Opinion on the gold market is divided. It always is. Some see Trump-led political uncertainty as a sure-fire buffer to prices; others see headwinds in tightening monetary policy, a strong dollar and a soaring US stock market. Regardless of that debate, African gold miner Acacia Mining (ACA) has a lot going for it. Firstly, it has a strong investment case on valuation grounds, which assuming an average gold price of $1,225 (£972) in 2017 puts the stock on a cash-adjusted multiple of just 11.5 times forecast 2017 earnings. The second argument, which owes something to the first, is Acacia's status as a possible takeover target. Throw in a majority 64 per cent shareholder that seems to be a willing seller that's keen to maximise the price it gets in the event of a sale, and the shares should have the kind of support other gold miners can only wish for.
- Potential tie-up with Endeavour
- Growing cash pile
- Strong cost profile
- Increasing production
- Gold price volatility
- 2017 guidance uncertain
Operationally, things have been going very well. On 19 January, Acacia put out a trading update that detailed a fourth straight year of annual production increases and far improved margins at its mines in north-east Tanzania. Despite a 13 per cent rise in output in 2016, all-in sustaining costs were 14 per cent lower at $958 an ounce, while an average realised gold price of $1,240 was ahead of the $1,154 achieved in 2015. The group's two largest mines - North Mara and Bulyanhulu - both saw sizeable increases in production thanks to improved head and mine grades. And while Acacia's Buzwagi mine is coming to the end of its life, an extension to the operation until the end of 2017 should pave the way for a year-on-year increase in production.