Acacia Mining PLC (LON:ACA) will reduce operational activity at its Bulyanhulu mine in Tanzania to mitigate lost revenue associated with a government ban on the exports of gold and copper concentrates.
The Tanzania government imposed the ban in March on allegations that Acacia owes royalties on undeclared exports of gold and copper concentrates from the Bulyanhulu and Buzwagi mines.
Acacia said the ban has affected 35% of production and led to a cash outflow - including lost revenue, taxes and costs - of US$201mln in the year to date.
The company has seen a build-up of about US$265mln of concentrate inventory in Tanzania, based on current prices.
“Acacia has therefore decided to commence a programme to reduce operational activity and expenditure at Bulyanhulu in order to preserve the viability of our business over the longer term,” the group said in a statement.
Shares fell 5.95% to 194.80p in morning trading.
Acacia lowers annual production guidance
Acacia now expects annual production to be 100,000 ounces lower than the bottom of its previous guidance range of 850,000-900,000 ounces. This reflects limited production after August at Bulyanhulu and marginally lower output at North Mara than previously planned due to underground development delays as a result of work permit issues for key contractors.
Buzwagi will continue to operate as normal due to its remaining short mine life and lower impact on the company’s cash outflows. The mine has started a trial to test whether it should solely produce doré and not concentrate, based on an assessment of the impact of the ban on cash flows.
Such a change would reduce overall gold and silver recoveries, Acacia said. The mine would no longer recover the contained copper and instead it would sell all the gold and silver it produces rather than only 35% of production. It would bring forward the planned end of gold/copper concentrate production from mid-2018.
Acacia expects return to positive cash flows in 2018
Acacia expects it will return to positive cash generation in early 2018 once it completes the changes at Bulyanhulu.
In an effort to further reduce cash outflows and protect its balance sheet, the company is looking to cut corporate overheads, expansionary drilling at North Mara, greenfield exploration activity and a gold hedging programme.
The cash balance at the end of August 2017 totalled US$107mln with US$71mln of debt.
In the first six months of the year, Acacia paid US$53mln in taxes and royalties to Tanzania.
The gold miner’s majority shareholder Barrick Gold Corp (NYSE:ABX) has stepped in to negotiate with the government on Acacia’s behalf over the royalties dispute.
“The company remains hopeful that the ongoing discussions between Barrick and the Government of Tanzania will lead to a resolution to the concentrate ban and operating environment and enable the re-assessment of the operating situation at Bulyanhulu in the near future,” Acacia said.