Acacia Mining said on Monday it would stop underground work in its flagship Tanzanian gold mine and cut its production advice in the face of a confrontation between the business and the government.
Shares from the FTSE 250 company plummeted 9 percent to 188 pence by 1000 GMT, which makes it worst decliner among an index of its peers.
Acacia, majority-owned by Barrick Gold, said it would have to scale back operations at Bulyanhulu mine and cut employees as it dealt with a government ban on exports of unprocessed ore, imposed in March to promote the building of a local smelter.
The ban had abandoned a build-up of ore and reduce earnings as the company met taxes and other bills, Acacia said in a statement.
“The effects of the ban, as well as the deterioration of the current operating environment, has resulted in negative cash flow of about $15-million a month in the mine and consequently has made regular course operations at Bulyanhulu unsustainable,” it added in a statement.
Annual production is expected to be 100,000 ounce lower than the bottom of the previous guidance variety of 850,000-900,000 oz, it included.
Acacia has been caught up in sweeping changes to Tanzania’s mining sector spearheaded by President John Magufuli, who thinks his country isn’t getting its fair share of profits.
The government also accuses Acacia of evading taxes for years by under-declaring exports — an allegation dismissed from the firm which said in July it was hit by a $190-billion tax invoice, equal to four times the East African nation’s annual gross domestic product.
Regardless of the cash burn, Acacia’s chief financial officer Andrew Wray said the company didn’t require extra financial resources or financial assistance from its Canadian parent Barrick.
“From our standpoint we still have reasonable liquidity as on the balance sheet,” said Wray said. “We are not considering looking past Acacia’s resources right now.”
A mixture of scaling back Bulyanhulu, cutting corporate overheads, expansionary drilling in its biggest mine Mara, greenfield mining activity and gold hedging should return Acacia back to cash generation next year, the miner said.
“Unfortunately, the implementation of the programme will result in a substantial decrease in the workforce from the current 1,200 worker and 800 builder roles,” Acacia said.
Acacia first signalled aims to place Bulyanhulu mine under care and maintenance in June.
“Acacia has implemented a sensible holding pattern — Bulyanhulu could be resumed without considerable effort, but the company moves into a much more workable operational and financial status in the meantime,” Investec analysts said.
“We anticipate this to now move the strain on the president if he really cares.”
Talks between the Tanzanian government and Barrick Gold are continuing, Acacia said.