AVM.L Regulatory News (AVM)

26 August 2016

Unaudited Interim Results for the six months

 ended 30 June 2016

Avocet Mining PLC ("Avocet" or "the Company") today announces its unaudited interim results for the six months ended 30 June 2016.

Highlights

· Q2 2016 gold production 21,086 ounces at cash cost of US$903 per ounce, compared with 20,528 ounces at US$925 per ounce in Q1

· H1 2016 gold production 41,614 ounces at a cash cost of US$913 per ounce, compared with 39,859 ounces at US$1,021 per ounce in H1 2015

· EBITDA of US$6.9 million in H1 2016, and net cash generated by operations of US$11.2 million, primarily used to meet loan repayment obligations at Inata

· Negotiations continue with financing partners for the Tri-K project in Guinea and the Souma project in Burkina Faso, with further announcements expected shortly

· Short term cost pressures in H2 from additional waste stripping and other factors. Production guidance is maintained at 75-85,000 ounces, at a cash cost of production of US$950-1,050 per ounce

David Cather, Chief Executive Officer, commented:

"The first six months of the year have been positive for Avocet and the gold mining sector as a whole. After a sustained period of weakness, gold prices improved by 25% during H1 2016, leading to improved margins for producers, and renewed investor interest. At Inata, we managed to sustain production levels and reduce costs, generating sufficient cashflow to meet the mine's financing obligations. Meanwhile, discussions with potential finance partners for the Tri-K project have moved towards resolution, and I hope to be able to provide a full update 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. An exploitation permit was awarded for Tri-K on 27 March 2015.

CHIEF EXECUTIVE OFFICER'S REVIEW

The last few years have been extremely tough for the mining sector as a whole, with junior gold miners such as Avocet particularly affected by market conditions. By the end of 2015, the gold price had fallen from a peak of approximately US$1,900 per ounce in September 2011 to just US$1,062 per ounce. This fall put a great deal of pressure on Inata, the Company's operating mine in Burkina Faso (whose 2015 cash costs had been US$1,052 per ounce), and reduced the NPV of the Company's Tri-K project in Guinea and its Souma project in Burkina Faso at a time when investment was sought for both.

These pressures were felt across the industry as a whole, with producers often responding by high-grading operations, while investors restricted their focus onto larger-scale projects with more certain returns. For Avocet, this meant that refinancing was particularly difficult, and expensive.

A business review was announced in December 2013, which aimed to attract investment in, or realise value from, the Group's assets. However, the mining sector in 2014 and 2015 proved extremely uncompromising, and despite initial discussions with a number of parties, little substantive progress was achieved.

Since the start of 2016, the market has begun to show tentative signs of life, not least in response to an increase in the gold price, which by 30 June 2016 had risen some 25%. A number of financing and business combination transactions have also been announced in the West African gold mining space in recent months.

Burkina Faso - Inata Gold Mine and Souma Resource

At Inata, a number of measures had already been undertaken to reduce the cost base in response to lower gold prices, and an increase in spot rates provided a welcome benefit to gross margins. The mine continues to face numerous challenges, ranging from operational risks such as equipment availability and variability of recovery levels, to supply chain concerns such as the ongoing exposure to key creditors withholding critical supplies, as well as the fact that the mine has trade creditors of US$31.4 million and financial liabilities of US$31.5 million.

However, during the first six months of the year, the mine produced 41,614 ounces at a cash cost of US$913 per ounce, and generated Net Cashflow from Operations of some US$11.0 million, with which it was able to reduce the mine's financial indebtedness.

This represents a considerable achievement by the Inata team, and there is cause for cautious optimism for the future of Inata.

At the end of 2015, the life of mine had been expected to come to an end in 2017, however work undertaken in the year has extended this to 2019. Satellite deposits also exist which, for a modest amount of drilling, may provide further mill feed to extend this mine life still further.

However, costs are expected to be higher in the second half of 2016. This is a result of a combination of factors but particularly waste mining volumes increasing in order to access high grade ore at depth in North pit. This ore is known to be carbonaceous and will therefore require processing through the Carbon Blinding Circuit ('CBC') which will in turn require additional reagents and an increase in power. There will also be an increase in ore haulage costs from the newly opened Filio pits which are 7-8 kilometres from the process plant. Therefore in spite of H1 cash costs of US$913 per ounce, the overall cash cost forecast for the year of US$950-1050 per ounce remains unchanged, together with production guidance of 75-85,000.

The Souma deposit, a 0.7 million ounce resource located approximately 20km to the east of Inata, is likely to be a source of ore which could be trucked to the plant for processing. The Company is currently in advanced discussions with financiers with a view to securing the US$5-7 million needed to complete the drilling and test work to support the feasibility study needed for a mining permit application.

Tri-K project in Guinea

In the 2015 Annual Report released in April, we explained that the Company was in ongoing talks with regard to financing the Tri-K project in Guinea. Under the Guinean Mining Code, there are some important deadlines in relation to the mining permit, which was awarded on 27 March 2015: the Government has the right to impose penalties of approximately US$100k per month if construction has not commenced within 12 months of the date of the award of the permit; and if construction has not commenced after 18 months (ie by 27 September 2016), the Government has the right to withdraw the permit.

Despite the approach of this deadline, the Company is in advanced talks with interested parties and expects to be able to announce a deal before this time. The Government has been kept abreast of all discussions in this regard, and have indicated their support for the transaction details under consideration.

The Company is aware that not only will a financing deal on Tri-K provide a road map to developing the project into an operating mine, but it will also ensure that the Company is able to retain its interests in Guinea, which are secured in favour of an affiliate of Elliott Management. The loss of these assets could therefore have a significant and negative effect on the Going Concern of the Company - see Note 1 to the accounts for further details.

Further details regarding these discussions will be announced in the coming weeks.

Corporate and head office

During the first half of the year, Inata remained unable to provide funding to pay for head office and corporate costs, largely due to the need to service its own external debt obligations, in particular a short-term loan with Coris bank entered into in November 2015. As a consequence, the Company was forced to obtain an additional US$1.5 million of debt funding from an affiliate of its largest shareholder, Elliott Management, bringing the total balance owed to Elliott to US$25.0 million at 30 June 2016.

As the majority of this funding is secured over the Company's Guinean assets, it is clear that the successful conclusion of the Tri-K financing negotiations is key to addressing this debt. In the near term, a portion of any cash consideration from the disposal may be applied to reducing the debt; longer term, it is anticipated that the Company will realise value from its interest in a larger, successful gold mine, either through a disposal of its residual interest, or preferably through access to a portion of the cashflows from a producing asset.

The repayment of the Coris loan by July 2016 meant that, although the final tranche of Elliott funding of US$200k was drawn down on 25 July 2016, the Company expects to be able to draw funding from the Inata mine to cover head office and corporate costs until the completion of the Tri-K transaction, details of which are expected to be announced before the end of September.

2016 has also been a busy year for the Company in terms of corporate actions, with a number of matters being put to shareholders for approval. Some of these have been driven by compliance, including the need to approve the adoption of FRS 101 in the 2015 accounts, and the share consolidation exercise chiefly driven by the need to comply with minimum share price requirements of the Oslo Børs.

Conclusion

The Company has continued to operate during a difficult period which has now lasted for several years. Much work remains to be completed, including financing negotiations over the Tri-K project in Guinea and the Souma deposit in Burkina Faso, while the Inata gold mine remains exposed to a number of operational and supply chain risks. With a US$25 million loan repayable on demand due to Elliott Management, the Company remains in an uncertain financial position, particularly in the event of the Tri-K transaction not reaching a successful conclusion.

There is, however, cause for cautious optimism in all these areas, particularly if the gold price remains strong. 2016 has so far proved a challenging but successful year, and we hope this progress will continue for the rest of the year and beyond.

David Cather

Chief Executive Officer

INATA OPERATIONAL REVIEW

Gold production and cash costs

In view of the Inata mine's excellent safety record in the past, it was particularly regrettable that the first half of 2016 saw a lost time injury to an employee, with another lost time injury occurring in July 2016. In order to reinvigorate the safety culture, a programme of re-inducting all employees and contractors on the company's safety protocols and procedures has been implemented.

Gold production of 41,614 ounces was achieved during the first half of 2016. The overall recovery of 93% was as a result of the ore treated being exclusively oxide and relatively soft in nature which afforded high throughput rates in the mill. Head grades were higher than Q1 at 1.32g/t, however ore mined needed to be supplemented by blending marginal grade stockpiled ore of circa 0.8g/t into the mill.

Cash costs have remained on a downward trend with the average cost of production of US$913 per ounce being achieved. The second half of the year, however, is expected to see higher costs as a result of significant waste stripping taking place in North pit to access the remaining high grade but highly variable carbonaceous ores, and the longer haul routes for ore to be transported from the newly opened but remote Filio pit, which is located some 8 kilometres from the mill.

The guidance for the full year in 2016 remains at 75-85,000 ounces, with cash costs of between US$950 and US$1,050 per ounce.

FINANCIAL RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2016

Total gold sold in H1 2016 amounted to 42,752 ounces, compared with 39,740 in the first half of 2015. This factor, combined with average realised gold prices of US$1,213 per ounce being slightly higher than H1 2015 (US$1,203 per ounce), translated into an increase in revenue of US$4.0 million, or 8%, from US$47.8 million in H1 2015 to US$51.8 million in the first half of 2016.

Gross margin increased from a US$6.6 million loss in H1 2015 to a profit of US$7.6 million in H1 2016, partly due to the increase in revenues mentioned above, but also partly due to cost reduction measures at the Inata mine, as well as the reduction in depreciation charge resulting from the impairments applied to the mine's assets in 2015.

The impairments of US$30.1 million recognised in H1 2015 were not repeated in H1 2016, as no triggers for impairment were identified.

EBITDA, an indicator of underlying cash generation which excludes working capital movements, showed a profit of US$6.9 million compared to a loss in H1 2015 of US$2.9 million. However, net cash generated by operating activities, after interest and tax, was US$9.4 million, compared to US$6.7m in H1 2015, with the variance reflecting working capital movements during the respective periods.

With the focus on cash conservation, capex was kept low in the period at just US$0.1 million (H1 2015: US$2.7 million). No exploration costs were capitalised during the period.

Two new Elliott loans of US$0.75 million and US$0.6 million were drawn down between January and June.

Capital repayments under the Ecobank loan facility totalled US$5.0 million. Capital repayments under the Coris Bank loan facility totalled US$7.1 million, while the Ecobank VAT facility payments (net of further advances) totalled US$1.7 million.

On 9 June 2016 the shareholders approved a 10:1 consolidation of the Company's shares, in order to comply with minimum share price requirements of the Oslo Børs.

DIRECTORS RESPONSIBILITY STATEMENT

We confirm that to the best of our knowledge:

· The condensed set of financial statements has been prepared in accordance with IAS 34 'Interim Financial Reporting' as adopted by the EU;

· The interim management report includes a fair review of the information required by:

i) DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of important events during the first six months of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and

ii) DTR 4.2.8R of the Disclosure and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period; and any changes in the related party transactions described in the last annual report that could do so.

By order of the Board

DAVID CATHER

Chief Executive Officer

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

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Basis of preparation

The condensed consolidated interim financial statements, which are unaudited, have been prepared in accordance with the requirements of International Accounting Standard 34 as adopted for use in the European Union. This condensed interim report does not include all the notes of the type normally included in an annual financial report. Accordingly, this condensed report is to be read in conjunction with the Annual Report for the year ended 31 December 2015, which has been prepared in accordance with IFRS as adopted by the European Union, and any public announcements made by the Group during the interim reporting period.

The financial information set out in this interim report does not constitute statutory accounts as defined in Section 435 of the Companies Act 2006. The unaudited condensed financial statements for the six months ended 30 June 2016 have been drawn up using accounting policies and presentation expected to be adopted in the Group's full financial statements for the year ending 31 December 2015. The accounting policies are not different to those set out in note 1 to the Group's audited financial statements for the year ended 31 December 2015, with the exception of certain amendments to accounting standards or new interpretations issued by the International Accounting Standards Board, which were applicable from 1 January 2016. These have not had a material impact on the Group.

The Company's statutory financial statements for the year ended 31 December 2015 are available on the Company's website www.avocetmining.com. The auditor's report on those financial statements was qualified with respect to physical stock contained in ore stockpile, in circuit and in finished goods of $11.5m included within inventory of$17.3m as disclosed in note 18 of the Company's statutory financial statements. The company also received an emphasis of matter relating to going concern and the carrying value of the Tri-k asset, refer to notes 1 and15 of the Company's statutory financial statements.

Going Concern

Elliott Loans

The Company has debts totaling US$25.0 million which it owes to Manchester Securities Corp, an affiliate of Elliott Management at 30 June 2016 (see note 12).

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. During 2016, the Company drew down new loans totaling US$1.55 million (of which US$1.35 million was during the first 6 months) for such purposes.

These loans represent short-term facilities with high interest rates (between 11% and 14%). All of these loans are repayable on demand, and if repayment was requested by Elliott, the Company would be unlikely to be able to raise the external finance it would need to settle these obligations.

However the Company believes that the most likely means that these loans will be repaid is through a financing deal in respect of the Tri-K project, over which the majority of the loans are secured. The terms of such a deal remain subject to contract (see below), however are expected to result in a combination of a cash payment together with an earn-in, in return for Avocet ceding a majority interest in the project to a third party.

This would allow a portion of the loan to be repaid immediately, with the balance potentially able to be repaid either out of the cash generated by an asset in production at the Tri-K site, or a subsequent sale of the residual interest in the project.

Provided Elliott believe that the prospects of repayment under the existing structure are reasonable, Avocet's management believe that they will not exercise their right to demand the repayment of the loans, as this might have a damaging effect on the Company's assets, and prospects, in both Guinea and Burkina Faso.

However there can be no certainty that Elliott will remain supportive, particularly if the discussions around Tri-K become protracted or less likely to lead to a satisfactory outcome. 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, if indeed possible at all. If Elliot exercises its rights to demand repayment and the loans cannot be refinanced, the Group would cease to be a going concern and would likely enter an insolvency process.

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 advanced discussions with a preferred party, with a view to concluding a partial disposal of the asset in return for a consideration including a cash element and an earn-in element. Such a deal would leave Avocet with a minority share in an expanded project that would be ready to commence construction.

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 Tri-K mining permit was awarded on 27 March 2015. Under Article 34 of the Guinea mining code, if construction of the mine has not commenced within 12 months of the date of the award, the government has the right to impose penalties, and if construction has still not commenced after a further 6 months, the government may withdraw the permit.

No such construction activity has commenced in respect of this permit, and there is therefore a risk that the Company may incur penalties (of approximately US$100k per month of delay) and even lose the permit after 27 September 2016.

The Company has been in regular contact with the Guinean authorities with regard to this matter, and in particular has pointed to the delays in attracting the necessary financing resulting from the global slump in the mining sector, as well as the 2014-2015 ebola crisis (which prevented potential investors visiting the site).

Senior members of the Guinean government have expressed understanding, and have indicated that they would remain sympathetic provided Avocet could demonstrate progress with regard to securing financing for the project (see above).

The government has been actively involved in discussions with Avocet's preferred interested party, and has given indications that provided a transaction can be agreed before 27 September 2016, it would not exercise its right to withdraw the permits after this date.

The Company believes it will be in a position to agree and announce such a transaction by this date. However, if a delay were introduced for any reason, the Company would need to renegotiate with the Government of Guinea. Under such circumstances, there could be no guarantees that the Government would not exercise its right to withdraw the permit which would likely have a significant and negative effect on the Group's going concern position.

Gold price

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

The cash costs at Inata during 2015 and into 2016 have ranged between US$900 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.

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 June 2016 had approximately US$31.4 million in trade creditors, and a further US$31.5 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, however production challenges and an increase in costs are anticipated in the second half of 2016 which may increase creditor pressure.

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 2018.

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

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.

Estimates

Certain amounts included in the condensed consolidated interim 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.

In preparing these condensed interim financial statements, the significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those applied to the consolidated financial statements for the year ended 31 December 2015, with the exception of those highlighted in the exceptional items and impairments notes to these financial statements.

Principal risks and uncertainties

Avocet Mining PLC is exposed to a variety of risks and uncertainties which may have a financial, operational or reputational impact on the Group.

The principal risks and uncertainties facing the Group at the yearend were set out in detail in the Directors and Governance section of the Annual Report 2015 (pages 14-16), and have not changed significantly since. Key headline risks relate to the following:

· Withdrawal of financial support by Elliott Management

· Ability to complete financing transaction in respect of Tri-K

· Loss of Tri-K permits

· Gold prices

· Adverse action taken by creditors of the Inata mine

· Loss of Souma permit

· Operating issues at Inata

· Civil unrest and terrorism

The Annual Report 2015 is available on the Group's website www.avocetmining.com.

2. Segmental reporting

IFRS 8 requires the disclosure of certain information in respect of reportable operating segments. One of the criteria for determining reportable operating segments is the level at which information is regularly reviewed by the Chief Operating Decision Maker (CODM) for the purposes of making economic decisions. In this report, operating segments for continuing operations are determined as the UK, Burkina Faso operations (which includes the Inata gold mine as well as exploration activity within the Inata and wider Bélahouro licence areas), and Guinea (which includes the Tri-K project and its support functions).

(a) Other cost of sales represents costs not directly attributable to production, including exploration expenditure expensed;

(b) Includes amounts in respect of the amortisation of mine closure provision at Inata;

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

(d) Includes depreciation and amortisation, share based payments, taxation in the income statement, and other non-operating items in the income statement;

(e) Other cash movements include cash flows from financing activities, intragroup transfers, and exchange gains or losses.

(a) Other cost of sales represents costs not directly attributable to production, including exploration expenditure expensed;

(b) Includes amounts in respect of the amortisation of mine closure provision at Inata;

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

(d) Includes depreciation and amortisation, share based payments, taxation in the income statement, and other non-operating items in the income statement;

(e) Other cash movements include cash flows from financing activities, intragroup transfers, and exchange gains or losses.

3. Exceptional items

Impairments of Inata mining assets at 30 June 2016

No impairments were recognised during the six months to 30 June 2016.

Impairments of Inata mining assets at 30 June 2015

In June 2015, Avocet recognised a US$30.6 million impairment of non-current mining assets in respect of the Inata Gold Mine driven by changes to the Life of Mine Plan (LoMP). Further details are provided in note 8.

4. EBITDA

Earnings before interest, tax, depreciation and amortisation (EBITDA) represents profit before depreciation/amortisation, interest and taxes, as well as excluding any exceptional items.

5. Earnings per Share

Earnings per share are analysed in the table below.

The number of shares with voting rights reduced in the period as a result of the 10:1 share consolidation which came into effect on 10 June 2016. There were no other movements in share capital in the period.

As the strike price of all share options in issue was below the market share price, in calculating the diluted earnings per share the effect of share options in issue has been ignored for the 6 months ended 30 June 2016 and for the 6 months ended 30 June 2015.

6. Intangible assets

Intangible assets represent deferred exploration expenditure. The movement in the period is analysed below:

Intangible assets in Guinea consist of capitalised exploration and development costs in respect of the Tri-K project. No costs were capitalised during the six months to 30 June 2016.

The Company's exploration assets in Burkina Faso and Mali were impaired to nil in previous periods.

7. Property, plant and equipment

8. Impairments

Impairments at 30 June 2016

In accordance with IAS 36 Impairment of Assets, at each reporting date the Company assesses whether there are any indicators of impairment of non-current assets. When circumstances or events indicate that non-current assets may be impaired, these assets are reviewed in detail to determine whether their carrying value is higher than their recoverable value, and, where this is the result, an impairment is recognised. Recoverable value is the higher of value in use (VIU) and fair value less costs to sell. VIU is estimated by calculating the present value of the future cash flows expected to be derived from the asset cash generating unit (CGU). Fair value less costs to sell is based on the most reliable information available, including market statistics and recent transactions. The Inata mine has been identified as the CGU. This includes all tangible non-current assets, intangible exploration assets, and net current assets excluding cash.

No impairments were recognised during the six months to 30 June 2016. In spite of a rally in the gold price, there remain sufficient uncertainties around production and cashflows to suggest that a reversal would not be appropriate at the present time. The Company intends to complete a full Life of Mine production plan before the year end, which will form the basis of the impairment review at 31 December 2016.

Impairments at 30 June 2015

In June 2015, Avocet recognised a US$30.6 million impairment of non-current mining assets in respect of the Inata Gold Mine driven by changes to the Life of Mine Plan (LoMP).

When calculating the VIU, certain assumptions and estimates were made. Changes in these assumptions can have a significant effect on the recoverable amount and therefore the value of the impairment recognised. Should there be a change in the assumptions which indicated the impairment, this could lead to a revision of recorded impairment losses in future periods. The key assumptions used at that time are outlined below:

1Sensitivities provided are on a 100% basis, pre-tax. 10% of the post-tax impairment would be attributed to the non-controlling interest.

9. Inventories

Work in progress reflects the cost of gold contained in circuit. Finished goods represent gold that has been poured but has not yet been sold, whether in transit or undergoing refinement.

10. Trade and other receivables

11. Cash and cash equivalents

Included within the cash balance of US$4.3 million at 30 June 2016 was US$3.9 million of restricted cash (31 December 2015: US$3.9 million), representing a US$2.1 million minimum account balance held in relation to the Ecobank loan (31 December 2016: US$2.1 million), and US$1.8 million (31 December 2015: US$ 1.8 million) relating to amounts held on restricted deposit in Burkina Faso for the purposes of environmental rehabilitation work, as required by the terms of the Inata mining licence.

12. Other financial liabilities

Interest-bearing debt

Interest-bearing debt includes US$25.0 million in respect of loans due an affiliate of Elliott Management, the Company's largest shareholder, US$26.3 million in respect of a loan due to Ecobank, US$1.5 million in respect of a loan due to Coris Bank and US$2.3 million of net advances from Ecobank, secured on VAT recoverable amounts which have been confirmed but not yet settled by the Burkina Faso government.

Elliott loan

As at 30 June 2016, the Company had debts totalling US$25.0 million due to Manchester Securities Corp, an affiliate of Elliott Management (the 'Elliott Loans'). The Elliott Loan balance is made up of three individual loans, which are the subject of separate loan agreements, with different interest rates and security, as summarised in the table below:

The First Loan was entered into in March 2013 in order to finance the feasibility study for the Tri-K project, as well as corporate activities. Although due to be repaid on 31 December 2013, the financial circumstances of the Company at that time meant that this repayment could not take place, and the loan, together with accrued interest, remains outstanding. The loan is secured over the Tri-K project, and has an interest rate of 11%.

The Second Loan was initially entered into as a US$1.5 million unsecured facility in January 2015. This facility was increased by US$750k in January 2016 and again by US$800k in April 2016 in order to provide working capital for corporate and head office activities during 2016. The last tranche of this facility was drawn down on 25 July 2016. This loan has an interest rate of 14%.

The Third Loan was entered into in August 2015 to repay an unsecured facility of US$1.5 million, and to provide a further US$700k of working capital for the second half of 2015. This loan is secured over shares in various group subsidiaries, intra-group loans, and gold inventory at the Inata mine. It carries an interest rate of 12%.

As all three loans are on demand, they have been classified under Current Liabilities.

Ecobank Inata loan

At 30 June 2016, a loan balance of US$26.3 million was due in respect of a medium term loan facility with Ecobank Burkina Faso ("Ecobank"), which was drawn down in October 2013. The loan amount was provided and held in FCFA, which is the legal currency of Burkina Faso. The Ecobank loan was provided to the Company's 90% subsidiary, Société des Mines de Bélahouro SA ("SMB"), which owns the Inata mine.

The Ecobank facility has a five year term and bears an interest rate of 8% per annum. Ecobank has the right to secure the balance against certain of the assets of SMB. Monthly debt service payments of 0.6 billion FCFA (currently equal to US$1.1 million) comprising interest and principal will continue for the 60 month duration of the loan. The facility requires that an amount equal to two months' payments, 1.3 billion FCFA (currently equal to US$2.1 million), be held as a debt service reserve account. Subject to the debt service reserve account requirement, there are no restrictions on SMB's use of loan proceeds or cash flow generated, including the transfer of funds from SMB to Avocet for corporate purposes. The Ecobank loan facility has no hedge requirement.

During H1 2016, payments totalling US$6.4 million were made in respect of this loan, which was made up of US$5.0 million in loan repayments, US$1.2 million of interest, and US$0.2 million in VAT charged on interest. The weighted average interest on the loan during the year was 8.0%.

The facility is recognised at amortised cost and the amounts due within twelve months are included as current US$13.6 million with the remaining balance of US$12.7 million included as non-current.

Ecobank VAT loan

Avocet's Burkinabe subsidiary SMB has an arrangement with Ecobank to allow short term funding to be drawn down, secured against recoverable VAT balances. Under the terms of this agreement, SMB is able to receive funding in the amount of 80% of any VAT balances that have been confirmed by the government of Burkina Faso, but for which actual payment has not yet been received, up to an aggregate maximum of approximately US$8.0 million (4 billion FCFA). The balance drawn down as at 30 June 2016 under this facility was US$2.3 million.

During H1 2016, advances under this facility amounted to US$1.0 million, while US$2.7 million was repaid out of the proceeds of VAT reclaimed in the period.

Coris bank Inata loan

At 30 June 2016, a loan balance of US$1.5 million was due in respect of a short term loan facility with Coris Bank International ("Coris Bank"), which was drawn down in November 2015. The loan amount was provided and held in FCFA, which is the legal currency of Burkina Faso. The Coris Bank loan was provided to the Company's 90% subsidiary, Société des Mines de Bélahouro SA ("SMB"), which owns the Inata mine.

The Coris Bank facility has a 6 month term and bears an interest rate of 10% per annum. The Coris bank loan facility has no hedge requirement.

During H1 2016, payments totalling US$7.4 million were made in respect of this loan, which was made up of US$7.1million in capital repayments, and US$0.3 million of interest. The weighted average interest on the loan during the year was 10%.

The facility is recognised at amortised cost and as the amounts are due within twelve months, they are included as current. This loan was fully repaid in July 2016.

Warrants over Company shares

During 2013, 4 million warrants over shares in Avocet Mining PLC were issued to the Elliott Lender as consideration for the First Loan facility. These warrants had a strike price of GBP 0.40 each. Of these, 3 million expired on 3 June 2016, and the remaining warrants, which, following the 10:1 share consolidation in June 2016, were reduced to 100,000 in number at an increased strike price of GBP 4.00, are due to expire on 2 September 2016.

Finance lease liabilities

Also included within other financial liabilities are liabilities in respect of assets held under finance lease, US$0.6 million of which is included within current financial liabilities, and US$0.7 million is included within non-current financial liabilities.

13. Deferred tax

As at 30 June 2016, the Group increased its deferred tax liability by US$0.1 to US$1.8 million in relation to the withholding tax (WHT) that would be due in Burkina Faso on settlement of intragroup management fee invoices.

14. Share Capital

On 10 June 2016, the Company's share capital was subdivided from 209,496,710 ordinary shares of 5p each into 209,496,710 intermediate shares of 0.1p each and 209,496,710 deferred shares of 4.9p each.

On the same day the Company consolidated the intermediate ordinary shares on a 10:1 basis and the intermediate ordinary shares were re-designated as 1 new ordinary share of 1p each.

The deferred shares have no rights to vote, attend or speak at general meetings of the Company or to receive any dividend or other distribution and have no valuable economic rights to participate in any return of capital on a winding up or liquidation of the Company.

15. Related party transactions

The table below sets out charges in the six month period and balances at 30 June 2016 between the Company (Avocet Mining PLC) and Group companies that were not wholly owned, in respect of management fees.

16. Contingent liabilities

PT Lebong Tandai claim

In the Annual Report for the year ended 31 December 2015, note 30 to the financial statements contains a description of Indonesian law suits brought by PT Lebong Tandai against Avocet and other parties. The Company is unaware of any new developments in the Indonesian case since the publication of the Annual Report on 26 April 2016.

The Board remains confident that all the actions taken in respect of the transaction have been in accordance with prevailing rules and regulations and there are no grounds for any such legal action by PT LT. As any financial settlement with PT LT is considered to be remote, this matter does not constitute a contingent liability, however the matter is disclosed in these financial statements to replicate statements already made by the Company.

The buyer, J&Partners, has notified Avocet that in the event PT LT was successful in actions against J&Partners, J&Partners would make a claim for damages against Avocet. The basis for the claim would be that Avocet had breached a warranty in the sales agreement, which is governed by English law, in which it stated that it was selling the assets free of encumbrance. Avocet strongly disagrees that there was any such breach and initiated arbitration in the English courts to have any such claim dismissed.

The arbitration hearing took place in London in January 2015 and the arbitrator's verdict was delivered in December 2015. Although the verdict was partial and certain areas remained unresolved, the Company does not believe there to be any further contingent liabilities with regard to the arbitration.

Claim for Repayment of VAT

In March 2016, the Company received notification from HM Revenue and Customs that its VAT registration status had been challenged on the grounds that its management fees were not considered taxable supplies due to not having been fully settled in cash. The Company believes that these were valid taxable supplies in respect of bona fide services performed by Avocet Mining PLC on behalf of its subsidiaries (notably the Inata gold mine), and the non-payment was the result of temporary cashflow shortages and other restrictions in connection with its subsidiary's loan facilities. In the event that the VAT registration were to be held to be invalid (which the Board considers a remote possibility), the total VAT reclaimed that would be repayable by the Company would be approximately £950k (US$1.25 million).

17. Unaudited quarterly income statement

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