Acacia Mining earnings fall amid 'challenging' operating environment

Acacia Mining released its 2018 results on Monday, reporting a 12% fall in revenue year-on-year to $664m, with the board reporting a higher average realised gold price was offset by a lower sales base.

The FTSE 250 firm said its EBITDA was also 12% lower at $226m for the 2018 calendar year, which it said was mainly due to the lower revenue, partly offset by a $45m gain on the sale of a non-core royalty.

Adjusted EBITDA stood at $183m - 41% lower than 2017, excluding the sale of the non-core royalty.

Net earnings were $59m, compared to a net loss of $707m in 2017, with adjusted net earnings falling to $44m or 10.8 cents per share, compared to $146m or 35.7 cents per share in 2017, which the board said was primarily due to lower revenue.

Acacia’s cash balance increased by $50m during 2018 to $130m, due to the sale of a non-core royalty combined with strong operational performance, with a net cash balance of $88m at the end of the year.

The company said it contributed $127m of taxes and royalties to Tanzania, and spent more than $273m with local suppliers in the country.

On the production front, Acacia Mining said 2018 gold production stood at 521,980 ounces, ahead of its initial guidance of between 435,000 and 475,000 ounces for the year, due to what it described as “strong operating performance” at all three of its mines.

Gold sales totalled 520,380 ounces, which was broadly in line with production for the year.

Its 2018 all-in sustaining cost was $905 per ounce sold - below the full year guidance range of between $935 and $985 per ounce, which the firm said was driven by its higher production base, lower capital allocation and strong cost discipline.

The Bulyanhulu optimisation study had progressed “well”, with provisional outcomes supporting a potential 18-year life of mine at a steady state production of between 300,000 and 350,000 ounces per year at an all-in sustaining cost of between $700 and $750 per ounce sold.

That would be upon further capital investment of between $120m and $140m, including capital, drilling, development and rehabilitation costs over a 12-to-18 month period, the successful resumption of underground mining operations and a return to full production and sale of gold in both doré and concentrates.

A final decision to resume underground mining operations would be considered by the board at an “appropriate time”, Acacia said.

“I am pleased to report that during 2018 we successfully stabilised the business with our focus on operational performance across all three mines,” said Acacia Mining’s interim chief executive officer Peter Geleta.

“This would not have been possible without the sheer resilience, hard work and determination of all of our people and I would like to thank each and every one of them for their contributions to the Acacia Group, particularly given the continued challenging operating environment this year.

“We were able to return the company to free cash flow generation in the second quarter of the year, a trend which was sustained during the second half, ending the year with a net cash position of $88m.”

Geleta noted that at the same time, the company continued to demonstrate its “long-term commitment” to Tanzania and its mining industry, contributing more than $127m in taxes and royalties, spending over $273m with local suppliers in Tanzania, achieving a rate of 97% local employees and investing $8.8m in its ‘Sustainable Communities’ strategy.

“Looking ahead to 2019 we expect production of [between] 500,000 [and] 550,000 ounces at an all-in sustaining cost of [between] $860 [and] $920 per ounce, with cash costs of [between[ $665 [and] $710 per ounce.”

Acacia was also “highly encouraged” by the provisional outcomes of the Bulyanhulu optimisation study, Geleta added, with a focus on achieving higher margin ounces in line with the firm’s focus on free cash generation.

“The provisional outcomes support a potential life of mine of 18 years and delivery of an average steady state production rate of 300,000 to 350,000 ounces per year at an AISC of $700 to $750 per ounce, assuming a successful resumption of underground mining and the ability to economically produce and sell gold concentrates.

“To that end, we continue to provide support to Barrick in its discussions with the Government of Tanzania and believe that a negotiated resolution is in the best interests of all stakeholders.”