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gold

Acacia enters into gold protection measures

LSE-listed Acacia Mining has bought put options covering 210 000 oz of gold at a strike price of $1 300/oz as it continues implementing ongoing cash outflow mitigation measures.

The group on Wednesday announced that the $3.2-million option provided a minimum price for the majority of the group’s expected doré production for the next six months above the budgeted gold price of $1 200/oz, along with full upside exposure should the gold price continue to trade above $1 300/oz.

The options will expire in equal instalments of 35 000 oz a month over the period.

This followed the reduction of operational activity at its Bulyanhulu mine, in Tanzania, earlier this week, owing to the pressures of unsustainable cash outflows at the mine owing to the ongoing concentrate ban, which was imposed on March 3.

At the time, Acacia had highlighted the negative impact of Tanzania’s gold and copper concentrate export ban, resulting in a concentrate inventory build-up of about $265-million and a negative cash flow of around $15-million a month.

Over the next three months, Acacia will focus on 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.

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.

 

Source: Mining Weekly

Years of gridlock face South Africa as new rules hurt mining

Executives from Sibanye Gold Ltd., South Africa’s biggest gold miner, were in Los Angeles in the final stages of a roadshow with U.S. bond fund managers last month when a bombshell hit from back home.

The government had introduced shock new rules requiring local mines be 30% black-owned in perpetuity, toughening existing requirements and implying hefty dilution for shareholders. South African stocks tumbled and bond yields rose that day. The measures, called Mining Charter 3, put at risk funding for Sibanye’s $2.2 billion acquisition of Stillwater Mining Co. of the U.S., the biggest foreign takeover by a South African mining company in 16 years.

“We had to hold back the financing, find out what the chartermeant, and rebrief all our potential investors,” Chief Executive Officer Neal Froneman said by phone. “A number of institutional investors pulled out of the bond process saying the risks in South Africa were just too high and it’s becoming uninvestable.”

Companies and investors say the new rules and uncertainty will starve the industry of much-needed capital, shortening mine lives, reducing profits and adding to existing challenges of declining reserves and increasing costs. Most mining companies already offloaded 26% stakes and even entire mines to black investors at preferential rates in the 2000s to comply with previous rules, believing it was a one-time deal.

President Jacob Zuma backed the charter in parliament last month as part of his “radical economic transformation” agenda, intended to boost black participation in an economy that’s still one of the most unequal in the world, 23 years after Nelson Mandela helped end apartheid. But members of the African National Congress party, including Deputy President Cyril Ramaphosa, have signalled their doubts, saying the government and industry should go back to the drawing board and reach a negotiated settlement.

Mining companies have already begun fighting the charter through the courts and say the uncertainty will scare off investors in a country once seen as model of democracy, reconciliation and open markets in Africa. The first lawsuit, to block the charter while it winds through the legal process, has an initial hearing on July 18.

“We’re not going to accept it,” Froneman said. “It’s unconstitutional to abuse shareholders retrospectively.

The legal cases “could potentially take three years to conclude,” said Victor von Reiche, an analyst at Citadel Wealth Management in Cape Town. “In the meantime the mining industry in South Africa will suffer most, as investors will take a wait-and-see approach.”

The charter imposes numerous extra levies on mining, the country’s biggest export industry, at a time when the economy is in recession and suffering from 28% unemployment. It also directs payments that the industry estimates could amount to 3.5 billion rand ($264 million) into a government-controlled fund that will also manage communities’ stakes in mines.

Sibanye managed to complete the bond sale, but at a cost. It’s paying coupons of 6.125% and 7.125% on two bonds worth $1.05 billion, 50 basis points higher than if the government had not published the charter, according to Froneman. The extra interest is worth $5.3 million a year.

“This is bad news for mining, which was already shrinking due to the commodities cycle,” said Dave Mohr, who helps oversee 110 billion rand as chief strategist at Cape Town-based Old Mutual Multi-Managers. “It’s going to scare off investment while they go through the courts.”

The Chamber of Mines, which represents mining companies, has taken the government to court to block the charter and argues that it’s in breach of company law, international agreements and the country’s constitution.

The most controversial of the new rules is around ownership. The charter says mining companies must “top up” black ownership to 30% within the next 12 months. But the firm says it’s unclear whether they must increase from 26% or the current direct black ownership level.

A rule requiring 1% of revenue to be paid to black investors before other shareholders would have consumed 95% of total industry dividends if applied last year, according to the chamber.

MAKING SENSE

“We are struggling as everybody else to try and make sense of this charter,” said Andile Sangqu, speaking in his position as vice president of the Chamber of Mines. “That’s why we’ve opted to go to court.” Sangqu is also executive head of Anglo American Plc’s South African operations.

Mining Minister Mosebenzi Zwane defends the new rules, saying they are necessary to resolve the inequities of apartheid. As the world’s biggest gold producer for a century to 2007, South Africa’s mining industry was a key beneficiary of white minority rule, which ensured cheap labor and few environmental regulations.

More than two decades after that ended, average earnings for black households are a sixth of those of their white counterparts, according to the nation’s statistics agency.

“Anybody who does not want to see black people empowered, anybody who still wants to see black people treated like slaves, raise up their hands and say they are not part of the progressive South Africa,” Zwane told reporters June 23, referring to the charter’s critics.

The regulations’ timing couldn’t be worse. The economy unexpectedly tipped into a recession in in the first quarter, and business confidence reached a more than three-decade low in September, amid political uncertainty. Though the June reading improved, the new mine rules pared its gain.

While South Africa’s mining industry is a shadow of its former self — it peaked in the 1970s — it still represents 21% of exports and employs 457 000 people, about 7% of total employment. Many mineworkers migrate from rural areas and have as many as 10 dependants.

Investors aren’t waiting for the court decision to make a call on South African mining securities. About $3 billion was wiped off Johannesburg-listed mining companies’ market value on June 15, when the charter was announced, although a U.S. rate rise the previous evening also hit commodities stocks globally.

South African mining stocks have traded at a price to book discount for the last five years, according to data compiled by Bloomberg.

If the charter is implemented, shareholders are likely to push back on providing more equity to fund additional black empowerment deals, according to Douglas Rowlings, a Dubai-based analyst for Moody’s Investors Service. That means mining companies would be forced to use existing cash reserves or borrow money.

“That’s a credit negative from our point of view,” Rowlings said. “The market response was hugely negative and contrary to the ANC’s policy of fostering inward investment into South Africa. The effect of the mining charter is totally opposite to that and would result in job losses.”

 

Source: Mining Weekly

Tanzania turns up heat on overseas miners with State stake law

DAR ES SALAAM – Tanzania put more pressure on foreign mining companies on Tuesday by amending mining and tax laws to make it mandatory for the State to own at least 16% of mining projects, while also raising export royalties.

Parliament passed the bill unanimously, the State-run Tanzania Information Services said.

This followed two other laws passed on Monday giving the resource-rich East African nation the right to tear up and renegotiate contracts for natural resources like gas or minerals, and removing the right to international arbitration.

The bills were introduced on Thursday and rapidly passed, despite pleas for more time from an association representing mining companies.

“In any mining operations under a mining licence or a special mining licence, the government shall have not less than 16% nondilutable free-carried interest shares in the capital of a mining company,” the text of the new law says.

The government also left itself scope to further increase its stake in the companies.

“In addition to the free carried interest shares, the government shall be entitled to acquire, in total, up to 50% of the shares of the mining company commensurate with the total tax expenditures incurred by the government in favour of the mining company.”

There was no further explanation from the government, but industry sources said they believed the bill meant the government might take further shares in companies that it accused of owing taxes, in lieu of the money owed.

Government officials were not available for comment.

President John Magufuli has accused large mining companies of evading taxes. Charges they deny. At a public rally on Tuesday, he said Tanzania was fighting an economic war.

“We couldn’t wait to pass the laws because of the large scale theft taking place in the mining sector,” he said.

RISING ROYALTIES
The new law also raises royalties from gold, copper, silver and platinum exports to 6% from 4%. It increases the royalty on uranium exports from 5% to 6%.

The law also allows the government to reject a company’s valuation if it believed the price was too low. The government would be entitled to buy the consignment of minerals at the price quoted.

“For the purposes of calculating the amount of royalties payable, the government shall be entitled to reject the valuation,” the text of the new law said.

“Where the government rejects the valuation, it shall have the option to buy the minerals at the low value.”

Tanzania’s largest miner Acacia, majority owned by Barrick Gold, said on Tuesday that notices of arbitration were served on behalf of companies that own its Bulyanhulu and Buzwagi mines, which have been hit by an export ban.

“The serving of the notices at this time is necessary to protect the Company,” Acacia said.

 

 

Source: Mining Weekly

Kenya reviews mining laws as industry struggles to grow

NAIROBI – Kenya is reviewing its mining code, a year after enacting new legislation, as it seeks to attract investment into an industry that’s barely grown over the past five years.

The government is working with the UK Department for International Development-funded Extractives Hub to come up with a revised law that balances investor returns with government-revenue needs and international best practice, Mines SecretarDan Kazungu said. The review is expected to be submitted to the ministry in the next few weeks, he said.

“We want to be attractive, but we also want to get the most out of our resources, based on the spirit of win-win,” Kazungu said in an interview June 30 in the capital, Nairobi. “The investor must get a good return on their investment, but win for government, and win for the community as well.”

Mining companies are facing similar legislative disruption in other African countries. In South Africa, the main industry lobby group is going to court to challenge new rules that seek to give the black majority a bigger stake in the country’s mineral wealth. Tanzania’s parliament is debating new laws that will allow it to renegotiate contracts, while the Democratic Republic of Congo plans to overhaul its mining code to increase the state’s share of revenue from the industry.

Mining contributed 1.1% to Kenya’s total gross domestic product in 2016, compared with 1% in 2012, according to data published by the Kenya National Bureau of Statistics. The country has lagged behind neighbours like Tanzania, where the industry contributed about 4.8% to GDP in 2016, according to the country’s statistics agency.

MINERAL ROYALTIES
Kenya’s existing code imposes royalty rates ranging from 1% of the gross sales value of industrial minerals such as gypsum and limestone, to 5% for gold, 8% for coal, 10% for titanium ores, niobium and rare-earth elements, and 12% for diamonds.

Kenya last reviewed its mining royalties in 2013, when then-Mines Minister Najib Balala cancelled all mining licences and raised royalties.

The Treasury is working on a new income tax act, as part of its long-running review of tax legislation, that is receiving “considerable” input from the Mines Ministry, Kazungu said. Issues being addressed include cross-border mineral trading, he said.

Corporate income tax rates for mining firms operating in Kenya vary from 30% for companies domiciled in the East African country to 37.5% for non-residents.

“We obviously are starting from the position that we want to be competitive,” Kazungu said. “Investors have options. If you frustrate them here, they will probably go somewhere else.”

Kenya is the world’s third-biggest producer of soda ash, used to make glass, and ranks seventh in output of fluorspar, used in steel, according to the US Geological Survey. It also has deposits of rubies and sapphires.

 

Source: Mining Weekly

Sibanye says production resumes at strike-hit Cooke mine

JOHANNESBURG – Production has resumed at the Cooke mine of South African precious metals producer Sibanye Gold following the conclusion of a wildcat strike at the operation which erupted almost a month ago, a company spokesperson said on Monday.

The strike, which saw incidents of violence aimed at miners who did not support it, was sparked by worker resentment at Sibanye’s drive to root out illegal miners, which included the sacking of employees for collusion and a ban on taking food into the shafts.

Last week the company said that 461 illegal miners had been arrested at Cooke since the strike began after they were forced to come to the surface because the stoppage deprived them of sources of food and water provided by employees.

 

Source: Mining Weekly

Busiest project bidding period ever – ELB

JOHANNESBURG – Johannesburg Stock Exchange-listed ELB Group is having its busiest project bidding period ever, and is seeing a strengthening in base metals and great opportunities in gold.

“In the last six months, we’ve experienced our busiest bidding period ever,” ELB Group CE Dr Stephen Meijers told Mining Weekly Online in an interview.

Meijers described the potential volume of infrastructure spend in Africa as massive, on everything from rail to bulk port development, and told of junior mining companies being enabled for quick entry into gold through the availability of mobile modular-type plants.

ELB – which has a tremendous history dating back to the formation of the group in 1919 by Edward L Bateman, who brought the first Allis-Chalmers crushers out to South Africa– continues to represent world-class technologies, know-how and products.

One of the longest surviving engineering companies on the Johannesburg Stock Exchange, ELB last raised capital there when it listed in 1951.

“There are not many engineering companies that have been around since 1919 that are still going strong,” said Meijers, a University of the Witwatersrand graduate with a doctorate in mechanical engineering, specialising in materials handling and who spent time at Harvard University in the US doing management courses.

The group has minimal debt and its business model has always centred on having a very strong balance sheet.  “Keeping sufficient cash on the balance sheet has always been a strong philosophy of the Group and will continue to be going forward,” says Meijers.

“When you go through tough years – and we went through a particularly tough year last year, you need a strong balance sheet, in order to survive,” Meijers says.

Even in the current tight business environment, ELBEngineering Services business unit has an order book that provides it with project work for the next two or so years.

Its turnover of approximately R2.5-billion a year arises out of equal contributions from the Engineering Services business unit and the Equipment business unit.

ELB Engineering Services employs 1 000 to 1 200 people at present and the equipment business has a staff complement of approximately 250.

In minerals and metals, the sub-Saharan Africa-focused group does all projects from small modular gravity separation projects through to large minerals processing projects.

Its current flagship project is the Gamsberg zinc project in the Northern Cape, which is being developed by Vedanta Zinc International’s Black Mountain Mine.

The scope of supply to this engineering, procurement and construction (EPC) project involves the provision of everything from the run-of-mine tip through to the stockyard, milling, flotation and final product, as well as providing the water pipeline from the Orange river to the processing plant, plus overhead power supply.

The greenfield Gamsberg project consists of an opencastmine, ore beneficiation plant and associated infrastructure, and is located on one of the world’s largest known zinc deposits, where Vedanta is investing $400-million in developing the first phase of the opencast zinc mine, concentrator plant and associated infrastructure.

The first phase encompasses a four-million-tonne- a-year zinc and lead concentrator.

Another of its exciting projects is the world’s longest single-flight overland conveyor project, for which the front end engineering and design is close to completion. This 27 km overland conveyor project is to be carried out in Ghana for Asanko Gold.

ELB’s longest-standing project that is still ongoing is its contract at Eskom’s Medupi power station in Limpopo.

“It’s been a great project for us. I know there has been certain criticism of Medupi but it’s really an unbelievable project and really one of the world’s greatest infrastructure projects.

“We’ll probably be at Medupi for another 18 months and working for Eskom has been a good experience so far,” Meijers told Mining Weekly Online.

The company is doing the coal distribution right up into the bunkers for the boilers and then collecting the bottom ash and taking it out to the dump.

Also under way are several other projects in South Africa and in Zimbabwe for a cement company, projects for Unilever, which ELB has been serving on an ongoing basis for the last six years, and a number of projects across South Africa for Nestlé.

ELB continues to be active in the manganese, iron-ore and coal sectors.

To date, the company has grown organically; however, it is now considering acquisitive growth as well, in a manner that does not stretch the balance sheet or risk the business.

CORPORATE SOCIAL INVESTMENT

ELB supports the African Academy, which was established in 1994 to address the critical need for well-trained and skilled draughtspersons, and to contribute towards reducing unemployment in South Africa.

The academy, which has been a fantastic success story, produces approximately 230 qualified students in computer aided design a year in different areas and is looking to establishing satellite academies around the country.

ELB also supports St Vincent’s School for the Deaf, where the overwhelming percentage of children are from disadvantaged backgrounds, enabling the children there to be provided with a hot meal every day.

The ELB Trust for black South Africans is also assisting students at various universities. Twelve students are currently registered and, to date, 23 students have been assisted through their studies.

Source : Mining Weekly

Acacia Mining confirms start of negotiations with Tanzania govt

JOHANNESBURG (miningweekly.com) – Tanzania-based gold miner Acacia Mining’s CEO Brad Gordon on Thursday said the company would leave any disputes around back taxes for resolution during negotiations with the country’s President John Magufuli.

During a teleconference, he added that the company was not prepared to comment on earlier media reports, wherein Tanzania’s presidency was quoted as saying Acacia’s parent company, Barrick Gold was willing to reimburse money that was owed to the government.

Following the release of reports by two Presidential committees that investigated mineral exports from Tanzania, Magufuli earlier accused the miner of failing to pay billions of dollars in taxes.

According to a Bloomberg report, Barrick chairperson John Thornton met Magufuli for talks in the commercial capital, Dar es Salaam, on Wednesday, with Barrick confirming the meeting but not the details of what, if anything, had been agreed.

“We are now focused on negotiations with the government to bring about a swift resolution to this situation and that’s the focus for the President of Tanzania as well,” said Gordon.

He added that a number of issues around the country’s operating environment would be highlighted during the negotiations. “We have always sought to maintain good relations with the government and we welcome the chance now that we can enter a dialogue on these outstanding issues.

“We will work with them as we always try to do; we have similar goals for economic development in the country and it is clear from the last few months that we do need to address the lack of trust between the government and Acacia,” said Gordon during the call.

Noting that it was a good first step, he pointed out that Barrick and Acacia would follow the same process in negotiations.

Reuters on Tuesday reported that apart from the Tanzanian government’s crackdown on the export of mineral concentrates, other sectors of the economy were also being affected. Disputes so far have included one that led to the temporary shutdown of a cement plant owned by Aliko Dangote, Africa’s richest man, and the cancelling of a $500-million sugar project planned by EcoEnergy Scandinavia of Sweden.

In March, Washington-based Symbion Power said it was seeking arbitration after the Tanzanian government terminated a power purchase agreement.

Gordon reiterated that Acacia would continue to operate in the country, while it sought dialogue with the government. “At this stage, we don’t intend to change that position. All three of our mines are still operating and will do so as long as a resolution is possible,” he noted.

However, he noted that employee relations have been strained. “The mood is not good; our employees have been accused of many things over the last few weeks and their integrity has been questioned. It’s difficult for them,” he stated.

Speaking on the ongoing export ban on gold and copper, Gordon pointed out that it was unlikely the ban would be lifted quite early in negotiations, “but we will see how that develops as negotiations continue”.

Source : Mining Weekly

Acacia disappointed in ‘unfounded’ second Presidential committee findings

JOHANNESBURG – Shares of LSE-listed Acacia Mining slumped 12% after “new unfounded” accusations of the under declaration of revenues and tax payments stretching into the tens of billions of dollars emerged against it following the release of a report by a second Tanzanian Presidential committee on Monday.

The Tanzania-focused miner on Monday “strongly refuted” the claims that it was short changing the government, claiming that the value of concentrates was overstated by more than ten times and that it was impossible to reconcile the findings that were based on more than 20 years of data.

The second Presidential committee’s report, which was presented to Tanzania’s President Dr John Magufuli on Monday, recommended the payment of outstanding taxes and royalties, the renegotiation of large-scale mineral development agreements, government ownership in the mines and the continuation of the gold and copper concentrates export ban.

“We reiterate that we have declared everything of commercial value that we have produced since we started operating in Tanzania and have paid all appropriate royalties and taxes on all of the payable minerals that we produce,” Acacia said in a statement.

The company said the findings of the second committee were based on those of the first Presidential committee that had investigated the export of gold and copper concentrates in May 2017.

Acacia had also disputed those findings.

Source : Mining Weekly

Sibanye gets positive boost from ratings agencies

JOHANNESBURG – JSE-listed platinum and gold miner Sibanye on Wednesday received a Ba2 rating from Moody’s Investors Service with a stable outlook and a B+ rating with a positive outlook from Standard & Poor’s (S&P’s) Global Ratings.

In assigning the Ba2 corporate family rating to Sibanye, Moody’s noted that it reflected Sibanye’s solid business profile underpinned by diversified metal production revenues, as well as the company’s record of setting and sticking to conservative financial policies.

The ratings outlook assumes Sibanye will “deleverage as planned following the addition of the Stillwater acquisition debt and the successful integration of [its] new mining assets”.

S&P’s noted that the assigned B+ rating reflected its view that Sibanye would “generate positive discretionary cash flow after the Stillwater acquisition that should enable it to gradually reduce leverage in line with its stated financial policy”.

The ratings agency further outlined that the business risk profile assessment of Sibanye reflected a company with an ambitious growth strategy. “Its portfolio of assets is spread across the cost curve, with high exposure to labour-intensive South African mining operations, some of which are high cost and in need of restructuring,” it stated.

However, it added that Sibayne’s management team had a good record of cost reduction and reserve extension of its South African gold assets and, following the Stillwater acquisition, the company will rank as the world’s third-largest platinum and palladium producer and a top-ten gold producer, with a growing presence outside of its home market.

“We could revise the outlook to stable as a result of lower-than-expected metal prices, a stronger rand exchange rate, or unexpected operational issues that lead to weaker or more volatile earnings and cash flow than we anticipate in our base case,” it added.

Sibanye CEO Neal Froneman said the affirmative credit ratings endorsed the miner’s maturing business model and the value it created. “Refinancing the Stillwater acquisition bridge facility is a key focus area of ours and, hence, these ratings are a positive step forward in establishing an appropriate long-term capital structure,” he added.

Sibanye also announced it has mandated Citi, HSBC and Barclays, as global coordinators and book runners, as well as Credit Suisse and Standard Bank, as book runners, of a proposed $1-billion bond offering, the rating of which is expected to be in line with the newly obtained corporate ratings.

The proceeds of the issuance will be used to refinance part of the bridge loan facility obtained by Sibanye to finance the acquisition of Stillwater.

Source : Mining Weekly

Gold mine reopens using ex-illegal zama-zamas as workforce

JOHANNESBURG – Gold mining company Birrell Mining International has reopened the recently acquired Bosveld Mining’s Klipwal gold mine in KwaZulu-Natal, the company said on Monday.

Birrell completed the purchase of Bosveld Mines from Stonewall Mining earlier this year, after having been responsible for the care-and-maintenance programme since early 2016.

The transaction retains the black economic empowerment (BEE) ownership structure of 26% being owned by predominantly community-based BEE partners.

Under the chairmanship of Graham Briggs, the former CEO of Harmony Gold, the Birrrell board approved the transaction following reviews of resource and operational potential across the mine, which provides an ideal platform for further underground development.

Production began last month after results indicated stable production at reasonable grades with good levels of recovery.

An experienced management team, headed by Tony Knight, will allow rapid expansion under Briggs’ guidance.

The expansion will include deeper level underground mining and development, as well as the recommissioning of lower levels from July 2017 onward.

Of critical importance is the operations’ management of the illegal mining activity in recent months, which had plagued the safety and future viability of the Klipwal underground workings.

Owing to the high levels of illegal activity at Klipwal, it was decided to make use of the local former illegal miners as the main workforce, within strict safety regulations and managerial control and adherence to legislative requirements around contractor employment.

The former illegal zama-zamas, which have formed cooperatives, are contracted as legal personnel to complete hand-lashing and tramming within portions of the mine that are rendered safe by the company.

The cooperatives are remunerated on each ton lashed and trammed to a collection point.

“This method has had a profound effect on several levels. The operation reverts to mining methodologies of several years ago and the cooperatives are paid according to their production levels. Management and control is now relatively easy as the cooperatives are motivated and self-disciplined,” Briggs said in a release to Creamer Media’s Mining Weekly Online.

Bosveld has a long-term target production of between 12 000 oz and 15 000 oz of gold a year.

Source : Mining Weekly