AVM.L Regulatory News (AVM)

1 October 2018

Unaudited Interim Results

for the six months ended 30 June 2018

Avocet Mining PLC ("Avocet" or "the Company") today announces its unaudited interim results for the six months ended 30 June 2018. These results are discussed under the section headed operational and financial results for the first six months ended 30 June 2018 on page 3.

In the first half of 2018 management continued to pursue their primary strategic objective: the refinancing and restructuring of the Group.

The completion of the sale of Avocet's subsidiaries in Burkina Faso on 8 February 2018, and of the disposal of its wholly-owned Norwegian entity Wega Mining and its subsidiaries on 16 March 2018, are part of this larger restructuring effort, and took place against the background of on-going discussions between the Company and its sole creditor Elliott Management ("Elliott") regarding the restructuring of its overdue loans.

Following these transactions the Company's stake in the Tri-K development is its only asset. In light of Avocet's board remaining responsibilities and its continued efforts to minimise costs, the size of the board was no longer considered appropriate and it was reduced from five to two members on 19 March 2018.

On 5 September 2018, the Company has transferred a further 30 per cent of its Tri-K gold project in Guinea to Managem SA ("Managem"), a Moroccan mining group listed on the Casablanca stock exchange, under the October 2016 agreement Avocet had entered into with Managem.

At the corporate level, the loans of US$29.9 million as per 30 June 2018 from Manchester Securities Corp (an affiliate of Elliott), the Company's largest shareholder) remain an unsustainable debt burden. Elliott's loans have been due since 2013. Discussions with Elliott regarding the restructuring of Avocet's debts continue.

A possible outcome of these discussions could be that the Avocet Group is broken up further in an orderly manner and eventually wound up. If this occurs, it is expected that, given the amount of debt owed by Avocet, there will be very minimal or no returns to Avocet's shareholders.

At the moment Avocet has sufficient funds for at least the next twelve months as of the date of signing of the report, at the current and expected rate of spending, provided that the capital and interest on the Elliott's loan will not have to be paid in that period.

The Directors consider that, at the date of signing the Report, the Company is a going concern. Their considerations are explained more fully in note 1 to the financial statements.

FOR FURTHER INFORMATION PLEASE CONTACT

NOTES TO EDITORS

Avocet Mining PLC ("Avocet" or the "Company") is a 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 activity is gold exploration in Guinea, West Africa: the Tri-K project.

OPERATIONAL AND FINANCIAL RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2018

In 2018, the sales of the assets and liabilities that were held for sale in 2017 were completed.

The transaction with the Balaji Group comprised the sale by Wega Mining AS ("Wega Mining"), a wholly-owned subsidiary of Avocet, of the entire issued share capital of Resolute West Africa ("Resolute") to Greater Success Global Limited, a member of the Balaji Group, for US$ 1 in cash. As this was a sale of a distressed company, the shares were sold on an "as is/where is" basis, i.e. no warranties (other than with regard to title and capacity) were given by Wega Mining in the Agreement.

Resolute was the sole shareholder of Goldbelt and the majority shareholder in SMB, which holds the Inata mining licence. The sale of Resolute therefore represents the disposal by the Company of all of its assets in Burkina Faso, including the Inata goldmine.

In addition, the transaction involved the assignment by Avocet and Wega Mining to the Balaji Group of certain receivables owed to them by SMB and Goldbelt for a cash consideration of US$ 2,499,999, and for a consideration of US$ 2.5 million to be satisfied by deferred payments over a period of seven years. The obligation to pay the deferred consideration is guaranteed by the Purchaser and by the chairman of the Balaji Group personally. Elliott has security over the deferred payments.

All assets and liabilities in Burkina Faso were classified at year-end as assets held for sale, as the entities were sold in the first quarter of 2018 and the decision to sell the entities was taken before 31 December 2017. 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.

On 16 March 2018, the Company announced that it had completed the disposal of one of its subsidiary companies, the wholly-owned Norwegian entity Wega Mining AS and certain intercompany receivables of the Group to Natholmen AS for a total consideration of US$ 400,000 in cash - like the recent sale of its Burkina Faso subsidiaries, the disposal of Wega Mining is part of that larger restructuring effort - taking place against the background of on-going discussions between the Company and its sole creditor Elliott regarding the restructuring of its overdue loans. Elliott agreed to the Disposal and to release its security over the shares in Wega Mining and its subsidiaries.

On 10 October 2016, Avocet announced that it had entered into an agreement with Managem, under which Managem would ultimately hold an interest of 70 per cent in the project conditional upon (a) an initial payment of US$4 million for 40 per cent of the project and related shareholder loans, (b) the completion of a US$10 million work programme, and (c) the production of a bankable feasibility study for an operation with a reserve of at least 1 million ounces.

On 22 May 2017, Avocet received from Managem US$4 million for 40 per cent of the project and related shareholder loans as part of the first closing.

On 3 August 2018, Managem sent the Company an overview of the work programme, the costs incurred as part of that programme, and a feasibility study indicating a reserve of approximately 1.1 million ounces.

On 5 September 2018 the Company transferred a further 30% of Avocet's stake in the Tri-K project to Managold as well as the related shareholder loans. A discussion is ongoing between the parties regarding the costs incurred as part of the work programme.

Results for the period

The result for the first half year of 2018 was US$ 25.2 million compared with a loss of US$5.4 million in the first half year of 2017, mainly due to Avocet's disposals in the first quarter of the year.

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

BOUDEWIJN WENTINK

Chief Executive Officer

(1) Adjusted EBITDA represents earnings before exceptional items, finance items, taxation, depreciation, amortisation and impairments. 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 2017, 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 2018 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 2018. 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 2017, 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 2018. These have not had a material impact on the Group.

The Company's statutory financial statements for the year ended 31 December 2017 are available on the Company's website www.avocetmining.com. The auditor's report on consolidated financial statements contained a disclaimer of opinion. The auditors have not been able to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion on these financial statements.

The company also received an unmodified audit opinion relating to the Company's statutory financial statements.

Going Concern

Continued financial support from Elliott

The Company has loans totalling US$30.5 million on 30 September 2018, due to an affiliate of Elliott Associates, its largest shareholder. These loans are described in detail in Note 12 below.

Since 2014, the cashflow shortages resulting from gold prices and lower production at the Inata mine meant 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.

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

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

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

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

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

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

Should Elliott request the repayment of these loans, the Company would be obliged at short notice to seek alternative funding, which would be a considerable challenge. However, management continues to have ongoing dialogue around the debt and do not believe that Elliott currently intends to demand repayment of their loans within the next 12 months.

Head office creditors

Head office creditors are primarily related to the Elliott loans and general Head Office costs.

The Company relied until April 2017 on management fees out of the Inata mine, however as the mine experienced operational and cashflow issues, the funds were not available to settle management fees. The Company needed to rely on the money received from the Tri-K transaction in May 2017 and the subsequent transactions in 2018. The Company has funds available to fund Head Office costs in the next twelve months provided that the capital and the interest on the Elliott loan will not have to be paid in that period.

Tri-K project

A feasibility study report has been published indicating approximately 1.1 million ounces of Gold. The next step is the raising funding for construction. This is likely to include a portion of debt, with the equity contribution to be shared pro rata between Managem and Avocet. Under the terms of the agreement, Avocet has the right to decline to contribute its percentage of this cost, which would then require Managem to contribute all of the equity, diluting Avocet's interest proportionately.

Gold price

The Tri-K project financial projections use US$ 1,250 per ounce. The sensitivities of Tri-K's cashflows to different gold prices are determined in the Feasibility Study Report, however, as with any gold mine, its profitability and value are heavily dependent on the gold price.

It is clear that a sustained fall in the gold price would threaten the economic viability of the Tri-K project - as well as the Avocet Group as a whole.

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 its assets and discharge all of its liabilities. 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 2017, 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 year-end were set out in detail in the Directors and Governance section of the Annual Report 2017 (page 10), and no further risks have been identified since.

Key headline risks relate to the following:

· Continued financial support from Elliott

· Tri-K project

· Gold prices

· Civil unrest and terrorism

The Annual Report 2017 is available on the Group's website www.avocetmining.com.

2. Segmental reporting

The segment information reported does not include any amounts for discontinued operations and only includes the UK for 2018.

3. Result of discontinued operations

The Company entered in two sales agreements to dispose of 1) the assets in Burkina Faso, including the Inata gold mine, together with certain receivables of the Company, 2) the wholly-owned Norwegian entity Wega Mining AS, together with certain intercompany receivables. Both disposals were completed in the first quarter of 2018. The fair value less costs to sell of the two businesses is higher than the aggregate carrying amount of the related assets and liabilities. Therefore, no impairment loss was recognised as at 31 December 2017.

The result relating to the two agreements is:

Result for the period on discontinued operations

4. Exceptional items

Exceptional items in the first half of 2017 contain costs for advisors relating to the Standstill agreement in SMB and will be part of a settlement once a deal is completed.

No impairments were recognised during the six months to June 2018 and 2017.

5. Adjusted EBITDA

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

6. Earnings per Share

Earnings per share are analysed in the table below.

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 2018 and for the 6 months ended 30 June 2017.

7. Associates

The Company applied the equity method as described in IAS28. At the moment of first closing of the transaction, the Company holds 60% of equity with a total value of US$ 22,200.

Manacet SA has been established in 2017 to acquire Société des Mines de Mandiana SA. The company acquired as part of first closing effectively 60% of the Manacet shares in May 2017. At the acquisition date (First Closing) Manacet (including SMM) held US$34.8 million exploration intangible assets and current liabilities for the same amount. Managem have indicated they have spent at least US$ 10 million as per period end, although management have not been provided with sufficient information to verify this claim.

Based on its own calculations, management expects that at 30 June 2018 US$ 3.5 million interest owed to Avocet Mining plc and Managold needs to be included on top of the US$10 million expenditure and any interest owed to Managem, so that that non-current assets would be at least US$48.3 million, and current liabilities US$48.3 million.

In line with the group's accounting policy on the capitalisation of borrowing costs, management considers it reasonable that this interest is capitalised under IAS23 "Borrowing Costs" as the loans are a critical part of the finance of developing the Tri-K asset. 

Whilst management have limited information, given Manacet was still in the exploration phase as at period end and, in accordance with the group's accounting policy, all applicable costs are capitalised in accordance with IFRS6 "Exploration for and Evaluation of Mineral Resources", management believe Manacet's overall result for the half year were not material.

On 5 September 2018 the Company announced that it had transferred a further 30% of Avocet's stake in the Tri-K project to Managold as well as the related shareholder loans. A discussion is ongoing between the parties regarding the costs incurred as part of the work programme.

8. Deferred loan

The Deferred loan was entered into as part of the transaction regarding the Burkina Faso assets. The loan was valued at fair value upon recognition in Wega Mining AS. Management estimated that the fair value is around US$0.2 million. The loan was subsequently assigned to Avocet.

This loan is a non-derivative financial asset with fixed payments that are not quoted in an active market. The loan is valued at fair value at initial recognition of US$ 0.2 million. The loan has a nominal value of US$ 2.5 million to be satisfied by deferred payments over a period of seven years. The obligation to pay the deferred consideration is guaranteed by the purchaser and by the chairman of the Balaji Group personally.

Elliott has security of the deferred payments.

On 3 September Avocet gave notice to the Balaji Group that an Event of Default (as defined in the loan documentation) had occurred. The Balaji Group has not remedied this Event of Default within the period and therefore the Event of Default continues, following which a notice of acceleration has been sent.

9. Trade and other receivables

10. Assets and liabilities classified as held for sale

The Company entered in two sales agreements to dispose of 1) the assets in Burkina Faso, including the Inata gold mine, together with certain receivables of the Company, 2) the wholly-owned Norwegian entity Wega Mining AS, together with certain intercompany receivables. Both disposals were completed in the first quarter of 2018. The fair value less costs to sell of the two businesses was higher than the aggregate carrying amount of the related assets and liabilities. Therefore, no impairment loss was recognised as at 31 December 2017. The major classes of assets and liabilities of both businesses at the end of the reporting period are as follows:

11. Cash and cash equivalents

12. Other financial liabilities

Interest-bearing debt

Interest-bearing debt includes US$29.9 million in respect of loans due to an affiliate of Elliott Associates, the Company's largest shareholder.

Elliott loan

At 30 June 2018 the Company had debts totalling US$29.9 million (30 June 2017: US$27.6 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:

First Loan

The First Loan was entered into in March 2013. The original repayment date was 31 December 2013. However, the Company was unable to meet this repayment obligation and since this time, the loan has been in default and therefore repayable on demand. The interest rate applicable to this loan is 11 per cent per annum.

Second Loan

The Second Loan began as a US$1.5 million loan that was drawn down in January 2015. This facility was increased by US$0.75 million in January 2016 and again by US$0.8 million 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.

The Second Loan has an interest rate of 14 per cent per annum, is unsecured and is repayable on demand.

Third Loan

The Third Loan was entered into in April 2015 and comprises three tranches, all of which have been fully drawn down in respect of an aggregate amount of US$2.4 million. The loan is secured over the deferred loan relating to the sale of the Burkina Faso assets.

The Third Loan has an interest rate of 12 per cent per annum and is repayable on demand.

13. Related party transactions

The table below sets out charges in the six month period and balances at 30 June 2018 between the Company (Avocet Mining PLC) and Group companies that were not wholly owned, in respect of management fees and interest on loans.

On 5 September 2018 the Company announced that it had transferred a further 30% of Avocet's stake in the Tri-K project to Managold. Avocet now holds 30% in Manacet SA. The shareholder loans have been transferred as part of this and Avocet now holds approximately US$ 11.5 million in shareholder loans.

The interest on the loans and the loans are fully provided for.

14. Contingent liabilities

There were no contingent liabilities at 30 June 2018 and at 30 June 2017.