11 February 2019

Results for the 12 months ended 31 December 2018 (Unaudited)

Based on IFRS and expressed in US Dollars (US$)

Acacia Mining plc ("Acacia'') reports full year 2018 results

"I am pleased to report that during 2018 we successfully stabilised the business with our focus on operational performance across all three mines. We achieved gold production of 521,980 ounces for the year, substantially ahead of our initial 2018 production guidance of 435,000 to 475,000 ounces, and we maintained a strong cost discipline achieving an all-in sustaining cost of US$905 per ounce sold, well below the full year guidance range of US$935 to US$985 per ounce," said Peter Geleta, Interim CEO of Acacia. "This would not have been possible without the sheer resilience, hard work and determination of all of our people and I would like to thank each and every one of them for their contributions to the Acacia Group, particularly given the continued challenging operating environment this year. We were able to return the Company to free cash flow generation in the second quarter of the year, a trend which was sustained during the second half, ending the year with a net cash position of US$88 million. At the same time, we continued to demonstrate our long-term commitment to Tanzania and its mining industry, contributing over US$127 million in taxes and royalties, spending over US$273 million with local suppliers in Tanzania, achieving a rate of 97% local employees and investing US$8.8 million in our Sustainable Communities strategy to improve the lives of those living near our mine sites. Looking ahead to 2019 we expect production of 500,000-550,000 ounces at an all-in sustaining cost of US$860-920 per ounce with cash costs of US$665-710 per ounce."

Continued Peter Geleta, "We are also highly encouraged by the provisional outcomes of the Bulyanhulu optimisation study, with a focus on achieving higher margin ounces in line with the Company's focus on free cash generation. The provisional outcomes support a potential life of mine of 18 years and delivery of an average steady state production rate of 300,000 to 350,000 ounces per year at an AISC of US$700 to US$750 per ounce assuming a successful resumption of underground mining and the ability to economically produce and sell gold concentrates. To that end, we continue to provide support to Barrick in its discussions with the Government of Tanzania and believe that a negotiated resolution is in the best interests of all stakeholders. "

Operational Highlights

  • 2018 gold production of 521,980 ounces, ahead of initial guidance of 435,000-475,000 ounces for the year due to the strong operating performance at all three mines

  • Gold sales of 520,380 ounces, broadly in line with production for the year

  • 2018 AISC1 of US$905 per ounce sold was below the full year guidance range of US$935-985 per ounce, driven by the higher production base, lower capital allocation and strong cost discipline

  • Bulyanhulu optimisation study has progressed well, with provisional outcomes supporting a potential 18 years life of mine at steady state production of 300,000-350,000 ounces per year at an AISC of US$700-750 per ounce sold, upon further capital investment of around US$120-140 million, including capital, drilling, development and rehabilitation costs over a 12-18 month period, successful resumption of underground mining operations and a return to full production and sale of gold in both doré and concentrates. A final decision to resume underground mining operations will be considered by the Board at the appropriate time

Financial Highlights

  • Revenue of US$664 million, 12% lower than 2017, with the higher average realised gold price offset by the lower sales base

  • EBITDA1 of US$226 million, 12% down on 2017 mainly due to the lower revenue, partly offset by the US$45 million gain on the sale of a non-core royalty, with adjusted EBITDA1 of US$183 million, 41% lower than 2017 excluding the sale of the non-core royalty

  • Net earnings of US$59 million compared to a net loss of US$707 million in 2017, with adjusted net earnings of US$44 million (US10.8 cents per share) compared to US$146 million in 2017 (US35.7 cents per share) mainly due to lower revenue

  • Cash balance increased by US$50 million during 2018 to US$130 million due to the sale of a non-core royalty combined with strong operational performance, with net cash balance of US$88 million at the end of 2018

  • Contributed US$127 million of taxes and royalties to Tanzania and spent over US$273 million with local suppliers in Tanzania

Three months ended

Twelve months ended

31 December

31 December

(Unaudited)

Gold production (ounces) Gold sold (ounces) Cash cost (US$/ounce)1 AISC (US$/ounce)1

Net average realised gold price (US$/ounce)1 (in US$'000)

Revenue EBITDA 1 Adjusted EBITDA1

Net earnings/(loss) (785,975)

Basic earnings/(loss) per share (EPS) (cents) (191.7)

Adjusted net earnings1 45,799

Adjusted net earnings per share (AEPS) (cents)1 11.2

Cash generated from/(utilised in) operating activities (1,503)

Capital expenditure2 21,301

Cash balance 80,513

Total borrowings 71,000

2017

521,980

767,883

520,380

592,861

680

587

905

875

1,272

1,260

663,789

751,515

225,924

257,180

183,376

310,527

16,139

58,866

(707,394)

3.9

14.4

(172.5)

18,917

44,286

146,218

4.6

10.8

35.7

33,635

126,133

(22,972)

18,217

92,504

149,376

130,195

130,195

80,513

42,600

42,600

71,000

2018

2017

2018

130,581 148,477

133,460 147,636

651 581

857 779

1,228 1,296

164,765 189,249

47,792 45,463

47,214 67,613

  • 1 These are non-IFRS measures. Refer to page 35 for definitions

  • 2 Excludes non-cash capital adjustments (mainly reclamation asset adjustments) and includes land purchases recognised as long term prepayments

CEO Statement

During 2018, we successfully stabilised the business, delivering a strong operational performance across all three mines and returning the Company to free cash flow generation in the second quarter which was then sustained throughout the second half of the year. Despite an increasingly challenging operating environment, as announced previously, the Company was able to achieve gold production of 521,980 ounces in 2018, substantially ahead of the initial production guidance of 435,000 to 475,000 ounces for the year. We maintained a strong cost discipline across the group achieving an all-in sustaining cost of US$905 per ounce sold, well below the full year guidance range of US$935 to US$985 per ounce. At the same time our cash balance increased by US$50 million to US$130 million due to the strong operational performance and the sale of a non-core royalty for US$45 million to end the year with a net cash balance of US$88 million. This compares favourably to 2017 when the cash balance fell from US$318 million to US$81 million at year-end, due to lost revenue resulting from the concentrate ban and a gross build-up of VAT receivables of US$91 million. These achievements are a testament to the sheer resilience, hard work and determination of all of our people within the Acacia Group.

Our North Mara mine continued to perform well, achieving full year production of 336,055 gold ounces, 4% higher than 2017, and benefited from the higher grade ore received from the eastern part of the Nyabirama open pit. AISC of US$866 per ounce sold was 8% higher than 2017, primarily due to higher cash costs and sustaining capital costs. We achieved full year gold production at our Buzwagi mine of 145,440 ounces which, although 46% lower than in 2017, was ahead of expectations due to the extended mining of the final cut of the higher grade ore at the bottom of the pit and switchbacks, combined with the better than expected performance of the processing plant with improved throughput and recoveries. AISC per ounce sold of US$977 was 46% higher than 2017, mainly driven by the transition to processing lower grade stockpiles which drove higher cash costs. Our Bulyanhulu mine remained on reduced operations throughout the year but was able to achieve gold production of 40,485 ounces from the retreatment of tailings. AISC per ounce sold of US$786 was 43% lower than 2017 driven by reduced operating and capital spend, partly offset by the lower production base.

The operating environment became increasingly challenging for Acacia last year, culminating in October 2018 when criminal charges were brought by the Government of Tanzania ("GoT") against the Group's operating subsidiaries in Tanzania and three current Acacia employees and a former employee. Each of the companies and the three current employees and the former employee deny the allegations and are defending all charges. The Company notes with concern that three of those charged continue to be held in jail under non-bailable offences. Acacia continues to await a detailed proposal agreed in principle between Barrick and the GoT for a comprehensive resolution of Acacia's disputes with the GoT.

During 2018, Acacia paid a total of US$127 million in taxes and royalties in our host country of Tanzania. We also continued to invest in our Sustainable Communities Strategy with the aim of contributing to the development of "sustainable communities" around our mines in order that they enjoy a thriving local economy, have access to social infrastructure and live in a safe and inclusive environment in line with the Tanzania Development Vision 2025 as well as the United Nations' Sustainable Development Goals. To this end, during the year Acacia continued its US$1 million investment in the Bugarama Health Centre near Bulyanhulu, while construction began on a 55-kilometre pipeline to carry water from Lake Victoria to 100,000 residents in the Lake Zone which is due to be completed in mid-2019. Construction of the Nyamwaga Health Centre at North Mara was completed in April while, at Buzwagi, we also began the development and implementation of a three-year US$1.1 million agricultural improvement project in partnership with Farm Concern International ("FCI").

One of the key focus areas at Acacia over the last five years has been the implementation of our Tanzanian localisation strategy. In 2018 we progressed a number of strategies within our Supply Chain function with a view to further increasing our annual spend with Tanzanian-owned businesses to reach the goal of US$140 million by early 2019. We have also continued to focus on reducing the number of international employees and contractors within our business and ensuring that our Tanzanian assets are increasingly led and operated by Tanzanian employees.

Looking ahead to 2019, we are highly encouraged by the provisional outcomes of the Bulyanhulu optimisation study which is due to be fully completed by the end of the first quarter of the year. Assuming the ability to economically produce and sell gold in concentrate and a successful resumption of underground mining operations, the outcomes of the study indicate that further capital investment of around US$120 to US$140 million could deliver an expected life of mine of 18 years with an average steady state production rate of 300,000 to 350,000 ounces per year at an AISC of US$700 to US$750 per ounce. This is subject to further detailed work on cost estimates and a project schedule, while a final decision to resume underground mining operations and make necessary further capital investments would be dependent on achieving a comprehensive settlement with the GoT. We anticipate a pre-production start-up period of 12-18 months until first gold production followed by approximately two years to ramp up to full production from the underground mine.

The Group's Mineral Reserves decreased from 7.5Moz to 5.2Moz of contained gold during the year with exclusive M&I Mineral Resources decreasing from 7.7Moz to 5.6Moz and Inferred Mineral Resources decreasing from 12.2Moz to 10.1Moz. This was primarily driven by the provisional outcomes of the optimisation study conducted at Bulyanhulu in conjunction with a comprehensive review of the geological and resource models including applying tighter drill spacings and enhanced stope optimisation techniques. A focused drilling programme has been designed in conjunction with the optimisation study, targeting the higher value zones and planned to commence after a decision to resume underground mining operations. Given our historic conversion rate, we have a high level of confidence that the planned drilling programme will continue to convert Mineral Resources to Mineral Reserves and mineralised inventory into Mineral Resources.

Safety

Safety performance during 2018 demonstrated significant progress on the previous year. The Company recorded a Group-wide Total Recordable Injury Frequency Rate ('TRIFR') of 0.19, compared to 0.45 in 2017, a 58% improvement. There was a significant reduction in the number of recordable injuries from 45 in 2017 to 13 in 2018. The number of Lost Time Injuries (LTI) also decreased from 18 in 2017 to four in 2018, a 78% improvement, while the severity of injuries decreased by 46%.

However, regrettably, on 11 June 2018, Sadock Crispin Tindahenile, an operator for one of our contractors at North Mara, passed away as a result of an accident which involved a reversing vehicle at the Gokona deposit. We completed an investigation into the incident and have implemented the relevant recommendations at all our operations. We continue to target zero injuries and remain committed to every person going home safely every day.

Outlook

Our guidance for 2019 assumes a continuation of the current operating environment with Bulyanhulu remaining on reduced operations ('ROP'), Buzwagi continuing to process stockpiles until early 2021 and North Mara fully operational. On this basis, we expect 2019 production of 500,000-550,000, with production ramping up slightly in the second half of the year as North Mara comes closer to the main ore zone at the Nyabirama open pit, at an all-in sustaining cost of US$860-920 per ounce with cash costs of US$665-710 per ounce. These are all broadly in line with 2018 levels. All gold produced in 2019 is expected to be in doré form.

At North Mara we expect production to be around 10% higher than 2018 at approximately 370,000 ounces. The Nyabirama open pit is expected to deliver increased ore volumes at high grades as we gain access to the main ore zone in cut 4 while we also expect positive grade reconciliations at Gokona underground. AISC is expected to be approximately 10% lower than 2018 at around US$790 per ounce sold, driven by the higher production base and lower cash costs as a result of the higher grades in the open pit, offset by an increase insustaining capital expenditure following the deferral of 2018 capital projects which are now expected to be completed in 2019. We are also undertaking a pre-feasibility study for an underground mine beneath the Nyabirama open pit. This is expected to be completed in mid-2019.

We expect Bulyanhulu to remain on reduced operations and to continue to reprocess tailings at a monthly reduced operations cost of approximately US$2 million. These costs are excluded from AISC on the principle that they are not representative of sustaining operational costs. Acacia is finalising an optimisation study which is designed to ensure that when underground mining operations can resume, the mine will operate in an optimised manner. The current stage of the study is expected to be completed by the end of Q1 2019. The mine will continue with the reprocessing of tailings through 2019 at an annual production rate of approximately 35,000 ounces and an AISC of approximately US$790 per ounce, which will partially offset the cost of reduced operations.

Buzwagi will continue to process stockpiles through 2019 and until mid-2021. Following completion of the mining of the final cut at the bottom of the pit in Q1 2019, the mill feed will be exclusively from stockpiles. Production for 2019 is expected to total approximately 115,000 ounces. As a result of the lower production and release of non-cash high cost inventory of approximately US$285 per ounce, reported AISC in 2019 is expected to increase to approximately US$1,140 per ounce sold.

We expect to see Group capital expenditure in 2019 fall to approximately US$75-85 million compared to US$93 million in 2018. This will be comprised of approximately US$65 million of capitalised development costs and sustaining capital, primarily at North Mara and US$15 million of expansion capital. Capital expenditure at North Mara is expected to be notably lower than 2018 due to the cessation of deferred stripping as a result of a lower strip ratio from the increased ore volumes expected to be mined in the Nyabirama open pit, partly offset by higher sustaining capital expenditure following significant deferrals during 2018, increased capitalised underground development costs and additions to expansion capital which focuses on the Gokona and Nyabirama in-fill and extensional drilling programmes combined with the Nyabirama pre-feasibility study. Bulyanhulu's total capital expenditure incorporates critical sustaining capital requirements for the TSF retreatment operations and water management pond upgrades as well as expansion capital for the optimisation study costs and asset integrity work on the main process plant. Buzwagi is expected to incur limited sustaining capital during 2019 as it nears the end of its mine life.

Following the exploration portfolio review carried out in 2018, we expect a reduced exploration budget of approximately US$10 million in 2019 compared to US$13 million in 2018. In line with the results of the portfolio review, we expect to focus this spend on our targets in West Africa and with further work on the Liranda scoping study which will mainly focus on a review of the mining methods in Kenya.

We are committed to continuing our focus on strong cost discipline in 2019. To this end we are targeting corporate administration costs in the region of US$18-20 million for the year ahead compared to US$24 million in 2018. We are also expecting to incur legal costs of approximately US$18-22 million relating to the ongoing disputes with the GoT, Barrick negotiations, historical tax disputes and arbitration proceedings compared to legal costs of US$28 million in 2018.

Update on Discussions between Barrick and the Government of Tanzania ("GoT")

Barrick and the GoT continued their discussions in 2018 aimed at agreeing and documenting the details of the proposed framework they announced in 2017. Barrick announced on 25 June 2018 that it was no longer providing a timetable for the completion of its discussions with the GoT. Acacia has continued to provide support to Barrick in its discussions with the GoT, but has not been directly involved in those discussions to date. Acacia has not yet received a detailed proposal agreed in principle between Barrick and the GoT for a comprehensive resolution of Acacia's disputes with the GoT. Acacia continues to engage with Barrick to understand and support Barrick's plans for the next steps in its direct discussions with the GoT. On 24 September 2018, Barrick and Randgold Resources ("Randgold") announced their intention to merge and, following successful shareholder votes, the merger completed on 2 January 2019 with Randgold's CEO, Mark Bristow, becoming CEO of the new Barrick group.

Any proposal received by Acacia in the future for a comprehensive resolution of the Company's disputes with the GoT that might be agreed in principle between Barrick and the GoT as a result of any such future discussions will be subject to review by the Independent Committee of the Acacia Board of Directors.

Operating Environment

In 2018, and particularly during the final quarter of the year, the operating environment became increasingly challenging for Acacia with criminal charges brought by the GoT against three group companies as well as three current Acacia employees and a former employee, three of whom continue to be held under non-bailable offences.

On 10 October 2018, one of the Group's employees in Tanzania, a South African national, was charged by the Tanzanian Prevention and Combating of Corruption Bureau ("PCCB") with an offence under the Tanzanian Prevention and Combating of Corruption Act. The employee pleaded not guilty and was granted bail. The charges related to the historical activities of a Land Task Force ("LTF") conceived and agreed between the GoT and North Mara Gold Mine Limited ("NMGML") in 2012 to create a transparent, safe, fair and inclusive process for valuing land that might be purchased by agreement around the North Mara mine, and which operated between 2013 and 2015. The allegations made by the PCCB are denied and the charges are being defended by the employee.

On 17 October 2018 a current and a former employee of the Company's Tanzanian businesses, together with three individual companies, were charged by the PCCB with a number of different offences, including breaches of the Tanzanian Anti-Money Laundering Act. A total of 39 charges were brought, either against the current and former employee and/or against one or more of the Company's operating subsidiaries in Tanzania, Pangea Minerals Limited ("PML"), Bulyanhulu Gold Mine Limited ("BGML") and NMGML, as well as a Canadian company, Explorations Minieres du Nord Ltd. On 23 October 2018, a senior manager of one of the Company's Tanzanian businesses, a Tanzanian national, was also arrested and charged by the PCCB. The senior manager was charged as an additional accused to some (but not all) of the 39 criminal charges brought by the PCCB on 17 October. The Company notes with concern that under Tanzanian law, offences under the Anti-Money Laundering Act are not bailable, and, accordingly, the accused have not been released on bail.

The majority of the 39 charges and allegations brought by the PCCB on 17 October appear to relate to the historical structuring and financing of PML, BGML and NMGML dating back as far as 2008, prior to the creation of the Acacia Group. The charges are wide ranging and include: tax evasion; conspiracy; a charge under organised crime legislation; forgery; money laundering and corruption. The great majority of the allegations in the criminal proceedings by the GoT relate to matters already being considered in the arbitrations commenced by BGML and PML in July 2017 regarding their disputes with the GoT under their respective Mineral Development Agreements, which are progressing towards a hearing and in which the GoT are fully participating. The criminal allegations and charges against the group and current and former employees are denied and are being defended.

In addition, on 17 December 2018 the Company issued a news release noting media speculation claiming a UK Serious Fraud Office ("SFO") investigation into the Company. The Company confirmed that it was not aware that the SFO was investigating the Company, but that the Company had been in contact with the SFO about the allegations of corrupt activities which are the subject of criminal proceedings in Tanzania. This position remains unchanged. The Company has provided information to the SFO and will continue to do so, but has not been notified that the SFO has commenced a criminal investigation.

Post year-end on 10 January 2019, the North Mara mine received an Environmental Protection Order ("EPO") from the National Environment Management Council ("NEMC") requiring payment of a fine of US$130,000 in relation to alleged breaches of environmental regulations in Tanzania. NEMC's reported findings allege discharges of a hazardous substance at the North Mara mine. The Mine has still not received any supporting reports, findings or testing data in relation to the matters set out in the EPO and continues to assess the technical basis of the alleged non-compliances. The Mine is also awaiting NEMC's detailed reports, findings and testing data in relation to the allegations but is not aware of any such discharge. Acacia believes that the reports and allegations relate to a longstanding seepage issue at the base of the TSF, which was already well known to NEMC and the GoT. This seepage remains managed by pumps which return the water to the TSF and it is, therefore, contained on the mine site, does not flow into the surrounding environment or present a risk of contamination to any public water source. Pending further factual clarification from the GOT and NEMC, however, and to dispose of all regulatory or other legal action, NMGML has decided to pay the fine.

At the same time, the GoT also issued a directive to the North Mara mine to construct a new Tailings Storage Facility ("TSF"). The Mine had already recognised the need for additional tailings management and storage capacity to meet its life of mine plans and, while the Company does not yet have detailed or fully costed plans or project schedules for the construction of a new facility, Acacia expects that a new TSF is likely to be an economically viable alternative to further expansions of the existing TSF at North Mara.

International Arbitration

A negotiated resolution remains the preferred outcome to the Company's on-going disputes with the GoT. In 2017, Bulyanhulu Gold Mine Limited ("BGML"), the owner and operator of the Bulyanhulu mine, and Pangea Minerals Limited ("PML"), the owner and operator of the Buzwagi mine each referred their current disputes with the GoT to arbitration in accordance with the dispute resolution processes agreed by the GoT in its Mine Development Agreements with BGML and PML. The commencement of arbitration by BGML and PML was necessary to protect their respective rights and interests and to promote a sustainable resolution of disputes.

These contractual arbitration processes have continued through 2018, with a number of necessary procedural steps and with the GoT fully participating, including service of its defence in October 2018. Most of the criminal charges brought by the Government against Group companies and the Group's current and former employees to date relate to matters which the Government has sought to

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Acacia Mining plc published this content on 11 February 2019 and is solely responsible for the information contained herein. Distributed by Public, unedited and unaltered, on 11 February 2019 07:44:04 UTC