Acacia Mining PLC (LSE:ACA, Financial) informed the stock market through a news release published on its website that neither the production of the entire group nor the cost guidance for full fiscal 2017 will be affected by the changes that the miner will make in the mineral processing flowsheet at Buzwagi gold mine.
For fiscal 2017, Acacia Mining expects to produce approximately 750,000 ounces of gold at an all-in sustaining cost (AISC) of $880 to $920 per ounce of metal sold while the capex is guided at $160 million.
As a response to the Tanzanian government export ban on gold and copper concentrate that also hits operations at Buzwagi mine, Acacia Mining has been studying the possibility of operating positive cash flow in a situation in which the mineral processing flowsheet at Buzwagi is changed to produce only doré and no more concentrates.
The Tanzanian government imposed an export ban on gold and copper concentrate because Acacia Mining underreported revenue from concentrates traded abroad.
The results of the study tell that from the treatment of concentrates, Acacia Mining can recover gold at a rate of about 85% and that all the recovered yellow metal will be melt into doré, which production will go on until the end of the Buzwagi mine life that is expected in 2020.
Therefore, with the sustainment of extra limited costs that will be required by the change that the company will make at operations, Acacia will produce only gold in doré that will account for about 85% of the total gold production the company made at Buzwagi mine in 2017.
Acacia Mining believes that “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.”
The government of Tanzania will also benefit from it in terms of more proceeds from enhanced royalties and taxes since Buzwagi will sell more ounces of gold per month at least until the end of this fiscal. The company expects to increase the monthly gold sales volume by something between 8,000 ounces and 10,000 ounces.
Investors of Acacia Mining hope that gold will go on trading sufficiently high for the remainder of 2017 so the miner will be able to recover the loss in revenue due to the export ban on concentrates and to cover the additional production costs Acacia Mining will incur for the switch in the mineral processing flowsheet at Buzwagi.
For full fiscal 2017, analysts expect a 21.10% decline in revenue to 831 million British pounds ($1.124 billion) from fiscal 2016 despite positive outlook for precious metal. Earnings per share is forecasted at 31 cents for full fiscal 2017 versus an EPS of 39 cents reported by the company at the end of 2016.
Acacia Mining is trading around 1.79 British pounds per share, down almost 62% over the last six months with a market capitalization of 732.41 million pounds, a price-book (P/B) ratio of 0.49 and a price-earnings (P/E) ratio of 5.78.
The company has a recommendation rating of 2.9 out of 5.
Disclosure: I have no position in Acacia Mining.
