Failing to recover from an 11% drop in September, shares of Barrick Gold (NYSE: ABX) fell 10% last month according to S&P Global Market Intelligence. Although there were other factors that surely affected the company's stock, it was news regarding Barrick's operations in Africa that stoked investors' fears the most.
When considering the performance of a gold-mining stock, it's always worthwhile to take a step back and consider the price of gold to which gold stocks are closely correlated. The SPDR Gold Trust ETF (NYSEMKT: GLD), for example, fell more than 1% through the month. But Barrick's precipitous decline isn't solely attributable to the dip in the yellow stuff.
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Of greater concern to investors was news pertaining to Acacia Mining, in which Barrick retains 64% ownership. Operating in Tanzania, Acacia Mining has been struggling since the Tanzanian government imposed a gold and copper concentrate export ban in March. Last month, Acacia's management reported that the mineral ban had adversely affected production approximately 35%; moreover, the company revealed that it had a buildup of approximately $265 million of concentrate inventory.
Barrick, last month, announced that it had taken a significant step toward resolving the dispute with the Tanzania government. Splitting equally the "economic benefits" of Acacia's future operations with the government of Tanzania, Barrick reported that Acacia will grant a 16% interest in each of its three mines to the Tanzanian government. In addition, Acacia will provide a $300 million payment to settle tax disputes. Barrick foresees finalizing the proposed agreement, which is subject to Acacia's review and approval, in the first half of 2018.
During its third-quarter earnings report, Barrick reported that it provided a $172 million payment of the $300 million tax provision to the Tanzanian government. According to management, the tax provision and the concentrate export ban were two factors that contributed to the company's net loss of $11 million in the third quarter.
Although the proposed agreement with the Tanzanian government indicates progress toward ending the discord, unresolved issues remain. For one, it's unclear whether Barrick will have to make additional payments. In Barrick's press release, management noted that the $300 million payment was "a gesture of good faith." Over the summer, though, the Tanzanian government had presented Acacia with a bill of $190 billion in fines and allegedly unpaid taxes from two of its mines, according to mining.com. Furthermore, it's unclear when the export ban will be lifted.
Investors dislike many things, but one of their greatest fears is uncertainty. And the uncertainty of how much -- if not all -- of a $190 billion tax bill Barrick will be faced with is clearly enough to remove some luster from the stock. Moving forward, investors should certainly exercise caution and keep a sharp eye on how the narrative with the Tanzanian government unfolds.
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