Machiavelli
Member
- Oct 3, 2007
- 75
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Acacia Mining: deconstructive policy The truth about the Saga
Tanzania president’s strategy pummels shares in gold mine
Heavy machinery to extract gold usually stays in the mine. Not in Tanzania. There, the “bulldozer” is President John Magufuli, who gets what he wants. But Mr Magufuli’s stance is pummelling shares in Acacia Mining.
London-listed Acacia, formerly known as African Barrick, mines gold ore in Tanzania. It then exports the powdered concentrate to facilities elsewhere for processing. Since March, Tanzania has blocked shipments of the intermediate product. This week, government officials accused Acacia of under-reporting gold exported. Mr Magufuli is not just displeased with Acacia. He has fired his minister for mines and closed the Minerals Audit Agency. If he persists with this hard-hatted strategy he will destroy overseas investor interest in the country.
President Magufuli’s tough line on corruption may have worked with the civil service, but his business policy looks unfinished at best. He wants Acacia Mining to build a gold smelter and refinery in Tanzania. Apart from the cost, as much as $700m, Acacia believes the country does not produce enough metal in concentrate to make such a facility worthwhile.
This stand-off has gone down badly in financial markets. The latest accusation has knocked almost 40 per cent off Acacia’s value since Tuesday. The miner has had to stockpile the concentrate which it cannot shift. Inventories are rising by well over half a million dollars daily, says Acacia. Annualised, that adds up to $240m, three-quarters of last year’s operating cash flow. Even so, Acacia thinks it can reduce gold operating costs this year.
The dispute has highlighted a valid criticism of Acacia’s model: its dependence on Tanzania. That single-country risk cannot help its valuation. As with Egypt-focused Centamin, Acacia shares trade at a discount to Randgold, which is not only bigger but more geographically diverse. Without a rapprochement, it is hard to see how Acacia will recover from this blow.
Email the Lex team at lex@ft.com
Tanzania president’s strategy pummels shares in gold mine
Heavy machinery to extract gold usually stays in the mine. Not in Tanzania. There, the “bulldozer” is President John Magufuli, who gets what he wants. But Mr Magufuli’s stance is pummelling shares in Acacia Mining.
London-listed Acacia, formerly known as African Barrick, mines gold ore in Tanzania. It then exports the powdered concentrate to facilities elsewhere for processing. Since March, Tanzania has blocked shipments of the intermediate product. This week, government officials accused Acacia of under-reporting gold exported. Mr Magufuli is not just displeased with Acacia. He has fired his minister for mines and closed the Minerals Audit Agency. If he persists with this hard-hatted strategy he will destroy overseas investor interest in the country.
President Magufuli’s tough line on corruption may have worked with the civil service, but his business policy looks unfinished at best. He wants Acacia Mining to build a gold smelter and refinery in Tanzania. Apart from the cost, as much as $700m, Acacia believes the country does not produce enough metal in concentrate to make such a facility worthwhile.
This stand-off has gone down badly in financial markets. The latest accusation has knocked almost 40 per cent off Acacia’s value since Tuesday. The miner has had to stockpile the concentrate which it cannot shift. Inventories are rising by well over half a million dollars daily, says Acacia. Annualised, that adds up to $240m, three-quarters of last year’s operating cash flow. Even so, Acacia thinks it can reduce gold operating costs this year.
The dispute has highlighted a valid criticism of Acacia’s model: its dependence on Tanzania. That single-country risk cannot help its valuation. As with Egypt-focused Centamin, Acacia shares trade at a discount to Randgold, which is not only bigger but more geographically diverse. Without a rapprochement, it is hard to see how Acacia will recover from this blow.
Email the Lex team at lex@ft.com
