AVM24 Mar 2014 08:48
BONUS TIP: Robert Tyerman: Avocet Mining prepares its fight-back strategy
David Cather, the mining engineer and former AngloGold Ashanti luminary who has been chief executive officer of Avocet Mining (LSE:AVM) since 2012, is about to finalise his new plan to revive the company, which has been a spectacular AIM mining dog. At its core will be a revised strategy for the West African-focused company’s flagship Inata gold mine in Burkina Faso in the wake of a formidable $46 million (£29 million) loss for 2013, when rising costs and a weak gold price saw production down by 12.5 per cent to 118,443 oz. and revenues off 26 per cent to $149.3 million.
He is also expected to make proposals towards repayment of a daunting $15 million advanced by Elliott Associates, a hedge fund owned by US investment group Elliott Management and Avocet’s largest shareholder, with a 28 per cent stake, as well as dealing with other expensive obligations. In addition to cost cutting and efficiency measures, market watchers believe the possible sale of Avocet’s wholly-owned Tri-K gold project in north-eastern Guinea, holding an estimated resource of three million oz., could be under consideration.
Some suggest a realistic price would be around $29 million, if a deal were in the air, and argue this might be welcome to Avocet, which also drew down $29 million not so long ago from a facility at 8 per cent provided by pan-African lender Ecobank to help extricate itself from a costly production hedging commitment.
Avocet, these days chaired by financier Russell Edey, former chairman of the AngloGold Ashanti mining combine, secured promising projects but suffered various mishaps since it began in the 1990s as an Asia-oriented tungsten play. One such was a hedge position over a major chunk of production at $938 an ounce with Australia’s Macquarie Bank, which the company lately bought back with the help of the Ecobank facility -- having previously stirred controversy by paying a dividend with the hedge looming.
At Inata, where Avocet owns 90 per cent and cash costs rose 20 per cent last year to $1,203 an ounce while the realised gold price fell 15.5 per cent to $1,261 an ounce, management seems confident of bringing costs down to $1,000 or lower. This will involve smaller pit shells and a carbon-blinding circuit, to be commissioned this summer, to enable the company to process higher-grade ore as it is mined, rather than stockpiling it.
Avocet, which holds several exploration permits around Inata says it also intends to bring another nearby deposit, Souma with an 800,000-oz. resource estimated so far, into the Inata mine plan and is applying for a Souma mining licence. Cather expresses confidence there are more ounces at both Inata
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