4 September 2017
Acacia Mining plc
LSE:ACA
(“Acacia” or the “Company” or the
“Group”)
Intention to reduce operational
activity at Bulyanhulu
- Decision driven by unsustainable cash outflows at the mine due
to concentrate ban and operating environment
- Due to this change, Acacia believes the Group can return
to positive cash generation in 2018
- Talks between Barrick Gold Corporation (“Barrick”) and
Tanzanian Government on-going
Since the gold/copper concentrate export ban was imposed on
3 March 2017, impacting approximately
35% of year to date group production, Acacia has seen a build-up of
approximately US$265 million of
concentrate inventory in Tanzania,
based on current prices. To help to mitigate the lost revenue,
Acacia has taken a number of actions to reduce our operating and
capital costs in order to protect jobs and our supplier base, 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.
Accordingly, as part of Acacia’s 2017 Interim Results, we
announced that we would need to consider reducing operational
activity and expenditure at the Bulyanhulu mine if the concentrate
ban was not lifted by the end of Q3 2017. The impact of the ban, in
addition to the deterioration of the current operating environment,
has led to negative cash flow of approximately US$15 million 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.
In the meantime, discussions between Barrick and the Government
of Tanzania are on-going. Acacia
continues to support the discussions and still believes that a
negotiated resolution is the best outcome for all stakeholders.
Following this announcement, Bulyanhulu will commence
appropriate consultations with its stakeholders as part of a
programme to reduce operational activity. As part of the
implementation of this programme, underground activity will cease
and the processing of underground ore is planned to cease within
four weeks. The retreatment of tailings, which is currently
suspended to preserve water in light of the on-going drought
conditions in northern Tanzania,
is expected to recommence in October, assuming adequate rainfall is
received, and will continue at a rate of 30-35,000 ounces per annum
whilst underground activity is ceased. Regrettably, the
implementation of this programme will lead to a significant
reduction in the workforce from the current 1,200 employee and 800
contractor roles.
It is envisaged that the process of moving to a reduced
operational state will be completed in three months and will
include one-off costs of US$20-25
million in addition to the natural unwinding of around two
months’ worth of working capital (approximately US$35-40 million). The mine will also incur an
average of US$5 million per month of
operating cash outflows over the next three months, before reaching
a steady state of around US$3 million
per month. These costs will be partly offset by the revenue from
the retreatment of tailings, which produces saleable doré.
For the time being Buzwagi, our other mine affected by the
concentrate ban, will continue to operate in the ordinary course,
due to its remaining short mine life and lower impact of the
changes in the operating environment on the 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 doré 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.
We do not believe that is possible to make a similar change to
the processing flow sheet at Bulyanhulu as the different nature of
the ore at Bulyanhulu means that such a change is not economic.
As a result of the planned reduction in operating activity at
Bulyanhulu, Acacia now expects annual production to be in the order
of 100,000 ounces lower than the bottom of the previous guidance
range of 850,000-900,000 ounces. This revised guidance is based on
limited production occurring beyond August at Bulyanhulu and
marginally lower production at North Mara than previously planned
due to underground development delays as a result of work permit
issues for key contractors.
Previous AISC guidance of between US$880-920 per ounce sold remains unchanged due
to the impact of on-going cost-saving initiatives and a further
reduction in capital expenditure guidance to approximately
US$160 million. The one-off and
on-going costs of the reduced operational state at Bulyanhulu are
not included in our AISC calculation, though the ongoing tailings
retreatment costs are included.
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.
Acacia reiterates that it shares the Government of Tanzania’s
goals of enhancing the country’s social and economic development.
Since its inception, over 15 years ago the Company, and its
predecessors, have invested over US$4
billion (TSH8.8 trillion) into the country to build and
sustain our mines, spent over US$3 billion (TSH6.6 trillion)
with Tanzanian suppliers to support the operation of our business,
invested over US$75 million (TSH165
billion) into our communities and paid over US$1 billion (TSH2.2 trillion) in taxes and
royalties.
In the first six months of 2017 alone, Acacia paid US$53 million (TSH117 billion) in taxes and
royalties to Tanzania and
delivered projects that supported over 40,000 people in the
communities around our mines. Over 5,000 employees and contractors
work across Acacia’s operations, with over 95% of our employees
being Tanzanian. An independent EY report into Acacia’s
contribution to Tanzania in 2016
stated that for every direct Acacia employee, 11 additional jobs
are supported in the broader Tanzanian economy and the Group
represented around 1.6% of Tanzanian gross domestic product
(GDP).
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 management will host a conference call to discuss this
announcement at 09:00 BST this
morning. Details for the conference call are below and a recording
will be available on http://www.acaciamining.com/ and accessed
through the press release, shortly after the call finishes:
Dial-in: |
+44 20 3059 8125 |
|
Passcode: |
Acacia Mining |
|
ENQUIRIES
For further information, please visit our website:
http://www.acaciamining.com/ or contact:
Acacia Mining plc |
+44 (0) 20 7129 7150 |
Brad Gordon, Chief Executive
Officer
Giles Blackham, Investor
Relations
Camarco |
+44 (0) 20 3757 4980 |
Gordon Poole / Billy Clegg / Nick
Hennis
About Acacia Mining plc
Acacia Mining plc (LSE:ACA) is Tanzania’s largest gold miner and
one of the largest producers of gold in Africa. We have three mines, all located in
north-west Tanzania: Bulyanhulu,
Buzwagi, and North Mara and a portfolio of exploration projects in
Kenya, Burkina Faso and Mali.
Acacia is a UK public company headquartered in London. We are listed on the Main Market of
the London Stock Exchange with a secondary listing on the Dar es
Salaam Stock Exchange. Barrick Gold Corporation is our majority
shareholder. Acacia reports in US dollars and in accordance with
IFRS as adopted by the European Union, unless otherwise stated in
this announcement.
Disclaimer and forward-looking statements
This announcement is for information
purposes only and does not constitute an invitation or offer to
underwrite, subscribe for or otherwise acquire or dispose of any
securities of Acacia in any jurisdiction.
This announcement includes
“forward-looking statements” that express or imply expectations of
future events or results as opposed to historical facts. These
statements include, financial projections and estimates and their
underlying assumptions, statements regarding plans, objectives and
expectations with respect to future production, operations, costs,
projects, and statements regarding future performance.
Forward-looking statements are generally identified by the words
“plans,” “expects,” “anticipates,” “believes,” “intends,”
“estimates” and other similar expressions.
All forward-looking statements
involve a number of risks, uncertainties and other factors, many of
which are beyond the control of Acacia, which could cause actual
results and developments to differ materially from those expressed
in, or implied by, the forward-looking statements contained herein.
Factors that could cause or contribute to differences between the
actual results, performance and achievements of Acacia include, but
are not limited to, changes or developments in political, economic
or business conditions or national or local legislation or
regulation in countries in which Acacia conducts - or may in the
future conduct - business, industry trends, competition,
fluctuations in the spot and forward price of gold or certain other
commodity prices (such as copper and diesel), currency fluctuations
(including the US dollar, South African rand, Kenyan shilling and
Tanzanian shilling exchange rates), Acacia’s ability to
successfully integrate acquisitions, Acacia’s ability to recover
its reserves or develop new reserves, including its ability to
convert its resources into reserves and its mineral potential into
resources or reserves, and to process its mineral reserves
successfully and in a timely manner, Acacia’s ability to complete
land acquisitions required to support its mining activities,
operational or technical difficulties which may occur in the
context of mining activities, delays and technical challenges
associated with the completion of projects, risk of trespass, theft
and vandalism, changes in Acacia’s business strategy and ongoing
implementation of operational reviews, as well as risks and hazards
associated with the business of mineral exploration, development,
mining and production and risks and factors affecting the gold
mining industry in general.
Although Acacia’s management believes
that the expectations reflected in such forward-looking statements
are reasonable, Acacia cannot give assurances that such statements
will prove to be correct. Accordingly, investors should not place
reliance on forward-looking statements contained in this
announcement. Any forward-looking statements in this announcement
only reflect information available at the time of preparation. Save
as required under the Market Abuse Regulation or otherwise as may
be required under applicable law, Acacia explicitly disclaims any
obligation or undertaking publicly to update or revise any
forward-looking statements in this announcement, whether as a
result of new information, future events or otherwise. Nothing in
this announcement should be construed as a profit forecast or
estimate and no statement made should be interpreted to mean that
Acacia’s profits or earnings per share for any future period will
necessarily match or exceed its historical published profits or
earnings per share.