JOHANNESBURG (miningweekly.com) – LSE-listed Acacia Mining is reducing operational activity at its Bulyanhulu mine, in Tanzania, as the pressures of unsustainable cash outflows at the mine owing to the ongoing concentrate ban force the group’s hand.

Over the next three months, Acacia will focus on the process of moving the mine to a reduced operational state, undertaking consultations with its stakeholders and ceasing underground activity, with the processing of underground ore to be halted within the next four weeks.

This is the result of the negative impact of Tanzania’s gold and copper concentrate export ban, which was imposed on March 3 and had since resulted in a concentrate inventory build-up of about $265-million and a negative cash flow of around $15-million a month.

“This programme will include the preservation of all assets and equipment to enable the mine to resume ordinary course operations should the export ban be lifted and the operating environment stabilise,” the company said in an update to shareholders on Monday.

The implementation of the programme, however, will see a significant reduction of the current 1 200 employees and 800 contractors.

Despite several mitigating interventions, the loss of revenue, together with an outflow of $65-million in indirect taxes and costs from other changes to the operating environment, has led to a significant cash outflow of about $210-million in the 2017 year-to-date.

The ban had further led to the deterioration of the current operating environment and had made the ordinary course of operations at Bulyanhulu unsustainable, Acacia explained.

The reduction progamme is expected to incur one-off costs of $20-million to $25-million, as well as the natural unwinding of around two months’ worth of working capital of about $35-million to $40-million, and result in operating cash outflows of $5-million a month over the next three months, before reaching a steady state of around $3-million a month.

These costs will be partly offset by the revenue from the retreatment of tailings, which produces saleable doré.

The retreatment of tailings, which is currently suspended to preserve water owing to ongoing drought conditions in northern Tanzania, is expected to restart in October, at a rate of 30 000 oz/y to 35 000 oz/y while the underground mining is suspended.

“For the time being, Buzwagi, our other mine affected by the concentrate ban, will continue to operate in the ordinary course, owing to its remaining short mine life and lower impact of the changes in the operating environment on the company’s cash outflows,” Acacia noted.

The planned reduction in operating activity at Bulyanhulu will lower Acacia’s yearly output to around 100 000 oz lower than the bottom of the previous guidance range of 850 000 oz to 900 000 z; however, the move is expected to help the group return to positive cash generation in 2018.

Meanwhile, discussions between Acacia’s parent company Barrick Gold and the government of Tanzania in relation to a tax dispute are ongoing.

The government has accused Acacia of evading taxes by under-declaring its exports. Acacia has denied the accusations.

“The company remains hopeful that the ongoing discussions between Barrick and the government of Tanzania will lead to a resolution to the concentrate ban and operating environment and enable the reassessment of the operating situation at Bulyanhulu in the near future,” Acacia concluded.

Acacia’s share price on the LSE fell by 6% on Monday morning.