Acacia Mining shares are sharply offside this morning after announcing it will cut its 2017 dividend as its ongoing battle with the Tanzanian government over exports leads to further detrimental financial impacts. Almost a year on from the announcement of the export ban imposed by the African state’s government, and with no resolution yet reached, the company’s dividend has finally been sacrificed in order to protect its financial position amid a negative cash flow in 2017. An $850m impairment charge leading to a $710m pre-tax loss also headlines the release which has understandably been met with fresh investor selling.

The dispute with Tanzania is now as long-running as it is well-publicised, 11 months after the stand-off over gold exports began after claims from Tanzanian President Magufuli that Acacia cheated the country out of tens of billions of dollars by understating the value of its exports. Before this morning, it had already led to a reduction in production at Acacia’s Bulyanhulu mine, while 185,800 ounces of gold currently wait to be shipped out of the country. With a backlog of shipments already lying dormant, it’s no surprise that total production has decreased by almost a third over the past year, suggesting that even when a deal is reached, the impact on Acacia’s mining capacity will be felt long into the future.

Acacia’s parent company, Canada’s Barrick Gold, last year stated it hoped to reach a deal with the Tanzanian government in the first half of 2018 following positive talks in October, and that statement was reiterated this morning. However, having hoped for a speedy resolution from the outset of the export ban, with every month and quarter that passes the protracted disagreement claims the support of more investors. This morning’s cutting of the dividend will be the final straw for many loyal shareholders who have stuck with the company in the hope a deal will be reached within the next five months, the stream of negative news finally outweighing any hope of a resolution.

While shares are yet to reach July lows of 152.7p, today’s return to December lows of 158.2p will likely have piled fresh pressure on Barrick to reach agreement with Magufuli’s government sooner rather than later. A failure to do so before June could see further outflows from investors just as Acacia’s management hopes its shipments would do just that.

Henry Croft, Research Analyst, 12 February 2018