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Export ban starts to pinch at Acacia

Tanzania’s decision to ban exports of gold and copper concentrates has already hit the miner's balance sheet
April 20, 2017

The Tanzanian government’s ban on concentrate exports is taking its toll on Acacia Mining (ACA), first-quarter figures for the gold miner have hinted. While the rule was enforced with just four weeks of the quarter remaining, cash generation for the period more than halved year on year to $25.2m (£19.7m), despite a 6 per cent bump in the average realised gold price to $1,221.

Acacia had already informed the market that the ban, which was introduced on 3 March to encourage miners to repatriate all smelting and processing operations, was resulting in more than $1m of lost revenues a day. The shares had nonetheless ticked up since news of the ban, as geopolitical tensions buffeted the gold price and investors placed bets on a compromise with the Tanzanian mining ministry. However, publication of the first set of financial figures since the ban knocked 8 per cent off the shares in the £1.7bn company.

There were some positives. Higher gold prices offset the concentrate export ban and meant revenues edged up 6 per cent. All-in sustaining costs also looked good at just $934 an ounce, down 3 per cent on 2016, and production estimates remain unchanged at 850,000 to 900,000 ounces of gold equivalent this year. But a three-month fall in net cash from $218m to $196m points to a steady build-up in working capital. Acacia also now has around 30,000oz of gold in concentrate building up in containers at Bulyanhulu or Buzwagi, while $22m of advanced payments for concentrate currently stranded in Dar es Salaam port may now need to be refunded. To add to the pain, the company “incurred approximately $25m in VAT outflows and received no VAT refunds”, leading to a $16m rise in indirect tax receivables in the quarter to $152m.

Acacia has now said it will review “the ongoing operation of Bulyanhulu and Buzwagi over the coming weeks”, given that concentrate comprises around half of revenues at each mine, and some 30 per cent of the group’s total sales. Business reality, or a subtle threat perhaps? Acacia’s public tone has so far been constructive, and it repeated its commitment “to supporting local business” and government goals for “economic growth, wealth creation and increased tax collection”.

The conversation beneath the public pronouncements are harder to decipher, however. It is also likely that Acacia will have reminded authorities of a 2015 EY report, commissioned by the miner, which concluded that each Acacia employee supported 11 additional jobs in the broader Tanzanian economy, and argued that the company’s total direct, indirect and induced economic contribution amounted to “$678m of value added (GDP)”.