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Acacia Mining woes intensify

Acacia Mining woes intensify

The political crisis engulfing Acacia Mining (ACA) just got worse. In a televised press conference last week, Tanzanian president John Magufuli said that an investigation showed the gold miner had under-reported or failed to declare the precious metals in its concentrate shipments. The news follows March's ban on the export of gold and copper concentrate, which the Tanzanian government said would encourage beneficiation within the country.

Since the ban, Acacia has been stockpiling concentrate at containers at a Dar es Salaam port. The government said an inspection of these stockpiles revealed minerals valued at more than 10 times the amount declared by Acacia. According to Reuters, Mr Magufuli also fired his mining minister and the head of the country’s mining audit agency for failing to properly monitor gold and copper concentrate exports.

Acacia said it had not yes seen a copy of the government's report, but denied charges of under-reporting, stating that it declares everything of commercial value”

Acacia said it had not yet seen a copy of the government's report, but denied the charges of under-reporting, stating it declares everything of commercial value and pays "all appropriate royalties and taxes on all of the payable minerals that we produce". The protestations failed to stop the shares falling 30 per cent on the day of the announcement, and another 15 per cent in the following trading session.

Reiterating their buy rating and 500p target price for the stock, analysts at Numis "continue to assume that both the government and Acacia are rational actors and that ultimately what the government wants is for Acacia to resume exports", a calculation partly based on Tanzania’s need to attract long-term foreign investment for its oil and gas sector.

IC VIEW

Markets often rely on the assumption of rational actors seeking to maximise their interests, as Numis has done. But politics is also concerned with optics, and it is difficult to see the government's need to resolve matters quickly considering the scale of the allegations - regardless of their merit. Acacia has funds, closing out March with $196m net cash, but we now think that will tighten given the increasing likelihood that the company will suspend concentrate production at Buly and Buzwagi. With matters worsening, it is not hard to imagine the suspension of gold ore exports will also follow, and so we remain sellers even at 260p.

Last IC View: Sell, 420p, 20 Apr 2017

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By Alex Newman,
26 May 2017

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