AVM.L Regulatory News (AVM)

Avocet Mining PLC

2015 Full Year Results

2015 SUMMARY

KEY FINANCIAL METRICS

David Cather, Chief Executive Officer, commented:

"2015 was a difficult year for the mining sector as a whole, and Avocet was no exception. As well as lower gold prices, Inata faced a number of challenges throughout the year, and saw production fall to 74,755 ounces. In response, measures were taken to reduce production and support costs across the organisation, and capex was reduced to minimum levels in order to conserve cash. At Tri-K, the Company's efforts to raise finance were hampered by the bear market for mining finance, as well as the ebola crisis. Many challenges remain; however the outlook for 2016 is more positive, with an increase in the gold price during Q1 and M&A activity indicating that investor confidence may be returning. An updated Life of mine plan for Inata is being developed at the present time, and I hope to be able to provide more detail on our discussions regarding the financing of Tri-K and Souma in due course. "

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% of the Inata Gold Mine. The Inata Gold Mine poured its first gold in December 2009 and produced 74,755 ounces of gold in 2015. 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 kilometres from the Inata Gold Mine.

In Guinea, Avocet owns 100% of the Tri-K Project in the north east of the country. Drilling to date has outlined a Mineral Resource of 3.0 million ounces, and in October 2013 the Company announced a maiden Ore Reserve on the oxide portion of the orebody, which is suitable for heap leaching, of 0.5 million ounces. As an alternative, the potential exists to exploit the entire 3.0 million ounce Tri-K orebody via the CIL processing method. The Company announced on 2 April 2015 that an exploitation permit had been awarded for Tri-K.

CHAIRMAN'S STATEMENT

During 2015, the strategic focus was to optimise cashflow generation at the Inata gold mine, while looking to exploit the upside opportunities represented by the Souma deposit in Burkina Faso, and the Tri-K project in Guinea.

The fall in the gold price during the year, together with a series of operational challenges at the mine itself, meant that revenues from gold sales at Inata were lower than in 2014; however this was to some extent partly mitigated by continued hard-won cost reductions. Nevertheless, tight margins put pressure on plans to repay supplier credit balances and financial obligations, and at times required difficult negotiations with the mine's stakeholders.

The continued operation of the mine is testament to the flexibility and adaptability shown not only by Inata staff and management, but also by its creditors and wider stakeholders. It is likely that compromises will remain necessary on all sides for the remainder of the mine life, as it remains clear that the best way to maximise the repayment of the mine's debts is for it to be allowed to continue in operation.

One effect of this cashflow shortage was that the programme of drilling and test work undertaken in respect of the Souma deposit during the year was put on hold, and is now dependent on raising external finance in order to be completed. We believe that the funding required for this exercise, which should allow the completion of a Feasibility Study and application for a mining permit to be made before the end of 2016, is value-adding, and likely to be in the interests of all stakeholders.

The award of the mining permit at Tri-K on 27 March 2015 represented a key milestone in the development of that project. However, the exercise to raise the finance necessary for the construction of the mine, which is currently estimated to be approximately US$60 million, was affected by the downturn experienced by the mining sector globally, as well as by the ebola crisis in Guinea.

Many of the traditional sources of mining finance (bank debt and equity markets) have been particularly averse to financing junior mining projects in developing markets, with only those projects with the clearest and most certain returns being funded. Tri-K offers a unique opportunity for investors to participate in what we believe to be a far larger project than the initial heap leach outlined in the Feasibility Study, and we continue to target investors who have an appetite for growth combined with a tolerance of the specific project and jurisdictional risks.

We hope to be able to provide further details with regard to the financing of Tri-K, which remains an evolving situation, in due course.

At the corporate level, in September, Mike Norris stepped down as Finance Director after more than eight years, and was replaced by Jim Wynn, who had previously been Head of Finance and Company Secretary. In addition, at the AGM in May 2015, Mike Donoghue stood down as a Director, having joined the Board in 2006. I would like to thank both for their contributions to the Company.

2015 was undoubtedly another difficult year for Avocet Mining PLC, and many challenges remain. However the recent rise in the gold price, allied with some increase in financing and M&A activity in the sector, give cause for cautious optimism.

Russell Edey

Chairman

CHIEF EXECUTIVE'S STATEMENT

Inata Gold Mine, Burkina Faso

Operations at Inata during 2015 were marked by continuous cashflow pressures, and the need to ensure production levels were maintained in order to generate sufficient gold sales to meet payment obligations.

The mine produced 74,755 ounces at a cash cost of US$1,058 per ounce, compared with 86,037 ounces at US$1,186 per ounce in 2014. Realised gold prices fell from US$1,263 per ounce in 2014 to US$1,167 in 2015. Despite the fall in production, the mine was able to keep cash costs below spot prices.

In December 2014, an illegal strike took place which resulted in the mine being closed for several weeks. By January 2015, the plant returned to operation, using stockpiled ore until the mining crews were re-manned and mining operations returned to normal during February. This disruption affected gold production, and in particular mining in Q1 2015, resulting in the need to adapt the mine schedule to ensure adequate production was maintained to meet ongoing cashflow requirements.

Pressure on cashflows at the mine was further intensified by lower gold prices in the year. In particular, spot prices fell below US$1,100 per ounce in July and again in November.

In September 2015, an attempted military coup took place in Burkina Faso which meant the mine was unable to export gold shipments for three weeks. This put pressure on already strained relationships with key suppliers, and a short term loan of 5bn CFA (US$8 million) was negotiated with Coris Bank to ensure the continued delivery of critical supplies.

Cashflow shortages at the mine affected almost all aspects of operations: the mine schedule developed at the start of the year had to be revised in order to source cleaner oxide ore to meet short-term cash requirements; the lack of available funds for maintenance catalysed innovative, low-cost solutions, which were necessary in order to maintain mining volumes; managing gold recovery levels became difficult as ore types varied frequently from oxides to preg-robbing lithologies; and deliveries of critical supplies to site were at times delayed as a result of late payment of invoices.

In spite of these challenges, mining volumes of 14.1 million tonnes exceeded 2014 levels (14.0 million tonnes), while plant throughput of 1.9 million tonnes was in line with the previous year. Grades varied throughout the year - during the first half, higher grade carbonaceous materials were mined, while in later quarters, lower grade, cleaner ores were used for mill feed. Average grades in the year were 1.85 g/t compared to 1.77 g/t in 2014.

Recovery levels decreased from 79% to 67% year-on-year, due to the increase in metallurgically inferior carbonaceous ore treated in 2015.

Souma, Burkina Faso

Exploration activity in Souma during 2015 consisted of additional resource and metallurgical drilling, intended to increase the size and improve the understanding of the deposit, which lies 20km due east of the Inata mine.

The results that have been received to date have been encouraging, and once all assay results have been reported the mineralization models will be updated and new resource models generated.

The Company will then look to advance the project towards a Feasibility Study in 2016, with the target of submitting an application for a mining permit early in 2017.

Tri-K, Guinea

Following the award of a mining permit for the Tri-K project on 27 March 2015, the Company's focus has been to raise finance for construction. In spite of unfavourable market conditions, as well as the ebola crisis which affected travel to and from the region for much of the year, progress has been made with a number of parties who are interested in investing in the project.

The Government has been kept informed of our progress, and have indicated their ongoing support for the project. I hope to be able to provide a more substantive update shortly.

Corporate Review

As with our operations in West Africa, the Company has been successful in reducing its cost base at the corporate level. UK head office administration costs in 2015 were over 60% lower than in the previous year. Funding for these costs, as well as the Company's support teams in Guinea and Mali, came largely from loans extended by an affiliate of Elliott Management, Avocet's largest shareholder, which extended loans totalling almost US$4 million in the year.

It is encouraging that the gold price in Q1 2016 has enjoyed a 15% increase and has been sustained over US$1,200 per ounce, which has buoyed Inata's cashflows and enhanced Tri-K's economics. In addition, recent M&A deals in the West African gold mining space may prove to be early indicators of a return of investor interest in the sector.

David Cather

Chief Executive Officer

FINANCIAL REVIEW

Financial highlights1

1 Prepared in accordance with International Financial Reporting Standards.

Revenue

Group revenue for the year was US$85.0 million compared with US$110.4 million in 2014. The Group sold 72,872 ounces at an average realised price of US$1,167 per ounce during 2015, compared with 87,425 ounces sold at an average realised price of US$1,263 per ounce in 2014. The lower revenue reflected lower gold production in the year, as well as a fall in the average realised spot price.

Gross loss and unit cash costs

The Group gross loss in 2015 was US$4.9 million compared with US$19.3 million in 2014, an improvement of US$14.4 million. The impact of lower gold production and spot prices was offset by a reduction in costs, particularly in mining, as well as a reduction in the depreciation charge in the year following the decision in June 2015 to impair in full the remaining Inata fixed assets.

Unit cash costs at Inata decreased from US$1,186 per ounce in 2014 to US$1,058 per ounce in 2015.

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.

Loss before tax

The Group reported a loss before tax of US$55.7 million in the year ended 31 December 2015, compared with a loss of US$140.1 million in the year ended 31 December 2014.

In 2015, the Group recognised a number of impairments in relation to its mining and exploration assets. The assets of Inata were impaired by a total of US$45.1 million (2014: US$105.5 million) during the year, primarily as a result of lower gold prices, and changes in production assumptions which had the effect of shortening the mine life and reducing the expectation of cash generation.

Before exceptional items, the loss before tax for the year ended 31 December 2015 was US$10.6 million compared with a loss of US$28.4 million for the year ended 31 December 2014.

Taxation

The Group reported a credit in the tax expense line in the income statement of US$6.0 million in 2015 (2014: tax charge US$9.7 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 expects these balances to be settled.

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$2.2 million in 2014 to a loss of US$2.0 million in 2015. This reflected the movements described above in respect of the gross loss, with the exception of depreciation, which is excluded from EBITDA, as well as reflecting a reduction in head office and corporate costs of some US$4.1 million compared with 2014.

A reconciliation of Loss before tax and exceptionals to EBITDA is set out below:

Cash flow and liquidity

A total cash inflow of US$1.0 million was reported for the year ended 31 December 2015. Net cash generated by operating activities (before interest and tax) totalled US$7.3 million, while capital expenditures amounted to US$3.8 million.

Financing during the year represented an inflow of US$1.8 million including the loan repayments of US$10.2 million to Ecobank, finance lease payments of US$0.4 million, and proceeds from debt of US$3.9 million from Manchester Securities Corp (an affiliate of Elliott, Avocet's largest shareholder) and US$8.5 million from Coris Bank.

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

Included within cash at 31 December 2015 was US$3.9 million of restricted cash (31 December 2014: US$4.2 million), representing a US$2.1 million debt service reserve account held in relation to the Ecobank loan (2014: US$2.3 million), and US$1.8 million (2014: US$1.9 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 2015 consisted of US$22.5 million owed to Manchester Securities Corp, US$35.2 million due to Ecobank, and US$8.5 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$23.6 million in the year ended 31 December 2014 to US$5.4 million in the year ended 31 December 2015. This decrease is primarily the result of the impairments applied to the fixed assets in Burkina Faso, which were fully written down at the half-year.

Capital expenditure

The Group's capital expenditure in the year was US$3.8 million analysed as follows:

Capital investment both in property, plant and equipment and in exploration activity was reduced compared with 2014 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.

Jim Wynn

Finance Director

RISK MANAGEMENT AND INTERNAL CONTROL

VIABILITY STATEMENT

Changes to the UK Corporate Governance Code section C2 were introduced in 2014, and set out a number of additional reporting and disclosure obligations in relation to the management and assessment of risks that are relevant to the viability of the Company. These changes apply to years commencing on or after 1 October 2014, and are therefore applicable to this Annual Report.

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. 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

Avocet Mining PLC owed, at 31 March 2016, US$23.9 million to an affiliate of Elliott Associates. These loans, which were made to fund the Tri-K Feasibility Study and ongoing administrative and corporate costs, are repayable on demand.

However, the most likely means for these loans to be repaid, or restructured, is as part of a financing arrangement with a third party with respect to the Tri-K project.

In addition, the Company is likely to rely upon short-term funding from Elliott for its corporate and administrative costs in Guinea until such time as a financing deal has been concluded with regard to Tri-K. Such a deal may take some time to conclude.

Provided Elliott remain confident that discussions regarding Tri-K remain positive and are likely to lead to a favourable outcome with regard to their loan, the Board believes that Elliott have every reason to remain supportive.

Should Elliott request the repayment of these loans, or withhold the provision of short-term loans to cover corporate costs until such time as a restructuring of the loans is achieved, the Company would be obliged at short notice to seek alternative funding, which would be a considerable challenge.

Ability to secure financing for Tri-K

Since 2013, the Company has been actively pursuing funding for its Tri-K project in Guinea. A Feasibility Study for this project was submitted in September 2013, which outlined a heap leach operation with a capex of approximately US$88 million. Since then, work has been undertaken to revise the design of the project with the result that the capex estimation has now reduced to approximately US$60 million.

A mining permit for the project was awarded on 27 March 2015.

Financing discussions in 2014 and 2015 were made more challenging by the slump in the mining sector, which resulted in many institutions restricting their focus to larger and more profitable projects, frequently in jurisdictions with a lower perceived risk. In addition, the ebola crisis in West Africa meant that potential investors were unable or unwilling to undertake site visits necessary for their due diligence procedures.

Nevertheless, interest in the project picked up in the latter part of 2015 and into 2016, buoyed by an increase in the gold price.

At the present time, the Company is in discussions with a number of parties who are interested in investing in the project, and bringing it into production. The precise nature of the investments under discussion varies, and all aspects remain subject to negotiation.

However, until a deal has been formally concluded with a preferred financing partner, there can be no guarantee that the Tri-K project will be funded.

Loss of Tri-K permits

Under the terms of the Guinean Mining Code, if the holder of a mining permit has not commenced construction activity within 12 months of the award of the permit (ie by 27 March 2016), it can be liable to penalties commencing at US$100k per month. If such activity has not commenced within a further six months, then the permit may be withdrawn by the government.

The Company has held a number of meetings with senior members of the Guinean government, at which extenuating circumstances were discussed (notably the bear market for mining finance, and the ebola crisis in Guinea).

Nevertheless, if the securing of financing for the project is not secured, then there is a risk that the Government of Guinea will apply penalties (which may in itself discourage investment in the project), and may ultimately withdraw the permit.

Moreover, any deal involving the external financing of the project will require the approval of the Guinea Government - not only if such proposals involve alterations to the construction plan, but also because any material change in ownership requires approval under the terms of the Mining Code.

Based on the discussions held with interested parties as well as senior Government representatives, the Board has a reasonable expectation that, provided financing terms can be agreed upon, the Government is likely to be sympathetic to proposals that result in a mine being constructed at Tri-K of at least the scale and economics outlined in the Feasibility Study.

Gold price

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

The NPV16 of the Tri-K project, based on the latest financial results, indicate that a break-even gold price would be around US$1,050 per ounce, with every subsequent increase of US$50 per ounce adding around US$8 million in value.

The cash costs at Inata during 2015 and into 2016 have ranged between US$1,000 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 rise in the gold price since January 2016, however, has given cause to believe that the decline in spot prices seen between 2012 and 2015 may be at an end. 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 the end of March 2016 had approximately US$34 million in trade creditors, and a further US$44 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.

There can be no guarantee that one or more creditors might not refuse to allow critical supplies to be delivered to the mine, or might otherwise initiate legal action that could disrupt operations.

However, 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.

The recent uptick in gold prices, together with improved production plans and lower operating costs, are clearly encouraging signs for the mine's creditors and wider stakeholders.

Souma permit

The future of the Inata gold mine beyond 2018 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 2017.

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 Company over the longer term.

Such reviews include the following:

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.

During 2015, the Company continued its successful harmonisation of Safety, Health and Environment teams at Inata into a single department. This included both cross-training of team members as well as the merging of the management systems, to provide a joined-up Safety, Health and Environment ('SHE') service to all activities at Inata.

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

The workforce of Avocet continued to deliver a world-class safety performance and 2015 was the second full calendar year without a Lost Time Incident ('LTI'). The end of the year saw the Company reach 823 LTI-free days which equated to 6.76 million hours. This achievement is especially satisfying as early in the year, it was necessary to recruit a large number of new employees to replace those lost as a result of the strike at the end of 2014. All the new starters were thoroughly inducted, and although 2015 was not an incident-free year, no serious injuries occurred either.

However operations teams have not been resting on their laurels. The Company has continued and will continue to make the safety of the workforce a priority. Through worker, supervisor and management focus, the Company strives to make this aspiration a reality. During 2015, general and targeted safety training were continued, along with safety, health and environment inspections, and the following were completed:

In addition to these general safety meetings and inspections, the following programmes continued throughout the year to reduce risk in areas where specific hazards have been identified:

Health focus

The ongoing battle against Malaria was again the core focus of the medical teams' activities in 2015, working with the environment team to reduce mosquito populations and our malaria incidence rate. Management's control strategies included the continuation of the Internal Residual Spraying (IRS) regime but using a different insecticide to 2014 to prevent the development of insecticide resistance in the mosquito population, as well as fogging around accommodation camps and in local villages. Individual preventative actions were also reinforced through a poster campaign and tool box talks.

Despite the mosquito control measures total cases (542) were higher than in 2013 (349) and 2014 (513). An 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). 2015 also saw very high rainfall and, importantly, a high number of individual rain events which meant that mosquito breeding sites remained viable for long periods which certainly contributed to the high number of cases.

Please see graph attached - No of Malaria cases per month

http://www.rns-pdf.londonstockexchange.com/rns/4119W_-2016-4-26.pdf

SUSTAINABLE DEVELOPMENT

Environmental Focus

Robust environmental monitoring remains the cornerstone to ensuring we deliver on environmental compliance obligations. The Company monitors a wide range of environmental parameters including water quality, air quality, noise and vibration (during blasting) to evaluate potential impacts. Comprehensive monitoring recorded no exceedances of our statutory or self-imposed targets in 2015. Similarly, no adverse impacts related to blasting have been recorded around Inata.

Additional samples were also analysed to continue to develop a baseline dataset for the Souma Project environmental assessment. Throughout the year no analytical results were above target values and management continue to be confident that operations are having no adverse impacts on water quality.

During 2015, a major review and revamp of Inata waste management practices was conducted, and through a series of initiatives, significant improvements in both none-process waste collection and management have been made. Waste recycling has increased through improved segregation and selection at source, coupled with increased resale of reusable/recyclable waste through the Fondation Avocet pour le Burkina ('FAB'), which helps to fund community projects.

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 2015, the Inata mine produced 13,795 tonnes of CO2, or the equivalent of 0.18 tonnes per ounce of gold produced. The following table, which shows the equivalent results over the previous five years, indicates a gradual increase in the quantity of CO2 emitted on a per ounce basis, which can be attributed primarily to longer haul distances as we mine reserves at some distance from the plan.

Community engagement

Since 2010, Avocet has used 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 2015 was on three areas: community healthcare, education, and potable water. Within these focus areas were the following key activities:

Community healthcare

Education 

Potable water 

These facilities are expected to provide clean drinking water for approximately 1,800 members of the local communities.

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 2014 and 2015, 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. During 2015, 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.

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 2015, the average percentage of female employees was 6% (2014: 5%). There were no female Board members during 2015, however, due to the size of the Board, which consisted of just three Non-executive directors and two executive directors in the year.

REVIEW OF OPERATIONS

Inata Gold Mine

Gold produced at Inata in the year totalled 74,755 ounces, compared with 86,037 in 2014. Although a reduction of 13%, this production was achieved against a backdrop of a considerable number of operational and economic challenges.

External events, including the strike in December 2014 (the effects of which continued into Q1 2015), and the attempted military coup in September 2015, disrupted production, and therefore the receipt of revenues from gold sales, for a number of weeks. In addition, the gold price continued to fall to levels which tightened margins further still.

The squeeze on cashflows restricted the funds available to repay historic creditors, which resulted in disruption to the delivery of supplies to site in the year. The need to produce sufficient gold to meet immediate payment obligations meant that at various points, the mine schedule had to be revised in order to maximise short-term production.

During the first two quarters of the year, mining focused on higher grade, carbonaceous material, while in the second half, largely oxide ore was processed, which was lower grade, but offered better recoveries. Mining volumes, apart from in the first quarter (no mining activity took place in January as the mining crews were re-manned in the wake of the strike from the previous month), averaged 1.4 million tonnes per month in 2015.

Safety

In 2015, there were no Lost Time Injuries ('LTIs') reported at Inata, and by the end of the year, the number of man hours worked since the previous LTI had reached 6.76 million. More details on the mine's safety and health performance can be found in the Safety and Health Review in the Annual Report.

Souma

The Souma deposit is located within an exploration licence approximately 20 kilometres east of the Inata gold mine. Avocet owns 100% of the exploration licence, which extends until 2017.

In April 2015 a drilling and metallurgical test work programme commenced that is designed to increase the confidence in the resources already delineated, grow the resources and collect additional metallurgical data.

Although the drilling programme was completed by July 2015, cashflow shortages experienced by the Inata mine meant that funds were no longer available to complete the analysis required to deliver the expected increase in resource at Souma, as well as giving indication as to the preferred treatment strategy for the Souma ore.

Tri-K

Avocet's main project in Guinea is the Tri-K development project in eastern Guinea, located near to Kankan, Guinea's second largest city. Within the Tri-K project area a total Mineral Resource of 3.0 million ounces has been delineated in two deposits, Koulékoun and Kodiéran. In 2013, Feasibility Study work completed on the basis of a heap leach development of the oxide portion of the orebody showed that the project could support a 7 year life of mine, producing an average of 55,000 ounces of gold per year. A maiden Ore Reserve of 480,000 ounces (7.9 million tonnes grading 1.89 g/t Au) was also announced as part of the Feasibility Study.

A mining permit ('permis d'exploitation') for Tri-K was awarded on 27 March 2015. In addition, the surrounding exploration permits were extended for an additional year, and will now expire on 28 December 2016. Avocet owns 100% of all exploration permits it holds in Guinea.

Although no exploration or development activity took place at site during 2015, work continued to review and improve the design and costings of the heap leach study, with the result that construction capex is now believed to be approximately US$60 million (reduced from US$88 million in the Feasibility Study submitted to the government in 2013).

These improvements were the result of rationalising the design of pads and ponds; identifying lower-cost sources of mining and plant equipment; reflecting lower input costs (eg from fuel, cyanide and cement); and revisiting the overall footprint of the site's infrastructure.

For the rest of the year, the activities at Tri-K were focused on hosting potential financial investors and operating partners, who would help Avocet to commence construction, and bring the project into production.

The ebola crisis, together with security issues at Bamako (which serves as a hub for gaining access to the site), disrupted these activities, and meant that progress in financing negotiations was slower than had been hoped. However the recent improvements in the gold price, together with renewed M&A and financing activity in the mining sector in West Africa, have given renewed impetus to this initiative, and at the present time, a number of potential parties are in talks with regard to the project.

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 2015 mining surface.

Inata's Ore Reserves were estimated to be 0.23 million ounces as at 31 December 2015 based on optimised pits shells determined on a gold price assumption of US$1,100 per ounce, reduced from 0.33 million ounces as at 31 December 2014. Cut off grades within the US$1,100 per ounce shells were based on a gold price assumption of US$1,250 per ounce. The reduction in Ore Reserves is largely attributable to mining depletion.

A portion of Measured Resources (1.0 million tonnes) has been classified as Probable Ore Reserves. This downgrading in confidence is due to uncertainty relating to the metallurgical modifying factors under JORC (2012) for material with an active carbon content. The introduction of the carbon blinding circuit in 2014 was a significant step to mitigate this drop in recovery, but a capped metallurgical recovery has been used until actual performance consistently supports a calculated value for metallurgical recovery.

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 2015 topographic surface and above an effective weighted average 0.78 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 2015 topographic surface. Changes to the Mineral Resources are after mining depletion during 2015.

Note: rounding errors may occur

Souma

Ouzeni and Pali

Total Burkina Faso

Tri-K, Guinea

Mineral Resources as at 31 December 2015.

The table below reports the Mineral Resource above a 0.5 g/t Au cut-off.

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

Note: rounding errors may occur

The information in this report that relates to Inata Ore Reserves in Burkina Faso is based on information compiled by Mr Oumar Diakite, who is a qualified Mining Engineer but not a Competent Person, as defined in the 2012 Edition of the "Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves".

Tri-K Ore Reserves were estimated by Mr Clayton Reeves (MSAIIM). Mr Reeves is a Competent Person as defined by the JORC Code. Mr Reeves has consented to the inclusion of the technical information in this report in the form and context in which it appears.

The information in this report that relates to Exploration results is based on information supplied by Mr Robert Seed, a competent person. Robert Seed is employed by Avocet Mining 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.

Consolidated income statement

For the year ended 31 December 2015

1 EBITDA represents earnings before exceptional items, finance items, depreciation and amortisation. EBITDA is not defined by IFRS but is commonly used as an indication of underlying cash generation.

The accompanying accounting policies and notes form an integral part of these financial statements.

Consolidated statement of comprehensive income

For the year ended 31 December 2015

The accompanying accounting policies and notes form an integral part of these financial statements.

Consolidated statement of financial position

At 31 December 2015

These financial statements were approved and signed on behalf of the Board of Directors.

RP Edey J Wynn

The accompanying accounting policies and notes form an integral part of these financial statements.

Avocet Mining PLC is registered in England No. 03036214

Consolidated statement of changes in equity

For the year ended 31 December 2015

The accompanying accounting policies and notes form an integral part of these financial statements.

Consolidated cash flow statement

For the year ended 31 December 2015

The accompanying accounting policies and notes form an integral part of these financial statements.

Notes to the financial statements

For the year ended 31 December 2015

1. BASIS OF PREPARATION AND ADOPTION OF INTERNATIONAL FINANCIAL REPORTING STANDARDS ('IFRS')

The Group financial statements consolidate those of the Company and of its subsidiary undertakings; the Group financial statements have been prepared in accordance with IFRS and International Financial Reporting Interpretations Committee ('IFRIC') interpretations as adopted by the European Union at 31 December 2015.

The Group financial statements have been prepared under the historical cost convention except for share based payments that are fair valued at the date of grant and other financial assets and liabilities that are measured at fair value. The accounting policies applied in these financial statements are unchanged from those used in the previous annual financial statements.

Certain amounts included in the consolidated financial statements involve the use of judgement and/or estimation. Judgements, estimations and sources of estimation uncertainty are discussed in note 2.

The Parent Company financial statements in notes 38 to 51 to the Annual Report present information about the Company as a separate entity rather than about the Group, and have been prepared under Financial Reporting Standard 101 "Reduced disclosure framework" (FRS101) (2014: UK GAAP) as permitted by the Companies Act 2006.

In issue but not effective for periods commencing on 1 January 2015

New standards and interpretations currently in issue but not effective, based on EU mandatory effective dates, for accounting periods commencing on 1 January 2015 are:

IFRS 9 Financial Instruments (IASB effective date 1 January 2018)2

IFRS 14 Regulatory Deferral Accounts (effective 1 January 2016) 2,4

IFRS 15 Revenue from Contracts with Customers (effective 1 January 2018) 2

IFRS 16 Leases (effective 1 January 2019) 2

Defined Benefit Plans: Employee Contributions (Amendments to IAS19) (IASB effective date 1 July 2014) 2,5

Amendments to IFRS 11: Accounting for Acquisitions of Interests in Joint Operations (IASB effective date 1 January 2016) 5

Clarification of Acceptable Methods of Depreciation and Amortisation - Amendments to IAS 16 and IAS 38 (IASB effective date 1 January 2016) 5

Annual Improvements to IFRSs 2010-2012 Cycle (IASB effective date generally 1 July 2014) 2,5

Annual Improvements to IFRSs 2012-2014 Cycle (effective 1 January 2016) 5

Amendments to IAS 16 and IAS 41: Bearer Plants (effective 1 January 2016) 5

Amendments to IAS 27: Equity Method in Separate Financial Statements (effective 1 January 2016) 5

Amendments to IFRS 10, IFRS 12 and IAS28: Investment Entities: Applying the Consolidation Exception (effective 1 January 2016) 2

Disclosure Initiative : Amendments to IAS 1 Presentation of Financial Statements (effective 1 January 2016) 5

Disclosure Initiative: Amendments to IAS 7 Statement of Cash Flows (effective 1 January 2017) 2

Sale or Contribution of Assets between an Investor and its Associate or Joint Venture - Amendments to IFRS 10 and IAS 28 (effective 1 January 2016) 3

Amendments to IAS12: Recognition of Deferred Tax assets for unrealised Losses (effective 1 January 2017) 2

1 Not adopted by the EU (as at 16 Feb 2016)

2 EU mandatory effective date is financial years starting on or after 1 February 2015

3 Endorsement postponed indefinitely

4 It has been decided not to launch the endorsement process - The EC will wait for a completely new standard

5 Endorsed

The Directors anticipate that the above pronouncements, where relevant, will be adopted in the Group's financial statements for the year beginning 1 January 2015 and will have little impact on the Group's accounting policies or results.

Going concern

Continued financial support from Elliott

The Company has the following loans, which totalled US$23.9 million on 31 March 2016, due to an affiliate of Elliott Associates, its largest shareholder:

1. First Loan - taken out in March 2013, under which US$18.7 million was outstanding at 31 March 2016, comprising US$15.0 million principal and US$3.7 million accrued interest. The first loan was due on 31 December 2013 and is secured against the Tri-K exploration asset in Guinea;

2. Second Loan - unsecured demand loan of US$2.5 million consisting of US$2.25 million principal plus accrued interest of US$0.27 million. The initial US$1.5 million was drawn down in January 2015, and a further US$0.75 million was drawn down in three equal tranches between January and March 2016; and

3. Third Loan - demand loan of US$2.6 million consisting of US$2.45 million principal plus accrued interest of US$0.19 million. The initial US$2.05 million was drawn down in August 2015 (of which US$1.55 million was used to repay a previous unsecured loan), and a further US$0.4 million was drawn down between September and October 2015. These amounts are secured over a range of Group assets including intragroup loans, shares in subsidiaries, and over the gold in circuit and gold in transit of the Inata gold mine.

The First Loan was entered into in March 2013 in order to finance the Tri-K Feasibility Study in Guinea. It had been intended to repay this facility by 31 December 2013 using cashflows from the Inata gold mine, however a fall in the gold price combined with production difficulties meant that this was not possible. Since 1 January 2014, this facility has been in default, and is therefore repayable on demand.

The Second Loan and the Third Loan were drawn down over the course of 2015 and into 2016, and were used to provide funding for corporate and administrative activities in London and in Guinea.

In addition, on 20 April 2016, the Company announced that it had agreed terms to increase the limit under the Second Loan to US$3.05 million, with the additional US$0.8 million to be drawn down in four equal monthly tranches beginning from 25 April 2016.

All of these loans are on demand, and if repayment was requested by Elliott, the Company would have considerable difficulty in raising external financing needed to settle these amounts in full.

Since 2014, the cashflow shortages resulting from gold prices and lower production at the Inata mine meant that the Company has relied primarily on loan financing from Elliott in order to meet its running costs of its head office and Guinea administrative functions.

These loans represent short-term facilities with high interest rates (between 11% and 14%). In order to become financially secure, the Company will need to negotiate a restructuring of these loans with Elliott.

This restructuring is most likely to come about as part of the financing of the Tri-K project in Guinea. The Company is in active discussions with several parties in this regard, and the Board has a reasonable expectation that these discussions will bear fruit.

Until such discussions are concluded, the Company will remain reliant on the support of Elliott, not only with regard to the repayment of the existing loans, but also for the provision of ongoing funding until the discussions around Tri-K financing, and the restructure of the Elliott loans, are concluded.

As the successful negotiation of these funding discussions represents the most likely means for Elliott to secure the repayment or satisfactory restructuring of its outstanding debts, the Board has a reasonable expectation of receiving ongoing support from Elliott in this regard.

However, thereafter, can be no certainty that Elliott will be willing to remain supportive, nor to provide ongoing financing, particularly if the discussions around financing Tri-K become protracted or become less likely to lead to a satisfactory outcome for all parties. In the event that their support was withdrawn, the Company would need to agree funding from an alternative source at short notice, which is likely to be extremely challenging.

Ability to secure financing for Tri-K

Since 2013, the Company has been actively pursuing funding for its Tri-K project in Guinea. A Feasibility Study for this project was submitted in September 2013, which outlined a heap leach operation with a capex of approximately US$88 million. Since then, work has been undertaken to revise the design of the project with the result that the capex estimation has now reduced to approximately US$60 million.

A mining permit for the project was awarded on 27 March 2015.

Financing discussions in 2014 and 2015 were made more challenging by the slump in the mining sector, which resulted in many institutions restricting their focus to larger and more profitable projects, in jurisdictions with a lower perceived risk. In addition, the ebola crisis in West Africa meant that many potential investors were unable or unwilling to undertake site visits necessary for their due diligence procedures.

Nevertheless, interest in the project picked up in the latter part of 2015 and into 2016, buoyed by an increase in the gold price.

At the present time, the Company is in discussions with a number of parties who are interested in investing in the project, and bringing it into production. The precise nature of the investments under discussion varies, and all aspects remain subject to clarification and negotiation.

However, until a deal has been formally concluded with a preferred financing partner, there can be no guarantee that the Tri-K project will be funded.

Loss of Tri-K permits

The Company has received considerable pressure from the Guinean authorities to commence pre-production activity at the Tri-K site. Under the terms of the Guinean Mining Code, if the holder of a mining permit has not commenced construction activity within 12 months of the award of the permit (ie by 27 March 2016), it can be liable to penalties commencing at US$100k per month. If such activity has not commenced within a further six months (by 27 September 2016), then the permit may be withdrawn by the government.

The Company has held discussions with a number of senior members of the Government of Guinea (including the Prime Minister and the Minister of Mines and Geology), at which the challenges in raising financing in the prevailing climate were explained and acknowledged.

Nevertheless, if the securing of financing for the project is not secured, then there is a risk that the Government of Guinea will apply penalties (which may in itself discourage investment in the project), and may ultimately withdraw the permit.

Moreover, any deal involving the external financing of the project will require the approval of the Guinea Government - not only if such proposals involve alterations to the construction plan, but also because any material change in ownership requires approval under the terms of the Mining Code.

Based on the discussions held with interested parties as well as senior Government representatives, the Board has a reasonable expectation that, provided financing terms can be agreed upon, the Government is likely to be sympathetic to proposals that result in a mine being constructed at Tri-K of at least the scale and economics as those which were outlined in the Feasibility Study.

Gold price

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

The NPV16 of the Tri-K project, based on the latest cashflow forecasts, indicates that a break-even gold price would be around US$1,050 per ounce, with every subsequent increase of US$50 per ounce adding around US$8 million in value.

The cash costs at Inata during 2015 and into 2016 have ranged between US$1,000 and US$1,100 per ounce, and 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 Company has no control over the gold price, and is not in a position to enter into any hedging arrangements in view of its financial difficulties.

The rise in the gold price since January 2016, however, has given cause to believe that the decline in spot prices seen between 2012 and 2015 may be at an end. In financial forecasts, the Company uses US$1,200 per ounce. The Board believe this to be a reasonable long term price.

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 the end of March 2016 had approximately US$34 million in trade creditors, and a further US$44 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.

There can be no guarantee that one or more creditors might not 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.

The recent uptick in gold prices, together with improved production plans and lower operating costs, are encouraging developments for Inata's creditors and wider stakeholders.

Souma permit

The future of the Inata gold mine beyond 2018 will rely upon the successful completion of a Feasibility Study for the Souma deposit, located 20km 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 2017.

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.

Conclusion

The above areas of risk represent material uncertainties that may cast significant doubt over the ability of the Group to continue as a Going Concern and that it may be unable to realise all of its assets and discharge all of its liabilities in the normal course of business. Nevertheless, the Directors have a reasonable expectation that these risks can be managed, or will not come to pass, and accordingly the Financial Statements have been prepared on a Going Concern basis and do not include the adjustments that would result if the Group were unable to continue as a Going Concern.

2. JUDGEMENTS IN APPLYING ACCOUNTING POLICIES AND SOURCES OF ESTIMATION UNCERTAINTY

Certain amounts included in the financial statements involve the use of judgement and/or estimation. These are based on management's best knowledge of the relevant facts and circumstances, having regard to prior experience. However, judgements and estimations regarding the future are a key source of uncertainty and actual results may differ from the amounts included in the financial statements. Information about judgements and estimation is contained in the accounting policies and/or other notes to the financial statements. The key areas are summarised below:

Mineral Resources and Ore Reserves

Quantification of Mineral Resources requires a judgement on the reasonable prospects for eventual economic extraction. Quantification of Ore Reserves requires a judgement on whether Mineral Resources are economically mineable. These judgements are based on assessment of mining, metallurgical, economic, marketing, legal, environmental, social and governmental factors involved. These factors are a source of uncertainty and changes could result in an increase or decrease in Mineral Resources and Ore Reserves. This would in turn affect certain amounts in the financial statements such as depreciation and closure provisions, which are calculated on projected life of mine figures, and carrying values of mining property and plant which are tested for impairment by reference to future cash flows based on life of mine Ore Reserves. Certain relevant judgements are discussed in note 7 in respect of the impairment of mining assets.

Deferred exploration expenditure

The recoverability of exploration expenditure capitalised within intangible assets is assessed based on a judgement about the feasibility of the project and estimates of its future cash flows. Future gold prices, operating costs, capital expenditure and production are sources of estimation uncertainty. The Group periodically makes judgements as to whether its deferred exploration expenditure may have been impaired, based on internal and external indicators. Any impairment is based on estimates of future cash flows. In particular, the Group recognises that, if it decides, or is compelled due to insufficient funding, to withdraw from exploration activity at a project, then the Company would need to assess whether an impairment is necessary based on the likely sale value of the property. Certain relevant judgements are discussed in note 7 in respect of the impairment of mining assets.

Carrying values of property, plant and equipment

The Group periodically makes judgements as to whether its property, plant and equipment may have been impaired, based on internal and external indicators. A detailed impairment assessment was undertaken at 31 December 2015, which was triggered by a reduction in the gold price, as well as a reassessment of the Inata life of mine plan.

The carrying value of assets was compared to the recoverable amount. The recoverable amount used in the impairment review was calculated on the Value in Use ('VIU') basis, being the discounted cash flow of the Cash Generating Unit ('CGU'). A CGU is the smallest group of assets that generate cash inflows from continuing use. The Inata Mine has been identified as the CGU for the purposes of impairment testing.

Key assumptions used in the calculation of VIU involve judgement and estimation of uncertainties, including assessment of recoverable Mineral Resources and Ore Reserves, gold prices, operating costs, capital expenditure, and discount rates. Further information is provided on key assumptions, and the judgements made, in note 7.

Deferred stripping costs

The recoverability of deferred stripping costs is assessed based on the projected future cash flows of the project. The Company does not anticipate deferring any stripping costs from its current operations.

Functional currencies

Identification of functional currencies requires a judgement as to the currency of the primary economic environment in which the companies of the Group operate. This is based on analysis of the economic environments and cash flows of the subsidiaries of the Group.

Taxation and deferred tax

Within the Group there are entities with significant losses available to be carried forward against future taxable profits. The quantum of the losses or available deductions for which no deferred tax asset is recognised is set out in note 13. Estimates of future profitability are required when assessing whether a deferred tax asset may be recognised. The entities in which the losses and available deductions have arisen are principally non-revenue generating exploration companies and corporate management functions. It is not expected that taxable profits will be generated in these entities in the foreseeable future, and therefore the Directors do not consider it appropriate to recognise a deferred tax asset. Judgements made in estimating future profitability include forecasts of cash flows, and the timing of intercompany recharges.

Inventory valuations

Valuations of gold in stockpiles and in circuit require estimations of the amount of gold contained in, and recovery rates from, the various works in progress. These estimations are based on analysis of samples and prior experience. A judgement is also required about when stockpiles will be used and what gold price should be applied in calculating net realisable value; these are both sources of uncertainty.

Restoration, rehabilitation and environmental provisions

Such provisions require a judgement on likely future obligations, based on assessment of technical, legal and economic factors. The ultimate cost of environmental remediation is uncertain and cost estimates can vary in response to many factors, including changes to the relevant legal requirements, the emergence of new restoration techniques and changes to the life of mine.

Provisions and contingent liabilities

Judgements are made as to whether a past event has led to a liability that should be recognised in the financial statements or disclosed as a contingent liability. Quantifying any such liability often involves judgements and estimations. These judgements are based on a number of factors including the nature of the claim or dispute, the legal process and potential amount payable, legal advice received, previous experience and the probability of a loss being realised. Each of these factors is a source of estimation uncertainty.

Recoverability of VAT

Recoverability of the VAT receivable in Burkina Faso is assessed based on a judgement of the validity of the claim and, following review by management, the carrying value in the financial statements is considered to be fully recoverable. At year end, US$1.0 million of VAT recoverable was written off as a result of uncertainty relating to its recoverability.

ACCOUNTING POLICIES

Consolidation

The Group financial statements consolidate the results of the Company and its subsidiary undertakings using the acquisition accounting method. On acquisition of a subsidiary, all of the subsidiary's identifiable assets and liabilities which exist at the date of acquisition are recorded at their fair values reflecting their condition on that date. The results of subsidiary undertakings acquired are included from the date of acquisition. In the event of the sale of a subsidiary, the subsidiary results are consolidated up to the date of completion of the sale.

The cost of an acquisition is measured by the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition where the acquisition completed prior to accounting periods commencing 1 January 2010. For any acquisitions occurring after 1 January 2010, the costs of acquisition are recognised in the income statement. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date irrespective of the extent of any Non-controlling interest. The excess of the cost of acquisition over the fair value of the Group's share of the identifiable net assets acquired is recorded as goodwill. If the cost of the acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognised directly in the income statement as a gain.

Exchange differences arising from the translation of the net investment in foreign entities are taken to equity. All other transactions, balances and unrealised gains and losses on transactions between Group companies are eliminated, unless the unrealised loss provides evidence of an impairment of the asset transferred.

Exceptional items

Exceptional items are those significant items which are separately disclosed by virtue of their size or incidence to enable a full understanding of the Group's financial performance. Transactions which may give rise to exceptional items include the impairment of property, plant and equipment and deferred exploration expenditure, the cost of restructuring forward contracts, and material profit or losses on disposals.

Segmental reporting

An operating segment is a component of the Group engaged in exploration or production activity that is regularly reviewed by the Chief Operating Decision Maker ('CODM') for the purposes of allocating resources and assessing financial performance. The CODM is considered to be the Board of Directors. The Group's operating segments are determined as the UK, Burkina Faso (which includes the Inata mine as well as exploration activity within the Bélahouro licence area), and Guinea (which includes the Tri-K project).

The Group does not report geographic segments by location of customer as its business is the production of gold which is traded as a commodity on a worldwide basis. Sales are made into the bullion market, where the location of the ultimate customer is unknown.

Foreign currency translation

1. Functional and presentational currency

The functional currency of the entities within the Group is the US dollar, as the currency which most affects each company's revenue, costs and financing. The Group's presentation currency is also the US dollar.

2. Transactions and balances

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions, and from the translation at reporting period end exchange rates of monetary assets and liabilities denominated in foreign currencies, are recognised in the income statement.

Revenue

Revenue is the fair value of the consideration receivable by the Group for the sale of gold bullion. Currently, all revenue is derived from the sale of gold produced by the Inata gold mine. Gold doré is produced at Inata and shipped to South Africa for refining into gold bullion, being gold of 99.99% purity. Revenue is recognised when the risks and rewards of ownership pass to the purchaser, which occurs when confirmation is received of the conclusion of a trading instruction to sell gold into the bullion market at spot prices or to sell at pre-determined prices as part of a forward contract.

Intangible assets

All directly attributable costs associated with mineral exploration including those incurred through joint venture projects are capitalised within Non-current intangible assets pending determination of the project's feasibility. If an exploration project is deemed to be economically viable based on feasibility studies, the related expenditures are transferred to property, plant and equipment and amortised over the life of the mine on a unit of production basis. Where a project is abandoned or is considered to be no longer economically viable, the related costs are written off. The cost of ancillary services supporting the exploration activities are expensed when incurred.

Property, plant and equipment

Mining property and plant consists of mine development costs (including mineral properties, buildings, infrastructure, and an estimate of mine closure costs to be incurred at the end of the mine life), plant and machinery, and vehicles, fixtures and equipment.

Mining property and plant is initially recognised at the cost of acquisition, and subsequently stated at cost less accumulated depreciation and any impairment. The cost of acquisition is the purchase price and any directly attributable costs of acquisition or construction required to bring the asset to the location and condition necessary for the asset to be capable of operating in the manner intended by management.

Mining property and plant is depreciated over the shorter of the estimated useful life of the asset using the straight-line method, or the life of mine using the unit of production method and life of mine reserve ounces. Residual values and useful lives are reviewed on an annual basis and changes are accounted for over the remaining lives.

Exploration property, plant and equipment comprises vehicles and camp buildings specifically used in the Group's exploration programmes. Exploration property and plant is depreciated over 3-7 years on a straight-line basis.

The following depreciation methods and asset life estimates are used for the components of mining and exploration property and plant:

Deferred stripping costs

Stripping costs incurred during the development phase of the mine as part of initial pit stripping are capitalised as mine development costs within mining property and plant. Subsequently, these costs are depreciated from the point at which commercial production commences using the units of production method and life of mine ore reserves. Changes to life of mine ore reserves are accounted for prospectively.

Stripping costs incurred during the production stage of the mine are treated as either part of the cost of inventory produced or a non-current deferred stripping asset, depending on the expectation of when the benefit of the stripping activity is realised through the processing of ore.

To the extent that the benefit from the stripping activity is realised in the form of inventory produced in the current period, the directly attributable costs of that mining activity is treated as part of the ore stockpile inventory.

To the extent that the benefit from the stripping activity is the improved access to ore that will be mined in future periods, and the cost is material, the directly attributable costs are treated as a non-current 'stripping activity asset'. Stripping activity costs are only capitalised during a sustained period of waste stripping, such as significant push backs or pit expansion. The costs of short term variations from a life of mine stripping ratio are absorbed as part of current period mining costs or ore stockpiles, rather than being capitalised.

Stripping activity assets are depreciated using the unit of production method based on the ore reserves for the component of the orebody for which the stripping activity relates.

Treasury shares

Treasury shares are held at cost, and are deducted from equity. Any gain or loss on the sale or transfer of treasury shares is recognised in the statement of changes in equity.

Own shares

Own shares are held in the EBT and SIP, and are recorded at cost, and deducted from equity. Any gain or loss on the sale or transfer of these shares is recognised in the statement of changes in equity.

Impairment of intangible assets and property, plant and equipment

The Group carries out a review at each balance sheet date to determine whether there is any indication that the above assets are impaired. Assets are assessed for indicators of impairment (and subsequently tested for impairment if an indicator exists) at the level of a Cash Generating Unit ('CGU'). A CGU is the smallest group of assets that generates cash inflows from continuing use. If an indication of impairment exists, the recoverable amount of the asset or CGU is estimated based on future cash flows, in order to determine the extent of impairment. Future cash flows are based on estimates of the life of mine Ore Reserves together with estimates of future gold prices and cash costs. Deferred exploration costs are tested for impairment at least annually.

The recoverable amount is the higher of fair value less cost to sell and value in use. An impairment is recognised immediately as an expense. Where there is a reversal of the conditions leading to an impairment, the impairment is reversed as income through the income statement.

Inventories

Inventories comprise consumables, work in progress and finished goods. Consumables are recognised at average cost and are subsequently held at the lower of cost less a provision for obsolescence and net realisable value. Work in progress consists of ore in stockpiles and gold in process, and is valued at the lower of average production cost and net realisable value. Finished goods represent gold doré that is undergoing refining processes, or gold bullion awaiting sale. Finished goods are valued at the lower of average production cost and net realisable value. Net realisable value is the estimated selling price less the estimated cost of completion and any applicable selling expenses.

Financial assets

Financial assets are classified into the following specific categories which determine the basis of their carrying value in the statement of financial position and how changes in their fair value are accounted for: at fair value through profit and loss, available for sale , and loans and receivables. Financial assets are assigned to their different categories by management on initial recognition, depending on the purpose for which the investment was acquired.

Available for sale financial assets are included within non-current assets unless designated as held for sale in which case they are included within current assets. They are carried at fair value at inception and changes to the fair value are recognised in other comprehensive income; when sold, or impaired, the accumulated fair value adjustments recognised in other comprehensive income are reclassified through the income statement.

Trade and other receivables are measured on initial recognition at fair value and subsequently at amortised cost using the effective interest rates.

De-recognition of financial instruments occurs when the rights to receive cash flows from the investments expire or are transferred and substantially all of the risks and rewards of ownership have been transferred. An assessment for impairment is undertaken at least annually at each balance sheet date whether or not there is objective evidence that a financial asset or a group of financial assets is impaired.

Cash and cash equivalents

Cash and cash equivalents are defined as cash on hand, demand deposits and short term highly liquid investments and are measured at cost which is deemed to be fair value as they have short-term maturities.

Leases

Finance leases are recognised as those leases that transfer substantially all the risks and rewards of ownership. Assets held under finance leases are capitalised and the outstanding future lease obligations are shown in liabilities at the fair value of the lease, or if lower at the present value of the lease payments. They are depreciated over the term of the lease or their useful economic lives, whichever is the shorter. The interest element (finance charge) of lease payments is charged to the income statement on a constant basis over the period of the lease.

All other leases are regarded as operating leases and the payments made under them are charged to the income statement in the period on a straight-line basis. The Company does not act as a lessor.

Financial liabilities

Financial liabilities include loans, overdrafts, forward contracts and trade and other payables. In the statement of financial position these items are included within Non-current liabilities and Current liabilities. Financial liabilities are recognised when the Group becomes a party to the contractual agreements giving rise to the liability. Interest related charges are recognised as an expense in Finance costs in the income statement unless they meet the criteria of being attributable to the funding of construction of a qualifying asset, in which case the finance costs are capitalised.

Trade and other payables and loans are recognised initially at their fair value and subsequently measured at amortised costs using the effective interest rate, less settlement payments.

Forward contracts are designated as held for trading financial assets or liabilities at fair value through profit or loss, in accordance with IAS39, on the basis that they represent derivatives not designated as hedging instruments. As a result the forward contracts are recognised at fair value as defined under IFRS 13.

Borrowing costs

Borrowing costs that are incurred in respect of the construction of a qualifying asset are capitalised where the construction of an asset takes a substantial period of time to be prepared for use. Other borrowing costs are expensed in the period in which they are incurred and reported in finance costs.

Income taxes

Current income tax liabilities comprise those obligations to fiscal authorities in the countries in which the Group carries out mining operations and where it generates its profits. They are calculated according to the tax rates and tax laws applicable to the financial period and the country to which they relate. All changes to current tax assets and liabilities are recognised as a component of the tax charge in the income statement.

Deferred income taxes are calculated using the liability method on temporary differences. This involves the comparison of the carrying amount of assets and liabilities in the consolidated financial statements with their respective tax bases. However, deferred tax is not provided on the initial recognition of goodwill, nor on the initial recognition of an asset or liability unless the related transaction is a business combination or affects taxes or accounting profit.

Deferred tax liabilities are provided for in full; deferred tax assets are recognised when there is sufficient probability of utilisation. Deferred tax assets and liabilities are calculated at tax rates that are expected to apply to their respective period of realisation, provided they are enacted or substantively enacted at the balance sheet date.

Pension obligations

The only defined benefit pension scheme operated by the Group relates to a former US subsidiary undertaking which is no longer part of the Group. Accordingly full provision has been made for outstanding post retirement benefits. The liability recognised in the statement of financial position is the present value of the Defined Benefit Obligation ('DBO') at the balance sheet date less the fair value of plan assets, together with adjustments for unrecognised actuarial gains or losses and past service costs. The DBO is calculated annually by independent actuaries using the projected unit credit method or an accepted equivalent in the USA, and independent assumptions. The present value of the DBO is determined by discounting the estimated future cash outflows using interest rates of high quality corporate bonds that are denominated in the currency in which the benefits will be paid and that have terms to maturity approximating the terms of the related pension liability. Actuarial gains and losses are not recognised in the income statement.

Provisions, contingent liabilities and contingent assets

Other provisions are recognised when the present obligations arising from legal or constructive commitment, resulting from past events, will probably lead to an outflow of economic resources from the Group which can be estimated reliably. Provisions are measured at the present value of the estimated expenditure required to settle the present obligation, based on the most reliable evidence available at the balance sheet date. All provisions are reviewed at each balance sheet date and adjusted to reflect the current best estimates.

Restoration, rehabilitation and environmental costs

An obligation to incur restoration, rehabilitation and environmental costs arises when environmental disturbance is caused by the development or ongoing production of a mining property. Such costs arising from the decommissioning of plant and other site preparation work, discounted to their net present values, are provided for in full as soon as the obligation to incur such costs arises and can be quantified. On recognition of a full provision, an addition is made to property, plant and equipment of the same amount; this addition is then charged against profits on a unit of production basis over the life of the mine. Closure provisions are updated annually for changes in cost estimates as well as for changes to life of mine Ore Reserves, with the resulting adjustments made to both the provision balance and the net book value of the associated non-current asset.

Share based payments

The Group operates equity settled share based compensation plans for remuneration of its employees, which may be settled in cash under certain circumstances. All employee services received in exchange for the grant of any share based compensation are measured at their fair values. These are indirectly determined by reference to the share based award. Their value is appraised at the grant date and excludes the impact of any non-market vesting conditions.

All share based compensation is ultimately recognised as an expense in profit and loss with a corresponding credit to retained earnings, net of deferred tax where applicable. Where share based compensation is to be cash settled, such as certain share based bonus awards, the corresponding credit is made to accruals or cash. The Group has certain share option schemes that may be settled in cash at the absolute discretion of the Board. Currently, it is the expectation that the options will be settled in shares, when exercised.

If any equity settled share based awards are ultimately settled in cash, then the amount of payment equal to the fair value of the equity instruments that would otherwise have been issued is accounted for as a repurchase of an equity interest and is deducted from equity. Any excess over this amount is recognised as an expense.

If vesting periods or other vesting conditions apply, the expense is allocated over the vesting period, based on the best available estimate of the number of share options expected to vest. Non-market vesting conditions are included in assumptions about the number of options that are expected to become exercisable. Estimates are subsequently revised if there is any indication that the number of share options expected to vest differs from previous estimates. No adjustment to the expense recognised in prior periods is made if fewer share options are ultimately exercised than originally granted.

Upon exercise of share options, the proceeds received, net of any directly attributable transaction costs, up to the nominal value of the shares issued, are allocated to share capital with any excess being recorded in share premium.

Non-current assets and liabilities classified as held for sale and discontinued operations

A discontinued operation is a component of the entity that either has been disposed of, or is classified as held for sale, and represents a separate major line of business or geographical area of operations; is part of a single coordinated plan to dispose of a separate major line of business or geographical area of operations; or is a subsidiary acquired exclusively with a view to resale.

The results from discontinued operations, including reclassification of prior year results, are presented separately in the income statement.

When the Group intends to sell a non-current asset or a group of assets (a disposal group), and if sale within twelve months is judged to be highly probable, the assets of the disposal group are classified as held for sale and presented separately in the statement of financial position. Liabilities are classified as held for sale and presented as such in the statement of financial position if they are directly associated with a disposal group.

Assets classified as held for sale are measured at the lower of their carrying amounts immediately prior to their classification as held for sale and their fair value less costs to sell. However, some held for sale assets such as financial assets or deferred tax assets, continue to be measured in accordance with the Group's accounting policy for those assets. No assets classified as held for sale are subject to depreciation or amortisation subsequent to their classification as held for sale.

3. SEGMENTAL REPORTING

1 Expensed exploration and other cost of sales represents costs not directly related to production, including exploration expenditure not capitalised and foreign exchange.

2 Includes amounts in respect of the amortisation of closure provision at Inata.

3 EBITDA represents earnings before exceptional items, finance items, tax, depreciation and amortisation.

1 Includes impairments, depreciation and amortisation, share based payments, movement in provisions, taxation in the income statement and non-operating items in the income statement.

2 Other cash movements include cash flows from financing activities, and exchange losses.

1 Expensed exploration and other cost of sales represents costs not directly related to production, including exploration expenditure not capitalised and intercompany charges.