AVM.L Regulatory News (AVM)

Avocet Mining PLC

2016 Full Year Results

Avocet Mining PLC, ("Avocet" or "the Company"), the West African focused gold mining and exploration company, has today published its Annual Report and Accounts for the year ended 31 December 2016 on its website -www.avocetmining.com  

In compliance with article 6.3.5 of the Disclosure guidance and Transparency Rules, the Company publishes today the 2016 Annual Report.

The Company has requested the restoration of trading of its shares, which it expects shortly.

FOR FURTHER INFORMATION PLEASE CONTACT

NOTES TO EDITORS

Avocet Mining PLC ("Avocet" or the "Company") is an unhedged gold mining and exploration company listed on the London Stock Exchange (ticker: AVM.L) and the Oslo Børs (ticker: AVM.OL). The Company's principal activities are gold mining and exploration in West Africa.

In Burkina Faso the Company owns 90 per cent of the Inata Gold Mine. The Inata Gold Mine poured its first gold in December 2009 and produced 72,485 ounces of gold in 2016. Other assets in Burkina Faso include five exploration permits surrounding the Inata Gold Mine in the broader Bélahouro region. The most advanced of these projects is Souma, some 20 kilometers from the Inata Gold Mine.

The Company also holds an interest in the Tri-K project in Guinea. On 22 May 2017, the Company announced that it had completed its agreement to dispose of 40 per cent of the project to Managem, a Moroccan group listed on the Casablanca stock exchange, which will increase upon completion of a bankable feasibility study for a CIL plant at the site, the incurring of expenditures of at least US$10 million, and the enlarging of the ore reserve, to 70 per cent (in the event of an increase of the reserve to 1 million ounce or more) or 60 per cent (if less than 1 million ounces).

Avocet Mining PLC

Annual Report and Accounts

2016

Contents

1 About us

2 Introduction

3 Chairman's statement

4 Chief Executive's statement

7 Financial review

11 Business model and Strategy

12 Risk management and internal controls

14 Principal risks and uncertainties

16 Safety and health

18 Sustainable development

21 Inata Gold Mine

21 Tri-K

22 Ore Reserves and Mineral Resources

25 Board of Directors

26 Report of the Directors

30 Report on corporate governance

36 Remuneration report

46 Independent auditor's report to the members of Avocet Mining PLC

50 Consolidated income statement

51 Consolidated statement of comprehensive income

52 Consolidated statement of financial position

53 Consolidated statement of changes in equity

54 Consolidated cash flow statement

55 Notes to the financial statements

89 Independent auditor's report to the members of Avocet Mining PLC (Company)

91 Company balance sheet

92 Company statement of changes in equity

93 Notes to the Company financial statements

100 Shareholder information

103 Directors and advisers

About us

Avocet Mining PLC ('Avocet' or 'the Company') is a West African gold mining and exploration Company. The Company operates the Inata gold mine in Burkina Faso and has an interest in exploration projects in Burkina Faso and Guinea.

Inata Gold Mine, Burkina Faso

The Inata gold mine is an open pit gold mine located in northern Burkina Faso and has been operational since Avocet completed construction in late 2009.

The Mineral Resource estimate within the Bélahouro group of exploration licences, including the Inata and Souma projects, comprises 4.1 million ounces at a grade of 1.68 g/t Au and includes an Ore Reserve of 0.34 million ounces at a grade of 1.84 g/t Au. Production in 2016 was 72,485 ounces.

The Souma project, which is located approximately 20 kilometres east of the Inata processing plant, is the subject of a search for financing which aims to progress the project up the development curve with the objective of submitting a Mining Licence application as soon as a Feasibility Study has been completed. Mineralisation at Souma is quartz hosted and does not have the same carbonaceous ore types as seen at Inata.

Mineralisation along both the Inata and Souma trends remains open along strike and at depth and it is anticipated that further exploration at both projects will add additional ounces to the Inata life of mine plan.

Tri-K, Guinea

Tri-K received its exploitation permit in March 2015 from the Guinea Government following the submission of a Feasibility Study in October 2013.

In October 2016, the Company announced that it had entered into a Joint Venture agreement over the Tri-K project with Managem SA ("Managem"), a Moroccan mining group. Under the terms of this agreement, Managem has received a 40% interest in the project, which will increase to 70% upon the successful completion of a US$10 million work programme to increase the mineral reserve to 1 million ounces and to produce a bankable feasibility study for a Carbon-in-leach ('CIL') project.

STRATEGIC REPORT

The Directors present their Strategic Report on the Group for the year ended 31 December 2016. 

The Strategic Report is a requirement of the Companies Act for the year ended December 2016. The report provides a fair review of the Company, its performance and the challenges it faces.

The review of the business and operations, including key factors likely to affect the future development of the business, are included in the Chairman's statement and Chief Executive's statement on page 3 - 4 and pages 5 to 7 respectively and include discussions on the key non-financial performance indicators (including tonnes of waste and ore mined and milled, grades, recoveries, gold produced and Lost Time Injuries). These are also analysed on page 22-25 under Review of Operations.

The financial review on pages 8 to 11 includes an analysis of the development and performance of the business of the Company during the 2016 financial year and the position of the Company at year end. This section includes an analysis of the key financial performance indicators in the year (revenues, gross profit, cash costs per ounce, profit before tax, taxation, EBITDA, operating cashflows, depreciation and capex).

The Group's Business Plan and Strategy are outlined on page 12, while risk management and internal controls within the business (including the Company's viability statement) are outlined on pages 12 to 14. In addition, the key risks and uncertainties faced by the business are set out on pages 15 to 16.

An outline of the Company's safety and health performance is summarised on pages 17 to 18. Information concerning environmental matters, the Company's employees and social, community and human rights issues are discussed in the sustainable development section on pages 19 to 21.

The Strategic Report, as set out on pages 3 to 21, has been approved by the Board.

By order of the Board

Yolanda Bolleurs

Chief Financial Officer and Company Secretary

CHAIRMAN'S STATEMENT

After a turbulent few years, during which the mining sector as a whole experienced a protracted bear market, there were signs at the start of 2016 that the economic environment for gold mining companies might be on the turn. By early March 2016, the gold price had risen US$200 per ounce compared to its closing price in 2015 of US$1,062 and in the course of the year, a number of transactions were announced that signalled the re-emergence of consolidation among junior players in West Africa, which had almost dried up since 2013.

Both of these factors were important for Avocet's strategic priorities in 2016.

Developments in 2016

Avocet Mining PLC

At the corporate level, the loan of US$27.4 million as per 6 June 2017 from Manchester Securities Corp (an affiliate of Elliott Management ("Elliott"), the Company's largest shareholder) remains an unsustainable debt burden and will need to be renegotiated in order to put the balance sheet of the Group on a more stable footing. These discussions will remain a key priority for Avocet.

Inata

At Inata, the focus was and remains, the generation of cash in order to reduce the mine's indebtedness, while exploring refinancing opportunities that will allow additional production to be added to the mine life from satellite deposits. The 2016 average cash cost was US$966 per ounce and although considerable efforts have been put into reducing the mine's cost base, the ability of the mine to generate cash to reduce debts at US$1,200 gold prices is clearly considerably easier than at US$1,100.

During the first half of 2016, production at Inata enabled some US$12.1 million of financial debts to be repaid. In the second half of the year, production was impacted first by the fact that ore types being processed were, as expected, more preg-robbing in nature, which reduced recovery levels and second by the forced shutdown of the mine for four weeks in October-November following the seizure of gold shipments arising out of a legal dispute with ex-workers.

Tri-K project

With regard to the Company's Tri-K project in Guinea, the focus in 2016 was to safeguard the asset by attracting investment and negotiating revised timelines in respect of the Mining and Exploration Permits, both of which, without governmental support, might have been withdrawn in the year without compensation.

In October 2016, a Joint Venture agreement was finally entered into with a preferred partner, Managem, who will obtain an interest of 70 per cent in the project in return for an initial payment of US$4 million and the completion of a US$10 million work programme aimed at producing a new Bankable Feasibility Study ('BFS') for a Carbon-in-Leach ('CIL) operation with a reserve of at least 1 million ounces.

The Company believes the partnership with Managem to be a fruitful one for all parties. The group, which is listed on the Casablanca stock exchange, has a proven record of bringing mines into production in West Africa (including Guinea) and thanks to strong national ties between Morocco and Guinea has been able to obtain the support of the Guinean government for the proposed partnership, including, crucially, the renegotiation of time lines for the Mining Permits and renewals of Exploration Licences, as well as other fiscal and operating concessions.

The scale and economics of the Tri-K project will naturally be established more clearly in the BFS, which we expect to be completed in the first part of 2018. However the deposit remains open at strike and at depth and anomalies in the surrounding district point to the possibility of significant, if unproven, upside to the known resource. The Siguiri basin, in which the Tri-K project sits, has hosted large gold projects, including the Siguiri mine owned by AngloGold Ashanti as well as Nordgold's Lefa project, both of which have been considerably larger than the initial reserve targeted for Tri-K.

Developments in 2017

Avocet Mining PLC

On 3 April 2017, Boudewijn Wentink was appointed as Chief Executive Officer, with Yolanda Bolleurs as Chief Financial Officer. Both Boudewijn and Yolanda have considerable experience in restructuring and refinancing matters, which the Board believe to be key to putting the Company onto a more solid financial platform going forward. David Cather became Technical Director, in order to provide oversight and guidance on technical and operating matters, while Jim Wynn became, from 1 May 2017, a Non-executive Director.

On behalf of the Board, I wish to extend a welcome to Boudewijn and Yolanda, while thanking David and Jim for their contributions over the past few years.

Inata

New management has started discussions with trade creditors, banks and government to stabilise Inata and to restructure its debts.

In this process a key step was achieved on 31 May 2017: Inata's major trade and financial creditors (together representing approximately seventy per cent of Inata's debt) have agreed the terms of a standstill agreement with management for the duration of two months as strategic options are being explored in connection with a financial, debt and corporate restructuring of the company.

All stakeholders (including financial creditors, shareholders, government, key operational stakeholders and employees) will need to contribute to achieve a consensual restructuring solution, however, inevitably, there can be no guarantee that these negotiations will prove successful.

Tri-K project

Avocet received the decree signed by the Guinean President ratifying the Mining Convention for the Tri-K project in May. Following this, the so-called 'First Closing' was completed on 22 May 2017 and the Company has received from Managem US$ 4 million for 40 per cent of its interest in the project.

This marks the commencement of the US$10 million work programme, whose aim is to complete a Bankable Feasibility Study ('BFS') for a Carbon-in-Leach ('CIL') project at the site, with a reserve of at least 1 million ounces. Once this work programme and its objectives are completed, Avocet will then transfer an additional 30% of its interest (or 20%, if the reserve defined is less than 1 million ounces) to Managem, who will then take control of the operation and construction.

The coming months will be critical for the Company. The challenges facing the Company are considerable and readers should be aware of the risks to the future of the Inata mine, as well as the wider group, which are set out in the Risk Management section, as well as the Viability Statement.

Russell Edey

Chairman

CHIEF EXECUTIVE'S STATEMENT

2016 Highlights

· 72,485 ounces produced at Inata at a cash cost of US$966 per ounce

· Cash costs at Inata reduced compared with 2015 in spite of ongoing operational challenges

· Two Lost Time Injury ('LTI') incidents in 2016

· Joint Venture signed with Managem over the Tri-K project

Inata Gold Mine, Burkina Faso

During 2016, the primary focus of the Inata mine was to generate cash in order to reduce its indebtedness with trade and financial creditors.

The mine produced 72,485 ounces at a cash cost of US$966 per ounce, compared with 74,755 ounces at US$1,058 per ounce in 2015. Realised gold prices increased from US$1,167 per ounce in 2015 to US$1,240 in 2016, pointing to an increase in the margin per ounce produced from US$109 in 2015 to US$274 in 2016.

However production in the first half of 2016 was stronger than in the second half. This was due in part to the nature of the ore being mined in the first six months, which despite being relatively low grade, was generally clean and therefore yielded recoveries of around 92%, while the ore mined in the second half of the year was more carbonaceous and preg-robbing, with recoveries much lower at around 75%. In addition, legal action initiated by a group of ex-workers in October 2016 resulted in the temporary shutdown of the mine for four weeks. In all, 41,614 ounces were poured in H1 compared with 30,871 ounces in H2.

The result of this was that while the mine was able to reduce its overall indebtedness in the year, more progress was made in the first half of the year, where the mine's loans were reduced by over US$10 million, compared with the second half, where a new loan from Coris Bank and delays to repayment of the Ecobank loans meant that the net reduction in loans was reduced to US$4 million.

The mine remained under considerable pressure from its creditors: a number of the key suppliers are applying pressure on the mine to reduce their overdue balances.

Souma and Pali/Ouzeni, Burkina Faso

In addition to the remaining mine life at Inata, there exists the possibility to add production through incorporating the satellite deposits at Souma (20km to the North-east of the Inata plant) and Pali and Ouzeni (7km to the South-west and South-east respectively).

The Souma deposit, which currently has a Mineral Resource of 676k ounces, consists of a north-south deposit which, importantly, is free of preg-robbing properties. Due to its distance from the Inata permit, it would need to be the subject of a separate mining licence application, supported by a feasibility and environmental study, which in turn would require a short programme of drilling, testwork and documentation. This initial work, which would need to be completed ahead of the expiry of the Exploration Licence in July 2018, is estimated to cost between US$5-7 million. Once permission to mine has been granted, the intention would be to haul the Souma ore across the flat terrain separating the pit and the Inata plant where it would be processed. Capex for this production has been estimated (on a preliminary basis only) to be of the order of US$5 million, to cover haul roads, pit infrastructure and any enhancements necessary to the comminution part of the Inata plant.

The Pali and Ouzeni deposits are smaller orebodies that lie just outside the current Inata mining permit. It is anticipated that these could be converted to mineable reserves with a modest drilling programme of just US$1-2 million, which could be achieved through an extension of the existing permit perimeter (subject to governmental approval).

The addition of the deposits at Souma and Pali/Ouzeni to the Inata production plan would be transformative, increasing the mine life from three to six years, with improved economics. The key challenge is the successful negotiation of a financing package that satisfies both the existing Inata creditors as well as new sources of funding.

Tri-K, Guinea

Following the award of a mining permit for the Tri-K project on 27 March 2015, the Company's focus had been to raise financing for the construction of the project. Under the Guinean Mining Code, construction must commence within 12 months of the award date (27 March 2016) of the mining permit or fines of approximately US$100k per month can be applied and after 18 months (27 September 2016) the Guinean government has the right to withdraw the permit.

These dates were clearly of concern and the Company remained in constant communication with the Ministry of Mines and Geology, pointing to the unprecedentedly challenging market conditions for raising finance for West African mining projects, as well as the Ebola crisis also affecting interest in Guinea itself.

By the first deadline, the Company had identified a small group of potential investors and was able to assure the Government that progress was being made, albeit more slowly than had been hoped. Given the importance of Governmental approval to any refinancing deal, representatives of both the Ministry of Mines and Geology and SOGUIPAM (the Guinean state mining company) were heavily involved in final negotiations with Avocet's preferred partner, Managem.

On 10 October 2016, the Company was able to announce the terms of a Joint Venture over the Tri-K project with Managem, which would be subject to, inter alia, approval by Avocet's shareholders and the signing and then parliamentary ratification of a Mining Convention with the Guinean government. On 19 December 2016, the Mining Convention was signed by the Minister of Mines and Geology and the Minister of Budgets (as well as by Avocet and Managem), while shareholder approval of the transaction was granted at a General Meeting on 22 December 2016.

Corporate Review

2016 was a busy year in terms of corporate activity and much was achieved in spite of maintaining downward pressure on head office costs.

In January and April 2016, loans were agreed with Manchester Securities Corp, an affiliate of Elliott (Avocet's largest shareholder), for a total of US$1.5 million, which provided funding for corporate activities in the first half of the year. In the second half of 2016, funding was achieved by payment of Management fees from SMB's Inata gold mine, which signalled management's intentions for the Company to no longer rely on expensive debt to finance ongoing corporate activities.

On 9 June 2016, in addition to the normal resolutions set out at the AGM, shareholders were asked to approve a share re-organisation which included a 10:1 share consolidation, driven primarily by the need to comply with the ongoing obligations of the Oslo Børs.

Following the announcement of the Joint Venture with Managem on 10 October 2016, a circular setting out the terms of the transaction was sent to shareholders on 29 November 2016 and approved at a general meeting on 22 December 2016.

At the same meeting, shareholders approved a proposal to transfer Avocet's listing from the Premium List to the Standard List of the London Stock Exchange, in order to reduce costs and to make the Company's listing status more appropriate in view of its market capitalisation and financial situation.

Outlook for 2017 and beyond

Much remains to be achieved during 2017. At Inata, the immediate priority is to negotiate continued support from creditors to allow operations to continue, whilst the Company continues to seek the financing needed to secure the additional production from satellite pits (including Souma), which is likely to require restructuring the mine's balance sheet.

In April 2017, discussions started with trade creditors, banks and government to stabilise Inata and with a view to restructuring its debts. In this process, a key step was achieved on 31 May 2017: Inata's major trade and financial creditors (together representing approximately seventy per cent of Inata's debt) have agreed the terms of a standstill agreement with management for the duration of two months as strategic options are being explored in connection with a financial, debt and corporate restructuring of the company. All stakeholders (including financial creditors, shareholders, government, key operational stakeholders and employees) will need to contribute to achieve a consensual restructuring solution, however, inevitably, there can be no guarantee that these negotiations will prove successful.

The ratification of the Guinean Mining Convention, which includes a number of significant concessions over and above the terms of the Mining Code, was approved unanimously by the National Assembly on 24 February 2017. Avocet received the decree signed by the Guinean President ratifying the Mining Convention for the Tri-K project in May. Following this, the so-called 'First Closing' was completed on 22 May 2017 and the Company has received from Managem US$4 million for 40 per cent of its interest in the project. It also marked the commencement of the US$10 million work programme, whose aim is to complete a Bankable Feasibility Study ('BFS') for a Carbon-in-Leach ('CIL') project at the site, with a reserve of at least 1 million ounces.

Once this work programme and its objectives are complete, Avocet will then transfer an additional 30% of its interest (or 20%, if the reserve defined is less than 1 million ounces) to Managem, who will then take full control of the operation and construction.

Although Avocet had already completed a feasibility study for the project in 2013, this study outlined a smaller heap leach project whose capex was initially estimated at US$88 million and whose mine life was 5 years. The CIL operation planned by Managem is likely to be considerably larger, both in terms of capex (typically US$200-$300 million) but also in the scale of operations and mine life. This is primarily because a CIL project consists of more intensive processing of the ore, which, while more expensive in construction terms, allows considerably more of Tri-K's large ore body to be economically mined and treated.

Once the BFS has been finalised, which is expected to be in the first half of 2018, the next stage will be the raising of funding for construction. This is likely to include a portion of debt, with the equity contribution to be shared pro rata between Managem and Avocet. Under the terms of the agreement with Managem, Avocet has the right to decline to contribute its percentage of this cost, which would then require Managem to contribute all of the equity, diluting Avocet's interest proportionately.

Although details of the operation will be set out in the BFS, Avocet's management are optimistic about its prospects, based on the characteristics of the known orebody, the geological potential of the exploration permits (all of which have been renewed under the terms of the Mining Convention) and by comparison to other CIL mines in the Siguiri basin.

On a personal level, I would like to thank Avocet's staff at all levels for the support and commitment they have shown to dealing with the challenges facing the Company. 2016 was a difficult year and 2017 is likely to be even more so.

Boudewijn Wentink

Chief Executive Officer

FINANCIAL REVIEW

Financial highlights1

1 Prepared in accordance with International Financial Reporting Standards as adopted by the EU.

Revenue

Group revenue for the year was US$89.6 million compared with US$85.0 million in 2015. The Group sold 72,282 ounces at an average realised price of US$1,240 per ounce during 2016, compared with 72,872 ounces sold at an average realised price of US$1,167 per ounce in 2015. The increase in revenue was therefore essentially the result of the gold price increase in the year.

Gross profit and unit cash costs

The Group gross profit in 2016 was US$13.1 million compared with a loss of US$4.9 million in 2015, an improvement of US$18.0 million. The gold price contributed some US$4.9 million to this improvement, production costs were US$7.3 million lower year-on-year (partly due to cost control, but partly due to lower mining volumes), while the negligible depreciation charge in 2016 (the result of the full impairment of the Burkinabe fixed assets at the end of 2015) led to US$5.1 million improvements compared with the prior year. The recognition of a number of provisions in the year largely offset the net credit from inventory movements and foreign exchange movements.

Unit cash costs at Inata decreased from US$1,058 per ounce in 2015 to US$966 per ounce in 2016.

The table below reconciles the Group's cost of sales to the cash cost per ounce. Further detail is provided in note 4 of the financial statements.

Profit before tax

The Group reported a profit before tax of US$5.3 million in the year ended 31 December 2016, compared with a loss of US$55.7 million in the year ended 31 December 2015.

In 2016, the Group did not recognise any net impairments related to its mining and exploration assets, while in 2015 the assets of Inata were impaired by a total of US$45.1 million.

Before exceptional items, the profit before tax for the year ended 31 December 2016 was US$7.6 million compared with a loss of US$10.6 million for the year ended 31 December 2015.

During 2016, exceptional items totalling US$2.3 million were recognised. These included US$1.5 million of advisers' fees and other costs related to the Tri-K transaction signed with Managem SA in October 2016; and US$0.8 million relating to accrued leave in Burkina Faso which had not been recognised at the end of 2015 on the grounds of materiality at that time.

In 2015, an impairment of US$45.1 million was recognised against the value of the Inata mining assets.

Taxation

The Group reported a credit in the tax expense line in the income statement of US$0.5 million in 2016 (2015: tax credit US$6.0 million), analysed as follows:

The 2015 tax credit in Burkina Faso included the release of a US$3.1 million provision in respect of a tax assessment undertaken in 2012 covering the years 2009-2011, following an agreement reached with the Burkinabe tax authorities in the year.

The 2015 tax line also includes the release of a US$3.1 million deferred tax provision in respect of interest tax ('IRVM') that would be due on settlement of loan interest invoices payable by the Company's Burkinabe subsidiary, Société des Mines de Bélahouro SA ('SMB'). This provision was released on the basis that the Company no longer expected these balances to be settled in full.

EBITDA

EBITDA represents operating profit before depreciation/amortisation, interest and taxes, as well as excluding any exceptional items in the period. It is not defined by IFRS but is commonly used as an indicator of the underlying cash generation of the business.

EBITDA improved from a loss of US$2.0 million in 2015 to a profit of US$12 million in 2016. This is reflected in the movements described above in respect of the gross profit.

A reconciliation of profit/(loss) before tax and exceptionals to EBITDA is set out below:

Cash flow and liquidity

A total cash outflow of US$1 million was reported for the year ended 31 December 2016. Net cash generated by operating activities (before interest and tax) totalled US$16.6 million, while capital expenditures amounted to US$0.1 million.

Financing during the year represented an outflow of US$14.1 million including the loan repayments of US$10.9 million to Ecobank, US$8.4 million to Coris Bank, finance lease payments of US$0.3 million and proceeds from debt of US$1.5 million from Manchester Securities Corp (an affiliate of Elliott, Avocet's largest shareholder) and US$4.1 million from Coris Bank.

A summary of the movements in cash and debt is set out below:

Included within cash at 31 December 2016 was US$3.8 million of restricted cash (31 December 2015: US$3.9 million), representing a US$2.0 million debt service reserve account held in relation to the Ecobank loan (2015: US$2.1 million) and US$1.8 million (2015: US$1.8 million) relating to amounts held on restricted deposit in Burkina Faso for the purposes of environmental rehabilitation work, as required by the terms of the Inata mining licence.

Company debt at 31 December 2016 consisted of US$26.4 million owed to Manchester Securities Corp, US$20.4 million due to Ecobank and US$4.1 million due to Coris Bank. The Manchester loan, of which US$18 million is secured over the Company's Guinean assets, is owed by Avocet Mining PLC (the parent Company), while the Ecobank and Coris loans, which are secured over various assets of the Inata mine, are owed by SMB in Burkina Faso.

Depreciation

The Group's depreciation charge decreased from US$5.4 million in the year ended 31 December 2015 to US$0.1 million in the year ended 31 December 2016. This decrease is primarily the result of the impairments applied to the fixed assets in Burkina Faso, which were fully written down in 2015.

Capital expenditure

The Group's capital expenditure in the year was US$0.1 million analysed as follows:

Capital investment both in property, plant and equipment and in exploration activity was reduced compared with 2015 in order to conserve cash. Capex during the year mainly related to the completion of the second tailings management facility and upgrades and refurbishments to mining plant and equipment.

Non-financial Key Performance Indicators ('KPIs')

The Company's non-financial KPIs primarily relate to gold production (see Review of Operations page 22 to 25) and safety at the mine (see page 17 to 18 for further details).

Yolanda Bolleurs

Chief Financial Officer

BUSINESS MODEL AND STRATEGY

Business model

Avocet's business model is based on finding resources, developing them to production and generating value through operational performance. This benefits not only shareholders, but also a wide range of stakeholders, who grant Avocet the social licence to operate.

· Exploration and development - effective mineral resource development allows further ounces to be brought into the life of mine plan of existing assets and new projects to be added to the Company's portfolio of operations. Successful exploration carried out at a below industry-standard discovery cost.

· Operational results - continuous improvement at mining operations, delivery against production and cost targets, responding as required to operating challenges

· Value - economic value generated from operation assets distributed amongst stakeholders including investors, governments, employees and local communities

· Social Licence - maintaining a social licence among our stakeholders enables us to continue operations and expand the Company's reach in discovering new ounces in existing and new territories

Business Strategy

The strategy of Avocet remains to develop its asset base in order to maximise value for its shareholders. In view of the financial constraints under which the Company has operated in recent times, along with much of the global mining sector, the Board of Avocet Mining PLC also acknowledges that the interests of the Group's creditors must also be met in the first instance.

The Inata gold mine has now been in operation since December 2009. As its mining plan has advanced, pits have become deeper, ores harder and less weathered, with lower grades and recoveries and more challenging metallurgy and consequently production levels have fallen. This has meant that the primary challenge has been to ensure cashflows remain sufficient to meet the mine's ongoing obligations. The SMB debt and its servicing is unsustainable and will need to be renegotiated in order to put the balance sheet of Inata on a more stable footing. All stakeholders (including financial creditors, shareholders, government, key operational stakeholders and employees) will need to contribute to achieve a consensual restructuring solution, however, inevitably, there can be no guarantee that these negotiations will prove successful.

Avocet also holds a number of exploration licences in Burkina Faso surrounding the Inata gold mine. It is the Company's strategy to look for ways to develop these assets in order to generate value for the Group's shareholders and other stakeholders. Of the licences in Burkina Faso, the Souma deposit is the most advanced and discussions are underway to secure finance to ensure the work can be completed in 2017 to allow an application to be made for a mining permit.

In Guinea, the Company's strategy is to support the work programme to be undertaken over the coming 12 months by Managem under the terms of the Joint Venture agreement signed in October 2016. The outcome of this work programme, which is expected to cost at least US$10 million and which will be funded by Managem, will be the completion of a Bankable Feasibility Study ('BFS') for a Carbon-in-Leach ('CIL') operation at the site, with a reserve of at least 1 million ounces. Thereafter, the focus of both Avocet and Managem will be the raising of funding for the construction of this operation (the costs of which will be estimated in the BFS). In the event that Avocet is able to contribute pro rata to the construction costs (after debt), its interest in the project will remain at 30 per cent, however if the Company is unwilling or unable to contribute, its interest will be diluted.

2017 Business Plan

The 2017 Business Plan includes the following key objectives:

· Inata - manage the Inata gold mine to maximise cashflows, while operating within the safety and compliance standards set by the Group

· Souma - raise funding to initiate a Feasibility Study and the process of applying for a mining licence

· Tri-K - minimise ongoing running costs for Avocet's interests in Guinea and provide support for Managem as they complete their work programme at the site

· Head Office - secure longer term funding to allow the Company to meet all ongoing corporate obligations

RISK MANAGEMENT AND INTERNAL CONTROL

VIABILITY STATEMENT

Principal risks facing the Group

The Board considers the key risks facing the Group to be those set out in the section Principal Risks and Uncertainties on pages 15 to 16. The Board monitors these risks regularly and on an ongoing basis, not only at Board and Committee meetings, but through ad hoc meetings and telephone discussions, as well as emails and update reports from senior management.

Period over which viability has been assessed

Guidelines issued in conjunction with the updated UK Corporate Governance Code include the strong recommendation that Boards consider the viability of their Companies over periods considerably longer than the 12 month term used for assessment of the Going Concern basis (see note 1 to the accounts).

It is indisputable that the ability of the Company to continue as a Going Concern for a 12 month period, let alone any longer term, is and has for some time, been a serious concern. The Board are acutely aware of this fact and have devoted a considerable amount of time to the discussion of the relevant issues, risks and the appropriate responses and mitigating actions.

Under normal circumstances, a mining Company in possession of one or more operating assets would view the length of the life of mine for those assets and possibly longer, as an appropriate timeframe over which to consider the risks to the liquidity and viability of the Company.

However in Avocet's current circumstance, the threats to its solvency are more immediate. The risks considered most relevant to the consideration of the Company's viability over the next 12 months, which are addressed in detail in note 1 to the Financial Statements, are set out below:

Continued financial support from Elliott

The Company has loan facilities from the Elliott Lender with an outstanding balance of US$27.4 million as at 6 June 2017. The Elliott loans bear interest at between 11 per cent and 14 per cent per annum, are repayable on demand and the majority of them are secured on the Group's assets (excluding Inata). The Elliott Loans are fully drawn and no further facilities have been provided since August 2016. Accordingly, the Elliott Lender is entitled to enforce the terms of the Elliott Loans and security at any time.

If the Elliott Lender was to enforce its rights to demand repayment, the Directors do not believe that there is any likelihood of being able secure alternative sources of finance, in which case the Company would enter an insolvency process as a result of which Shareholders should expect to lose all of the value of their Ordinary Shares.

Accordingly, the Company is reliant on the continuing support of the Elliott Lender.

In addition, the interest burden of the Elliott Loans, which is in excess of US$200k per month, cannot currently be met out of Company funds and therefore it will be necessary to restructure these loans in order to put the Company on a sustainable financial footing. Negotiations with Elliott in this regard have not yet commenced, as any solution will need to take into consideration the investment of any external financier who may be interested in investing in some or all of the Group's assets.

Notwithstanding the need to restructure the terms of these loans, the Company believes the funds generated through its interest in Tri-K to be the most likely means of repaying its debts to Elliott. It is not yet possible to be certain as to the means through which this repayment might be achieved, however possibilities include:

- the raising of significant external finance for the construction of Tri-K (in order to avoid dilution of Avocet's 30% interest), which might allow a restructuring of the current debt facilities with Elliott;

- Use of proceeds of the sale of Avocet's interest in the project to repay Elliott;

- Application of intra-group loans and dividend payments from Tri-K once it enters into production.

Should Elliott request the repayment of these loans, the Company would be obliged at short notice to seek alternative funding, which would be a considerable challenge.

Gold price

The profitability of both the Tri-K project and the Inata gold mine (including surrounding deposits) depend on the gold price.

The cash costs at Inata during 2016 and into 2017 have ranged between US$900 and US$1,100 per ounce, therefore a modest fall in gold prices from current levels would result in margins becoming extremely tight, which would make the servicing of the mine's debts and creditors challenging.

The sensitivities of Tri-K's cashflows to different gold prices cannot be determined with any confidence before the completion of its BFS, however, as with any gold mine, its profitability and value are likely to be heavily dependent on the gold price.

In financial forecasts, the Company uses US$1,200 per ounce. The Board believe this to be a reasonable long term price, in line with market consensus forecasts.

Nevertheless, it remains clear that a sustained fall in the gold price would put severe pressure on the operations at Inata and would also threaten the economic viability of the Tri-K project - as well as the Avocet Group as a whole.

Support from Inata's creditors

The Inata gold mine at 21 April 2017 had approximately US$28 million in trade creditors and a further US$26 million in bank and other debt facilities. Many of the balances owing to suppliers are overdue and the mine has faced a number of demands to bring balances within credit limits as well as a number of interruptions to essential supplies.

It is possible that one or more creditors might continue to refuse to allow critical supplies to be delivered to the mine, or might otherwise initiate legal action that could disrupt operations.

Inata's management have spent a considerable amount of time discussing the mine's predicament with key suppliers, pointing to the fact that the best means to ensure creditors are repaid is to allow supplies to continue to be made and for the mine to produce gold.

In April 2017, discussions started with trade creditors, banks and government to stabilize Inata and with a view to restructure its debts. In this process a key step has been achieved on 31 May 2017: Inata, its major trade and financial creditors (together representing approximately seventy per cent of Inata's debt) have agreed the terms of a standstill agreement for the duration of two months as strategic options are being explored in connection with a financial, debt and corporate restructuring of the company. All stakeholders (including financial creditors, shareholders, government, key operational stakeholders and employees) will need to contribute to achieve a consensual restructuring solution, however, inevitably, there can be no guarantee that these negotiations will prove successful.

In the event that the mine was unable to continue and the insolvency of its operating company is unavoidable, it is possible that Avocet may be able to realise value from its interest in the exploration permits, particularly Souma. However even in the event that this were not possible, none of the debts in the Group's Burkina Faso entities have any recourse to the Company's interests in Guinea or in the UK, therefore as the Company has obtained funds to cover head office operating costs (from the proceeds of First Closing from the Tri-K divestment), then the loss of the Group's Burkinabe assets would not necessarily lead to the insolvency or discontinuation of the rest of the Group.

Souma permit

The future of the Inata gold mine beyond 2019 will rely upon the successful completion of a Feasibility Study for the Souma deposit, located 20km north-east of the Inata plant.

The work needed to complete the study, which is expected to cost between US$5-7 million, must be completed in order for an application for a mining permit to be submitted by July 2018.

The Company is currently in negotiation with its financiers with regards to the funding of this activity. However, until any financing package is negotiated, there can be no guarantee that this funding will be made available.

Longer-term Viability

Although the Directors do not believe they can provide a meaningful assurance as to the viability of the Company beyond the 12 month period covered by the Going Concern review, the Board does nevertheless continue to review plans for the operation of the Company over the longer term.

Such reviews include the following:

- The requirement for management to produce Life of Mine Plans for Inata to cover the full periods of production

- Review of exploration options within existing permits, which might further extend production

- Consideration and discussion of financial restructuring scenarios to safeguard the Company's liquidity beyond the near term

- Longer-term views on commodity prices (notably gold and oil)

PRINCIPAL RISKS AND UNCERTAINTIES

The Board of Avocet Mining PLC has identified the risks in the table below as being those that are most likely to have a material impact on the prospects of the Company, based on their knowledge of the economic and other exogenous factors likely to affect the liquidity and continued operation of the Company and its assets, as well as their experience in the type of issues that specifically affect mining operations.

SAFETY AND HEALTH

Avocet is committed to providing a safe, healthy and sustainable environment for all its employees, contractors, visitors and neighbours. The Company actively strives to identify and manage the potential direct and indirect effects of all its activities.

At the Inata Gold Mine, safety and health governance is directed by the Management Safety Committee which meets regularly to lead all aspects of safety, health and environment, ensuring ongoing compliance with both Burkina Faso law as well as international best practice. Group safety, health and environment is the ultimate responsibility of the Avocet Mining PLC Board Safety, Health, Environment and Community ('SHEC') Committee.

Safety focus

Leading indicators

The Company has continued and will continue to make the safety of the workforce, contractors and neighbouring communities a priority. Through relevant training and regular reinforcement, the Company strives to ensure all site workers are aware of the hazard in the workplace and are empowered to work with management to improve safety.

During 2016, general and role specific safety training was delivered along with daily tool box talks and monthly safety meetings. All these activities were coordinated through the management Occupation Safety, Health and Environment Committee which met monthly as well as carried out regular 'safety tours' of different work areas. Specifically, the following were completed:

· 1,806 induction or specialist training sessions for SMB staff, contractors and visitors including annual refresher training

· 173 unannounced workplace inspections, involving both workers and management, designed to assess compliance with safety best practices and policies and where appropriate, identifying corrective action plans

· 105 safety meetings, attended by workers, supervisors and management, including contractors' representatives, which provide a forum at which ongoing and emerging issues and concerns can be discussed and solutions discussed and developed

· 10 Occupational Safety and Health Committee meetings and 10 management workplace walkabouts (technical shutdown meant two months were missed)

· Weekly Emergency Response Team training, focusing on incident response, casualty recover, first aid and firefighting

During 2016 the mine extended its operation into an area near the village of Filio. This involved the relocation of a small number of houses within the new pits safe blast zone. The Company also undertook significant rerouting of the mine access road, which is also used by the local populace, to route it away from active mining areas.

In order to allow the safe development of a new pit, known as Filio, a full review of safety aspects was carried out which resulted in a number of risk management measures. These included construction of a 1.4 km access road diversion, significant increase in road signage, additional road lighting, raising hazard awareness in local communities and a new haul route routing mine traffic away from mine and process infrastructure.

Lagging indicators

During 2016 there were two Lost Time Injuries ('LTIs') at Avocet operations. Workers involved in both accidents received injuries sufficient to require them to take time off work, but both recovered fully and returned to work in their previous roles. Following these LTIs, all workers were put through safety refresher training, with a particular focus of hazard identification. At the end of the year the Company had recorded 174 consecutive LTI-free days, which equated to 1.80 million hours.

In addition, there were 18 accidents which required first aid and 8 which required medical treatment by our site medical team. None of these resulted in serious injury.

Health focus

The battle against mosquito borne disease has again been the core focus of the medical teams' activities in 2016, working to reduce mosquito populations. In 2016, the mosquito problem was exacerbated by a national epidemic in Burkina Faso of Dengue Fever. The mine's mosquito control programme was therefore extended well beyond the end of the rainy season to combat potential spread of Dengue. As with previous years we combined Internal Residual Spraying (IRS), fogging and larvacide treatment of standing water. Individual preventative actions were also reinforced through a poster campaign and tool box talks.

In 2016 there were a total of 298 cases, the lowest number recorded for many years. This low number is likely to be due to a combination of our mosquito control programme, as well as low rainfall for the year which reduced the number and persistence of breeding places (this contrasted with 2015 when a high rainfall was recorded). As in previous years the overwhelming majority of the cases were diagnosed in the rotational national workforce who split their time between the mine site or administration office (where mosquito control measures can be implemented) and their own homes (where we cannot).

Click on, or paste the following link into your web browser, to view the associated PDF document.

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 SUSTAINABLE DEVELOPMENT

Environmental Focus

The Company monitors a wide range of environmental parameters including water quality, air quality, noise and vibration (during blasting) to evaluate potential impacts from our operations. During 2016 our monitoring found no exceedances of our statutory or self-imposed targets and management continue to be confident that operations are having no adverse impacts on the environment.

A small number of complaints were received from a village following blasting in a new pit.

During the technical shutdown at the mine in Q4 a small team was retained on site to ensure the continuance of compliance monitoring and other critical activities such as waste management.

Greenhouse gases

Almost all of Avocet's emissions of CO2 derive from its consumption of diesel, which is used as the fuel for the mining and auxiliary fleet and in the generators used to generate electricity for the processing plant and site. The production of CO2 is estimated using standard CO2 production rates per litre of diesel fuel consumed.

In 2016, the Inata mine produced 12,526 tonnes equivalent of CO2, which equals 0.17 tonnes per ounce of gold produced. The following table, which shows the equivalent results over the previous seven years, indicates the first annual reduction in the quantity of CO2 emitted on a per ounce. This is attributed in part to the exploitation of small shallow pits, located nearer the beneficiation and processing plant than those which had previously mined resulting in shorter haul distances.

Community engagement

Since 2010, Avocet has used Fondation Avocet pour le Burkina ('FAB') to act as the vehicle for its community based projects in Burkina Faso. FAB is governed by representatives of Avocet, Avocet's local subsidiary SMB and local community leaders. Inata's Community Relations department manages the day to day running of FAB.

The primary focus of FAB's activities in 2016 was on three areas: community healthcare, education and potable water. Within these focus areas were the following key activities:

Community healthcare

· Construction of toilets and showers at the maternity wing of Gomdé clinic and at the pharmacy in Tiahiguel;

· Donation of maternity medical equipment to the clinics in Gomdé and Filio and to the pharmacy in Tiahiguel.

Education

· Sale at reduced prices (sponsoring) of 1,050 lamps to the communities of the six villages neighbouring Inata mine.

Potable water

· Drilling of four drinking water boreholes in the villages of Namata Mossi, Namata Fulbé, Filio and Tiahiguel.

· Repairs to the water storage towers of Gomdé Mossi, Sona, Namata and Filio (School/Health centre);

· Training of 11 manual borehole pump maintenance assistants.

In addition to the above, the Foundation was behind the donation of 1,250 kgs of sugar to communities, religious leaders, provincial and communal administrative authorities, local elected officials and traditional chiefs of the districts neighbouring Inata to of Tongomayel, Arbinda, Koutougou and Djibo and to the Governor of Sahel Region.

Extractive Industries Transparency Initiative ('EITI')

Avocet expressly supports the EITI and formally became an active supporting company in 2011. The primary objective of the EITI is to set a global standard for transparency on tax, royalty and other payments to governments through the verification and full publication of government revenues and company payments. Burkina Faso and Guinea currently have candidate country status.

Avocet is committed to supporting and cooperating in the implementation of the EITI work plan to ensure that the objective of transparency is achieved. This is also in line with our corporate commitment to fight corruption and provide sustainable development by supporting the local community in being able to hold their governments, as well as the mining industry, to account.

Government payments

This report, covering 2015 and 2016, presents key data on government payments in the countries in which Avocet operates. This includes taxes, royalty payments, custom duties and amounts collected by Avocet on behalf of employees.

1 Royalties are charged on gold sales in Burkina Faso at rates which vary according to the spot gold price (3% up to US$1,000 per ounce, 4% between US$1,000 and US$1,299 per ounce and 5% from US$1,300 per ounce)

2 Customs duties are charged on the import of goods and equipment

3 IRVM (Impôt sur le revenu des valeurs mobilières) is taxation on interest paid on loans

4 Land tax represents payments levied on mining and exploration permits

5 Value added tax ('VAT') represents sales tax charged at 18% on purchases of goods in Burkina Faso. Most VAT is recoverable (a process which can take six months or more), but in Burkina Faso VAT on fuel is not recoverable

6 In Burkina Faso, a levy of CFA 50 per litre of diesel has been applied as fuel tax ('TPP') since June 2013

7 Withholding tax ('WHT') in Burkina Faso is levied at 10% for mining related services (20% for non-mining related activities) provided by firms who do not have a permanent presence in Burkina Faso. The intention is that this cost is borne by the supplier; in reality, it represents an additional cost of doing business in Burkina Faso and is factored into supplier charges, increasing the cost to Avocet

Employees

Avocet's management are committed to the development and training of national staff, particularly local communities. The percentage of non-Burkinabe staff at the Inata mine decreased from 5.3% (37 heads) in December 2014 to 4.4% (25 heads) by December 2015 and then further to 3.5% (19 heads) by December 2016.

The Company is committed to developing a diverse workforce and to providing a work environment in which everyone is treated fairly and with respect. Its policies in this area are set out in full for all staff members in its Employee Handbooks, which include details of the Company's Code of Conduct and Ethics, Whistleblowing policy and Anti-bribery and Government Payment policies.

Regular meetings are held with employee representatives to discuss strategies and the financial position of the Group and their own business units. The Group is committed to providing equal opportunity for individuals in all aspects of employment.

It is Avocet's policy that people with disabilities should have full and fair consideration for all vacancies. Employment of disabled people is considered on merit and with regard only to the ability of any applicant to carry out the role. The Company commits to endeavour to retain the employment of and arrange suitable retraining for, any employees in the workforce who become disabled during their employment.

The Company is committed to gender equality throughout the organisation. During 2016, the average percentage of female employees was 5% (2015: 6%). There were no female Board members during 2016.

REVIEW OF OPERATIONS

Inata Gold Mine

Gold produced at Inata in the year totalled 72,485 ounces, compared with 74,755 in 2015. Production was impacted by the temporary suspension of operations for approximately four weeks from 27 October 2016, following the seizure of a gold shipment by Burkinabe bailiffs acting under the instructions of a group of ex-workers who were claiming unpaid back pay.

Although the mine returned to operation in late November 2016, the mine took a number of weeks to reach full capacity.

During the first half of the year, mining focussed on cleaner ore types and recoveries over the first two quarters averaged 92%. Although grades processed in the second half of the year were higher, more of the ore was preg-robbing in nature and recovery levels were therefore lower at 75%, for a full year average of 84%. Total gold produced in H1 was 41,614 ounces while H2 production was just 30,871.

In spite of lower production in 2016 compared with 2015, cost control measures, including ongoing reductions in headcount and support costs, meant that unit costs were lower in the year - US$966 per ounce compared with US$1,058 per ounce in 2015.

Safety

In 2016, there were two Lost Time Injuries ('LTIs') reported at Inata and by the end of the year, the Company had recorded 174 consecutive LTI-free days, which equated to 1.80 million hours.

Tri-K

During 2016, no work took place at the Tri-K site. Instead, the management were focused on negotiations with investment partners for the project. On 10 October 2016, the Company announced that it had entered into a Joint Venture agreement with Managem.

Under the terms of this agreement (which remains subject to the formal publication of a presidential decree in respect of its Mining Convention), Managem will obtain an initial 40 per cent interest in the project (excluding the government's free carry of 15 per cent) for an up-front payment of US$4m. This interest will increase to 70 per cent upon the expenditure of at least US$10 million on exploration and development work at the site, the completion of a Bankable Feasibility Study for a CIL plant and increasing the reserve to at least 1 million ounces. In the event that all other commitments are met but the reserve remains less than 1 million ounces, Managem's interest will increase to just 60 per cent.

ORE RESERVES AND MINERAL RESOURCES

BURKINA FASO

Avocet Mining PLC owns 90% of Société des Mines de Bélahouro SA ('SMB'), owner of the Inata gold mine. Avocet owns 100% of the exploration permits surrounding the Inata mining licence through its wholly owned subsidiary, Goldbelt Resources (West Africa) SARL.

The Company's Burkina Faso Mineral Resource estimates are presented in the tables below, quoted for blocks above a nominated cut-off grade of 0.8g/t Au. The Inata and Minfo Mineral Resources were depleted to the end December 2016 mining surface.

Inata's Ore Reserves were estimated to be 0.34 million ounces as at 31 December 2016 based on pit shells optimised at US$1,150 per ounce, increased from 0.24 million ounces as at 31 December 2015. Cut off grades within the US$1,150 per ounce pit shells were based on a gold price assumption of US$1,250 per ounce. The increase in Ore Reserves is attributable to an increased gold price assumption, the identification of additional geological resources at Minfo and improved recoveries now assumed in the treatment of carbonaceous (preg-robbing) ores.

The financial analysis of the Ore Reserve Statement is independent of future financing requirements.

Inata, Minfo and Filio Trends

Ore Reserve estimates are reported beneath the 31 December 2016 topographic surface and above an effective weighted average 0.8 g/t Au economic cut-off grade within mine designs based on economic shell optimisations. Mineral Resources are reported above a 0.8 g/t Au cut-off and below the 31 December 2016 topographic surface.

Note: rounding errors may occur

Souma

Ouzeni and Pali

Total Burkina Faso

TRI-K, GUINEA

Avocet owns 100% of the Tri-K permits through its wholly-owned subsidiary, Wega Mining Guinée SA.

Ore Reserves

From October 2013, the Company reported an Ore Reserve of 480,000 ounces in respect of a heap leach operation at the Tri-K project, as set out in the initial feasibility study submitted to the Guinean government in September 2013. This study led to the granting of a Mining Permit for the project on 27 March 2015.

However, the Joint Venture agreement entered into in October 2016 with Managem now means that a heap leach operation is no longer envisaged at Tri-K. Managem have committed to a 12-month programme of work targeting the completion of a new feasibility study for a larger CIL project at the site with 1 million ounces of reserve. In light of this, management no longer consider it appropriate to continue to report the Ore Reserve under the heap leach project.

Mineral Resources as at 31 December 2016.

The table below reports the Mineral Resource above a 0.5 g/t Au cut-off, as at 31 December 2016.

Note: rounding errors may occur

QUALIFIED AND COMPETENT PERSONS

The information in this report that relates to Inata Ore Reserves in Burkina Faso is based on information compiled by Mr Martin Raml, who is a Qualified Person, as defined by NI 43.101. Martin Raml is employed by Avocet Mining PLC.

The information in this report that relates to Exploration results in both Burkina Faso and Guinea is based on information supplied by Mr Robert Seed, a competent person. Robert Seed is employed by Avocet Mining PLC and has sufficient experience which is relevant to the style of mineralisation and type of deposit under consideration and to the activity which he is undertaking to qualify as a Competent Person as defined in the 2012 Edition of the "Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves". Robert Seed consents to the inclusion in the report of the matters based on his information in the form and context in which it appears.

DIRECTORS AND GOVERNANCE

This section aims to provide a transparent view of Avocet Mining PLC which not only complies with the UK Corporate Governance Code but applies best practice where possible. It includes:

- Current board of Directors;

- Report of the Directors;

- Report on corporate governance; and

- Remuneration report.

CURRENT BOARD OF DIRECTORS

Executive Directors

Boudewijn Wentink - Chief Executive Officer

Boudewijn was appointed Chief Executive Officer in April 2017. Boudewijn has a wealth of experience in managing businesses in challenging circumstances, most recently with New World Resources plc, a coal mining group based in the Czech Republic, where he served as New World Resources' finance and legal director and executive director.

David Cather - Technical Director

David was appointed Technical Director in April 2017, having been Chief Executive Officer since July 2012, after joining the Company as Chief Operating Officer in April 2012. David is a mining engineer and brings over 30 years of mining experience to Avocet, most recently as Chief Operating Officer with European Goldfields. David's career has included senior roles at Anglo American plc where he was Technical Director for its Industrial Minerals Division. He spent five years consulting to the industry on a variety of early stage projects principally for gold and base metal projects in DRC, Sierra Leone, Nicaragua, Philippines and Columbia. He is a graduate from the Royal School of Mines, Imperial College London with a first class degree in mining engineering and has gained extensive senior level project development experience and operations management in both open pit and underground operations.

Non-Executive Directors

Russell Edey - Chairman and Non-executive Director

Russell was appointed Non-Executive Director in July 2010 and Chairman of the Company in September 2010. He retired as Chairman of AngloGold Ashanti Limited in May 2010 having been a member of that company's board since 1998. He worked at Rothschilds from 1977 until 2014 and sat on the Boards of a number of its subsidiaries. Prior to that, he worked for Anglo American Corporation of South Africa Limited in South Africa and Australia. He currently sits on the Board of the BlackRock World Mining Trust plc and the Genesis Emerging Markets Fund.

Russell Edey chairs the Nominations Committee and sits on the Audit, SHEC and Remuneration Committees.

Barry Rourke - Non-executive Director

Barry was appointed Non-Executive Director and Chairman of Avocet Mining PLC's Audit Committee in July 2010. He served as a Partner at PricewaterhouseCoopers for 17 years, acting as an advisor and auditor for several large and medium-sized businesses in both the public and private sector before retiring in 2001. He has significant experience in the resources sector as an independent non-executive director of several companies and has been Chairman of the Audit Committee at a number of these.

Barry Rourke chairs the Audit and Remuneration Committees and sits on the Nominations and SHEC Committees.

Gordon Wylie - Non-executive Director

Gordon joined the Board of Avocet Mining in February 2012. A geologist by training, Gordon has over 40 years of experience in mining and exploration geology, Gordon has served on the board of a number of listed companies with operations in Central Asia, South America, Europe and Russia. He currently serves as Chairman of Lydian International.

Gordon Wylie chairs the SHEC Committee and also sits on the Audit, Nominations and Remuneration Committees.

Jim Wynn - Non-executive Director

Jim joined Avocet Mining in November 2008 and was appointed Finance Director in September 2015. Jim is a Chartered Accountant and was previously employed by Anglo American plc where he held a number of roles within the finance, business development and strategy departments of Anglo Industrial Minerals. Jim became a Non-executive Director with effect from 1 May 2017.

REPORT OF THE DIRECTORS

The Directors are pleased to present their report together with the audited financial statements of the Company and of the Group for the year ended 31 December 2016.

The Company

Avocet Mining PLC, the parent company of the Avocet Group, is registered and domiciled in the United Kingdom. Further details relating to the Company, including its registered office, are set out in the Shareholders' Information section on page 107.

Principal activity and business review

The Group's principal activity during the period continued to be gold mining, mineral processing and exploration. Further information is included in the CEO's statement as well as the operational reviews on Inata, Souma and Tri-K and the financial review. An overview of the Company's activities is set out on page 1 and a description of the Company's business model is also set out on page 12.

Future developments

The Group's future developments are outlined in the Strategic Report.

Share capital

As at 27 May 2017 the issued share capital of the Company was comprised of 20,949,671 ordinary shares of 1 pence each and 209,496,710 deferred shares of 0.49 pence each. Each ordinary share carries the right to one vote per share, while the deferred shares have very limited rights, including no right to vote. The liability of the members of the Company is limited to the amount unpaid, if any, on the shares held by them. All issued shares of the Company are fully paid.

Prior to 9 June 2016, the issued share capital of the Company stood at 209,496,710 ordinary shares of 5 pence each, with each ordinary share carrying the right to one vote per share. On 9 June 2016, a shareholders' resolution was passed consisting of two stages: firstly, each ordinary share was split into one intermediary ordinary share with a nominal value of 0.1 pence and one deferred share with a nominal value of 4.9 pence; secondly, every 10 intermediary ordinary shares were cancelled and replaced with a single new ordinary share with a nominal value of 1 pence each.

The purpose of this share consolidation was to increase the market value of each share (in order to comply with the Company's listing obligations on the Oslo Børs, which stipulate that the market price of each listed share cannot go below 1 NOK, or approximately 8.4 pence at the time), while reducing the number of ordinary shares in issue so as to leave the total value of ordinary shares unchanged. The consolidation also had the effect of reducing the nominal value of the ordinary shares to a level considerably below their market price.

The rights of the deferred shares are very limited, rendering them effectively valueless. They have no voting rights, no entitlement to dividends, may not be transferred without the Company's written approval and are only entitled to payment on the winding up of capital after each ordinary share has received £1m each.

Details relating to Share Capital and the purchase and transfer of Treasury and Own Shares are set out in notes 28 and 29 to the Group accounts.

Company's listings

The Company's ordinary shares have been traded on the Official List of the Main Market of the London Stock Exchange since 8 December 2011, prior to which they were traded on London's Alternative Investment Market ('AIM'). J.P. Morgan Cazenove Limited acts as the Company's broker and financial advisor. Since 16 June 2010, the Company has also been listed on the Oslo Børs.

On 22 December 2016, the Company's shareholders approved a resolution to move down from the Premium List to the Standard List of the Main Market of the London Stock Exchange. The reason for this listing was to reduce the costs associated with compliance with the more rigorous obligations of a Premium Listing, which the Board considered appropriate for a company of Avocet's size and financial condition. This transfer became effective on 25 January 2017.

Results and dividends

The Group reported a profit for the year of US$4.8 million (2015: Loss of US$49.7 million). The results for the year are explained in the Financial Review on pages 8 to 11.

The Directors do not recommend the payment of a dividend in respect of the year ended 31 December 2016.

Events after the reporting period

On 3 April 2017, Boudewijn Wentink was appointed Chief Executive Officer, while David Cather became Technical Director. Jim Wynn stepped down as Finance Director as of 1 May 2017, at which point he became a Non-executive Director. Yolanda Bolleurs was appointed Chief Financial Officer from 3 April 2017.

In April 2017, discussions started with trade creditors, banks and government in Burkina Faso, to stabilise Inata and with a view to restructuring its debts. In this process, a key step has been achieved on 31 May 2017: Inata, its major trade and financial creditors (together representing approximately seventy per cent of Inata's debt) have agreed the terms of a standstill agreement for the duration of two months as strategic options are being explored in connection with a financial, debt and corporate restructuring of the company. All stakeholders (including financial creditors, shareholders, government, key operational stakeholders and employees) will need to contribute to achieve a consensual restructuring solution, however, inevitably, there can be no guarantee that these negotiations will prove successful.

Avocet received the decree signed by the Guinean President ratifying the Mining Convention for the Tri-K project in May. Following this, the so-called 'First Closing' was completed on 22 May 2017 and the Company has received from Managem USD 4 million for 40 per cent of its interest in the project.

There were no other material events taking place after the reporting date.

Key performance indicators

The Group monitors its key performance indicators ('KPIs') on a monthly basis or more frequently and when KPIs diverge from expectation, an investigation is carried out and appropriate action taken. Non-financial KPIs include tonnes of waste and ore mined and milled, grades, recoveries and gold produced, as well as lost time injuries ('LTIs'). Financial KPIs include revenues, gross profit, cash costs per ounce, profit before tax, taxation, EBITDA, operating cashflows and capex. These measures are identified as KPIs on the basis that they represent the primary drivers of shareholder value for a gold mining company.

Principal risks and uncertainties

The principal risks and uncertainties facing the Group are outlined within the Strategic Report on pages 15 to 16. Financial risk and capital management disclosures are provided within notes 21, 24 and 25 to the financial statements.

Directors and their interests in shares

The names of the current Directors are shown on page 26 and details of their interests in the share capital of the Company are shown on page 45.

In accordance with Code Provision B.7.1 of the UK Corporate Governance Code, all Directors stand for re-election on an annual basis.

Substantial shareholders

At 5 June 2017, the following had notified the Company of disclosable interests in 3% or more of the nominal value of the Company's shares:

1 - Elliott also holds a beneficial interest in 2,964,823 Contracts For Difference ('CFDs').

Creditor payments

It is the Group's policy to agree the terms of payment with suppliers when entering into contracts and to meet its obligations accordingly. The Group does not follow any specific published code or standard on payment practice.

Key contracts

The Company has contractual arrangements with key suppliers for its operations, notably for fuel, reagents, grinding media and other materials and regular discussions are held with these suppliers. However, given sufficient advance warning, alternative sources could be arranged if necessary, hence the Company does not believe it is unduly reliant on any single contract or supplier. The Company is reliant on retaining its exploration and mining permits, which are subject to compliance with various government obligations and regulations. The Company considers such compliance a high priority, in view of this reliance.

Donations

As in previous years, no donations were made for political purposes during the year and the Company has a policy of maintaining political neutrality. The Company makes regular contributions to community and social projects, particularly in Burkina Faso through the Fondation Avocet pour le Burkina ('FAB'), as outlined in the Community Engagement review on page 18.

Corporate governance

A report on corporate governance is provided on pages 31 to 37.

Employees

The Company has a policy of equal opportunities throughout the organisation and is proud of its culture of diversity and tolerance. Further details are set out within the Strategic Report on page 20. Employees benefit from regular communication both informally and formally with regard to Company issues (external and internal developments, updates, etc), including a monthly newsletter distributed at the mine site and in the corporate office in Burkina Faso. Employees are made aware of the Company's share ownership policy, both to ensure compliance with listing rules but also to make them aware of the opportunity to participate in the Company's share performance. Share-based payment schemes are also available to senior staff, as set out in the Remuneration Report, although no shares have been issued under these schemes for some time.

Disclosure table pursuant to Listing Rule LR9.8.4

Health, safety and sustainable development

Details of the Group's activities relating to safety and health are set out on pages 17 to 18 and those relating to sustainable development are provided on pages 19 to 21. This latter section also includes the disclosures in relation to the Company's greenhouse gas emissions.

Going concern

The Board believe there to be a material uncertainty over the ability of the Company to continue as a Going Concern. These matters are set out in full in note 1 to the financial statements.

Statement of Directors' Responsibilities

The Directors are responsible for preparing the Annual Report, the Remuneration Report and the financial statements in accordance with applicable law and regulations.

Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have to prepare the financial statements in accordance with International Financial Reporting Standards as adopted by the European Union ('IFRSs'). Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs and profit or loss of the Company and Group for that period. In preparing these financial statements, the Directors are required to:

• select suitable accounting policies and then apply them consistently;

• make judgements and accounting estimates that are reasonable and prudent;

• state whether applicable IFRSs have been followed, subject to any material departures disclosed and explained in the financial statements; and

• prepare financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements and the Remuneration Report comply with the Companies Act 2006 and Article 4 of the IAS Regulation. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The Directors confirm that:

• so far as each Director is aware, there is no relevant audit information of which the Company's auditors are unaware; and

• the Directors have taken all steps that they ought to have taken as Directors to make themselves aware of any relevant audit information and to establish that the auditors are aware of that information.

The Directors are responsible for preparing the Annual Report in accordance with applicable law and regulations. Having taken advice from the Audit Committee, the Directors consider that the Annual Report and the financial statements, taken as a whole, provide the information necessary to assess the Company's performance, business model and strategy and is fair, balanced and understandable.

The Directors believe that the Annual Report and accounts taken as a whole are fair, balanced and understandable and confirm that the narrative sections of the Annual Report are consistent with the financial statements and accurately reflect the Company's performance.

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

To the best of my knowledge:

• the Group financial statements, prepared in accordance with IFRSs as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole; and

• the Annual Report includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that the Company faces.

Boudewijn Wentink

Chief Executive Officer

6 June 2017

REPORT ON CORPORATE GOVERNANCE

Chairman's introduction

The priorities for the Company during 2016 were clearly the management of the Inata mine, in the context of financial and operating difficulties and the conclusion of the Tri-K joint venture with Managem.

On 22 December 2016, a resolution was approved by shareholders to move the Company's listing down from the Premium List to the Standard List, as a result of which the compliance obligations are reduced in a number of areas, including corporate governance.

The Board believes that a less rigorous compliance regime to be more appropriate to a Company of Avocet's size, particularly when keeping costs to a minimum forms a critical part of the ability of the Company to continue in operation. Nevertheless, the Board remains committed to good governance in all material respects and wishes to assure shareholders that it will continue to remain focused on safeguarding the assets and interests of the Company.

Russell Edey

Chairman

6 June 2017

Throughout the year ended 31 December 2016 and in the preparation of this Annual Report and these Accounts, the Company has complied with the main and supporting principles and provisions set out in the UK Corporate Governance Code as described in the following sections of this Report, except with regard to the frequency of assessment of Board performance, as described below.

Board of Directors

The Board of Directors is responsible for the management of the Company on behalf of the shareholders. The objective of the Company is to create long term value for shareholders and the Board is responsible for delivering that objective by governing the Company and its subsidiaries. The Board is responsible for approving the Company strategy and policies, for safeguarding the assets of the Company and is the ultimate decision-making body of the Group in all matters except those that are reserved for specific shareholder approval.

The current Board consists of two Executive Directors who hold the key operational positions in the Company and four Non-executive Directors (including a Non-executive Chairman), who bring a breadth of experience and knowledge.

The Board meets at least every three months and is supplied with appropriate and timely information. In 2016, the Board met twelve times. Where appropriate, the Board invites external advisers and/or senior management to attend meetings to discuss matters where their expertise may be beneficial.

The responsibilities of RP Edey as Chairman include those contained in the Supporting Principles to paragraph A.3 of the UK Corporate Governance Code, namely: for providing leadership to the Board, ensuring its effectiveness in all aspects of its role and setting its agenda; ensuring that adequate time is available for discussion of all agenda items; ensuring that the Directors receive accurate, timely and clear information; ensuring effective communication with shareholders; promoting a culture of openness and debate by facilitating the effective contribution to the Board of Non-executive Directors in particular; and ensuring constructive relationships between the Executive and Non-executive Directors.

The Company provides independent professional and legal advice and offers training, to all Directors where necessary, to ensure they are able to discharge their duties. In addition, all Board members have access to the services of the Company Secretary, who is responsible for ensuring all Board procedures are complied with.

The Chairman and other Board members consider the training and development needs of each Director and concluded that none was necessary in the year, as all Directors were adjudged to have sufficient experience and knowledge.

Board independence

The UK Corporate Governance Code requires that the board of all companies (other than small companies) be made up of at least 50% Independent Non-executive Directors ('NEDs'). The Company believes RP Edey, BJ Rourke and G Wylie to be independent.

The Chairman of the Board is RP Edey and the Chief Executive Officer is B Wentink (DC Cather until 3 April 2017). The Board has named BJ Rourke as the senior independent Non-executive Director.

Board performance

The Board undertakes a regular formal process to evaluate its effectiveness and that of the Board Committees and individual Directors, consisting of a review of the Board's performance against the guidelines of the Financial Reporting Council on Board effectiveness. The recommendations of the UK Corporate Governance Code are that this review be undertaken by an external facilitator every three years. Such an external review was last undertaken in November 2012, this being the first full year that Avocet had been listed on the main board of the London Stock Exchange. The Board acknowledges that the next external review is overdue, however this has been deferred for reasons of cost constraint.

The most recent internal review was completed in April 2015, prior to which Board members were asked to submit assessments of the performance of the Board as a whole, as well as individual Directors, the Senior Independent Director and the Chairman, against a range of criteria and requested to provide further details on areas where improvements could be found. The results of this exercise were then fed back to the Board and discussed at a Board meeting on 27 April 2015.

Board and Committee meetings

Attendance at Board and committee meetings by the relevant Board members during 2016 is set out below (note that 'n/a' indicates that a Director was not a member of the committee at any time during the year):

Board Committees

While the Board retains responsibility for making key decisions, it also delegates other matters to various standing Committees. The purpose of this is to allow a more focused discussion on specific matters which would benefit from a forum outside the Main Board, with a different balance of skills, experience and independence from its members. Further information on each of these Committees, along with their terms of reference, is available on the Company's website www.avocetmining.com.

Nomination Committee

Purpose

The Nomination Committee was established to review the structure, size and composition (including the balance of skills, knowledge and experience) of the Board and its Committees and to review succession planning for the Board and senior management.

It is also responsible for monitoring the ongoing performance of the Board and its Committees. The Nomination Committee reports and makes recommendations to the Board in respect of any action required in these matters.

Composition

The Nominations Committee must consist of not less than three Non-executive Directors. The current membership of the Committee comprises all of the Non-executive Directors of the Company, namely RP Edey (Chairman), BJ Rourke and G Wylie.

Operations

The Nomination Committee meets at least once a year, or more frequently as required. In 2016, it met in December to consider whether any changes were required to the directorate. Although none were necessary at that time, on 31 March 2017, the Committee convened to recommend the appointment of B Wentink as Chief Executive Officer, in place of D Cather, who moved to become Technical Director. In addition, the Committee accepted the resignation of J Wynn as Finance Director, effective 1 May 2017 (at which point he would become a Non-executive Director) and approved the appointment of Y Bolleurs as Chief Financial Officer in his place. Both B Wentink and Y Bolleurs joined with effect from 3 April 2017.

Responsibilities

The Nomination Committee has the following responsibilities:

• to review and report on the composition of the Board and its Committees;

• to review and report on the performance of the Board and its Committees;

• to make recommendations as to changes to the Board and its Committees, including the nomination of Chairman of the Board, chairmen of each Committee and senior independent non-executive;

• to ensure succession planning for executive Directors and senior managers;

• to review the overall leadership needs of the Group, including involving external advisers to facilitate this review and to assist with succession;

• to monitor appointments to the Board and ensure compliance with statutory, legal and other regulatory requirements; and

• to make recommendations to the Board considering any matters that might call into question the suitability of Directors or senior managers to continue in their roles.

The Nomination Committee is also responsible for ensuring compliance with the principles of B.2 of the UK Corporate Governance Code, specifically with regard to the need for candidates to be considered on merit, against objective criteria and with due regard for the benefits of diversity on the Board, including gender. It is also responsible for satisfying itself that plans are in place for orderly succession for appointments to the Board and to senior management, so as to maintain an appropriate balance of skills and experience within the Company and on the Board and to ensure progressive refreshing of the board.

Following the resignation of N Harwerth in 2013, the Board has not included any female members, although from 3 April 2017, the Company appointed a female Chief Financial Officer (Y Bolleurs). Although the Board values equality in all areas, it does not believe it would be in the interests of the Company at the present time to seek to add an additional member to the Board in order to address the issue of gender balance.

The Nomination Committee met only once in 2016, as no changes to the Board or senior management were proposed nor considered. In March 2017, the Nomination Committee met to consider changes to the executive management team and recommended the appointment of B Wentink as CEO and Y Bolleurs as CFO, with D Cather to become Technical Director. In addition, the Nomination Committee recommended the appointment of J Wynn to a Non-executive director role, following his decision to stand down as executive director with effect from 1 May 2017.

Remuneration Committee

Purpose

The Remuneration Committee reviews the performance of the Directors and Executive Committee members and sets the scale and structure of their remuneration with due regard to the interests of the shareholders and the overall performance of the Group.

The Remuneration Committee also makes recommendations to the Board concerning the Company's overall philosophy and policy with respect to executive remuneration, bonuses and incentive arrangements including share and option awards, compensation payments and pension rights.

Composition

The Remuneration Committee must consist of not less than three Non-executive Directors. Its members and chairman, are to be determined by the Board. The current membership of the Committee comprises BJ Rourke (Chair), RP Edey and G Wylie.

Operations

The Remuneration Committee normally meets at least twice a year, or more frequently as required. In 2016, the Remuneration Committee met twice. The Committee considered the remuneration strategy for the Group as a whole, particularly in the context of scarce funds, as well as to approve the Remuneration Report in the 2016 Annual Report.

Further details on remuneration matters are set out in the Remuneration Report on pages 38 to 47.

Responsibilities

The Remuneration Committee is responsible for the following matters:

• to review the performance objectives and determine and agree the appropriate levels of remuneration for the Executive Directors and the senior management of the Company;

• to determine the remuneration of the Chairman of the Board, Non-executive Directors, as well as Chairmen and members of all Board Committees, subject to the condition that no person shall participate in discussions relating to his or her own remuneration;

• to review the design and management of Group salary structures and incentive schemes and to ensure proper authorisation for any awards made under such schemes;

• to review the recommendations of the Chief Executive of the Company as to the grant of share awards and other bonuses and to approve such awards as appropriate; and

• to review and approve the Remuneration Report in the Avocet Mining PLC Annual Report.

Audit Committee

Purpose

The Audit Committee reviews the principles, policies and practices adopted in the preparation of the financial statements of Avocet Mining PLC and its subsidiaries, as well as ensuring any other formal announcements relating to the financial performance of the Group comply with relevant statutory and regulatory requirements.

The Audit Committee is also responsible for assisting the Board in discharging its responsibilities with respect to the integrity of the Company's financial statements, the effectiveness of the systems of governance, risk management and internal control and monitoring the effectiveness and independence of the external auditors. It also reviews the requirement for an internal audit function within the Group.

Composition

The Audit Committee must consist of not less than three Independent Non-executive Directors. The Audit Committee is chaired by BJ Rourke and also comprises G Wylie and R Edey. The UK Corporate Governance Code stipulates that at least one of the members of the Audit Committee must have recent and relevant financial experience. The Company believes that all members have such experience, in particular BJ Rourke, who served for 17 years as an audit partner at PricewaterhouseCoopers.

Operations

The Audit Committee is required to meet twice a year, but in practice meets more frequently. In 2016, the Committee met on four occasions. In addition to its members, the Audit Committee also routinely invites the Group's auditors, the Finance Director and other Board members to attend its meetings as required.

During 2016 and up to 6 June 2017, the Audit Committee considered the key areas of risk and judgement relevant to the Company, including their treatment in the Financial Statements (Full Year and Interims). These included:

- The ongoing liquidity and going concern of the Group - in particular to consider the risks to the interests of the Company's creditors and stakeholders of continuing in operation and whether or not the Company continued to be a going concern;

- The valuation and impairment of the Company's assets, - including an assessment of the cost and carrying value of the Inata gold mine and Tri-K projects, based on internal cashflow forecasts, market valuations and other indications from third parties;

- Legal matters; and

- The adequacy of financial controls at Inata.

All of these matters were addressed through discussions between Board members and senior management, as well as reviews of forecasts, updates on correspondence and negotiations with third parties and (where relevant) preparation of papers.

In addition to matters raised at the Committee meetings, Avocet management submits working papers and notes outlining the key issues, which are circulated to the Committee for consideration ahead of the meetings.

During 2016, the Audit Committee considered the performance of the Group's external auditors. Upon reviewing the plans and results of the 2015 audit work, the Audit Committee was satisfied with the way in which the 2015 year-end audit was conducted.

It was noted that Grant Thornton had been the Company's auditors for over 15 years without there being any external tender process since their appointment. It was noted, however, that the partner leading the audit, as well as the audit team, had changed regularly over this period. The Company engaged Grant Thornton in respect of two non-audit services: as reporting accountants in respect of the Class 1 Circular for the Tri-K transaction published on 22 November 2016; and for VAT advisory services in 2016. The partners and staff involved in these discrete pieces of work were entirely separate from the audit teams and the Audit Committee therefore does not believe this work compromised the independence of the auditors.

Responsibilities

The Audit Committee reviews and monitors the integrity of the Group financial statements and press releases, as well as any other formal announcements relating to the Company's financial performance. As part of this review, it focuses in particular on areas of judgement, appropriateness of policies, going concern matters and any other areas it identifies as risks (e.g. on the grounds of materiality or uncertainty).

In addition, the Audit Committee reviews plans for and the conduct of, the Group's external audit, receiving the report of the auditors and thereby monitoring not only the performance of the Company's finance teams but also that of the auditors themselves. On consideration of the performance of the external auditors (Grant Thornton UK LLP), the Audit Committee concluded that it was appropriate to recommend their re-appointment to the shareholders at the AGM on 19 June 2015.

The Audit Committee is also responsible for reviewing the internal controls of the Company and assessing the requirement for an internal audit function. The Audit Committee concluded that the key activities of an internal audit function (including a review of internal controls) were being undertaken by the finance team and that in view of the size of the organisation, a separate internal audit team was not required.

Safety, Health Environment and Communities ('SHEC') Committee

Purpose

The SHEC Committee was established to provide the Board with assurance that the appropriate systems are in place to deal with the management of health, safety, environmental and community relations matters. The SHEC Committee was established in October 2011 in order to formalise a separate forum exclusively for the purpose of reviewing such matters.

Composition

The SHEC Committee comprises G Wylie (Chairman), BJ Rourke and RP Edey.

Operations

The SHEC Committee met twice during the year. At that meeting, it focussed on an assessment of the safety environment at Inata, as well as considering ongoing matters relating to community relations, health, environmental and security. The Committee also focused on the ongoing security risked posed by the terrorist attacks in Burkina Faso, especially those which took place in the Soum region where the Inata mine is located. The Committee approved management recommendations that measures be taken to improve security at the mine site, at Ouagadougou and for convoys between the two.

Responsibilities

The SHEC Committee's particular responsibilities include the following:

• to establish and review the Group's policies with respect to health, safety, environmental and community relations matters;

• to ensure adequate procedures and responses are in place to deal with accidents, fatalities, or other serious medical, environmental, or safety issues;

• to monitor and review the performance of the Group with regard to health, safety, environmental and community relations matters and to ensure compliance with relevant local and international regulations;

• to review and investigate any serious accidents and deaths that occur in connection with any Group employees, contractors, consultants, suppliers, or agents operating on behalf of Avocet, which may take place on or off Group sites, in order to establish cause and recommend further actions as may be required;

• to monitor the quality and frequency of reporting of health, safety, environmental and community relations matters;

• to maintain awareness of all regulatory changes and to ensure the Board is aware of relevant material changes, in health, safety, environmental and community relations matters;

• to report to the Board with regard to any health, safety, environmental and community relations matters that should be brought to its attention; and

• to review and approve the Group Health, Safety and Environment and Community Relations disclosures within the Annual Report, or other relevant publications.

Service Contracts

No Director has any service contracts, consultancy agreements or other such arrangements with a notice period in excess of one year.

Going Concern

The Board acknowledges its responsibility towards safeguarding the assets of the Company for the benefit of shareholders, as well as its wider duties towards stakeholders. This includes the regular monitoring of cashflows and forecasts. The appropriateness of the going concern basis for the preparation of the 2016 financial statements is discussed in detail in note 1 to the financial statements.

Non-Audit Services

The Board regularly reviews the provision of non-audit services from its auditors, at least annually through discussion at Committee meetings. The Board is satisfied that the provision of non-audit services by Grant Thornton UK LLP is compatible with the general standard of independence for auditors and does not give rise to any conflict of interest.

Internal Control

The Board is ultimately responsible for maintaining a sound system of internal control to safeguard shareholders' investment and the Company's assets, for which it looks to the recommendations of the Audit Committee. Such a system is designed to manage, but may not eliminate, the risk of failure to achieve business objectives. There are inherent limitations in any control system and, accordingly, even the most effective system can provide only reasonable and not absolute, assurance against material misstatement or loss. The Board review the effectiveness and adequacy of internal controls on an annual basis and is satisfied that the internal control systems provide sufficient assurance as to the safety of the Company's assets and the value of the Group's operations as a whole.

In accordance with the guidance of the Turnbull Committee on Internal Control, an ongoing process has been established for identifying, evaluating and managing risks faced by the Company.

During 2016, the key financial risk faced by the Company as a whole was identified as being liquidity and in particular, the ability of the subsidiaries within the Group to meet obligations as they fell due. Considerable focus was placed on this area by all finance teams and by the Audit Committee and members of the Board.

Finance teams were asked to maintain updated and detailed cashflow projections, which were reviewed by senior management and reported to the Board and Audit Committee. Details of discussions with creditors and potential funding providers were reported to the Committee by the Finance Director and a considerable amount of time was spent ensuring that the Company was able to meet its obligations and responsibilities.

The financial reporting systems of the Group are subject to internal and external review. The accounts of the main operating entity in Burkina Faso are subject to both IFRS group audits (undertaken by Grant Thornton) as well as local compliance audits in accordance with SYSCOA and OHADA (undertaken by Fidexco). Reconciliations are undertaken between sub-ledgers and general ledgers, as well as between internal accounts and third party statements (bank statements, supplier statements and other third party sources). Financial results and KPIs are reported from subsidiaries on a monthly basis and reviewed and consolidated by head office staff.

Employees

The Company's employee matters are discussed in the Strategic Report on page 20.

Anti-bribery and whistleblowing

The Company has incorporated into its code of conduct and ethics an anti-bribery policy, details of which are referenced in all employee service contracts. In addition, all employees in both the UK and West Africa are required to attend specific anti-bribery training sessions and sign a register to confirm their attendance and understanding. Regular updates and presentations are made to employee groups to ensure greater understanding of the principles behind Avocet's policy and to allow discussions on how to deal with practical issues that may arise.

In addition, the Company has a whistleblowing policy and procedure, to ensure any concerns raised by employees are able to be dealt with in the appropriate manner.

Relations with Shareholders

The Company values the views of its shareholders and recognises their interest in the Company's strategy and performance, Board membership and the quality of its management teams. It holds regular meetings with and presents to, its institutional and private shareholders to discuss its objectives.

The AGM is a forum for communicating with institutional and private investors and all shareholders are encouraged to attend and participate. The Chairmen of the Board Committees are also available to answer questions, along with the Senior Independent Non-executive Director (BJ Rourke). Separate resolutions are proposed on each issue so that they can be given proper consideration and there is a resolution to approve the Annual Report and Accounts and to approve the Remuneration Report. The Company counts all proxy votes and will indicate the level of proxies lodged on each resolution, after it has been dealt with by a show of hands.

The Company operates and regularly updates its website (www.avocetmining.com) with shareholder information.

The Company has engaged the services of Blytheweigh to assist with its financial public relations.

Risk Management

The Board is responsible for the management of the Company on behalf of the shareholders. The objective of the Company is to create long term value for shareholders and the Board is responsible for delivering that objective by governing the Company and its subsidiaries.

In so doing, the Board is responsible for understanding the risks faced by the Company and determining the risk appetite of the Company. The Board ensures these risks are managed appropriately, in order to draw a balance between safeguarding the assets and interests of the Company and maximising its exposure to sustainable growth and profitability. The Board and senior management regularly monitor areas of risk. Senior management regularly visits operations to understand site-specific risks as well as to assess local political, fiscal and legal risks. In this regard, the Group maintains a strict policy of compliance with local laws and regulations and community issues (including safety and health, community development and environmental responsibility) are at the forefront of strategic and operational decision-making.

Although the Board retains responsibility for managing the overall risk of the Group, certain specific risk areas are delegated to Committees as follows:

• Financial risks and internal financial controls are reviewed by the Audit Committee;

• Safety, Health and Environmental risks are monitored by the SHEC Committee; and

The key risks that relate to the Group have been set out on pages 15-16, categorised as follows:

• Economic risks - Risks associated with changes in the markets in which it operates

• Operational risks - Risks relating to the operation of the mines and exploration projects

• Country risks - Country-specific risks related to Burkina Faso, Guinea and any other countries in which Avocet may do business

• Other risks - Other significant risks not covered by the above categories.

Russell Edey

Chairman

6 June 2017

REMUNERATION REPORT

This report is presented to shareholders by the Board and provides information on Directors' remuneration for the year ended 31 December 2016. This report complies with the requirements of both the Large and Medium-sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2013 and the UK Corporate Governance Code. As such this report is divided into three sections; the Annual Statement highlights key decisions on remuneration, the Directors' Remuneration Policy details the Group's remuneration policies and links to strategy and the Annual Report on Remuneration focuses on the implementation of the remuneration policy in 2016 and how we intend to implement our remuneration policy in 2017.

ANNUAL STATEMENT

In setting the Remuneration strategy for 2016, the Remuneration Committee was required to take into consideration the shortage of cash across the Group, as well as the low share price. While the Committee recognised the importance of incentivising Executive Directors, these constraints effectively meant that it was impossible to set appropriate targets that would be affordable, or acceptable to shareholders. As a result, no bonus targets were set and no share awards were made of any kind during the year.

The Company has retained its remuneration schemes, as approved by shareholders and these are set out in the report below. At the present time, while the Company focuses on refinancing, no awards are proposed under these schemes.

DIRECTORS' REMUNERATION POLICY

Remuneration Policy for Executive Directors

The Company operates within a competitive environment and its performance depends on the individual contributions of the Directors and employees. Executive remuneration packages are designed to attract, motivate and retain executives of the calibre necessary to manage the Company's operations and to reward them for enhancing shareholder value.

The framework for remuneration for the Executive Directors consists of six main elements, as follows:

Remuneration Policy for Non-Executive Directors

Awards under previous remuneration policies

Any awards or remuneration commitments made to directors under previous remuneration policies will continue to be honoured.

Approach to recruitment remuneration

In considering the remuneration levels for new directors, the Committee takes into account the market rate for similar roles, as well as considering the remuneration levels offered to existing and previous directors of the Company. The new director would be entitled to the same remuneration schemes as the current directors, as set out below.

1 Face value is based on the underlying share price at the date of the award. The final value of the award at the time of vesting may be lower, depending on whether performance conditions are met (in the case of PSP awards), or whether the share price at the time of exercise exceeds the grant price (in the case of Options).

No compensation is normally offered for the forfeit of remuneration from previous employment. However, under exceptional circumstances, the Committee has discretion to make a one-off award to a newly appointed Executive Director in recognition of any amount forfeited. Any such award will be made on a like-for-like basis, with a fair-value no higher than that of the awards forfeited, taking into account time to vesting and any performance conditions that may apply. It may also be necessary for the Committee to utilise Listing Rule 9.4.2 R to make an award under a different structure to the current incentive plans outlined in the policy table.

Where an Executive Director is appointed as a result of internal promotion, any contractual commitments made prior to their promotion may be honoured.

When recruiting a new Non-Executive Director, the Board will determine the appropriate fee level in line with the policy stated above.

Remuneration scenarios

During the year, D Cather was entitled to a gross salary of £300k plus benefits of £6k and J Wynn received £200k plus benefits of £22k.

D Cather voluntarily waived 10% of his contractual salary and pension entitlement with effect from October 2015 and 7.3% with effect from May 2016, in order to conserve cash for the Company. The Non-executive Directors (R Edey, G Wylie and B Rourke) also agreed to suspend payment of their director's fees from November 2016 until the settlement of the Tri-K transaction was concluded, which occurred in May 2017.

No Director received a target in respect of the Annual Incentive Scheme, nor an Share Options or PSP shares, therefore there is no additional remuneration that could be achieved for either On-target or Maximum performance in respect of 2016.

http://www.rns-pdf.londonstockexchange.com/rns/7391H_2-2017-6-10.pdf 

Service contracts

Executive Directors currently have employment contracts which may be terminated by the Company with twelve months of notice, or by the employee with six months of notice. No other payments are made to Executive Directors for compensation for loss of office. Payments equivalent to the notice period may be made by the Company's subsidiary, Resolute West Africa Limited, in the event that insufficient funds are held at Avocet Mining PLC following a change of ownership of that subsidiary.

Other than as outlined above, there are no additional payments for Directors that are triggered by a change of control, nor are there any other remuneration-related contractual provisions such as side-letters.

The Chairman and other Non-executive Directors each have a formal letter of appointment setting out their duties and responsibilities. These letters are available for inspection at the Company's registered office.

Exit payment policy

The Company's policy is to limit severance payments on termination to pre-established contractual arrangements. In the event that the employment of an Executive Director is terminated, any compensation payable will be determined in accordance with the terms of the service contract between the Company and the employee, as well as the rules of any incentive plans. Any payment in lieu of notice will be limited to salary and benefits and will be subject to mitigation. Below we have outlined how incentives are typically treated in specific circumstances.

Annual bonus: Executive directors who leave during a year other than for misconduct may, at the discretion of the Committee, be entitled to receive a bonus which is pro-rated for the proportion of the year worked, subject to the extent of achievement of the performance targets at the date of termination.

PSP and Share Option awards: For good leavers (normally defined as a participant ceasing to be employed by the Group by reason of death, injury, ill-health or disability, retirement with the agreement of the Board, redundancy, the employing company ceasing to be part of the Group, or any other reason which the Board permits), awards may vest within 30 days of cessation, subject to pro-rating for the proportion of the vesting period elapsed and the extent to which performance conditions are determined to have been achieved. For leavers for any other reason, awards lapse on cessation.

In the event of a change of control, awards may vest, subject to pro-rating for the proportion of the vesting period elapsed and the extent to which performance conditions are determined to have been achieved.

The Committee retains discretion to adjust the treatment of awards, within the rules of the relevant plans, to reflect individual circumstances and to ensure fairness for participants and shareholders.

In the event of compromise agreements being entered into, it is normal practice to include the payment of relevant moderate legal fees (e.g. £500) for the departing Director, as is normal practice.

Difference between director remuneration policy and that for other employees

The remuneration policy for senior executives is consistent with that for Executive Directors, including participation in the Company's PSP and Share Option schemes. Below this level employees participate in incentive schemes tailored to their role, as appropriate and receive salaries and benefits which are consistent with local market practice.

Consideration of employment conditions

When setting Executive Director remuneration, the Committee considers the remuneration and overall conditions for all employees. The Committee does not annually consult with employees when deciding the remuneration policy for Executive Directors, however the Committee receives regular updates on salary increases, bonus and share awards made to Group employees and is aware of how the remuneration of Directors compares to that of other employees. These matters were taken into account when conducting the most recent review of executive remuneration.

Consideration of shareholder views

The Committee is always open to feedback from shareholders on remuneration policy and consults formally with them in advance of any significant changes being made. Our current remuneration policy remains unchanged since the approval at the Company's Annual General Meeting in May 2013.

ANNUAL REPORT ON REMUNERATION

This section of the report presents the remuneration paid to or receivable by directors in respect of 2016, as well as how we intend to implement our policy for 2017.

Please note that following the 10:1 consolidation of the Company's ordinary shares on 9 June 2016, all share figures quoted here (including the number and pricing of share options and PSPs) have been restated for consistency.

Single figure of total remuneration - audited

Notes

1 Benefits include healthcare and dental cover

2 Reflects the total value on vesting of long-term incentives with performance periods ending in the year. Note no options were exercised by Directors in 2015 or 2016

3 A Norris stood down from the Board on 7 September 2015

4 J Wynn was appointed to the Board on 7 September 2015

5 M Donoghue stood down from the Board on 19 May 2015

2016 annual incentive outcomes - audited

During 2016, as in 2015, the Company was under considerable pressure to conserve cash, in order to meet its obligations to creditors and financiers as far as possible. The Remuneration Committee therefore determined that, in order for there to be sufficient cash available to support an annual incentive payment to Directors and Senior Management, the performance of the Company in those KPIs normally used as a basis for target-setting (gold production, cash costs, cashflow, etc) would need to be substantially above levels that might be reasonably expected and on that basis, no annual incentive targets were set for 2016.

Long-term incentives vesting in 2016 - audited

Performance Share Plan (PSP) vesting in 2016

There were no PSP shares which vested in 2016.

Share Option Plan vesting in 2016

Details of those options held by Directors which vested in 2016 and 2015 are set out on pages 44 to 46. None of these options had any embedded value on the date on which they became exercisable.

Scheme interests awarded during 2016 - audited

No share options were awarded to any staff during 2016.

Payments to past directors - audited

No payments were made to past Directors in 2016

Payments for loss of office - audited

No loss of office payments were made to Directors in 2016

Sums Paid by Third Parties

Neither of the Executive Directors received any additional fees during the year relating to external appointments.

Relative importance of spend on pay

Aggregate employee remuneration reduced in 2016 compared to 2015 as a result of a reduction in the workforce across the Group, as well as a targeted policy of replacing expatriate managers with locally-trained staff.

No dividends have been paid, nor are any proposed, in respect of 2015 or 2016.

Percentage change in CEO remuneration

The table below sets out the percentage change in CEO salary, taxable benefits and annual bonus from 2015 to 2016 compared to the wider employee population.

D Cather was not awarded a pay rise in 2015 or 2016 and received no Bonus for either year. The other employee group above represents all Avocet employees, excluding the Executive Directors.

CEO remuneration and Company performance

The chart below shows Avocet's Total Shareholder Return ('TSR') compared with the FTSE All Share Index and FTSE Gold Mines Index over the five-year period from 31 December 2011 to 31 December 2016. The FTSE Gold Mines Index has been chosen as it comprises companies who are operating in the same sector as Avocet and are exposed to broadly similar risks and opportunities. In addition, the FTSE All Share Index has been chosen as an appropriate general index of UK equities.

http://www.rns-pdf.londonstockexchange.com/rns/7391H_3-2017-6-10.pdf 

1 Prior to May 2011, options were awarded based under an old Share Option scheme

2 PSP performance period in respect of the first awards made to David Cather in 2012 is three years. The 2012 award was not completed until 31 December 2014, while the 2013 awards did not complete until 31 December 2015. No awards were made in 2015 or 2016.

Implementation of remuneration policy in 2017

Executive Directors

Executive Director salary levels for 2016 were as follows:

1 D Cather waived 10% of his contractual salary and pension entitlement with effect from October 2015 and 7.3% with effect from May 2016

2 M Norris stood down from the Board on 7 September 2015

3 J Wynn was appointed to the Board on 7 September 2015, at a salary of £200,000.

In view of the recent performance of the Company and taking into account relevant benchmarking, the Committee decided not to increase salaries for Executive Directors in 2017.

The salary for B Wentink, who was appointed on 3 April 2017, was set at £250,000 per annum.

Non-Executive Directors

Non-Executive Director fees for the years 2013-2017 are as follows:

Fee levels for Non-executive Directors were reduced in 2013 and 2015. The Chairman's fee was fixed at £30,000 per annum, with the other Non-executive Directors' fees at £25,000. No additional fees are payable in 2017 in respect of committee chairmanships.

In recognition of cashflow pressures facing the head office of the Company, the Non-executive Directors agreed to defer fee payments from November 2016 until the completion of the Tri-K transaction, which was completed in May 2017.

Directors' shareholdings - audited

The beneficial interests of Directors and Persons Discharging Managerial Responsibility ('PDMRs') in the shares of the Company at 31 December 2016 were as follows:

The following share options held by PDMRs have performance conditions:

Performance conditions outlined are that the share price change between the date of grant and the date of exercise must be higher than the change in the value of the FTSE Gold Mining Index over the same period

None of the other share options are subject to outstanding performance conditions, other than the discretion retained by the Remuneration Committee to disallow the exercise of any options for any reason, for instance if it believes underlying business performance to be insufficiently strong.

There are no shareholding guidelines currently in place for any of the directors.

Employee Benefit Trust and UK Share Incentive Plan

The Company has established an Employee Benefit Trust ('EBT') and a UK Share Incentive Plan ('SIP').

The EBT, which is administered by independent trustees, is funded by Avocet and holds shares that may be used, on the recommendation of the Remuneration Committee and at the discretion of the trustees, exclusively for the settlement of employee share awards. Shares released in this manner may be for the settlement of awards made under the Share Bonus Plan, Performance Share Plan, Annual Incentive Plan, or to satisfy the exercise of share options, as well as previous discretionary share bonus awards. Restricted shares may be held in the EBT prior to release.

During the year ended 31 December 2016, there were no movements of shares held under the EBT:

The EBT held 33,430 shares at 31 December 2016.

During the year ended 31 December 2016, there were no share allocations or releases were made under the SIP.

The SIP held 190 shares at 31 December 2016.

Share Option Schemes

In 2011, the Company introduced a new Share Option Plan. Prior to 2011, the Company awarded share options under an older scheme, originally introduced in 1999. All new awards are made under the newer scheme, however some outstanding awards under the older scheme are still outstanding and may be exercised at the appropriate time, providing the relevant performance conditions are satisfied (specifically the requirement for growth in the Company's net assets per share and returns to shareholders, through share price increase and dividends, to be in excess of at least half of the companies in the FTSE Gold Mines Index).

The share options held by the Executive Directors under either of these schemes during the year were as follows: