Acacia moves to postpone arbitration in Tanzania

A miner operates his scoop tram at the Barrick Gold/Acacia Mining Bulyanhulu gold mine in Tanzania. Source: Acacia Mining plc.

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Acacia Mining Plc [ACA-LSE] said Wednesday July 17 that it will immediately seek to stay its international arbitration with the Government of Tanzania (GoT). Published reports said this appears to be a conciliatory move by Acacia after the GoT effectively threatened to shut down the company’s North Mara Mine.

The arbitration hearings are currently set to begin this week. However, it is unclear at this point how the GoT will respond to this gesture or whether North Mara will be able to continue to operate beyond the next few days.

The move to stay international arbitration comes after the Tanzanian National Environment Management Council issued a prohibition notice for Acacia’s North Mara Mine tailings storage facility.

These developments also follow on the heels of Barrick Gold Corp.‘s [ABX-TSX; GOLD-NYSE] successful move to secure another extension to make a formal offer to buy the remaining 36% stake in Acacia that it doesn’t already own.

The deadline for a firm bid was extended to July 19, 2019 to allow Barrick time to review an independent valuation of Acacia’s assets in Tanzania.

Barrick has said it is aiming to resolve the ongoing dispute between the Government of Tanzania and Acacia following a concentrate export ban that was implemented in March 2017. Tanzania imposed the export ban after alleging that mining companies had underpaid up to US$50 billion in taxes over the past 20 years. It recommended that an export ban on concentrates remain in place until the back taxes are paid.

The Government of Tanzania subsequently stated that it will not sign any agreements related to the ongoing disputes directly with Acacia (under its current management), a move that prompted Barrick to offer to consolidate its ownership of Acacia in order to facilitate a deal with the GoT. Acacia has three mines in Tanzania, including Bulyanhulu, Buzwagi, and North Mara.

North Mara is estimated to account for over 45% of Acacia’s NAV and is the only one of the three mines that remains in operation.

On May 21, 2019, Barrick announced that it had met with directors and senior management of Acacia and presented a proposal for the consideration by the independent directors of Acacia to acquire all the Acacia shares it doesn’t already own via a share exchange of 0.153 Barrick shares for each share of Acacia Mining.

On June 18, 2019, Barrick said it is prepared to extend the deadline for the announcement of a firm offer from June 18, 2019 until July 9, 2019.

The latest extension to July 19, 2019 allows Barrick to review SRK Consulting (UK) Ltd.’s analysis on Acacia’s share value, which was pegged in the range of 271 British pence to 281 pence. SRK’s evaluation range is above Acacia’s closing price on July 9, 2019 and Barrick’s implied offer price.

Acacia would expect the arbitration hearing to be postponed to provide time for the GoT to complete its settlement discussions with Barrick, Scotiabank said, adding that the arbitration tribunal and GoT will need to agree to the stay. Acacia has indicated that if GoT and Barrick can’t come to terms, then Acacia remains ready and willing to engage directly with GoT.

Barrick has previously stated that the GoT has made it clear that it is not prepared to enter into settlement agreements directly with Acacia. “In Barrick’s view, it is now clear that the relationship of Acacia with the GoT has been so damaged by events that led to the concentrate ban being imposed by the GoT in March 2017 and by the subsequent arbitration proceedings initiated by Acacia against the GoT that is no longer possible for Acacia to continue to function as an independent public company, with substantially all of its value represented by assets in Tanzania,” the gold mining giant said.

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