It's not uncommon for companies operating in the U.S. to complain to complain about burdensome regulations, taxes, and the general "red tape" that gets in the way of running a profitable enterprise.
However, the situation can be far more perilous for multinational firms whose business relies upon exports from a foreign country.
The beleaguered Acacia Mining is a prime example of the conflicts that can arise between a private company and a state government.
A Lethal Tax Bill
Acacia Mining PLC operates in the African nation of Tanzania. Like many London-based gold miners (who are much bigger!) that do their actual digging overseas, the company's shares are listed on the FTSE 100 stock index.
The Tanzanian government is claiming that the company has been "underdeclaring" its export revenues by a wide margin as a form of tax evasion. Similar disputes have encumbered miners in Indonesia and other Africa countries in the past. Yet the most startling part of the story is the size of the tax bill Tanzania is trying to slap on Acacia: $40 billion, plus an additional $150 billion in penalties and fees!
For some perspective, that's the equivalent value of over 100 years of Acacia Mining's gold production (according to Bloomberg News). The mind-boggling tax liability—if it sticks, legally—would surely bankrupt the company.
Unfortunately for the firm, a large segment of its shareholders aren't waiting around to see what happens with the tax evasion allegation. They have punished the company already: shares of Acacia Mining (ACA) have lost nearly half of their value in just the past three trading sessions. Shares were down 6.6% on Wednesday after posting double-digit percentage losses earlier in the week. Meanwhile, many other gold miners had upbeat performances during the second quarter.
Overall, ACA is down nearly 60% year-to-date but still trades near 160 pence (GBX). Its majority stakeholder is the mining giant Barrick Gold (ABX). Acacia operates both open-pit and underground mines in Tanzania and is actively engaged in exploration projects around Africa. It remains to be seen how many investors will remain on board with the miner through this tax fight, or if it will collapse under a wave of selling before the issue has even been resolved.
The opinions and forecasts herein are provided solely for informational purposes, and should not be used or construed as an offer, solicitation, or recommendation to buy or sell any product.