21st Apr 2016 11:17
LONDON (Alliance News) - Acacia Mining PLC shares were trading higher on Thursday after the company's profit rose in the first quarter of 2016 as the company countered lower gold prices by increasing production and improving its margin through cost reductions.
Acacia shares were trading up 6.0% to 338.76 pence per share on Thursday.
The miner, which produces gold from three mines in Tanzania, said revenue in the first quarter of 2016 amounted to USD221.0 million, whilst earnings before interest, tax, depreciation and amortisation totalled USD66.0 million.
That revenue was 3% higher than the previous quarter thanks to a rise in gold sales whilst Ebitda was 24% higher quarter-on-quarter as Acacia began to benefit from lower cash costs. Operational cashflows were also up 11% to USD52.0 million from USD47.1 million, driven by that rise in Ebitda.
That allowed Acacia's pretax profit in the quarter to rise to USD27.8 million from the USD17.4 million booked in the last quarter of 2015 - a welcome trend following Acacia's USD124.2 million pretax loss for the whole of 2015.
However, Acacia made an ultimate net loss of USD52.4 million in the period, turning from a USD9.2 million profit in the last three months of 2015. Acacia said the loss was mainly caused by additional tax provisions of USD70.0 million.
Stripping out those provisions and other items, Acacia's adjusted net earnings managed to rise by over 71% to USD18.1 million from USD10.6 million.
The additional tax provisions follow on from the miner signing a memorandum of understanding with the Tanzanian Revenue Authority earlier this year, and Acacia said it has made a USD10.0 million prepayment toward corporate tax during the first quarter.
Tanzania held its latest general election back in October 2015, but the new government has increased tax revenue to try and wean itself off from foreign aid in an attempt to have a self-sustaining budget.
The issue was exacerbated last month when the US withdrew USD470.0 million of aid to the country.
In tandem, the new government is cracking down on corruption and unnecessary spending, and has since ordered the courts to accelerate a backlog of court cases, which Acacia said has led to "a number of unexpected rulings across a range of sectors."
"Acacia has experienced several of these adverse court rulings, with one, relating to the Court of Appeal decision described below, leading to an increase in our tax provisions of approximately
USD70.0 million," said Acacia.
Acacia has a number of other material tax disputes in various stages of the tax tribunal and court processes, and is continuing to defend itself against the claims, which the company believes have "no merit".
Acacia's cash balance stood at USD237.0 million at the end of March and its net cash position rose to USD124.0 million from USD105.0 million at the end of 2015 as its long term borrowings at the end of March dropped to USD113.6 million from USD142.0 million.
Capital expenditure in the quarter cost Acacia over USD36.0 million, which is down compared to the USD42.6 million spent in the final stages of 2015, which had a total budget for the year of USD183.6 million.
The financial results Thursday were also driven by a 5% quarter-on-quarter rise in gold production to 190,210 ounces and a 7% lift in gold sales to 184,181 ounces. Notably, sales are lagging production, meaning Acacia's inventory will have increased.
The production growth was solely driven by the Bulyanhulu mine as the operation was the only one to experienced a rise in the period.
Bulyanhulu produced 78,426 ounces of gold compared to only 61,718 ounces and reported a rise in sales to 72,448 ounces from 54,486 ounces. North Mara produced 74,721 ounces in the quarter, down from 75,614 ounces whilst sales fell to 74,300 ounces from 75,535 ounces. Buzwagi contributed 37,063 ounces compared to 44,328 ounces and sold 37,433 ounces in the quarter compared to 41,395 ounces.
However, gold prices in the first quarter were still lower than the previous quarter at an average of USD1,150 per ounce compared to USD1,207 per ounce.
Countering that, Acacia lowered its cash costs significantly, as the all-in sustaining cash cost fell to USD959 per ounce from USD1,117 per ounce, significantly improving its margin.
Acacia Chief Executive Brad Gordon said the first quarter was Acacia's "best cost performance since 2010", adding that all three of its major operations performed ahead of expectations.
The average gold price that Acacia achieved in the quarter will have been partly driven by the zero cost collars it entered back in February in order to mitigate the gold price risk at its Buzwagi mine.
The agreements provide a minimum price of USD1,150 per ounce over 136,000 ounces of gold from that mine in 2016 and reduces the risk associated with cashflow at Buzwagi that would emerge if gold prices fell. The agreements provide exposure to a gold price of up to USD1,290 per ounce - meaning Acacia would start losing out if gold prices passed that point this year.
Spot gold was trading at over USD1,259 per ounce on Thursday.
"The entry into these contracts during the quarter has not resulted in any significant unrealised revaluation gains or losses," said Acacia.
Since then, Acacia has decided to expand its hedging programme by adding further zero cost collar positions covering another 43,000 ounces of gold from Buzwagi's expected production in 2017 with a price range of USD1,150 to USD1,421 per ounce.
"We have board approval to enter into contracts covering a further 77,000 ounces of Buzwagi production in 2017 and will assess whether to do so as we move through the year," said Acacia.
The company has no hedges in place for any of its production taken from the other two producing mines, North Mara and Bulyanulu.
Acacia also produces copper from its mines, but the commodity is not a core part of the miner's business. Still, copper production also rose quarter-on-quarter to 3.8 million pounds from 3.5 million pounds, whilst sales increased to 3.7 million pounds from 2.8 million pounds.
Like its gold segment, copper prices were considerably lower in the first quarter of 2016 compared to the last three months of 2015, declining 15%, but Acacia lowered its cash costs by almost 22% in response.
Tanzanian authorities set up a commission in February to look at the root causes of a dispute between the North Mara mine and the communities that surround it, and the findings have been passed on to the Minister of Mines from the commission, leaving Acacia waiting to hear the minister's recommendation on the dispute. The issues pertain to land acquisition and compensation, artisanal mining, water use and environment concerns.
By Joshua Warner; [email protected]; @JoshAlliance
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