Acacia Mining said on Monday it would stop underground work at its flagship Tanzanian gold mine and cut its production guidance in the face of a confrontation between the industry and the government.
Shares in the FTSE 250 company plummeted 9 percent to 188 pence by 1000 GMT, making it the biggest 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 staff as it coped with a government ban on exports of unprocessed ore, imposed in March to encourage the construction of a local smelter.
The ban had left a build-up of ore inventory and cut revenue as the firm met taxes and other bills, Acacia said in a statement. It had already cut costs, but the company was burning through cash and more action was needed.
"The impact of the ban, in addition to the deterioration of the current operating environment, has led to negative cash flow of approximately $15 million per month at the mine and thus has made ordinary course operations at Bulyanhulu unsustainable," it added in a statement.
Underground activity will cease and the processing of underground ore would stop within four weeks, under a programme "to preserve the viability of our business over the longer term," the company said.
Annual production is expected to be 100,000 ounces lower than the bottom of the previous guidance range of 850,000-900,000 ounces, it added. Acacia has been caught up in sweeping changes to Tanzania's mining industry spearheaded by President John Magufuli, who believes his country is not getting its fair share of profits.
The government also accuses Acacia of evading taxes for years by under-declaring exports - an allegation dismissed by the company which said in July it had been hit with a $190 billion tax bill, equivalent to four times the East African country's annual gross domestic product.
Despite the cash burn, Acacia's chief financial officer Andrew Wray said the company did not need additional financial resources or financial assistance from its Canadian parent Barrick.
"From our perspective we still have reasonable liquidity as on the balance sheet," said Wray said. "We're not contemplating looking beyond Acacia's resources at this time." A combination of scaling back Bulyanhulu, cutting corporate overheads, expansionary drilling at its largest mine North Mara, greenfield exploration activity and gold hedging should return Acacia back into cash generation next year, the miner said.
"Regrettably, the implementation of this programme will lead to a significant reduction in the workforce from the current 1,200 employee and 800 contractor roles," Acacia said.
Acacia first signalled intentions to mothball Bulyanhulu in June. "Acacia has implemented a sensible holding pattern – Bulyanhulu can be restarted without significant effort, but the company moves into a considerably more viable operational and financial position in the meantime," Investec analysts said.
"We expect this to now move the pressure onto the president – if he actually cares." Talks between the Tanzanian government and Barrick Gold are ongoing, Acacia said.