14 Sep 2009 07:00
AVOCET MINING PLC
GENERAL CORPORATE UPDATE
Avocet Mining PLC ("Avocet" or "the Company") announces an update on its producing operations and construction at the Inata gold project.
* North Lanut (Indonesia) - has continued to produce gold at a rate approaching 50,000 ounces for the full year and at similar cost levels to the quarter ended June 2009 (Q1). Development continues to delineate more ore, with the potential to extend the life of the mine to at least 3 years at the current production rate;
* Penjom (Malaysia) - will deliver an interim resource report shortly following the completion of 45,000 metres from an ongoing 80,000 metre drilling campaign - production remains in line with Q1 at an approximate annualised rate of 65,000 ounces;
* Inata gold project (Burkina Faso) - redesign to several areas of the plant and associated infrastructure has resulted in the final construction cost estimate being revised from US$170 million to US$200 million. First gold pour is now expected to be in January 2010, however, all efforts are being made to expedite this timeframe and further progress announcements will be made in due course;
* US$25 million revolving corporate facility signed with Standard Chartered Bank;
* Withdrawal from Kay Tanda project in the Philippines following due diligence.
Jonathan Henry, Chief Executive Officer, commented:
"Avocet has seen continued improvements in production at North Lanut as well as substantial progress on the drilling campaign at Penjom. The Inata project capital cost has been revised to reflect further work needed to ensure a successful and efficient ramp up. We are confident that our revised schedule of gold production in January 2010 is achievable following the redesign work, underpinned by our available cash and the new loan facility from Standard Chartered Bank, and work is ongoing to improve on this schedule wherever possible. Group gold production is targeted to reach an annualised rate of 230,000 ounces of gold from three mines by the middle of 2010."
A full operational update is given below. A presentation to be given at the Denver Gold Forum on 14th September 2009 is available on the Company's website.
| For further information please contact: | | | |
| Avocet Mining PLC | Buchanan Communications | Ambrian Partners Limited | J.P. Morgan Cazenove |
| | Financial PR Consultants | NOMAD and Joint Broker | Lead Broker |
| Jonathan Henry, CEO Mike Norris, Finance Director | Bobby Morse Katharine Sutton | Richard Brown Richard Greenfield | Michael Wentworth-Stanley |
| +44 20 7907 9000 | +44 20 7466 5000 | +44 20 7634 4700 | +44 20 7588 2828 |
| www.avocet.co.uk | www.buchanan.uk.com | www.ambrian.com | www.jpmorgancazenove.com |
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North Lanut, Indonesia
Since Q1, North Lanut gold production for the months of July and August has been at a level higher than the monthly average during the Q1 period. As the Company works to improve performance, development has disclosed further extensions to the orebodies. Continued exploration will aim to upgrade the existing reserves and resources and further increase the existing mine life at an annual production level at 45,000-50,000 ounces.
Penjom, Malaysia
At Penjom, the plant continues to process higher tonnages, but both lower grade ore and lower recovery means that monthly production has averaged approximately 5,300 ounces, and will probably continue at this level for the next three to six months. Following completion of 45,000 metres of drilling from the current 80,000 metre campaign, an interim resource report is due to be completed during September for internal assessment and this will be announced in Q3. A final report will be completed in March 2010 after completion of the full 80,000 metre drill program. The results in these reports will direct the management approach to optimise the future performance of Penjom. In the short term, Penjom is expected to continue at Q1 production and cost levels.
Inata, Burkina Faso
At Inata, as previously reported on 24th July following the termination of the contract with the engineering firm previously managing the project's construction, a new team has been at site since late June. A full assessment of the project has now been completed and this has allowed for the completion of a revised work schedule. Significant changes have been required in a number of key areas of the plant's design in order to ensure a more sustainable ramp up and to avoid operational or maintenance problems once the mine reaches steady state production. Although these changes were previously considered minor in the context of the construction project, further detailed engineering work in July and August has resulted in material changes to the plant design. These changes have increased the costs to completion of the project and the most likely date for first gold pour is now expected to be in January 2010. However, management's efforts are focused on optimising all aspects of logistics and construction in an effort to deliver first gold before that date.
The areas requiring further work include:
* Gravity tower - following detailed testwork by two independent engineering firms, changes are required to the design and engineering of the gravity tower. These include reconfiguration and rectification work, which is now almost complete, subject to a number of items yet to be delivered to site;
* Piping and pumping - these were insufficiently configured and engineered to the nameplate capacity of the plant. This would have resulted in potential bottlenecks during operations. These have now been addressed in advance of full commissioning;
* Carbon-in-leach (CIL) and other processing tanks - following ongoing non-destructive testing (NDT) on the quality of welding, it was discovered that the CIL tanks were not welded to a sufficient standard and require banding.
These items, as well as numerous other smaller items, have now been costed and scheduled into the construction phase in order that effective commissioning of the plant to the design capacity of 2.25 million tonnes per annum can be achieved.
The rainy season in Burkina Faso has seen the main water source for the mine, the Gomde Barrage, rise to levels well in excess of those forecast and management has no concerns about water supply for the project once operational. However, the particularly heavy rains this year have delayed delivery of materials to site and associated work on site more than forecast.
Meanwhile, a new operational management team has been assembled at Inata and the majority of senior positions have been filled. This will allow commissioning and operations to ramp up to design capacity over an assumed six month period. Mining activities, which started in April 2009, continue at the Inata North open pit with ore and waste mining. Approximately 330,000 tonnes of ore at a grade of 2.43g/t have been stockpiled on the ROM pad awaiting commissioning of the plant.
The necessary design and construction changes described above have had a material impact on the additional cash requirements needed to complete the project and thereafter to bring the operation to positive cash flow. At the time that the Company announced the intended purchase of Inata through the takeover of Wega Mining in April 2009, the Company stated that it estimated a cash expenditure requirement of up to US$40 million to complete the project in addition to an assumed further draw down of US$9 million from Macquarie Bank Limited ("Macquarie Bank") under the project finance facility ("PFA") of US$65 million. Approximately US$56 million of the PFA has been drawn to date. The Company now estimates, assuming first gold sales before the end of January 2010, a further US$30 million will be required to reach positive cash flow in addition to the draw down of the remaining US$9 million under the PFA. Accordingly, the previous estimate of the total construction costs of the project has been revised from US$170 million to approximately US$200 million. Avocet is committed to exploring all avenues to recover these additional costs where the Company feels the performance of contractors and others has led to contractual shortcomings.
US$25 million revolving corporate facility with Standard Chartered Bank
Avocet has recently signed a corporate revolving credit facility for US$25 million with Standard Chartered Bank, drawdown of which is subject to conditions precedent which the Company expects to have satisfied prior to the end of September 2009. This facility will replace a previous corporate facility with Macquarie Bank that has now been terminated at the Company's request. At the end of August 2009 the Group had a cash balance of approximately US$35 million and debt outstanding of US$56 million.
Withdrawal from Kay Tanda project in the Philippines
Avocet has conducted a thorough review of the resource potential of the Kay Tanda deposit owned by Toronto-listed Mindoro Resources Ltd. This follows the completion of 14 diamond drill holes (2,100m) in June that were drilled to test for the presence of high-grade epithermal quartz veins. While the district has potential, the Company's resource estimate does not meet internal thresholds for investment. Consequently, the Company will not be pursuing the project further.
Notes to Editors
Avocet Mining PLC ("Avocet" or "the Company") is a mining company listed on the AIM market of the London Stock Exchange (Ticker: AVM). The Company's principal activities are gold mining and exploration in Malaysia (as 100 per cent owner of the Penjom gold mine, the country's largest gold producer), Indonesia (as 80 per cent owner of the North Lanut gold mine and Bakan project in North Sulawesi) and Burkina Faso (as 90 per cent owner of the Inata gold project currently in the latter stages of construction). The Company has a number of other advanced exploration projects in South East Asia and West Africa.
Background to operations
Penjom is Malaysia's largest gold producer and was developed by Avocet after applying modern technology to grass roots exploration in an area of historic alluvial mining. The mine is located in Pahang State, approximately 120 km north of the country's capital, Kuala Lumpur. The mine was commissioned in December 1996 with reserves of 223,000 ounces. Successful resource development means Penjom has produced over one million ounces of gold to date and still has nearly one million ounces of resource. Over the last two years Penjom has expanded its mining and plant capacity with plant throughput increasing from 570,000 to over 700,000 tonnes per annum to compensate for decreasing mined grades. Avocet was able to overcome initial problems of carbonaceous ore at Penjom by developing unique processing systems including complex gravity circuits and resin-in-leach ("RIL") technology. These processes have potential applications at other carbonaceous orebodies.
North Lanut in North Sulawesi, Indonesia, was developed by Avocet from the exploration stage and has produced over 220,000 ounces since it was commissioned in 2004. Avocet purchased an 80 per cent interest in PT Avocet Bolaang Mongondow ("PT ABM"), an Indonesian company holding a 6th generation Contract of Work ("CoW"), from Newmont Mining Corporation in 2002. North Lanut is located within the CoW, which includes exploration and mining rights over approximately 50,000 hectares in an area highly prospective for gold. An Indonesian company, PT Lebong Tandai, owns the remaining 20 per cent. The Company has a number of other advanced development and exploration projects in Indonesia.
The Inata gold project in Burkina Faso, West Africa, was purchased by Avocet as a result of the acquisition of Wega Mining which was completed in late June 2009. Inata is currently under construction, with first gold production expected in January 2010, and full steady state production in FY2011. Inata is expected to produce greater than 120,000 ounces of gold per annum over an initial 7 year mine life. Other assets acquired from Wega Mining include exploration licences in Burkina Faso, Guinea and Mali (the most advanced being the Koulekoun gold exploration project in Guinea with a resource of 667,000 ounces), a 58.1 per cent interest in TSX Venture Exchange listed Merit Mining Corp and a 35.6 per cent interest in base metals company, Metallica Mining AS.