Acacia Mining
Underground mining activities the Bulyanhulu gold mine in Tanzania
Since the gold/copper concentrate export ban was imposed LSE-listed Acacia Mining has seen a build-up of around US$265 million of concentrate inventory in Tanzania.

To help to mitigate the lost revenue, Acacia Mining has taken a number of actions to reduce its 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 $65 million of indirect taxes and costs from other changes to the operating environment, has led to a significant cash outflow of approximately $210 million in 2017 year to date.

Accordingly, as part of its 2017 interim results, Acacia Mining announced that it 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 $15 million per month at the mine and thus has made ordinary course operations at Bulyanhulu unsustainable.

Acacia Mining has therefore decided to commence a program to reduce operational activity and expenditure at Bulyanhulu in order to preserve the viability of its business over the longer term.

This program 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 Gold and the Government of Tanzania are on-going.

Acacia Mining 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 program 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 30 000 -35 000 oz 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 $20-25 million in addition to the natural unwinding of around two months’ worth of working capital (approximately $35-40 million).

The mine will also incur an average of $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, Acacia Mining’s 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.

Acacia Mining does 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 Mining now expects annual production to be in the order of 100 000 oz lower than the bottom of the previous guidance range of 850 000 – 900 000 oz.

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 $880-920/ounce sold remains unchanged due to the impact of on-going cost-saving initiatives and a further reduction in capital expenditure guidance to approximately $160 million.

The one-off and on-going costs of the reduced operational state at Bulyanhulu are not included in Acacia Mining’s AISC calculation, though the ongoing tailings retreatment costs are included.

Once the changes at Bulyanhulu are completed, Acacia Mining believes the group will be able to return to positive cash generation in early 2018.

Acacia Mining 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 $107 million, with $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 program.

Acacia Mining 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 Acacia Mining, and its predecessors, have invested over $4 billion into the country to build and sustain its mines, spent over $3 billion with Tanzanian suppliers to support the operation of its business, invested over $75 million into communities and paid over $1 billion in taxes and royalties.

In the first six months of 2017 alone, Acacia Mining paid $53 million in taxes and royalties to Tanzania and delivered projects that supported over 40 000 people in the communities around its mines.

Over 5 000 employees and contractors work across Acacia Mining’s operations, with over 95% of its employees being Tanzanian.

An independent EY report into Acacia Mining’s contribution to Tanzania in 2016 stated that for every direct Acacia Mining employee, 11 additional jobs are supported in the broader Tanzanian economy and the group represented around 1.6% of Tanzanian gross domestic product.

Acacia Mining remains hopeful that the ongoing discussions between Barrick Gold 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.

Feature image credit: Acacia Mining