Struggling Acacia Mining buys $2m gold hedge as Tanzania export ban continues ACA

By Patricia Miller

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Embattled gold firm Acacia Mining has bought $2m (£1.4m) worth of put options to protect it against lower gold prices as its dispute with the government of Tanzania over a ban on gold exports continues. The FTSE 250-listed miner has bought options covering 120,000 ounces of gold at a strike price of $1,300 per ounce. This comes just five months after it bought $3.2m of options covering a further 210,000 ounces at the same strike price.

According to the firm, the options provide a minimum price for the majority of its expected production for the first half of 2018 above its budget gold price of $1,200 per ounce.

It is also hoped that they will offset the impact of ban on unprocessed gold concentrate exports introduced by the government of Tanzania in March last year.

In July, the country also increased taxes on mineral exports, raised export royalties, and gave its government a high stake in many mining operations.

The changes stemmed from a bitter dispute between Acacia and the Government of Tanzania, which saw the latter accuse the former of understating the value of its gold shipments. Acacia denies the accusations.

These changes have seen Acacia lose more than half its value over the past year, and have forced it to shut underground work at its largest mine in September due to ‘unsustainable cash outflows’ stemming from the ban.

Furthermore, in November, the firm’s chief executive Brad Gordon and chief financial officer Andrew Wray stepped down from their roles and earlier this month the company reported that Q4 production had fallen by 30pc year-on-year.

Acacia is planning to restart exports in the first half of 2018 after its owner Barrick Gold secured an initial deal with Tanzania’s president John Magufuli in October. However, the details of this deal are yet to be finalised.

The options purchased today will expire in equal installments of 30,000 ounces per month between March and June, giving Acacia the option to sell its gold at a fixed price until then.

Gold is currently sitting above the strike price at $1,340 an ounce and a recent Reuters poll of 35 analysts and traders forecasting an average gold price of $1,311 this year.

Acacia said the options will ensure it still gets full upside exposure if the gold market continues to trade at its current level or rises.

Shares rose 0.1pc, or 0.1p, to 185.6p following the announcement, a far cry from the 541p they sat at in March last year, before the export ban was introduced.

 

Disclosure

The author of this piece does not own shares in the company mentioned.

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Acacia Mining

Author: Patricia Miller

This article does not provide any financial advice and is not a recommendation to deal in any securities or product. Investments may fall in value and an investor may lose some or all of their investment. Past performance is not an indicator of future performance.

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