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Acacia Mining: Surviving a perfect storm

Publication Date: 11 Feb 2019 - By Manika Premsingh By Manika Premsingh
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Equity Fundamental Equity Commodity Other UK Metals and Mining

Acacia Mining (LON:ACA), a subsidiary of the world’s biggest gold mining company – Barrick Gold, had a rocky 2018 to say the least. Not only did its financial results disappoint, the company also got caught up in allegations of tax evasion. But there is more to the picture, and in a positive vein.

The miner's gold production is picking up and its performance at the stock markets isn’t half bad either. It is worth unpacking the story in detail to get a better understanding of the balance of risks, however.

Disappointing financials

First, the downside.

2018 has not been a good year, at least going by the results for the first 9 months of the year. Revenue declined by 11% from the corresponding period of the previous year to $499m, while net earnings declined by a significant 46% to $42.7m.

Capital spending has also decreased quite a bit -  by 42%, which can stymie the company’s expansion in the near future. There is a silver lining here, though. The decrease in capex has likely helped in bringing down borrowing costs by 40% and the company’s net cash position has improved by a whole 206% as well. As positive as these developments are, however, the fact of the matter is that they do not take away from the poor performance. This is especially so, since Acacia Mining has shown erratic trends in both topline and bottomline in the past few years.

Tax dispute curbs operations

The company’s operations in Tanzania have been hit by a tax dispute, driven by the fact that the country’s government wants Acacia Mining to pay $190b in taxes. The disagreement has now been going on for two years, with no end in sight. It has cost the company revenues, key personnel and loss of reputation.  

Improving performance, strong backing

Despite the challenges, however, there are positives as well. The latest release for gold production shows that the number for 2018 stands at 521,980 ounces, ahead of the production guidance for the year of 435-475,000 ounces. It is also worth underlining that Acacia Mining is a backed by Barrick Gold, which adds to its credentials and its potential sustainability, especially when its financials are weakening. The fact that the parent company is now merging with RandGold Resources to form a new entity ‘Barrick Gold’, can have implications for Acacia Mining going forward. How that impacts the company’s stock market performance remains to be seen.

Conclusion: Improving share prices

Weathering all the dramatic occurrences happening in and around Acacia Mining, the company’s share prices have actually been performing well.  Through 2019 so far, they have consistently been higher by at least 20% than the average for the past one year. What’s more, they are now inching closer to the maximum levels seen in the past year of 202.3p.

Does this make the share a buy, though? Maybe it would be better to wait for the storm to abate and then make a decision.

Disclosure:

I have no positions in any of the securities referenced in the contribution

I do not use any non-public, material information in this contribution

To the best of my knowledge, the views expressed in this contribution comply with UK law

I agree with the terms and conditions of ReachX

This contribution is for informational purpose and does not constitute investment advice nor is it an offer to sell or buy, nor is it a recommendation for any security.

Manika Premsingh

 

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London, United Kingdom

info@reachx.co
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