AVM.L Regulatory News (AVM)

14 Nov 2007 07:01

Avocet Mining PLC14 November 2007 INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2007 RECORD INTERIM PROFITS UP 331% CONTINUING OPERATIONS PRODUCTION UP 12% CASH COSTS DOWN 18% • Total profit up 331%, profit from continuing operations up 102% • Production from continuing operations up 12%, cash costs down 18% • Loss-making ZGC sold for profit of US$12.3 million • Acquisition of 9 new exploration projects in Indonesia, drilling under way • Well positioned for growth with US$112 million cash and no debt 6 months 6 months Variance ended ended Year ended 30 September 30 September 31 March 2007 2006 2007 Total gold production (ounces) 89,755 92,117 -3% 178,318- continuing operations (Penjom & 82,830 74,237 +12% 144,136North Lanut)- discontinued operations (ZGC) 6,925 17,880 -61% 34,182Average realised gold price (US$/oz) 675 583 +16% 607Cash production costs (US$/oz) 348 434 -20% 428- continuing operations 294 359 -18% 352- discontinued operations 983 748 +31% 750Profit/(loss) for the period (US$000) (1) 26,285 6,100 +331% 17,344- continuing operations 18,021 8,927 +102% 22,239- discontinued - ZGC losses (4,033) (2,827) (4,895) operations - profit on 12,297 - - disposal of ZGC Earnings per share (US cents) (1) 20.92 5.13 +308% 14.74 - continuing operations 13.55 6.90 +96% 17.75 - discontinued operations 7.37 (1.77) (3.01) (1) Prepared in accordance with International Financial Reporting Standards (IFRS) following the Group's adoption of IFRS with effect from 1 April 2007, as set out in note 1 to the consolidated financial statements. Prior periods have been adjusted accordingly. Commenting on the interim results, Jonathan Henry, Chief Executive, stated: "The performance of Avocet in the first half of the financial year has beenencouraging - we have successfully focused the business on our producing minesin South East Asia, whilst broadening our asset portfolio with potentiallyaccretive projects in our core region of expertise. We have kept cash costssignificantly below the industry's average, increased our production from ourcore assets in an environment of high precious metal prices, and made progresswith our exploration and development assets. We now have the building blocks totake Avocet onto the next stage of its development." For further information please contact: Avocet Mining PLC Buchanan Communication Grant Thornton Corporate FinanceJonathan Henry, Chief Executive Officer Bobby Morse, Partner Fiona Kindness, DirectorMike Norris, Finance Director Ben Willey, Partner 020 7728 3414020 7907 9000 020 7466 5000www.avocet.co.uk www.buchanan.uk.com www.grant-thornton.co.uk Notes to Editors Avocet is a mining company listed on the AIM market of the London Stock Exchange(Ticker: AVM). The Company's principal activities are gold mining andexploration in Malaysia (as 100% owner of the Penjom mine, the country's largestgold producer), and Indonesia (as 80% owner of the North Lanut gold mine andBakan project in North Sulawesi). The Company has a number of advanced miningand exploration projects in South East Asia and owns significant interests inDynasty Gold and Monument Mining, both Toronto Venture Exchange listed companieswith interests in Western China and Malaysia, respectively. CHAIRMAN'S STATEMENT During the first half year the Company has achieved a marked improvement inoperational performance at Penjom in Malaysia and North Lanut in Indonesia. Therise in the gold price has been an added benefit. These factors, combined withprofits from disposal of non-core assets, translate into profit for the firsthalf of US$26.3 million, a 331% increase compared with US$6.1 million last year;basic earnings per share grew by 308% from 5.13 to 20.92 cents. The disposal ofZGC in Tajikistan also represented a key milestone and has allowed the Companyto focus on its two profitable operations as well as organic and acquisitivegrowth with a healthy balance sheet available for expansion. The improvement in production and costs from continuing operations demonstratesthat our management team is delivering on its operational goals, with a numberof efficiency initiatives starting to bear fruit. The Company has also beenactive in progressing its growth plans. The Banda transaction and other assetsprovide a firm foundation with exciting exploration upside; drilling is ongoingat several of the Banda properties in North Sulawesi as well as at Palopo inSouth Sulawesi, and we look forward to announcing the drilling results fromthese programmes in the coming months. With significant profitability, positivecash flows and a robust balance sheet Avocet is continuing to focus on growth inSouth East Asia. We believe opportunities exist to broaden Avocet's portfolioof assets in the region, given our strength in building profitable and efficientgold mines in Malaysia and Indonesia and maximising returns through theimplementation of strong cost controls. Acquisition of such new projects willonly be contemplated where there is a clear and compelling case for added value,especially in the current environment of higher valuations. Spot gold prices averaged US$674/oz during the period, 8% above the previousyear, buoyed by continuing dollar weakness, especially in the wake of continuedturbulence in global financial markets. By the end of September gold had movedthrough the US$700/oz level. Following the gold collar restructure announced inOctober, the Group is now fully exposed to any gold price upside through toJanuary 2010, with downside protection locked in should spot prices fall belowUS$600/oz between now and July 2011. Second half outlook The second half year will see the expansion of Penjom's mill capacity as well ascommissioning of the remaining additional mining fleet and completion ofinfrastructure developments to underpin the pit expansion. With these complete,Penjom will be well placed to maintain its level of gold production despite ananticipated decline in grades, while at North Lanut we expect production tocontinue to benefit from the higher grades experienced in the first half.Operating costs are expected to remain in the lowest quartile within theindustry. The feasibility study at Bakan will be completed before the end ofthe financial year and construction activities are expected to intensify inearly 2008. I believe the outlook for gold prices is also positive. Goldfutures breached US$850/oz earlier this month, the highest level for 28 years,and rising oil prices and continued evidence of weakness in the US economy arelikely to keep the pressure on the US dollar. As one of the few goldproducers listed on AIM, Avocet will especially benefit from higher prices interms of cash generation, and we remain confident of continued growth during thesecond half of the year. Nigel McNair Scott13 November 2007 CHIEF EXECUTIVE'S STATEMENT AND OPERATIONAL REVIEW The first half of this year has been an important period both in strategic andoperational terms. In July we reported the sale of ZGC in Tajikistan and theBuffalo Reef prospect in Malaysia, which were the result of a review of assetsinitiated last year. This leaves the Group focused on gold production andexploration in South East Asia. Since then we have concentrated on maximisingthe returns from our core operations, while seeking new opportunities togenerate long term earnings growth. Our interim financial results, which have been prepared under InternationalFinancial Reporting Standards (IFRS) for the first time, show a significant yearon year increase in earnings. We have initiated a number of operational changesto ensure that we run our businesses as efficiently as possible together withthe benefit of higher gold prices, which have contributed to a strong first halfat both Penjom and North Lanut,. Total profit before tax including discontinuedoperations was up by 226% at US$29.3 million compared with US$9.0 million forthe same period last year. The first half of this year included profits ofUS$12.3 million from the sale of ZGC and US$8.0 million from the divestment ofthe Buffalo Reef prospect in Malaysia, announced in April. We also realisedUS$0.8 million from the disposal of our remaining interest in Primary MetalsInc. as part of its recent acquisition by Sojitz Corporation. These gains morethan compensated for a non-cash US$10.5 million negative mark to market of ourgold collar under IFRS. Net cash from operations at US$18.6 million was 66%higher than the previous year, while net assets at 30 September 2007 of US$166mwere 21% higher than at 31 March 2007. Penjom, Malaysia 6 months to 6 months to Year to 30-Sep-07 30-Sep-06 31-Mar-07 Production statistics:Ore and waste mined (bcm) 3,744,000 3,799,000 6,705,000Ore processed (tonnes) 291,000 272,000 570,100Average ore head grade (g/t) 5.13 6.17 5.67Recovery rate 92% 92% 92% Gold produced (ozs) 43,964 50,760 95,966Cash costs (US$/oz):Mining 1541 233 212Processing 92 79 80Admin. & Royalties 74 58 59Total cash costs (US$/oz) 320 370 351 1 net of US$54/oz deferred strip At Penjom, expansion of the Kalampong pit is progressing well with wastestripping ongoing on the east and west walls to achieve the major cutbacks thatform part of the operation's expansion which will offset an expected decrease ingrade. These cutbacks restricted ore mining to narrower and more variable gradeareas at the bottom of the existing pit. This restriction also resulted inincreased ore haulage costs, although the new more efficient haul fleet was ableto minimise this effect. Planning and permitting are now under way for thediversion of the Jaleh Creek. This will enable the Kalampong pit to be mergedwith the Manik pit to the south and will facilitate a significant expansion ofthe mine life at Penjom, albeit at a lower grade of ore. The larger merged pitwill also provide operational efficiencies including improved haul profiles andgreater flexibility arising from the availability of multiple mining zones.Looking forward, there is room for the reserve to expand further, especially atdepth, further to the south and to the north of the Kalampong pit. Definitiondrilling to establish this is ongoing and will form the basis of next year'sresource and reserve expansion efforts. A total of 26 of the 45 new Renault trucks, two 65 tonne excavators, twofront-end loaders, a D10 dozer and an additional Tamrock Pantera drill havearrived on site as part of the mining fleet expansion. Work on expansion of themill is progressing well and this will be complete during the final quarter ofthe financial year. Production at Penjom of 43,964 ounces in the first half year was 13% lower thanin the same period last year when a greater proportion of higher gradestockpiles was available for processing. The grade of ore mined at Penjom inthe first half of this year was equal to the grade mined in the correspondingperiod last year. Penjom's cost per ounce fell to US$320/oz compared with US$370/oz in the firsthalf of last year. Costs remain under pressure from higher royalties, which arebased on 7% of revenue and therefore directly linked to the gold price, and fromthe continuing rise in fuel, reagents, and other costs. Efficiencies from themine's new haul fleet and other operational initiatives enabled Penjom to offsetthese inflationary increases and keep its mining cost per tonne flat. As aresult, and despite lower production, cash costs per ounce were maintained inline with the previous year, before adjustment for deferred stripping. With thepit expansion in progress, the waste-to-ore stripping ratio for the half yearwas 31:1 which exceeded the life of mine average of 22.5:1, and excess strippingcosts of US$2.4 million were deferred, equivalent to US$54/oz. North Lanut, Indonesia 6 months to 6 months to Year to 30-Sep-07 30-Sep-06 31-Mar-07 Production statistics:Ore and waste mined (bcm) 799,000 754,000 1,617,000Ore leached (tonnes) 1,043,000 579,600 1,157,000Average ore head grade (g/t) 2.70 1.77 1.86Recovery rate 43% 71% 69% Gold produced (ozs) 38,866 23,480 48,170Cash costs (US$/oz):Mining 134 178 188Processing 61 62 68Admin. & Royalties 70 94 98Total cash costs (US$/oz) 265 334 354 North Lanut performed strongly as the introduction of all weather haul trucksallowed the operation to take full advantage of significantly higher gradescurrently being mined, and first half production was 66% above the previous yearat 38,866 ounces. Current resource modelling, which includes the recentlyannounced positive infill drilling results at the Riska pit, is likely to see amarked increase in reserves. Following completion of the second stage of thedump leach pad in January 2007, the mine is now in the process of developing athird stage dump leach pad to support its next phase of production. Cash costsat North Lanut of US$265/oz were 21% better than the previous year reflectinghigher production as well as targeted improvements in haulage productivity,drilling and the use of emulsion explosives to achieve better fragmentation inblasting operations. North Lanut's current cash costs leave it firmly in thelowest quartile of gold producers. The average cost for gold producers isexpected to be well in excess of US$375/oz in 2007 compared with our averagecosts of US$294/oz at Penjom and North Lanut. Bakan, Indonesia, and other projects Bakan's environmental impact study was approved during the first half andremaining permitting activities are in progress. A pre-feasibility study hasbeen completed for the project and a final feasibility study will be completedby the final quarter of this financial year. Avocet's proven track record as amine developer will mitigate the construction project risk that many first timemine building companies experience. The Bakan feasibility study is expected toshow that reserves in the interim mine plan will amount to approximately 50% ofthe current Measured, Indicated and Inferred Resource of 519,100 ounces (16.87million tonnes averaging 0.96 g/t contained gold using a cut-off grade of 0.3 g/t Au). It is anticipated that these reserves will be expanded further asresults from ongoing infill and step-out exploration drilling become available.Further resource potential outside the existing Durian and Osela deposits is yetto be explored and substantial upside still exists to extend the mine life atBakan. We have prioritised our exploration tenements and drilling is ongoing on anumber of prospects with a view to adding resources, particularly from severalof the nine Banda properties that were purchased during the half year. We nowhave an excellent pipeline of exploration projects with the potential to bringadditional mines into our portfolio in a two to five year timeframe. Wecontinue to review other exploration projects in Indonesia, Malaysia andelsewhere in South East Asia with a view to increasing our resource base anddiversifying project risk. In China, discussions continue with Dynasty with aview to agreeing a mutually satisfactory structure for the potential developmentof the resource on the Hatu project, where the Company believes it can overcomemetallurgical issues and work with Dynasty's Chinese partner. Receipt of theadditional US$10 million contingent consideration in respect of the sale of ZGCremains uncertain as it is subject to the Tajik government granting anexploration licence to the new owners. Outlook With no debt, free cash flow generation, a cash balance of over US$110 millionand a powerful platform based on our existing profitable operations, we are wellplaced to deliver continued growth from our existing projects as well asconsider accretive additions to our exciting portfolio of assets. We areexpanding our team of experts at all our projects and their efforts incontinuously striving for excellence is critical to the Company's success. Ithank them all and wish them a safe and rewarding remainder of the year. Jonathan Henry13 November 2007 Avocet Mining PLCCondensed consolidated income statement 6 months ended 6 months ended Year 30 September 30 September ended 31 March 2007 2006 2007 US$000 US$000 US$000 note Unaudited Unaudited Unaudited Continuing operations Revenue 2 55,302 42,918 86,818Cost of sales (31,621) (30,209) (59,284) Gross profit 23,681 12,709 27,534 Administrative expenses (2,413) (1,832) (3,636)Share based payment (730) (281) (961) Operating profit 2 20,538 10,596 22,937 Profit on disposal of fixed asset investments 3 8,908 - - Finance items(Losses)/gains on gold collar not qualifying forhedge accounting 4 (10,525) 143 416Exchange gains 168 69 2,234Finance income 1,977 1,078 2,822Finance expense (34) (62) (112) Profit before taxation 5 21,032 11,824 28,297Taxation (3,011) (2,897) (6,058) Profit for the period from continuing operations 18,021 8,927 22,239 Discontinued operations Loss from discontinued operations before taxation (3,986) (2,827) (4,669)Profit on disposal of discontinued operations 3 12,297 - - Profit/(loss) before taxation 5 8,311 (2,827) (4,669)Taxation from discontinued operations (47) - (226) Profit/(loss) for the period from discontinuedoperations 8,264 (2,827) (4,895) Profit for the period 26,285 6,100 17,344 Attributable to:Equity shareholders of the parent company 25,111 6,060 17,619Minority interests 1,174 40 (275) 26,285 6,100 17,344 Earnings per share 6Basic (cents per share) 20.92 5.13 14.74Diluted (cents per share) 20.59 5.05 14.45Earnings per share from continuing operations 6Basic (cents per share) 13.55 6.90 17.75Diluted (cents per share) 13.34 6.80 17.41 Avocet Mining PLC Condensed consolidated balance sheet 30 September 30 September 31 March 2007 2006 2007 US$000 US$000 US$000 Unaudited Unaudited Unaudited noteAssetsNon-current assetsGoodwill 5,166 4,395 5,488Property, plant and equipment 40,191 40,960 48,722Intangible assets 16,392 11,319 12,224Other financial assets 7 15,180 3,894 3,765Deferred tax 8,924 2,954 4,871 85,853 63,522 75,070 Current assetsInventories 14,835 23,279 26,421Trade and other receivables 9,031 4,659 6,303Other financial assets - 882 981Cash and bank balances 111,702 64,904 65,299 135,568 93,724 99,004 Current liabilitiesTrade and other payables 15,555 12,716 16,142Current tax liabilities 6,007 705 1,727 21,562 13,421 17,869 Net current assets 114,006 80,303 81,135 Non-current liabilities 8Other financial liabilities 20,100 9,848 9,575Deferred tax liabilities 4,636 3,712 4,293Other liabilities 8,949 4,266 4,738 33,685 17,826 18,606 Net assets 166,174 125,999 137,599 EquityCapital and reservesIssued capital 9,867 9,867 9,867Share premium 52,834 52,834 52,834Other reserves 14,599 14,218 13,894Retained earnings 85,598 48,042 60,281 Total equity attributable to the parent company 162,898 124,961 136,876Minority interests 3,276 1,038 723 Total equity 166,174 125,999 137,599 Avocet Mining PLC Condensed consolidated statement of changes in equity (Unaudited) Share Share Other Retained Minority Total capital premium reserves earnings interest equity US$000 US$000 US$000 US$000 US$000 US$000 At 1 April 2006 8,445 133 17,337 41,701 998 68,614 Issue of shares 1,422 52,701 54,123Equity settled share options 281 281Investment in own shares (1,398) (1,398)Profit for the period 6,060 40 6,100Exchange differences on translation offoreign operations (104) (104)Revaluation of shares and warrants (1,617) (1,617) At 30 September 2006 9,867 52,834 14,218 48,042 1,038 125,999 Equity settled share options 680 680Investment in own shares (1,426) (1,426)Profit/(loss) for the period 11,559 (315) 11,244Exchange differences on translation offoreign operations 40 40Revaluation of shares and warrants 1,062 1,062 At 31 March 2007 9,867 52,834 13,894 60,281 723 137,599 Equity settled share options 730 730Investment in own shares (2,644) (2,644)Profit for the period 25,111 1,174 26,285Minority interest on sale of ZGC 1,379 1,379Exchange differences on translation offoreign operations (230) (230)Revaluation of shares and warrants 3,579 3,579Loss on issue from treasury shares (524) (524) At 30 September 2007 9,867 52,834 14,599 85,598 3,276 166,174 Avocet Mining PLC Condensed consolidated cash flow statement 6 months 6 months Year ended ended ended 30 September 30 September 31 March 2007 2006 2007 US$000 US$000 US$000 Unaudited Unaudited UnauditedCash flows from operating activitiesProfit for the period 26,285 6,100 17,344Adjusted for:Depreciation of non-current assets 5,919 3,306 6,895Exploration costs written off - 170 242Share based payment 730 281 961Provisions 1,376 (150) 217Taxation in the income statement 3,058 2,897 6,284Non operating items in the income statement (12,791) (1,228) (5,360) 24,577 11,376 26,583Movements in working capital:Decrease/(increase) in inventory 171 504 (2,638)Increase in trade and other receivables (5,911) (1,435) (2,882)(Decrease)/increase in trade and other payables (252) 761 4,781 Net cash generated from operations 18,585 11,206 25,844 Interest received 1,977 1,080 2,424Interest paid (34) (62) (112)Income tax paid (1,965) (2,067) (4,669) Net cash generated by operating activities 18,563 10,157 23,487 Cash flows from investing activitiesProceeds from sale of fixed asset investments 46,163 - -Payments for property plant and equipment (8,235) (5,007) (13,264)Deferred consideration (752) (593) (1,196)Exploration and evaluation expenses (6,175) (4,970) (9,203)Net cash movement from sale of subsidiary (87) - - Net cash generated by/(used in) investing activities 30,914 (10,570) (23,663) Cash flows from financing activitiesProceeds from issue of equity shares - 56,733 56,733Issue costs - (2,326) (2,610)Treasury and EBT shares purchased (2,929) (1,794) (3,220)Capital repayments on finance leases (313) (283) (580) Net cash (used in)/generated by financing activities (3,242) 52,330 50,323 Net increase in cash and cash equivalents 46,235 51,917 50,147Exchange (losses)/gains 168 69 2,234 Total increase in cash and cash equivalents 46,403 51,986 52,381Cash and cash equivalents at the start of the period 65,299 12,918 12,918 Cash and cash equivalents at the end of the period 111,702 64,904 65,299 Notes to the consolidated financial statements 1. Adoption of International Financial Reporting Standards(IFRS) and basis of preparation The Group adopted IFRS with effect from 1 April 2007 and will prepare its annualconsolidated financial statements under IFRS for the year ended 31 March 2008,the first annual reporting date for which the Group is required to apply IFRS.The unaudited interim consolidated financial statements which are for the sixmonth period ended 30 September 2007, has therefore been prepared in accordancewith the recognition and measurement principles of reporting standards that areeither already in issue, as adopted by the European Union (EU) and effective at31 March 2008, or are expected to be adopted and effective at 31 March 2008. The interim consolidated financial statements do not include all of theinformation required for full annual financial statements. The interimfinancial information has not been audited but it has been reviewed under theInternational Standard on Review Engagements (UK and Ireland) 2410 of theAuditing Practices Board. The financial information set out in this interimreport does not constitute statutory accounts as defined in Section 240 of theCompanies Act 1985. The Group's statutory financial statements for the yearended 31 March 2007 prepared under UK Generally Accepted Accounting Standards(UK GAAP) have been filed with the Registrar of Companies. The auditors reporton those financial statements was unqualified and did not contain a statementunder Section 237(2) of the Companies Act 1985. First time adoption of IFRS IFRS requires that an opening IFRS balance sheet be prepared at the transitiondate to IFRS, which is a date one year prior to the adoption of IFRS in order toensure that appropriate comparative information may be presented. The Group hastaken advantage of IFRS 1.25B exemption which permits application of IFRS 2 fromthe transition date, rather than from January 2005. The Group's opening IFRSbalance sheet at 1 April 2006 has been prepared in accordance with IFRS 1 -First time adoption and the Group has elected to apply the exemption availableon first time adoption whereby business combinations that occurred before theopening IFRS balance sheet date are exempt from the application of IFRS 3 -Business combinations. The format of financial statements and certainaccounting policies differ under IFRS compared with UK GAAP. Comparativefinancial information previously published under UK GAAP has therefore beenadjusted on an IFRS basis for the opening balance sheet at 1 April 2006, the sixmonth period ended 30 September 2006, and the year ended 31 March 2007. Thechange in the Group's reported performance and financial position arising onadoption of IFRS is set out in detail in note 9 to these interim consolidatedfinancial statements. Accounting policies The interim consolidated financial statements have been prepared under thehistorical cost convention except for share-based payments that are fair valuedat the date of grant and other financial assets and liabilities that aremeasured at fair value. The accounting policies applied in these interimfinancial statements are unchanged from those used in the previous annualfinancial statements except to the extent required by the adoption of IFRS asfollows: IFRS 3 - Business combinations - under UK GAAP an amount of negative goodwill arising from a pastacquisition was recognised on the balance sheet within intangible fixed assets;IFRS 3 requires all negative goodwill to be credited to the income statement; - under UK GAAP positive goodwill is carried on the balance sheet andamortised over an appropriate life; IFRS 3 requires that amortisation cease atthe date of transition and a regime of impairment testing be put in placeincluding a test for impairment at the date of transition. IAS 12 - Deferred tax The charge in the income statement in respect of share based payments iscalculated by reference to the fair value of options granted to employees,whereas deferred tax is based on an estimate of the deduction the Company willreceive in a future period, by reference to the period end market price of theoptions less the exercise price. The deferred tax credit in the income statementis limited to the lower of the estimated deduction and the fair value charge inthe income statement. Under UK GAAP where the future deduction was estimated tobe in excess of the fair value charge in the income statement, this wasconsidered a permanent difference and no deferred tax asset was recognised. IAS12 requires that a deferred tax asset be recognised in respect of thedifference, with the credit taken to equity. IAS 39 - Financial Instruments: Recognition and Measurement - under UK GAAP the Group did not recognise as assets a number ofwarrants entitling it to acquire shares in Primary Metals Inc. (Primary), acompany listed on the Toronto Venture Exchange. IAS 39 requires that investmentsin the form of warrants and shares be recognised on the balance sheet at fairvalue, with changes in fair value being taken to equity. This treatment wasapplied to the Group's interest in Monument Mining Limited at the transitiondate; the Group disposed of its warrants in Primary during the six month periodended 30 September 2007; - under UK GAAP the Group's gold collar was not recognised on the balancesheet. IAS 39 requires that the collar be recognised on the balance sheet atfair value and that changes in fair value must be taken to the income statementon the basis that the collar does not qualify for hedge accounting under IFRS,for reasons set out in note 4. The adjustments made to reflect these changes in accounting policies aredetailed in note 9. 2. Revenue and operating profit/(loss) Total revenue and operating profit are analysed below between continuing anddiscontinued operations: 6 months 6 months Year ended ended ended 30 September 30 September 31 March 2007 2006 2007 US$000 US$000 US$000RevenueContinuing operations 55,302 42,918 86,818Discontinued operations 4,765 11,940 21,418Total 60,067 54,858 108,236Operating profit/(loss)Continuing operations 20,538 10,596 22,937Discontinued operations (3,986) (2,827) (4,669)Total 16,552 7,769 18,268 3. Profit on disposal of fixed asset investments During the period the Group divested its interest in Damar ConsolidatedExploration Sdn Bhd (Damar), the owner of the Buffalo Reef prospects inMalaysia, and its remaining interest in Primary. In addition it disposed of itsZGC operation in Tajikistan and its subsidiary Commonwealth and British Minerals(UK) Limited (CBM (UK) Ltd), through which ZGC was held. Damar Primary Other Total Discontinued continuing continuing operations - US$000 US$000 operations operations ZGC/CBM (UK) Ltd US$000 US$000 US$000 Sale proceedsCash 1,629 1,751 150 3,530 45,100Shares 7,618 - - 7,618 - 9,247 1,751 150 11,148 45,100 Net assets disposed (1,249) (981) - (2,230) (30,336)Disposal costs (10) - - (10) (2,467) (1,259) (981) - (2,240) (32,803) Profit on disposal of fixed asset 7,988 770 150 8,908 -investments - continuing operationsProfit on disposal of discontinued - - - - 12,297operations In addition to the US$45.1 million cash proceeds received in respect of the ZGCdisposal, Avocet is entitled to a further US$10 million should ZGC be granted anexploration or mining licence for the Chore deposit in Tajikistan. The grant ofsuch a license remains uncertain. This amount would be recognised in the periodof receipt as deferred profit on the sale of ZGC. 4. Gold collar not qualifying for hedge accounting The Group has taken out different financing facilities with Macquarie BankLimited (MBL) over a number of years, initially project financing for Penjom andsubsequently corporate facilities for the Group. In respect of the currentUS$25 million revolving credit facility, which remains undrawn, MBL required theGroup to hedge its realised sales price to ensure a minimum of US$600/ozreceived over the term of the facility. This requirement was imposed by MBL toensure that the Group would, in the bank's opinion, generate sufficient revenueto cover adequately debt and interest payments following draw down of funds.This facility replaced a similar facility of US$10 million that required hedgingto ensure a minimum of US$450/oz received. To satisfy these requirements and toeliminate certain forward sales hedges arising from previous project financing,in January 2006 the Group entered into a gold collar comprising the purchase ofput options and the sale of call options, whereby the sale of call optionsgenerated premiums sufficient to purchase the put options required by MBL. Under IAS 39 - Financial Instruments: Recognition and Measurement, the goldcollar does not qualify for hedge accounting on the basis that the originalcollar contract constituted a net written option and was capable of being cashsettled. IAS 39 requires that the collar be recognised on the balance sheet atfair value, with changes in fair value being taken to the income statement. Asthe collar was entered into in order to meet the requirements of its financingfacility with MBL, these changes in fair value, also known as mark to marketadjustments, are presented in the income statement as gains or losses withinfinance items. During all periods presented within these financial statements,all sales of gold have been at spot prices. 5. Profit before tax Total profit before tax is analysed in the table below between continuing anddiscontinued operations. The table below also shows underlying profit beforetax from continuing operations after adjusting for profits on disposals and themark to market loss in respect of the Group's gold collar. Management believesdisclosure of underlying profit before tax is meaningful because it is commonpractice for market analysts to prepare forecasts of profit before tax excludingsuch large items, due to the unpredictability of their recurrence and amount. 6 months 6 months Year ended ended ended 30 September 30 September 31 March 2007 2006 2007 US$000 US$000 US$000Profit before tax as reportedContinuing operations 21,032 11,824 28,297Discontinued operations - ZGC losses (3,986) (2,827) (4,669) - profit on disposal of ZGC 12,297 - -Total as reported 29,343 8,997 23,628Adjustments:Deduct profits on disposal of fixed asset investments, asanalysed in note 3: - -- continuing operations (8,908) - -- discontinued operations (12,297) - -Add back/(deduct) loss/(gain) on gold collar 10,525 (143) (416)Add back ZGC losses 3,986 2,827 4,669Underlying profit before tax from continuing operations 22,649 11,681 27,881 6. Earnings per share Total earnings per share is analysed in the table below for continuing anddiscontinued operations. The table below also shows underlying earnings pershare from continuing operations after adjusting for profits on disposals andthe mark to market loss in respect of the Group's gold collar. 6 months to 6 months to Year to 30 September 30 September 31 March 2007 2006 2007Weighted average number of shares- number of shares with voting rights 120,024,715 118,230,628 119,543,971- effect of share options in issue 1,923,320 1,745,740 2,349,390- total used in calculation of diluted earnings per 121,948,035 119,976,368 121,893,361 share US$000 US$000 US$000Earnings per share from continuing operationsProfit after tax on continuing operations 18,021 8,927 22,239Less minority interests 1,755 772 1,018Profit after tax and minorities 16,266 8,155 21,221 Earnings per shareBasic (cents) 13.55 6.90 17.75Diluted (cents) 13.34 6.80 17.41 Underlying earnings per share from continuing operationsProfit after tax and minorities as above 16,266 8,155 21,221Adjustments:Deduct profits on disposal of fixed asset investments, asanalysed in note 3 (8,908) - -Add back/(deduct) loss/(gain) on gold collar 10,525 (143) (416)Less deferred tax on gold collar (2,947) 43 125Underlying profit after tax and minorities 14,936 8,055 20,930Earnings per shareBasic (cents per share) 12.44 6.81 17.51Diluted (cents per share) 12.25 6.71 17.17 Profit/(loss) per share from discontinued operationsProfit/(loss) after tax on discontinuing operations 8,264 (2,827) (4,895)plus minority interests 581 733 1,293Profit/(loss) after tax and minorities 8,845 (2,094) (3,602)Earnings per shareBasic (cents per share) 7.37 (1.77) (3.01)Diluted (cents per share) 7.25 (1.75) (2.96) 7. Other financial assets Other financial assets represent the fair value of the Company's interest inDynasty Gold Corporation and Monument Mining Limited. 8. Non-current liabilities Other financial liabilities represent the fair value liability of the Group'sgold collar which is described in note 4. The increase in liability during thishalf year reflects the strengthening of the gold price during the period,resulting in an increase in the value of the call options. Other liabilities include a US$5 million mine closure provision representingmanagement's best estimate of the cost of mine closure at its operations inMalaysia and Indonesia. The charge to the income statement for the six monthsended 30 September 2007 is US$1.15 million and is calculated on each operation'slife of mine. 9. Reconciliations between UK GAAP and IFRS for prior periods The following adjustments and reconciliations between UK GAAP and IFRS should beread in conjunction with the explanations in note 1 of the differences inaccounting policies between UK GAAP and IFRS. All IFRS reconciliation items passthrough other reserves and retained earnings. Adjustments IFRS 3 - Business combinations - negative goodwill has been credited to opening reserves at 1 April2006, being the date of transition to IFRS, instead of being recognised asnegative goodwill within intangible fixed assets as permitted by UK GAAP; - goodwill amortisation has been added back to profit in the periodsended 30 September 2006 and 31 March 2007 as goodwill is not amortised underIFRS. IAS 12 - Deferred tax - an additional deferred tax asset has been recognised in respect of thedifference between the estimated future tax deduction and the fair value chargein the income statement for share based payments, with the corresponding credittaken to equity; - deferred tax has been recognised in respect of the IAS 39 fair valueadjustments noted below; the deferred tax impacts are reflected within the IAS39 column in the reconciliations. IAS 39 - Financial Instruments: Recognition and Measurement - the Group's warrants in respect of Primary and its shares and warrantsin respect of Monument Mining Limited have been recognised as other financialassets on the balance sheet at fair value, with changes in fair value taken toequity; - the Group's gold collar has been recognised at fair value as an otherfinancial liability on the balance sheet, with changes in fair value taken toopening reserves at 1 April 2006 and to the income statement thereafter. Reconciliation of equity at 1 April 2006 UK GAAP IAS 12 IFRS 3 IAS 39 IFRS US $000 US $000 US $000 US $000 US $000Non-current assetsGoodwill 2,971 1,424 4,395Property, plant and equipment 39,443 39,443Intangible assets 6,521 6,521Other financial assets 1,937 4,169 6,106Deferred tax 2,997 2,997 50,872 1,424 7,166 59,462Current assetsInventories 23,783 23,783Trade and other receivables 3,073 3,073Other financial assets 981 981Cash and bank balances 12,918 12,918 39,774 981 40,755Current liabilitiesTrade and other payables 11,821 11,821Current tax liabilities 705 705 12,526 12,526Non-current liabilitiesOther financial liabilities 9,991 9,991Deferred tax liabilities 2,263 1,545 3,808Other liabilities 5,278 5,278 7,541 11,536 19,077 Net assets 70,579 1,424 (3,389) 68,614 Total equity 70,579 1,424 (3,389) 68,614 Reconciliation of equity as at 30 September 2006 UK GAAP IAS 12 IFRS 3 IAS 39 IFRS US $000 US $000 US $000 US $000 US $000Non-current assetsGoodwill 2,709 1,686 4,395Property, plant and equipment 40,960 40,960Intangible assets 11,319 11,319Other financial assets 1,937 1,957 3,894Deferred tax 2,954 2,954 56,925 1,686 4,911 63,522Current assetsInventories 23,279 23,279Trade and other receivables 4,659 4,659Other financial assets 882 882Cash and bank balances 64,904 64,904 92,842 882 93,724Current liabilitiesTrade and other payables 12,716 12,716Current tax liabilities 705 705 13,421 13,421Non-current liabilitiesOther financial liabilities 9,848 9,848Deferred tax liabilities 2,861 851 3,712Other liabilities 4,266 4,266 7,127 10,699 17,826 Net assets 129,219 1,686 (4,906) 125,999 Total equity 129,219 1,686 (4,906) 125,999 Reconciliation of equity as at 31 March 2007 UK GAAP IAS 12 IFRS 3 IAS 39 IFRS US $000 US $000 US $000 US $000 US $000Non-current assetsGoodwill 3,541 1,947 5,488Property, plant and equipment 48,722 48,722Intangible assets 12,224 12,224Other financial assets 1,937 1,828 3,765Deferred tax 628 1,371 2,872 4,871 67,052 1,371 1,947 4,700 75,070Current assetsInventories 26,421 26,421Trade and other receivables 6,303 6,303Other financial assets 981 981Cash and bank balances 65,299 65,299 98,023 981 99,004Current liabilitiesTrade and other payables 16,142 16,142Current tax liabilities 1,727 1,727 17,869 17,869Non-current liabilitiesOther financial liabilities 9,575 9,575Deferred tax liabilities 3,451 842 4,293Other liabilities 4,738 4,738 8,189 10,417 18,606 Net assets 139,017 1,371 1,947 (4,736) 137,599 Total equity 139,017 1,371 1,947 (4,736) 137,599 Reconciliation of profit for the period ended 30 September 2006 UK GAAP IAS 12 IFRS 3 IAS 39 IFRS US $000 US $000 US $000 US $000 US $000 Gross profit 12,447 262 12,709 Administration expenses (1,832) (1,832)Share based payment (281) (281) Operating profit 10,334 262 10,596 Finance itemsGains on gold collar not qualifyingfor hedge accounting 143 143Exchange gains 69 69Finance income 1,078 1,078Finance expense (62) (62)Profit before tax 11,419 262 143 11,824Taxation (2,854) (43) (2,897)Profit for the period fromcontinuing operations 8,565 262 100 8,927Loss from discontinued operations (2,827) (2,827)Profit for the period 5,738 262 100 6,100Attributable to:Equity shareholders of the parent 5,698 262 100 6,060companyMinority interests 40 40 Reconciliation of profit for the year ended 31 March 2007 Gross profit 27,011 523 27,534 Administration expenses (3,636) (3,636)Share based payment (961) (961) Operating profit 22,414 523 22,937 Finance itemsGains on gold collar not qualifyingfor hedge accounting 416 416Exchange gains 2,234 2,234Finance income 2,822 2,822Finance expense (112) (112)Profit before tax 27,358 523 416 28,297Taxation (6,221) 288 (125) (6,058)Profit for the period fromcontinuing operations 21,137 288 523 291 22,239Loss from discontinued operations (4,895) (4,895)Profit for the period 16,242 288 523 291 17,344Attributable to:Equity shareholders of the parent 16,517 288 523 291 17,619companyMinority interests (275) (275) Cash flow IFRS adjustments are non-cash. However, certain aspects of cash flow disclosurediffer under IFRS, including the description of line items in the cash flowstatement. The definition of cash under IFRS, as set out in IAS 17 - Cash flowstatements, is wider than under UK GAAP; under IFRS highly liquid investmentsthat are readily convertible to a known amount of cash and have an insignificantrisk of a change in value, are regarded as cash equivalents. Such a readilyconvertible investment is the money market deposit and this is included in theheading 'Cash and cash equivalents'. Under UK GAAP payments to acquireproperty, plant and equipment were classified as part of 'Capital expenditureand financial investment' whilst under IFRS such payments have been reclassifiedas part of 'Investing activities'. There are no other material differencesbetween the cash flow statement presented under IFRS and that presented under UKGAAP. This information is provided by RNS The company news service from the London Stock Exchange