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Alberto Abaterusso
Alberto Abaterusso
Articles (1659) 

Acacia Mining Tumbles

Barrick Gold's asset in Africa reported preliminary results for 2017

February 13, 2018 | About:

Acacia Mining plc (ACA.L) is sharply down following the company’s preliminary results for the entire year of fiscal 2017.

The U.K.-based mining company is down trending on the London Stock Exchange. On Monday, the stock went down 3.87% to a share price of GBP 1.65.

Acacia - a subsidiary of Barrick Gold Corporation (ABX) in Africa – is engaged in the production of copper and gold in concentrate, and in exploration activities. The company produces gold also in bars. Barrick Gold has a 63.9% interest stake in Acacia Mining.

Strong operating results didn’t shield the company’s financials from the negative effect of the Tanzanian ban on the export on gold and copper concentrate. The ban on export was imposed by Tanzania because the company underreported revenue deriving from trade abroad of concentrates.

At the end of fiscal 2017, the financials were characterized by a 29% year over year decline in revenue to $752 million, a 24% decrease in the ebitda to $311 million and a $707 million loss. The income was negatively impacted by a $644 million charge for post-tax impairments. On a share basis the loss was $173.

The net profit, adjusted for a one-time charge, was $146 million or 35.7 cents per share. This was a 9% decline from 2016 and 13 cents lower than consensus for 2017.

The revenue lost and the boost in VAT receivables to $91 million affected the company liquidity so that Acacia Mining closed 2017 with $81 million in cash on hand and securities, a 74.5% decline from 2016. The company reports that the sale of a non-core royalty closed after the end of 2017 has enriched the available liquidity.

The company hopes to give a boost to its financials from the stipulation of put option agreements that will secure the sale of the majority of the first half of 2018 production at a $1,300 per troy ounce.

In 2017, Acacia Mining produced 767,883 ounces, which was a 7% decrease year over year due to the reduced operations at Bulyanhulu.

Gold sales volume also fell and by 22% to 592,861 ounces in 2017. The gold production of 2017 was composed by 573,141 ounces in doré and the rest in concentrates.

In addition, the company says that the all-in sustaining cost per ounce of metal sold was $875 in 2017. This value was below Acacia Mining’s guidance on AISC for 2017 and the “lowest ever achieved”, the company said.

Besides other things, Peter Geleta, Acacia Mining’s interim chief executive officer, said the following: “Our focus remains on delivering optimal performance from all aspects of the business within our control in the current operating environment, returning the business to free cash generation and delivering value for all of our stakeholders. We are supporting efforts towards achieving a negotiated resolution with the Tanzanian government.”

For the 52-weeks through Feb. 13, Acacia Mining lost 65.55% and underperformed the Van Eck Vectors Gold Miners ETF (GDX) by 53.7%:

Source: Yahoo Finance

The stock is currently trading below the 200, 100 and 50-SMA lines. The 52-week range is of GBP139.90 to GBP545.50 per share. The Relative Strength Indicator (14-days) is 28.12 of a 20 to 80 range and it's down trending, according to its most recent patterns. A further depreciation of the stock may still be ahead.

The price-book (P/B) ratio is 34.75 times versus an industry median of 2.01 times and the EV-to-Ebitda is 1.75 times. The two ratios are updated to the third quarter of fiscal 2017 issues of income statement and balance sheet.

The recommendation rating on Acacia Mining is currently at 3.1, because 13 analysts out of a total of 19 are for a hold approach.

The resolution of disputes with the Tanzanian government is the catalyst to watch in 2018. The parent company, Barrick Gold Corp., is actively involved in this process.

The company also reported that Acacia Mining has already paid $143 million in taxes and royalties to the government of Tazania. 

The appointment of a Tanzanian to management should also promote the dispute resolution with the government of the African country. Acacia is also seeking to stabilize the company by assigning five Tanzanians and one international employee to the board.

The goal here is to create operations that can generate a positive free cash flow. Hopefully, the purchase of the right to sell 210,000 ounces of gold at a strike price of $1,300 per ounce in the first part of 2018 will be of help to achieve this target.

With gold predicted to reach $1,380 per ounce and a management genuinely striving for the benefit of all its stakeholders, Tanzanian employees and communities included, the preconditions are lying on the table.

(Disclosure: I have no positions in any security mentioned in this article.)

About the author:

Alberto Abaterusso
If somebody asks what being a value investor means, Alberto Abaterusso would answer, “The value investor is not just the possessor of the security that represents the company, but he is the owner of that company. As an owner of the company the value investor is actively involved in the dynamics of that company and his first concern is how to have sales progressively growing. Also, the value investor is probably one of the most demanding persons in the world concerning sales.”

Abaterusso is a freelance writer based in The Netherlands. He primarily writes about gold, silver and precious metals mining stocks. His articles have also been widely linked by popular sites, including MarketWatch, Financial Times, 24hGold, Investopedia, Financial.org, CNBS, MSN Money, Zachs, Reuters and others. Alberto holds an MBA from Università degli Studi di Bari (Italy), Aldo Moro.

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