How Acacia Mining's stunning recovery could continue

With its share price having almost doubled since September, financial markets analyst Rajan Dhall looks at Acacia Mining and future prospects.   

Acacia Mining is a UK-listed small-cap miner with interests in Tanzania. It's 64%- owned by international mining giant Barrick Gold, which is in the process of buying Randgold Resources.

There's been interest in Acacia shares since they plunged below 100p in September. Two years earlier they'd been worth over 600p! They've almost doubled in the past few months and the business is now capitalised at around £743 million. This should guarantee promotion to the FTSE 250 index next month. 

However, Acacia is currently locked in a bitter dispute over mining rights and taxes from the Tanzanian assets. Tanzanian officials have banned exports of mineral concentrates and hit Acacia with a $190 billion tax bill!

Recently it has been suggested that Barrick Gold, which spun out the Acacia assets in 2010, may assume full control, but only after the issues with the Tanzanian government are resolved. This seems like a long way from now as only last week Acacia had more charges dumped on them. These included money laundering and corruption, while yesterday a senior executive was arrested and the company wants direct discussions with the Tanzanians and has threatened legal action.

Elsewhere, this morning Acacia said it has signed a binding conditional agreement with its partner, Sarama Resources to terminate the earn-in agreement in respect of the South Houndé Project in south-western Burkina Faso.

Acacia will get $2 million in staged payments as Sarama moves to 100% ownership of the project, then a further $2 million once commercial production begins. It will also receive 5 million warrants for common shares in Sarama, exercisable for five years.

Acacia Mining chart analysis

Looking at the weekly price chart, there has been a great recovery over the past few months. This has correlated with a recovery in the price of gold. However, perhaps the prospect of Barrick coming in to help fix issues with the Tanzanian government is also providing a much-needed lift. 

Risk here to investors is the threat of further legal issues due to the erratic behaviour of the Tanzanian government. 

According to the chart, there is a clear disparity between share buying volume and selling pressure, demonstrated by the on-balance volume (OBV) indicator at the bottom of the chart.  

This indicator tells us that there were far more sellers on the way down than there are buyers on the way up; that buyers have not come in with the same vigour. Given the OBV measures the share price move against the number of contracts traded, the indicator would be near the top if a move higher was supported by significant buying.

Currently, the price has moved higher but an indicator sitting low on the chart suggests that buyers have not returned in numbers. Only if the rally continues and the OBV indicator rises will we know that the market is backing this trend reversal.

Source: TradingView (*) Past performance is not a guide to future performance

Elsewhere, and now the price has broken out of a key resistance area at 157p, any bearishness could trigger a retest of that level. A bounce of the 157p level would indicate to technical analysts some confirmation of a move higher, possibly toward next resistance at 249p. 

In the meantime, investors should be on guard for more news on the talks between the company and Tanzanian officials.

*Horizontal lines on charts represent levels of previous technical support and resistance.