impact to the MDA at North Mara places uncertainty across all of Acacia's Tanzanian operations.

"This also complicates any decision to temporarily shut Bulyanhulu or Buzwagi in the near term. Acacia does not however have the financial ability to continue to mine indefinitely without exporting concentrates."

RBC continue to see a potential for resolution over the long term for Acacia ‎especially should the government's actions impact foreign direct investment in Tanzania or the wider economy upon a halt of operations at Bulyanhulu and Buzwagi.

"We highlight however, the difficulties of the current situation make it very difficult to assess fair value and we continue to recommend caution for investors with the current high level of uncertainty," it added.