Shares in Acacia Mining (LSE: ACA) spiked on Thursday afternoon after its majority owner Barrick Gold Corporation of Canada announced that it had come to a tentative agreement to resolve a dispute with the government in Tanzania.
The government had maintained claims of outstanding tax against Acacia, and halted the export of gold concentrates in March. That, plus a later confirmation that no progress had been made in lifting the ban, together with a subsequently disappointing interim report, led to a share price crash — between 1 March and 18 October we saw a plunge of 65%.
Though details of the new agreement are unclear and Acacia has not yet received a formal proposal, talk is of the Tanzanian government taking a 16% stake in the company’s three gold mines, 50% of the mines’ revenues, and a one-off payment of $300m to settle the tax dispute.
A Q3 update Friday reported gold production of 191,203 ounces in the quarter at an all-in sustaining cost of $939 per ounce sold. That’s far from the cheapest production cost in the sector, but with gold selling at around $1,300 per ounce there’s a decent margin there (and gold has held above $1,000, usually comfortably so, for the past five years).
The shares lost some of Thursday’s initial gains as investors reacted negatively to the news that Acacia itself didn’t fully understand what was happening, but the price reached 220p in early trading Friday, so we’re looking at a 20% gain at the time of writing.
That gives it a forward P/E of under nine, dropping to 7.5 on 2018 forecasts, and if this latest progress is confirmed I can see further uplifts to come.
If you want a gold miner with lower production costs, Centamin (LSE: CEY) could fit the bill.
Focused mainly on its Sukari mine in Egypt and with exploration interests in Burkina Faso and Côte d’Ivoire too, Centamin can get the shiny stuff out of the ground for an all-in sustaining cost of just $790 per ounce, which provides an extra $149 per ounce of profit over Acacia and a correspondingly wider safety margin.
The shares have been pretty volatile over the past 12 months, but since a low in June 2014 they’ve multiple 4.5-fold to the current 144p, with most of that coming in the last two years.
Centamin has been paying decent dividends too, with yields of 3.5% and 3.8% on the cards for this year and next. There’s a 40% fall in earnings per share (EPS) forecast this year (after an exceptional EPS last year), but the cash should be well enough covered and earnings growth should pick up by 10% in 2018.
A Q3 production report from the Sukari mine revealed record gold production of 156,533 ounces, 26% up on the previous quarter, and beating the previous record which was set in the third quarter of 2016.
The company reckons it should unearth around 540,000 ounces of the coveted metal by the end of the year, which would make 2017 the eighth year in a row of increased production. And as long as production keeps going at these high levels, the dividend should be pretty much assured.
The shares are on P/E ratios of 16 to 17 based on forecasts, which is significantly above the valuation of Acacia shares. Does that give some clue of what might happen to Acacia shares should the firm’s problems finally be resolved?
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