Acacia Mining PLC (LSE:ACA, Financial) informed its investors about new legislation in Tanzania on July 14.Â
In order to minimize disruptions to its production in the country, management has agreed to this new natural resources legislation.Â
With reference to mining activities, the new law envisages an increased royalty rate for the production of gold, silver and copper from 4% to 6%.
The new Tanzanian legislation also imposes a 1% clearing fee on the metallic minerals that will be traded abroad. The miner said it will continue to pay the royalty as a sign of its commitment to its operations in the African country despite a less favorable mining jurisdiction.
Acacia Mining, which is a subsidiary of Barrick Gold Corp. (ABX, Financial), produces and sells precious metals.
In Northwest Tanzania, Acacia operates three gold mines: Bulyanhulu, Buzwagi and North Mara.
At Bulyanhulu, the precious metal is extracted from reserves of 5.1 million ounces through underground mining techniques. Fifty-five percent of the production is in doré bars while the rest is in concentrates of copper and gold. In 2016, Bulyanhulu produced 289,432 ounces of gold and approximately 6.4 million of pounds of copper. The company sold 279,286 ounces of gold and 5.57 million pounds of copper.
At Buzwagi, gold is produced both in doré bars – for approximately 45% of the mine’s total production - and concentrate, while copper is produced only in concentrate. The production of gold and copper in concentrate accounts for 55% of the mine’s total production. In fiscal 2016, Acacia produced 161,830 ounces of gold and sold 161,202 ounces. The miner produced approximately 9.85 million pounds of copper and sold approximately 9.18 million pounds in the same year.
At North Mara, gold is produced in doré bars through open-pit and underground mining activities. In 2016, the mining company produced 378,443 ounces of gold and sold 376,255 ounces of the precious metal.
The company – formerly known as African Barrick Gold PLC – is also engaged in exploration projects in Tanzania as well as in other African countries like Kenya, Burkina Faso and Mali.
The 50% increase in the royalty rate will cause the miner to spend an estimated $31 million more of its annual revenue on royalties.
This might have an impact on the company’s bottom line in the coming quarters. Analysts forecast Acacia Mining will close the June 2017 quarter with EPS of three cents on average - one cent lower than the EPS of the comparable quarter of 2016. The estimates range between a low of one cent and a high of five cents.
As of today, the company has a recommendation rating of 2.8 out of 5.
Acacia Mining is trading around 2.86 British pounds ($3.73) per share with a market capitalization of 1.17 billion pounds, a price-book (P/B) ratio of 0.79, a price-earnings (P/E) ratio of 8.9, a price-sales (P/S) ratio of 1.44 and an EV/Ebitda ratio of 3.68.
Disclosure: I have no positions in any stock mentioned in this article.
