ACACIA Mining got a boost on Tuesday as Peel Hunt upgraded its stance on the stock to 'hold' from 'reduce', noting that the group's two-year outlook has improved greatly and arguing that the recent concentrate ban is not as bad as it might seem.
Earlier this month, the Tanzanian Ministry of Energy and Minerals announced a ban of gold/copper concentrate exports, causing shares in Acacia to slump.
In 2016, copper/gold concentrate represented a little in excess of 30 per cent of Acacia's revenue, making this a critical issue for the business. Acacia has stopped shipping its concentrate, which represents 55 per cent of the gold production at Buzwagi and 45 per cent at Bulyanhulu.
Peel said that although the ban is undeniably disruptive for the business and its financial position, it is likely to be resolved and for the short term working capital to have worked through by year-end. The lasting impact is likely to feature higher future cash tax charges, which Peel has now baked into its forecasts.
"The selloff following the concentrate ban has carried shares nearer fair value and, following a full review of our mine plans, we increase our target price to 434p from 362p.
"This is driven by Buzwagi lining up for a far stronger 2017 than expected (higher grades) and North Mara positioning to deliver increasing tonnage from the high grade underground operation later in 2018. Therefore, we upgrade our recommendation."