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Tanzanian concentrate ban forces Acacia to reduce operational activity

Published by
Global Mining Review,

On 3 March 2017, Tanzania has had a ban on the export of concentrate gold and copper, which has impacted 35% of year to date group production, Acacia has revealed.

It has seen a buildup of approximately US$265 million of concentrate inventory in Tanzania, based on current prices. To help to mitigate the lost revenue, Acacia has taken to reducing the operating and capital costs in order to protect employees and suppliers, both of which are predominantly Tanzanian. Despite these actions, the loss of revenue, together with an outflow of approximately US$65 million of indirect taxes and costs from other changes to the operating environment, has led to a significant cash outflow of approximately US$210 million in 2017 year to date.

According to Acacia’s 2017 interim results, it announced that it would need to consider reducing operating activity, and lower expenditure at the Bulyanhulu mine if the concentrate ban was not lifted by the end of Q3 2017. The impact of the governments ban in Dodoma, has led to majorly negative cash flow of the approximately US$15 per month at the mine and thus has made ordinary course operations at Bulyanhulu unsustainable. 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. This programme will include the preservation of all assets and equipment to enable the mine to resume ordinary course operations should the export ban be lifted and the operating environment stabilised.

Meanwhile, Acacia hopes to help lift the band by having discussions with Barrik Gold Corp and the government of Tanzania, to try and negotiate a resolution, which Acacia believes is the best solution for the stakeholders. To this end, Bulyanhulu will commence appropriate consultations with its stakeholders as part of a programme to reduce operational activity. As part of this process to halt production, underground activity will cease and the processing of underground ore is planned to cease within 4 weeks. This process has also been taken to try and preserve water in light of the on-going drought in northern Tanzania, which is expected to worsen in October assuming adequate rainfall does not reach this area. Acacia has announced that part of this strategy will mean a significant reduction in the workforce from the current 1 200 employees and 800 contractor roles.

Acacia imagines that the process of moving to a reduced operational state will be completed in three months and will include a one-off cost of US$20-25 million in addition to natural decrease in profit and working capital as a result of stopping production (approximately US$35-40 million). This is along with an average of US$5 million per month of operating cash outflow. These costs will be partly offset by the revenue from the retreatment of tailings, which produces saleable gold+silver alloys.

Meanwhile, Buzwagi will be another mine owned by Acacia to be affected by the concentrate ban, will continue to operate as normal due to the its short remaining mine and life and lower impact the current environment has had on its company’s cash outflows. The mine has commenced a trial to test whether it is cash flow positive in light of the current export ban to change the processing flow sheet to solely produce alloys and no concentrate. This change would mean a reduction in overall gold and silver recoveries and the mine would no longer recover the contained copper, but would enable the mine to sell all the gold and silver it produces rather than only 35% of production. This could bring forward the planned end of gold/copper concentrate production from mid-2018.

Once the changes at Bulyanhulu are completed, Acacia believes the Group will be able to return to positive cash generation in early 2018. The Company is also evaluating further steps to reduce cash outflows and protect its balance sheet, with the cash balance at the end of August 2017 amounting to US$107 million, with US$71 million of debt. These steps may include a reduction in corporate overheads, expansionary drilling at North Mara, greenfield exploration activity and a gold hedging programme.

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.

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