The economy of Tanzania is faces destabilization in the wake of dropping commodity prices.
The fall has affected the gold mining sector, where one of the top mining companies in the country has experienced a 30 per cent profit fall; this in turn indicates the reduced earnings in the gold production.
Acacia Mining Plc, which is one of the big gold mining companies in the country, also reported a fall in profit by 31 per cent in 2015. The company has attributed the drop in core profit to the fall in gold prices, which has experienced a declined by about 10 per cent in 2015.
The firm’s chief executive Brad Gordon said that earnings before interest, tax, depreciation and amortisation for 2015 fell to $175 million from $252.7 million the previous year, while its revenue fell to $868.1 million from $930.2 million.
This Wednesday, the firm made an announcement that it had entered into a hedging agreement in relation to the amount of the gold to be produced at the short-life Buzwagi mine between 2016 and 2017, which will see it mitigate cash flow risks associated with a potential fall in global gold prices.
Mr. Gordon said the company was taking a cautious step in locking in a gold price in excess of its planning price at Buzwagi, which was currently in harvest mode.
“The mine generates the majority of our cash flow over the next two years and by putting in place these hedging measures, we reduce the gold price risk, while maintaining some exposure to a future upside,” said Mr Gordon, adding that Acacia will remain unhedged at its long-life assets, Bulyanhulu and North Mara.
The drops in gold prices will have enormous effect in economy of Tanzania, staggering it growth.
This drop will have an effect in foreign exchange earnings as gold has been one of the key sources of foreign exchange earning in the country.