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Acacia Mining Faces Headwinds in Africa

- By Alberto Abaterusso

Acacia Mining PLC (ACA.L) has plunged almost 13% since the beginning of March after Tanzania imposed an export ban on gold and copper concentrates.

The gold stock is currently trading around 4.57 pounds ($5.59) per share, up 9.45 pounds or 2.07% from the previous trading day. Acacia has gained nearly 25% year to date.

Source: Google Finance

The miner has exploration activities in Tintinba in Mali and Konkolikan, Central Hounde, South Hounde and Pinarello in Burkina Faso, which is in the western part of Kenya where the company discovered a new large-scale gold deposit. In Tanzania, t he company operates three mines and has various exploration activities.

The miner plans to become a leader in the African gold mining industry beginning in 2020. The company can pursue this goal through either acquiring properties or merging with other mining companies with mineral deposits in the same continent. One of these companies is Endeavour Mining (EDV.TO). In January, Acacia announced it was undertaking negotiations for a merger with Endeavour. The negotiations, however, have been stalled by the export ban.

Regardless, the miner can also achieve its goal through organic growth as it has a solid financial situation.

As of Dec. 31, 2016, Acacia had $317,791 in cash on hand and equivalents and a $150 million line of undrawn credit.

Its total current assets amount to $671,795 and total current liabilities amount to $258,910. The two figures lead to a current ratio of 2.59 versus an industry average of 2.62. This means the company is able to pay its short-term obligations using its current assets and is in line with the industry.

The total long-term debt amounts to $71,000. The debt-equity ratio is 3.81 versus an industry average of 36.51. The trailing 12-month interest coverage ratio is 10.52, according to Reuters.com. These figures indicate Acacia is less indebted than its peers and is able to pay interest expenses on its outstanding debt.

For full-year 2016, Acacia generated adjusted EPS of $39.2, a 2,206% increase from the prior year due to a record gold production of 829,705 ounces, a 13.4% increase on a year-over-year basis, which was driven by a record year at the North Mara mine and by the highest production in the last 10 years at Bulyanhulu. In additon, the miner witnessed a 14% year-over-year decrease in all-in sustaining costs to $958 per ounce.

The company attributes the decline in the AISC per ounce to "improved operating efficiencies at the assets and the increased production profile." The AISC would have been even lower if the company "were to focus purely on asset performance and remove the impact of the increase in the share price on the valuation of share-based payments."

In 2016, the company sold 816,743 ounces of gold, up 13.2% from 2015, at a cash cost per ounce of $640, a 17% decrease on a year-over-year basis. Revenue came in at $1,053,532, a 21.4% increase on a year-over-year basis, due to a higher average gold price in 2016.

Acacia's board of directors "has proposed a full-year dividend of 10.4 cents (final dividend of 8.4 cents), [...] more than twice the total dividend announced for 2015 (4.2 cents)." The dividend increase suggests a general improvement in the company's financials.

In 2016, cash flow generated from operations was $318 million, a 103% increase on a year-over-year basis. This increase was a result of higher EBITDA: $415,388 in 2016 versus $174,971 in 2015.

The company expects another positive year of production and costs in 2017. Acacia forecasts production of 850,000 to 900,000 ounces at an AISC of $880 to $920 per ounce.

As of year-end 2016, Acacia Mining has 7,625,000 ounces of proven and probable gold reserves defined at a gold price of $1,100 per ounce, which is one of the lowest in the industry.

I would not currently suggest buying Acacia Mining due to the Tanzanian government's export ban. In 2016, the export of gold and copper concentrate abroad accounted for approximately 40% of the company's total revenue.

Disclosure: I have no positions in any stock mentioned in this article.

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This article first appeared on GuruFocus.