The FTSE 250 miner Acacia Mining (LSE: ACA) is in the midst of a legal battle with the government of Tanzania who have introduced a ban on the export of concentrate in March this year.
This is in addition to the Tanzanian Parliament approving a new Finance Act, which imposes a 1% clearing fee on the value of all minerals exported from the country since 1st July 2017.
Brad Gordon, Chief Executive Officer of Acacia Mining has described Acacia’s current issues as ‘a complex and fluid situation’ and has already served arbitration notices for the mines it operates in the hopes of a ‘negotiated resolution’.
Acacia has been forced to the stockpile the gold and copper concentrate in mines whilst negotiations continue.
Acacia Mining Chart
But Friday lunchtime saw just how complex and fluid the situation is on the ground in Tanzania:
a senior international employee of its wholly owned subsidiary Pangea Minerals Limited was prevented from leaving Tanzania this morning. His passport was seized and he was detained at the Dar-es-Salaam airport for a period of time. Following legal intervention, he was released and his passport has been returned. This incident follows on from increased levels of pressure from Government agencies on Acacia employees in the past 48 hours. Acacia is working with our legal advisers and relevant authorities to support our people.
So far the Tanzanian government has asked Acacia Mining to cough up $190 billion in revised taxes, interest and fines for historical operations covering the periods 2000 to 2017.
It’s no wonder the London market re-evaluated it’s position on the equity of Acacia Mining stock driving it down 43% in a matter of 48 hours on top of an already massive drop in value from 600p in mid 2016 down to 174p at the close on Friday.
The embattled miner continues to sell gold doré however (doré bar is a semi-pure alloy of gold and silver, usually created at the site of a mine. It is then transported to a refinery for further purification – Wikipedia) but as a result of the current turmoil it was unable to realise US$175 million of revenue during the first half of the year.
Revenue of US$391.7 million was booked in the first half, 22% lower than 2016 and the interim dividend has been suspended.
I think it would be fair to say that the future of operations for Acacia Mining in Tanzania is uncertain at best and that shareholders are in for quite a ride.
The investment case for going long Acacia Mining
With a current market cap of £715 million and a PE ratio of 9.5 Acacia looks cheap on the surface but here are some of the statistics that make Acacia an interesting play:
- It’s average PE ratio over the last 3 years has been 19.
- It has a strong balance sheet with a debt to equity ratio including intangibles of 0.20
- a current ratio of 2.62 – Acacia is carrying low levels of debt
According to the half yearly report 21 June 2017 current assets eclipse total liabilities and gives some protection from a lengthy and complex battle with the government of Tanzania.
It is also still producing pre-tax profits only slightly under previous numbers although they could easily fall going forward ($99.5 million in 2017 verses $101.6 in 2016 for the six months up to 30 June).
In the first half of 2017, concentrate accounted for 36% of mineral production ($ 175 million of lost revenue in the period) whilst the remainder is made up of doré so it is imperative that both Acacia Mining and the government of Tanzania come to a settlement regarding the export of concentrate.
As always my faith has been placed in the management of Acacia to resolve these issues and return Acacia Mining to the revenues and production levels prior to the current debacle.
Long today at 177p