As a response to the ban on the export of gold and copper concentrate imposed by the government of Tanzania, Acacia Mining PLC (LSE:ACA, Financial) has lowered its guidance on copper and gold production for full fiscal 2017. The Tanzanian ban was imposed because the company underreported revenue from concentrates traded abroad.
“Acacia now expects annual production to be in the order of 100,000 ounces lower than the bottom of the previous guidance range of 850,000 to 900,000 ounces,” reported the mining company through a news release published on its website.
This downward revised annual production is mainly the result of Acacia Mining’s plan to reduce the operating activity at one of its two Tanzanian assets, which has been affected by the government’s ban on the export of concentrates, the Bulyanhulu mine. This change is to protect the company’s business viability in the long run.
At Bulyanhulu mine the miner’s plan envisions the stoppage in four weeks’ time of all the underground operating activities for the extraction and the processing of the precious metal, which will be replaced with the tailings’ retreatment that Acacia Mining will start sometime in October and for the whole time that underground activities at Bulyanhulu mine will stay halted.
Tailings’ retreatment operations will be run by Acacia Mining at a rate of 30,000 to 35,000 ounces of precious metal per annum which will be smelt into saleable doré. The revenue that will come in from the sale of these doré will partially cover the costs that Acacia will incur for moving Bulyanhulu mine’s operations to a reduced state, which implementation will involve significant cuts in the company’s personnel and contractor numbers.
Operations at Buzwagi, the other company’s asset that has been hit by the Tanzanian export ban on concentrate, will go on operating normally. At Buzwagi Acacia Mining is testing whether it is possible to operate positive cash flow in a situation in which the mineral processing flowsheet has been changed to produce only doré and no more concentrates. This change may mean that Acacia Mining will sell more gold and silver than the miner used to sell in the past and extend the end of the production of gold and copper concentrate beyond the initially planned date scheduled for mid-2018.
Let’s have a quick look at costs and capex expected by Acacia Mining for fiscal 2017:
AISC is unchanged at $880 to $920 per ounce of metal sold while the capex is guided at $160 million lower than the previous guidance.
Acacia Mining believes the business will restart to deliver positive free cash flow at the beginning of 2018, following these operating changes at Bulyanhulu. To help its operations deliver positive cash flow the company is also studying other possibilities that envisage the protection of the Acacia Mining’s balance sheets through reductions in cash outflows.
These steps, reports Acacia Mining, “may include a reduction in corporate overheads, expansionary drilling at North Mara, greenfield exploration activity and a gold hedging program.”
For full fiscal 2017, analysts expect a 15.30% decline in revenue to 892.74 million British pounds ($1.155 billion) from fiscal 2016 despite positive outlook for precious metal. Earnings per share is forecasted at 34 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 2.07 British pounds per share, down 26.3% from July 21 with a market capitalization of 849.29 pounds, a price-book (P/B) ratio of 0.57 and a price-earnings (P/E) ratio of 6.68.
The company has a recommendation rating of 2.9 out of 5.
Disclosure: I have no position in Acacia Mining.
