Barrick, Acacia struggle to find common ground in Tanzania

VANCOUVER — Barrick Gold (TSX: ABX; NYSE: ABX) has proposed a framework to resolve a three-month dispute with the government of Tanzania. It appears that management at Acacia Mining (LON: ACA), however, may have missed the memo.

That situation could be problematic, since any agreement between Barrick and Tanzanian authorities will require Acacia’s approval, and on Oct. 20 the company reported it “was seeking further explanation.” Barrick holds a 63.9% equity stake in Acacia, which it spun out to hold its African interests seven years ago.

Barrick released details on a “Twenty-first Century partnership” on Oct. 19. The agreement would involve a new Tanzanian operating company to manage the Bulyanhulu, Buzwagi and North Mara mines, in which undefined “economic benefits” would be distributed on a fifty-fifty basis.

At Acacia Mining’s Buzwagi gold mine in Tanzania. Credit: Acacia Mining.

In addition, Acacia would make a US$300-million payment to the Tanzanian government to resolve claims for US$193 billion in “unpaid taxes and penalties.”

“We’re seeking further clarification on the agreement,” Acacia CEO Brad Gordon said on an Oct. 20 conference call. “It’s very early in the process. There’s a long way to go before any proposal is made to Acacia.”

The company also pointed out its treasury “would not support” the US$300-million tax settlement.

The government halted concentrate exports in March over regulatory concerns surrounding valuation on mineral exports.

Tanzania has since instituted legislation providing for a minimum 16% free-carried interest and acquisition of up to 50% ownership of mining projects, increasing royalties from 4% to 6%, and introducing a 1% clearing fee on exports.

Acacia is the largest gold producer in Tanzania.

Bulyanhulu is anunderground mine with shaft and ramp access, which is transitioning to long-hole as its principal mining method. Credit: Acacia Mining.

The company expects to produce between 850,000 and 900,000 oz. in 2017, at all-in sustaining costs (AISCs) ranging from US$880 to US$910 per ounce. Barrick’s share of production would equate to 450,000 oz. gold.

In September, Acacia announced it would “reduce operational activity” at Bulyanhulu, slashing 2017 production guidance by 100,000 ounces.

BMO Capital Markets analyst Andrew Breichmanas said that “a number of other concessions suggest Acacia management and minority shareholder interests may have been sacrificed to reach an agreement.” He cited the US$300-million payment and “absence of any resolution on tax or concentrate issues.”

BMO Research suspects that concentrate exports would “remain restricted while the parties are reviewing conditions for lifting the ban.”

Acacia said that its third-quarter revenues had declined 40% year-on-year to US$171 million as a result of the concentrate ban. The company reported US$24 million in net cash at the end of September.

Breichmanas cut his price target from £2.25 to £1.75 after the news and noted that conditions surrounding unpaid taxed and penalties appear to be “subject to ongoing efforts by a working group.”

Shares of Acacia have plummeted nearly 66% on the London Stock Exchange since the concentrate ban was announced in early March en route to a £1.85-per-share close at press time.