AVM.L Regulatory News (AVM)

29 November 2016

Proposed partial disposal and financing of Tri-K, transfer of listing category, reduced notice period and notice of General Meeting

Avocet Mining PLC ("Avocet" or "the Company") announces that it has today sent to shareholders a circular (the "Circular") and a Notice of General Meeting, to be held at the offices of Fieldfisher LLP, Riverbank House, 2 Swan Lane, London EC4R 3TT at 11.00 a.m. on 22 December 2016.

At this meeting, the following resolutions will be proposed:

1. To approve the partial disposal and financing of Tri-K (as announced on 10 October 2016);

2. To approve a move down from the Premium List to the Standard List of the London Stock Exchange; and

3. To approve a proposed reduction in the notice period required to be given for general meetings of shareholders (other than AGMs) from 21 to 14 days.

The partial disposal of Tri-K will be proposed as an ordinary resolution, requiring a simple majority of the votes cast, while the other two resolutions will be proposed as special resolutions, requiring the approval of 75 per cent of the votes cast.

A copy of the Circular is available on the Company's website www.avocetmining.com 

The above highlights should be read in conjunction with the full text of the following announcement.

Capitalised terms used herein but not defined have the same meanings as set out in the Circular.

Strand Hanson Limited ("Strand Hanson"), which is regulated in the United Kingdom by the FCA, is acting exclusively for Avocet Mining plc and no one else in connection with the Proposals and will not be responsible to anyone other than Avocet Mining plc for providing the protections afforded to its clients, for the contents of this announcement or for providing any advice in relation to this announcement or the Proposals.

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 kilometers from the Inata Gold Mine.

The Company also holds an interest in the Tri-K project in Guinea. On 10 October 2016, the Company announced that it had agreed to dispose of 40% of the project to Managem, a Moroccan group listed on the Casablanca stock exchange, subject to, inter alia, shareholder approval, and which will increase upon completion of a bankable feasibility study for a CIL plant at the site, the incurring of expenditures of at least US$10 million, and the enlarging of the ore reserve, to 70% (in the event of an increase of the reserve to 1 million ounce or more) or 60% (if less than 1 million ounces).

THIS ANNOUNCEMENT IS NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION IN OR INTO THE RUSSIAN FEDERATION, THE UNITED STATES, CANADA, AUSTRALIA OR JAPAN

AVOCET MINING PLC ("AVOCET" OR "THE COMPANY")

Proposed partial disposal and financing of Tri-K

Transfer of listing category

Reduced notice period

and

Notice of General Meeting

1. Introduction

On 10 October 2016, the Company announced that it had entered into a conditional agreement to establish a joint venture in relation to the Group's gold project in Guinea, known as Tri-K, with Managem SA, a Moroccan mining group listed on the Casablanca Stock Exchange. Managem has agreed to acquire an initial minority interest in Tri-K (referred to herein as First Closing) which will increase to a majority interest of up to 70 per cent on completion of an agreed work programme and subject to certain milestones being met (referred to herein as Second Closing).

In return for an initial payment of US$4.0 million, Avocet will transfer at First Closing:

· its equity interest in the Exploitation Permit to SMM, an existing dormant subsidiary in which Avocet holds 85 per cent of the equity and the Government holds 15 per cent;

· its 85 per cent interest in SMM to Manacet, a new joint venture company in which Avocet will hold 60 per cent and Managold (a wholly owned subsidiary of Managem) will hold 40 per cent of the equity; and

· 40 per cent of the intra-group loans associated with Tri-K (amounting to approximately US$13.9 million) to Managold.

Managem will then undertake an agreed work programme, expected to be completed within 12 months, which will consist of at least US$10.0 million worth of drilling, analysis and documentation work to facilitate an anticipated increase in the Ore Reserves and completion of the Feasibility Study for a CIL operation at the site. On successful completion of these objectives and the delivery of an Independent Feasibility Study Report, Managem's interest in Manacet will increase at Second Closing to 70 per cent of the equity (and Avocet will be diluted to 30 per cent) and Avocet will make a further transfer of the intra-group loans associated with Tri-K such that Managold will hold 70 per cent of the total (being approximately US$31.3 million), subject to Ore Reserves increasing to at least 1 million ounces, failing which Managem's increased interest in Manacet and the loans will be limited to 60 per cent.

Avocet retains the option to repurchase Managem's interests in Manacet and the Tri-K intra-group loans, and resume full ownership of Tri-K, should the agreed work programme and Feasibility Study not be completed and the milestones not met.

In addition, the Company is also announcing today proposals to seek authority from Shareholders to transfer its listing on the London Stock Exchange from the current Premium listing segment to the Standard listing segment of the Official List, and to reduce the notice period required for general meetings (other than annual general meetings) of Shareholders to 14 days.

The Disposal constitutes a Class 1 Disposal under the Listing Rules and is therefore conditional upon Shareholder approval. The Proposed Transfer and the Proposed Reduced Notice Period are also conditional upon Shareholder approval. Accordingly, a Circular is being posted to Shareholders today providing information regarding the Proposals and to seek their approval of the Resolutions at a general meeting of the Company to be held at 11.00 a.m. on 22 December 2016 at the offices of Fieldfisher LLP, Riverbank House, 2 Swan Lane, London EC4R 3TT. A notice convening the General Meeting containing the full text of the Resolutions to be considered at the meeting is set out in Part X of the Circular. If the Disposal Resolution is passed at the General Meeting on 22 December 2016, First Closing is expected to take place by early January 2017.

The purpose of the Circular is to provide information on the Proposals and why the Board believes the Proposals are in the best interests of the Company and Shareholders as a whole and to recommend that Shareholders vote in favour of the Resolutions.

Copies of the Circular are available from www.avocetmining.com .

2. Background to and reasons for the Proposals

2.1 Background to and reasons for the Disposal

Since the completion of a feasibility study for Tri-K in September 2013, the Company has been actively seeking financing to develop the asset. The award of the Exploitation Permit on 27 March 2015 was expected to stimulate interest. However, it also meant that under Article 34 of the Guinean Mining Code, construction work needed to commence by 27 March 2016 in order to avoid incurring penalties, and by 27 September 2016, in order to avoid the risk of the Government withdrawing the Exploitation Permit. On 1 September 2016, the Guinean Minister of Mines and Geology confirmed by letter that he was prepared to grant an additional three-month extension to this deadline, until 27 December 2016, in consideration of the fact that negotiations with interested parties were in progress.

The Company believes Tri-K to be prospective. However, the Company does not have sufficient funds to develop Tri-K independently and, therefore, without access to funding before 27 December 2016, there is a very real risk that the Guinea Government will withdraw the Exploitation Permit after that date and that the Tri-K project will be lost for no value. During 2015 and 2016, the Company entered into discussions with Managem, a Moroccan mining group listed on the Casablanca Stock Exchange, regarding a potential joint venture to develop Tri-K, which the Directors are pleased now to be able to put before Shareholders.

(a) Financial position of the Group

The Group has faced very material financial difficulties for some time. Avocet, as the holding company for the Group, has no revenues and relies on management fees charged to its subsidiaries and external financing to meet its overheads and the costs of developing its assets. From 2013, Avocet's sole operating subsidiary, SMB, which operates the Inata gold mine in Burkina Faso, was unable to make any payments to Avocet until August 2016 and Avocet has relied on a series of loans provided by the Elliott Lender, an affiliate of its largest Shareholder, Elliott Management (a large US hedge fund manager).

The Elliott Loans have an outstanding balance of approximately US$26 million and are repayable on demand and bear interest at between 11 per cent and 14 per cent per annum, and the majority of the loans are secured over the Group's assets (other than Inata). At the present time, were the Elliott Lender to demand repayment of its loans and enforce its security, Avocet would be forced to enter an insolvency process (be that administration or liquidation), as a result of which Shareholders should expect to lose all of the value of their Ordinary Shares.

Furthermore, SMB, which has suffered from lower than expected gold prices and lower than expected production volumes over a number of years, has itself faced very material financial difficulties for some time. SMB has bank loans of approximately US$32.1 million, which are being repaid according to their terms, and trade creditors of approximately US$24.3 million, of which approximately US$16.4 million are over 90 days old. SMB is able to continue to trade because it has persuaded its creditors that the best prospect of its debts being repaid in full is to be allowed to operate, and generate cash through gold sales. In the event that one or more of SMB's material creditors demands payment of overdue balances, it is likely that SMB would be forced into an insolvency process (be that administration or liquidation). The insolvency of SMB would likely result in no further management fees being received by the Company and no repayments of intra-group loans owed by SMB to the Company. However, the Company has not provided any security or guarantees for any of the liabilities of SMB. Consequently, in the event of the insolvency of SMB, the Directors do not believe that the Company would be liable for its debts.

Accordingly, until and following First Closing, the Directors are of the opinion that the Group will continue to experience very material financial difficulties and that there will continue to be a material uncertainty as to the Company's ability to continue as a going concern. The extent of the Group's indebtedness has meant that for some time its priorities have been tight cash management and a reduction in its creditors, and as a result the Group has not been able to invest in development activities such as drilling work at Inata, or the advancement of Tri-K.

If the Disposal proceeds the Company will have the benefit of the Initial Consideration of US$4.0 million (approximately US$2.5 million net of expenses) and expects to receive management fees from SMB, which will be applied to working capital, principally the head office costs in London and, to the extent possible, repayment of the Elliott Loans. Furthermore, if the Disposal is successful in demonstrating the prospects for generating value from Tri-K, the Directors believe that the Company will be better placed to raise capital from other sources and to repay, refinance or restructure the Elliott Loans. However, until such alternative funding is secured, the Company's cash resources will continue to be extremely limited. Accordingly, the Directors believe that, even if the Disposal proceeds, until such further funding is secured:

· in the event that the Elliott Lender demands repayment of its loans, the Company would be forced into an insolvency process (be that administration or liquidation), as a result of which Shareholders should expect to lose all of the value of their Ordinary Shares; and/or

· in event that SMB is unable to pay management fees (for any reason) and the Initial Consideration had been fully utilised, the Company would be forced to seek external financing, without which it would be forced into an insolvency process (be that administration or liquidation), as a result of which Shareholders should expect to lose all of the value of their Ordinary Shares.

Alternatively, if the Disposal does not proceed, the Company will not receive the Initial Consideration, the Company's cash resources will be lower and its ability to meet any demand from the Elliott Lender for repayment of the Elliott Loans will be reduced. The Directors are of the opinion that, in such circumstances, the Company would be at a significantly greater risk of being forced into an insolvency process (be that administration or liquidation), as a result of which Shareholders should expect to lose all of the value of their Ordinary Shares.

Accordingly, the Directors believe that the Disposal offers the Company and its Shareholders the best available prospect to generate a return for Shareholders.

Recent events at Inata

On 7 October 2016, a bailiff acting on behalf of ex-employees at Inata seized a shipment of 1,400 ounces of gold. In consideration of the threat of further seizures, further gold shipments and production were suspended from 27 October 2016. On 7 November 2016, the court in Burkina Faso ordered the lifting of the seizure. However, a second seizure notice was applied and the gold was not released and gold shipments and production remained suspended for a period.

On 24 November 2016, the Company reached agreement with representatives of the ex-employees for the release of the gold seized on 7 October 2016 and obtained assurance that they would not seek any further gold seizures for a period of 30 days. During this 30-day period, a committee including legal representatives from both sides and an independent adviser will determine the final figure, the balance of which would be payable at this point, subject to agreement.

Accordingly, workers returned to site on 24 November 2016 with a view to returning the mine to production and recommencing gold shipments as soon as practicable. Production is now expected to return to normal levels over the next few weeks and gold sales will recommence in the next few days - in addition to the 1,400 ounces of gold being held under seizure, SMB has a further 6,100 ounces of gold which has left the mine and is in transit to be refined and sold.

The Directors are confident that a resolution at Inata is in the interests of all parties, including current and former employees, suppliers and the government of Burkina Faso. However, there can be no certainty as to timing and, until a resolution is finalised, there will remain a risk that there may be further gold seizures and further periods of suspension of production and/or gold sales.

Furthermore, until SMB is able to sell the existing physical gold, it will be unable to make any payments of management fees to the Company. As noted above, whether or not the Disposal proceeds and until alternative funding is secured, if SMB is unable to pay management fees to the Company (for any reason), the Company would be forced into an insolvency process (be that administration or liquidation), as a result of which Shareholders should expect to lose all of the value of their Ordinary Shares.

(b) Risk of losing the Exploitation Permit on 27 December 2016

Under Article 34 of the Guinean Mining Code, the Government has the right to withdraw a mining permit if construction has not commenced within 18 months of the date that the permit was granted. In the case of the Exploitation Permit, this date was initially 27 September 2016. However, on 1 September 2016, the Guinean Minister of Mines and Geology confirmed by letter that he was prepared to grant an additional three-month extension to this deadline, until 27 December 2016, in consideration of the fact that negotiations with interested parties were in progress.

On 10 October 2016, the Company entered into a conditional agreement with Managem for the Disposal, for which the approval of Shareholders is now being sought. In the event that the Disposal does not proceed for any reason, it is unlikely that the Company would be able to meet its obligation to commence construction work by 27 December 2016, and there would be a very real risk of the Exploitation Permit being withdrawn after that date and Tri-K being lost for no value.

One of the conditions of the Disposal, in addition to the approval of Shareholders, is the entry into force of the Mining Convention. The Mining Convention is expected to be signed by the Minister of Mines in early December 2016 and will be subject to ratification by the National Assembly, which will only be sought if Shareholders approve the Disposal. The precise timing of this ratification will depend on the scheduling of the National Assembly. The Directors understand that current parliamentary session will run until 5 January 2017, after which a recess will take place until April.

If Shareholder approval is not obtained in sufficient time to allow the Mining Convention to be ratified by the National Assembly before 27 December 2016, the Government could withdraw the Exploitation Permit. It is also open to the National Assembly to refuse to ratify the Mining Convention, in which case the Government would also have the right to withdraw the Exploitation Permit from 27 December 2016.

If the Exploitation Permit is withdrawn, the Disposal will not proceed and as described above, the Directors are of the opinion that the Company would be at a significantly greater risk of being forced into an insolvency process (be that administration or liquidation), as a result of which Shareholders should expect to lose all of the value of their Ordinary Shares.

(c) Impact of the Disposal on the Group

The Board believes the Disposal to be beneficial to both Shareholders and the creditors of the Company. The impact on the Group's financial position is discussed elsewhere in this announcement. However, the principal benefit of the Disposal will be to increase the likelihood that the Group will continue to operate and to benefit from the future prospects of both Tri-K and Inata and thereby generate value for Shareholders.

If the Feasibility Study to be completed by Managem confirms the anticipated Ore Reserves of 1 million ounces of gold or more (compared with the current 480,000 ounces) and demonstrates that Tri-K can be developed on satisfactorily commercial terms, Avocet will have an interest in that project. Without the Disposal, Avocet will have no such interest. Developing the mine at Tri-K is likely to cost US$200 million or more, a large part of which is intended to be debt funded and with the balance being funded by Avocet and Managem in proportion to their interests. Avocet intends to fund its share by raising external debt or equity. To the extent that Avocet cannot meet its share, Managem will provide funding and Avocet will be diluted. If Avocet's interests fall below 10 per cent, Managem has the right to purchase Avocet's interest in Tri-K at fair market value. Accordingly, whether or not Avocet can fund its share of the construction costs, it has the opportunity to benefit from any value created through completing the Feasibility Study.

Ore Reserves of 1 million ounces may be sufficient to justify the costs of construction for a mine with a life of less than 10 years. It is hoped that, in common with other existing mines in the region, that once in production, ongoing exploration will lead to a longer mine life and greater economic returns. However, it must be noted, that there can be no certainty whatsoever as to the eventual Ore Reserves or mine life at Tri-K, or even whether the Feasibility Study will confirm a commercial project.

In addition, SMB, whilst heavily indebted, is cash generative at an operating level and generated US$13.0 million of net cashflow from operations in the first half of 2016, which was used primarily to reduce its liabilities. However, at current gold prices, it will be challenging to ensure all creditors of SMB are settled in full by the end of the current life of mine. However, the Company is exploring the possibility of bringing additional deposits into production to extend the life of mine, including sites at Ouzeni and Pali (which lie within 10km of Inata), as well as Souma (located 20km east of the Inata plant). Although there can be no certainty whatsoever as to the feasibility of these future projects or that they will ever proceed, it must be noted that the Company will only be able to benefit from these future developments if the Company continues to operate, which the Directors believe will be significantly less likely if the Disposal does not proceed.

(d) Reliance on the Elliott Lender and its intentions following First Closing

The Company has loan facilities from the Elliott Lender with an outstanding balance of US$26 million. The Elliott Loans bear interest at between 11 per cent and 14 per cent per annum, are repayable on demand and the majority of them are secured on the Group's assets (excluding Inata). The Elliott Loans are fully drawn and no further facilities have been provided since August 2016. Accordingly, the Elliott Lender is entitled to enforce the terms of the Elliott Loans and security at any time. If the Elliott Lender was to enforce its rights to demand repayment, the Directors do not believe that there is any likelihood of being able secure alternative sources of finance, in which case the Company would enter an insolvency process as a result of which Shareholders should expect to lose all of the value of their Ordinary Shares.

Accordingly, the Company is reliant on the continuing support of the Elliott Lender. Following First Closing, the Company intends to seek approval from the Elliott Lender to restructure the Elliott Loans, such that the loans are repayable on terms which match realistic timescales for generation of cash from the Group's assets and the interest burden is reduced. However, the Elliott Lender has given no indication as to whether it will continue to support the Company by not requesting repayment of the Elliott Loans or whether it would consider a restructuring of its Elliott Loans.

The Elliott Lender has been the sole source of external funding to the Company since 2013, has given the consent required for the Disposal to proceed and agreed to the changes to its security over the Group's assets to facilitate the Disposal. The Directors believe that the Company's strategy including the ongoing management of Inata (and its potential expansion through developing Souma) and the Disposal and development of Tri-K represent the best available opportunities to repay creditors (including the Elliott Lender and SMB's overdue creditors) and generate value for all Shareholders, including Elliott.

(e) Elliott and the Elliott Lender's interest in the Disposal

The Elliott Lender is a related party under the Listing Rules. However, the Proposals are not regarded as a related party transaction as defined by the Listing Rules as, although the Elliott Lender is a party to the Disposal Agreements, in that it has given certain consents and has agreed to changes to its security over the Group's assets, the purpose of the Disposal is not to benefit Elliott or the Elliott Lender.

The Elliott Lender will, as a result of the Disposal, see the value of the assets over which it has security change, as follows:

· Tri-K equity

The carrying value of the Company's interest in the equity value of Tri-K is currently nil and will remain so following the Disposal. Accordingly, there will be no change in the value of the equity. However, Avocet's interest, over which the Elliott Lender has and will continue to have security, will reduce from 100 per cent of the equity in Tri-K to an effective 51 per cent at First Closing (being 60 per cent of the 85 per cent to be held by Manacet) and to 25.5 per cent at Second Closing (being 30 per cent of 85 per cent, assuming Managold acquires the maximum 70 per cent equity interest in Manacet).

· Intra-group loans associated with Tri-K

The Elliott Lender currently has security over intra-group loans owed by WM Guinea to the Company with a value of US$57.0 million, of which US$34.8 million specifically relates to the area covered by the Tri-K mining permit (the balance being in relation to other permit areas which are unlikely to have any value in the future). At First Closing, US$13.9 million of the US$34.8 million loans will be assigned to Managold and the value of intra-group loans over which the Elliott Lender will have security will reduce to US$20.9 million. At Second Closing, up to a further US$7.4 million of these loans will be assigned to Managold and the value of intra-group loans over which the Elliott Lender will have security will reduce to US$13.4 million (assuming Managold acquires the maximum 70 per cent equity interest in Manacet).

Accordingly, in order to facilitate the Disposal, the Elliott Lender is accepting a material reduction in the current value of the assets over which it has security. However, the Disposal will generate working capital in the short term which will allow the Company to continue to operate and generate value in the longer term which will allow it to repay, restructure or refinance the Elliott Loans and to generate a return for Shareholders. As a result, whilst there is an ostensible benefit to the Elliott Lender (in that the Company believes it will be more likely to be able to repay, refinance or restructure the Elliott Loans) and to Elliott as a Shareholder (in that the Directors believe the Disposal increases the likelihood that the Company can generate value from Tri-K and other assets), the purpose of the Disposal is to benefit all Shareholders. However, Shareholders can only benefit if the Company has a meaningful strategy in place to repay, refinance or restructure the Elliott Loans and the Directors believe that the Disposal provides the best available platform from which to do so.

(f) Funding of future working capital

If the Disposal proceeds, the Company will receive the Initial Consideration of US$4.0 million (approximately US$2.5 million net of expenses). The Company intends to use the Initial Consideration for working capital. The Company also expects to receive revenues from its ongoing production activities (which comprise management fees receivable by the Company from SMB) which it will use for working capital purposes and, to the extent possible, repayment of the Elliott Loans. The Elliott Lender has not requested and the Company has not offered to make any repayment of the Elliott Loans. However, the Directors are cognisant that the Company must either repay, refinance or restructure the Elliott Loans as part of its overall strategy to generate shareholder value.

It is the intention of the Company as far as possible to rely on the payment of management fees from Inata in order to fund corporate and head office activities in 2017 and beyond. However, the availability of such funds depends on the cashflows of Inata, which have proven to be variable, and subject to factors such as the price of gold, creditor demands, operating performance, strikes, or unforeseen events such as the recent seizure of the gold shipment announced by the Company on 24 October 2016.

The Company will need to raise additional external finance in order to develop other assets, such as Souma. Discussions have been held with interested parties in this regard and are expected to continue if the Disposal proceeds.

Further details of the terms of the Disposal are set out in paragraph 3.3 below.

2.2 Background to and reasons for the Proposed Transfer

The Board is also seeking authority at the General Meeting to transfer the Company's listing category on the Official List. Accordingly, Shareholders will be asked to vote on the Proposed Transfer of the listing of the Ordinary Shares from the current category of a Premium Listing and into the category of a Standard Listing. If the Proposed Transfer is approved, the Ordinary Shares will continue to be traded on the Main Market.

After careful consideration, the Board has concluded that in order to ensure liquidity in the Ordinary Shares through a public listing whilst maintaining an appropriate degree of flexibility for a company of the size and type of Avocet, it is appropriate to transfer the listing of the Ordinary Shares from a Premium Listing to a Standard Listing under the Listing Rules. The Proposed Transfer will facilitate more cost efficient potential future financing, disposal and acquisition opportunities and administration generally.

Companies with securities admitted to a Standard Listing will not normally be required to seek prior Shareholder approval in connection with the acquisition or disposal of assets which exceed certain size criteria and/or involve a transaction with a related party. Furthermore, the Board wishes to align its regulatory responsibilities and the associated cost consequences with the Company's size. The Proposed Transfer will mean that the Company will not be required to comply with the super-equivalent provisions of the Listing Rules which apply to companies with a Premium Listing, and this will have a direct cost saving for the Company.

Further information on the Proposed Transfer is provided in paragraph 4 below and in Part VII of the Circular.

2.3 Background to and reasons for the Proposed Reduced Notice Period

The Board is seeking authority to reduce the notice period for a general meeting of Shareholders (other than an annual general meeting) to not less than 14 clear days. The Proposed Reduced Notice Period will, in the event that the Company requires Shareholder approval in connection with any other matters before the next AGM, such as corporate transactions or financings, enable the Company to act more quickly which, given the Company's financial position, the Directors believe is in the best interests of both the Company and Shareholders.

3. The Disposal

3.1 Information on Tri-K

Avocet is a gold mining and exploration company with a portfolio of assets principally comprising Inata, a producing asset in Burkina Faso, and two exploration assets, Tri-K in Guinea and Souma in Burkina Faso.

Tri-K comprises the Exploitation Permit, the Existing Exploration Licences and related support functions in Guinea, which are owned and controlled by Avocet through WM Guinea.

On 20 December 2013, the Company announced that it was undertaking a business review, the objective of which was to achieve the refinancing of the Group. In particular, the Company was eager to secure financing to allow the development of Tri-K, following an application for an exploitation permit which had been submitted in September 2013. Lower gold prices, together with a prolonged bear market for mining finance (plus the ebola crisis in Guinea), meant that over the course of 2014 and 2015, limited progress was made with regard to securing the necessary refinancing, either for the Group as a whole or Tri-K.

However, an improvement in market conditions during 2016, including an increase in the gold price, has resulted in renewed interest in Tri-K. The Company has held discussions with a number of potential investors in Tri-K culminating in signing the Disposal Agreements with Managem for a partial disposal and financing of Tri-K and joint negotiations on the Mining Convention with Managem and the Government. Further details of the Disposal Agreements and the Mining Convention are set out in paragraph 3.3 below.

Tri-K is a project in northeast Guinea with a total Mineral Resource of 3.0 million ounces. The Initial Feasibility Study was completed in 2013 on the basis of a heap leach development of only the oxide portion of the orebody showed that Tri-K can support a 7-year life of mine, producing an average of 55,000 ounces of gold per year. A maiden Ore Reserve of 480,000 ounces (7.9 million tonnes grading at 1.89 g/t Au) was also announced as part of the Initial Feasibility Study.

The Exploitation Permit was awarded on 27 March 2015. Under Article 34 of the 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 six months, the Government may withdraw the permit. On 6 September 2016, the Company received written confirmation from the Government that it would not enforce before 27 December 2016 its right to withdraw the Exploitation Permit which would otherwise have arisen on 27 September 2016, in consideration of the fact that negotiations with interested parties were in progress.

Further information on Tri-K and its resources are set out in Part V of the Circular.

3.2 Information on Managem

Managem is a Moroccan mining company publicly listed on the Casablanca Stock Exchange and majority-held by Société National d'Investissement (SNI), a Moroccan investment holding company.

Managem owns nine operating base metals and precious metals mines in Morocco and sub-Saharan Africa. In addition, Managem has a successful track-record in gold discoveries and development in Morocco, Niger, Burkina Faso and Guinea.

Beyond conventional mining exploitation, Managem has an integrated business model with services ranging from engineering and technical expertise (through its subsidiary REMINEX) to drilling and shaft sinking works (through its subsidiary TECHSUB). In addition, Managem owns a research and development centre which has provided supporting services to its operations since 1986.

Managem is not a related party and is not an associate of Elliott or the Elliott Lender, or any other related party of the Company.

3.3 Terms of the Disposal Agreements and the Mining Convention

The Company has entered into the Disposal Agreements with Managem for the formation of Manacet, a joint venture company to be owned 60:40 by Avocet and Managold, and a partial disposal to, and financing of Tri-K through, Manacet. The Company has received the consent of the Elliott Lender for the Disposal and the consequential changes to the security held by it as required under the terms of the Elliott Lender's security. First Closing of the Disposal is conditional on, inter alia, Shareholder approval and the entry into force of the Mining Convention following, inter alia, its ratification by the National Assembly.

At First Closing:

· Avocet will procure that WM Guinea will transfer the Exploitation Permit to SMM, an existing dormant subsidiary incorporated in Guinea and owned 85:15 by AGL and the Government, in consideration of SMM assuming from WM Guinea the liability to repay approximately US$34.8 million of intra-group loans due to Avocet;

· Avocet will cause AGL to transfer its 85 per cent equity interest in SMM to Manacet; and

· Avocet shall assign 40 per cent of its intra-group loans to SMM (being US$13.9 million) to Managold for cash consideration of US$4.0 million.

Following First Closing, Avocet and Managold will hold 60 per cent and 40 per cent, respectively, of the equity in Manacet and of the intra-group loans to SMM relating to Tri-K, Manacet will hold 85 per cent of SMM (the Government owning the other 15 per cent) and SMM will own 100 per cent of the Exploitation Permit.

Following First Closing, Managold will invest up to US$10.0 million in an agreed work programme of further drilling, test work, and the Feasibility Study over a period of 24 months. Second Closing will occur on the achievement of such investment and certain other milestones within that period, including the completion of a Feasibility Study Report.

On Second Closing, Avocet will be required to transfer a further 20 per cent interest in the equity of Manacet to Managold and a further 20 per cent of the intra-group loans relating to Tri-K (being a further US$3.0 million). In the event Managem delivers an Independent Feasibility Study Report after Second Closing but on or before the first anniversary of Second Closing which shows an Ore Reserve of at least 1 million ounces of gold, Managem shall be entitled to increase its interest from 60 per cent to 70 per cent of the equity and intra-group loans, respectively.

An organisation chart showing the Group structure before and after First Closing and Second Closing is included at Appendix 1.

On completion of the agreed work programme and the milestones, any further expenditure on Tri-K shall be borne by Avocet and Managold in strict proportion to their respective interests in the equity in Manacet and the intra-group loans to SMM. However, Avocet has the right to decline to participate in such expenditure, in which event its interests in the equity and intra-group loans will be diluted based on the contribution made by Managold. In the event that Avocet's interest is diluted below 10 per cent, Managem will have the right to purchase Avocet's interest at fair market value.

SMM, Managem and Avocet have agreed the terms of a Mining Convention with the Government which is expected to be signed in early December 2016. The Mining Convention contains the relevant terms and deadlines which apply to the Tri-K permit, including the following:

- a waiver of the right to apply penalties under the Mining Code due to construction of the mine not having begun by 27 September 2016;

- a reduction in royalties due on production from 5 to 3 per cent if the gold price is below US$1,300 per ounce, 5 per cent if the gold price is between US$1,300 and US$2,000 per ounce, and 7 per cent if the gold price is above US$2,000 per ounce;

- the grant of the New Exploration Permits in the Tri-K area to the Exploration Company following the surrender by WM Guinea of the Existing Exploration Permits; and

- a 6-year tax holiday from corporation tax.

The terms of the Mining Convention have been agreed and are expected to be signed in early December 2016, but remains subject to ratification by the National Assembly. It is expected that ratification will be sought following the General Meeting. Ratification is only possible once Avocet has confirmed to the Government that all other conditions, including Shareholder approval, have been met. An announcement will be made by Avocet on receipt of such ratification.

The Disposal Agreements may be terminated by either Avocet or Managem prior to ratification of the Mining Convention, if the conditions have not been met.

Further details of the Disposal Agreements and the Mining Convention are set out in Part VI of the Circular.

3.4 Use of proceeds

If the Disposal proceeds, the Company will receive the Initial Consideration of US$4.0 million (approximately US$2.5 million net of expenses) on First Closing. The Initial Consideration will be used for working capital.

3.5 Financial effects of the Disposal on the Group

A pro forma statement of the net assets showing the effect of the Disposal on the Group is set out in Part IV of the Circular (the "Pro Forma").

The Disposal will result in significant movements in the Group's consolidated balance sheet. At First Closing, the Group will continue to consolidate its interests in Manacet as a subsidiary, and will reverse previous impairments relating to Tri-K and will recognise the transfer of intra-group loan balances to Managold; together with the net proceeds of the Disposal. These changes will result in an increase in net assets of approximately US$4.6 million and a profit on disposal of approximately US$4.5 million. At Second Closing, the Group accounts will cease to consolidate its interests Manacet as a subsidiary and will account for those interests as an associate. Accordingly, at Second Closing, the Group's interests in Manacet and the related intra-group loans will be cease to be recognised, resulting in a decrease in net assets of US$7.4 million and a loss on disposal of US$7.4 million.

Until Second Closing, Manacet will be recognised as a subsidiary of Avocet and its financial results will continue to be consolidated in the Group's financial reporting together with a minority interest with regard to the interests of Managem and the Government in Tri-K. Until that point, the funding provided by Managem will be recognised as a loan to Manacet and the Group results will consolidate all of the costs incurred by Manacet. Following Second Closing, Manacet will cease to be recognised as a subsidiary and will be accounted for as an associate. From that point, the Group's financial reporting will include only Avocet's share of the profits of Manacet.

Managold has committed, in accordance with the terms of the Earn-In Agreement and the agreed work programme, to fund operations at Tri-K, subject to such terms, and Avocet will have no further liability to meet any costs with regard to Tri-K, following First Closing until Second Closing or the earlier termination of the Earn-in Agreement. Following Second Closing, it is the intention of Avocet and Managem to raise the funds needed to commence construction of a CIL gold mine at Tri-K. The capital requirement will not be known until completion of the Feasibility Study. However, it is likely to be at least US$200 million, and possibly more. Part of this funding may be provided through bank debt, but there is likely to be a requirement for contribution from Managem and Avocet. Avocet may decline to provide such financing if it is unable or unwilling to do so and, if so, its interest in Tri-K may be further diluted. If its interests are diluted below 10 per cent, Managem will have the right to purchase Avocet's interest at fair market value. It is Avocet's current intention to raise finance and contribute its share of the funding requirement not met by bank debt. However, it reserves the right to decline to provide such funding if requested to do so. Accordingly, following First Closing, Avocet is not committed to incur any further expenditure towards Tri-K.

4. Proposed Transfer

After careful consideration, the Board has concluded that in order to ensure liquidity in the Ordinary Shares through a public listing whilst maintaining an appropriate degree of flexibility for a company of the size and type of Avocet, it is appropriate to transfer the listing of the Ordinary Shares from a Premium Listing to a Standard Listing under the Listing Rules. This transfer forms part of the long-term strategic plan of the Company which will facilitate more cost efficient potential future disposal and acquisition opportunities and administration generally.

Companies with securities admitted to a Standard Listing will not normally be required to seek prior Shareholder approval in connection with the acquisition or disposal of assets which exceed certain size criteria and/or involve a transaction with a related party. Furthermore, the Board wishes to align its regulatory responsibilities and the associated cost consequences with the Company's size. The Proposed Transfer will mean that the Company will not be required to comply with the super-equivalent provisions of the Listing Rules which apply to companies with a Premium Listing and this will have a direct cost saving for the Company.

A Standard Listing requires the issuer to comply with the minimum regulatory requirements imposed by the EU that apply to all securities that are admitted to trading on EU regulated markets. As an issuer with a Standard Listing, the Company will remain subject to the Listing Rules (as applicable to a company whose equity shares have a Standard Listing), the Prospectus Rules and the Disclosure Guidance and Transparency Rules. However, it will not be required to comply with the super-equivalent provisions of the Listing Rules which apply to companies with a Premium Listing. Such super-equivalent provisions include:

· certain continuing obligations set out in Chapter 9 of the Listing Rules such as providing pre-emption rights to Shareholders, certain rules regarding employee share schemes and long-term incentive plans, certain rules regarding the conduct of rights issues, open offers and placings and certain disclosures in annual financial reports;

· complying or explaining against the UK Corporate Governance Code (although the Company will still be required to make a corporate governance statement under paragraph 7.2 of the Disclosure Guidance and Transparency Rules); and

· complying with the provisions in Chapters 10 and 11 of the Listing Rules relating to significant and related party transactions.

The super-equivalent provisions provide Shareholders with rights to vote on certain corporate actions, including significant and related party transactions. Upon the transfer to Standard Listing becoming effective, Shareholders will no longer have the opportunity to vote on such corporate actions.

The administrative requirements associated with the Ordinary Shares having a Standard Listing will be simplified as the Listing Rules for securities with a Standard Listing are less demanding and stringent than those applicable to securities with a Premium Listing. In particular, companies with securities admitted to a Standard Listing will not normally be required to produce documentation and seek prior Shareholder approval in connection with the acquisition or disposal of assets which exceed certain size criteria and/or involve a transaction with a related party.

The higher level of regulation contained in the super-equivalent provisions referred to above has been designed to offer shareholders in premium listed companies additional rights and protections. Accordingly, investors should be aware that any investment in a company that has a Standard Listing is likely to carry a higher risk than an investment in a company with a Premium Listing. However, the Board intends to maintain appropriate standards of reporting and corporate governance for a company with a Standard Listing and, to the extent it considers appropriate in light of the Company's size and future developments, will observe the requirements of the UK Corporate Governance Code. However, if the Company complies with the UK Corporate Governance Code, it would be on a voluntary basis only. Furthermore, the Board has not made, and does not anticipate or intend to make, any changes to the Company's business in connection with the Proposed Transfer from a Premium to a Standard Listing.

The transfer to a Standard Listing will not affect the way in which Shareholders buy or sell Ordinary Shares and, following the transfer, existing share certificates in issue in respect of Ordinary Shares will remain valid. The Ordinary Shares will also continue to be eligible to be held in ISAs and SIPPs. As for a company with a Premium Listing, a company with a Standard Listing is still required to have a minimum of 25 per cent of its shares in public hands and will continue to be obliged to publish a prospectus when issuing new shares to the public unless such an issue falls within one of the permitted exemptions. Companies with Standard Listings are also still required to disclose inside information to the market and to comply with the provisions of the Disclosure Guidance and Transparency Rules including to make notifications of dealings in shares. They must also prepare annual audited financial reports, half yearly financial reports and interim management statements in the same way that companies with a Premium Listing are required to do.

A more detailed summary of the differences between the regulatory requirements of companies with a Standard Listing and those with a Premium Listing is contained at Part VII of the Circular. While the Ordinary Shares have a Standard Listing, they will not be eligible for inclusion in the UK series of FTSE indices.

Under the Listing Rules, the Proposed Transfer requires the Company to obtain the prior approval of a resolution for such transfer from not less than 75 per cent of Shareholders who vote in person or by proxy at a general meeting. Therefore, the Transfer Resolution being proposed at the General Meeting to approve the Proposed Transfer is being proposed as a special resolution. Pursuant to the Listing Rules, the date of transfer of listing category must not be less than 20 business days after the passing of the Transfer Resolution. The Board proposes to apply immediately following First Closing for the transfer to be effected and so, subject to the passing of the Transfer Resolution and the UKLA confirming that the Company meets the eligibility requirements for a Standard Listing, an announcement will be made at that time giving the anticipated date that the transfer will become effective. The Ordinary Shares will, on completion of the Proposed Transfer, continue to be traded on the Main Market, but under the designation "Listed: Standard". The Company will also maintain the listing of its Ordinary Shares on the Oslo Børs and the trading arrangements for the Company's Ordinary Shares on the OSE.

5. Proposed Reduction of Notice Period

Under the Act general meetings (other than annual general meetings) may be called on 14 clear days' notice. However, The Companies (Shareholders' Rights) Regulations 2009 increased the notice period required for general meetings of a company to 21 clear days. Companies do have the ability pursuant to the Act to reduce this notice period to not less than 14 clear days, provided that they offer facilities for shareholders to vote and appoint proxies by electronic means and that, annually, shareholder approval is obtained to reduce the minimum notice period from 21 clear days to 14 clear days. Annual general meetings must continue to be held on at least 21 clear days' notice. It is intended that the shorter notice would not be used as a matter of routine for such meetings but only where the flexibility is merited by the business of the meeting and is thought to be in the interests of Shareholders as a whole. The Directors are, therefore, proposing this resolution to seek this shareholder approval for 14 clear days to be the minimum period of notice for all general meetings of the Company, other than annual general meetings. The approval will expire at the conclusion of the next annual general meeting, when it is intended that renewal of this authority will be sought.

6. Importance of the Resolutions being passed

As described more fully elsewhere in this announcement and in the Circular, the Company:

• has agreed conditionally to the disposal of up to 70 per cent of its interests in Tri-K;

• proposes the transfer of the Ordinary Shares from a Premium Listing to a Standard Listing; and

• proposes the reduction in the notice period required to be given for general meetings of Shareholders, other than annual general meetings, from 21 days to 14 days.

The Disposal is conditional, inter alia, on the Disposal Resolution.

The Proposed Transfer is conditional on the Transfer Resolution and the Proposed Reduced Notice Period is conditional on the Notice Resolution.

The Resolutions are set out in the Notice of General Meeting in Part X of the Circular.

Disposal Resolution:

a. If the Disposal Resolution is not passed, or if any other condition for implementation of the Disposal is not satisfied, the Disposal will not proceed, the National Assembly will not ratify the Mining Convention, the Company will not receive the Initial Consideration and Managem will not finance the production of a Feasibility Study Report. In such circumstances, the Directors believe that it is more than likely that the Government would withdraw the Exploitation Permit under the terms of the Mining Code (as it is entitled to do so from 27 December 2016) and as a result the Company would lose all possibility of generating any value from Tri-K. In such circumstances the Directors would need to consider whether the potential returns from Inata and Souma outweighed the continuing and increasing interest cost accruing on the Elliott Loans. If the Directors determined that in such circumstances the risks to creditors of continuing were greater than the opportunities, the Company would be forced into an insolvency process (be that administration or liquidation), as a result of which Shareholders should expect to lose all of the value of their Ordinary Shares.

Furthermore, the Directors believe that in the event that the Exploitation Permit is withdrawn, there would be a significantly increased risk that Avocet would lose the support of the Elliott Lender and it would therefore face a significantly increased risk that the Elliott Lender will enforce its rights under the terms of the Elliott Loans to demand repayment and enforce its security over the Company's assets (other than Inata). If the Elliott Lender were to enforce its rights, the Directors do not believe that there is any likelihood of being able secure alternative sources of finance, in which case the Company would enter an insolvency process as a result of which Shareholders should expect to lose all of the value of their Ordinary Shares.

b. If the Disposal Resolution is passed, the Disposal will proceed subject to the satisfaction of any remaining conditions, including ratification of the Mining Convention by the National Assembly (which will only take place following the passing of the Disposal Resolution). Avocet will transfer an initial 40 per cent of its interests in Tri-K to Managem and up to 70 per cent of its interests, subject to the outcome of the Feasibility Study Report to be funded and prepared by Managem over a period of 24 months. Managem has committed, subject to relevant approvals, to a work programme intended to prove Ore Reserves of at least 1 million ounces of gold and to establish a mine life, through completion of further drilling and exploration and the Feasibility Study, on the basis of a CIL development. Until the Feasibility Study has been completed, it would be premature to speculate on the eventual mine life. However, early scoping of the study would suggest that an Ore Reserve of approximately 1 million ounces can be realistically targeted from within the current resources, compared with the existing Ore Reserve of 0.48 million ounces, which was based on a heap leach development. The Directors are of the opinion that, if Avocet and Managem are successful in developing Tri-K, the reduction in Avocet's percentage interest in the project will be compensated by the scale of the project.

However, even if First Closing proceeds:

• if the Feasibility Study Report demonstrates that developing Tri-K is commercially viable, the Directors expect that the construction costs of a mine will be of the order of US$200 million or more (the Feasibility Study Report will, inter alia, estimate these costs). Avocet and Managem currently intend that these costs should be debt funded as far as possible. Costs in excess of those funded through debt will be shared by Avocet and Managem in proportion to their interests. Accordingly, Avocet would need to contribute for 30-40 per cent of this balance in order to maintain its proportionate interest in the project. Avocet currently anticipates raising equity finance for this balance, either from existing Shareholders or new investors. To the extent that Avocet is unable to contribute its share of the balance, Managem is required, under the terms of the agreement, to provide all of the necessary financing and Avocet will be diluted. If Avocet is diluted below 10 per cent of the equity in the project, Managem will have the right to acquire Avocet's interests at fair market value; and

• the Elliott Lender can demand repayment of its loans at any time. If the Elliott Lender were to enforce its rights under the terms of the Elliott Loans to demand repayment (before any restructuring or refinancing had been agreed) and enforce its security over the Company's assets (other than Inata), the Directors do not believe that there is any likelihood of being able to secure alternative sources of finance, in which case the Company would be forced into an insolvency process (be that administration or liquidation) as a result of which Shareholders should expect to lose all of the value of their Ordinary Shares.

Nonetheless, the Directors strongly believe that the Disposal in the best interests of the Company and Shareholders for the following reasons:

• the Disposal will result in the receipt of approximately US$2.5 million in cash, net of expenses, which will be available for working capital;

• if the investment by Managem results in a Feasibility Study Report which demonstrates a larger commercial viable project, Avocet will have the opportunity to participate in any increased value (or eventual cash generation from operations), whether or not it is able to contribute to costs of construction, and thereby create opportunities to repay the Elliott Loans and deliver shareholder value which do not exist without the Disposal proceeding; and

• the Directors believe that if First Closing occurs, the Elliott Lender is less likely to demand repayment of its loans as the Group will be better placed to repay, refinance or restructure the Group's liabilities, and also to seek funding for new opportunities, in particular those in Burkina Faso which could, if successful, extend the production at Inata and thereby increase the likelihood of repaying SMB's overdue creditors, repaying the Elliott Loans and generating shareholder value.

Transfer Resolution:

a. If the Transfer Resolution is not passed, the Company will retain its Premium Listing. Shareholders will retain the additional protections afforded by the super-equivalent provisions of the Listing Rules and the Company will continue to incur the costs and complexity of ensuring compliance with those rules.

b. If the Transfer Resolution is passed, the Company will transfer to a Standard Listing and will no longer be required to comply with the super-equivalent provisions of the Listing Rules. The Company will therefore save the costs and complexity of ensuring compliance with those rules, although it will continue to comply with the requirements of the remaining Listing Rules and the Disclosure Guidance and Transparency Rules. The Directors believe that the cost savings and management time savings available as a result of the Proposed Transfer outweigh the benefits to Shareholders from maintaining the Premium Listing for a company of the size and type of Avocet.

Notice Resolution:

a. If the Notice Resolution is not passed, Shareholders will continue to receive 21 days' notice of general meetings (other than annual general meetings) in accordance with the Act and the Articles.

b. If the Notice Resolution is passed, the Directors may call general meetings (other than annual general meetings) on not less than 14 days' notice. It is intended that the shorter notice would not be used as a matter of routine for such meetings but only where the flexibility is merited by the business of the meeting and is thought to be in the interests of Shareholders as a whole. The Directors are, therefore, proposing this resolution to seek this shareholder approval for 14 clear days to be the minimum period of notice for all general meetings of the Company (other than annual general meetings). The approval will expire at the conclusion of the next annual general meeting, when it is intended that renewal of this authority will be sought.

Accordingly, it is critical to the future of the Company that Shareholders vote in favour of the Resolutions in order that the Disposal can proceed and the Group can continue to operate.

7. Working capital

In the opinion of the Company, the Group does not have sufficient working capital for its present requirements, that is for at least the next 12 months following the date of the Circular.

In order to make the above working capital statement, the Directors have assessed whether there is sufficient margin or headroom to cover a downside scenario. This includes reasonable and adverse eventualities as well as the effect of potential mitigating actions that are available under this scenario. The working capital assessment, under this downside scenario, comprises the forecast working capital position of the Group following First Closing.

As at 25 November 2016, being the latest practicable date, the Group had loans repayable on demand of US$26.2 million, creditor balances more than 90 days old of US$16.4 million and other creditor and term loan balances of US$40.1 million.

Accordingly, taking a reasonable worst case scenario, the Group has an existing working capital shortfall of approximately US$107 million (comprising existing liabilities noted above and additional liabilities which would crystallise in a reasonable worst case scenario) and, following First Closing, is expected to have a working capital shortfall of US$123 million by the end of December 2017.

In order to meet its future working capital requirements, the Group will be dependent on the continuing support of its creditors and the cash resources generated by the Disposal, revenues from its ongoing production activities and/or a refinancing or restructuring of its existing loans and creditors. In particular, the Group owes US$26 million to the Elliott Lender under loan facilities which are repayable on demand, the majority of which are secured over the Group's assets and bear interest at rates of between 11 per cent and 14 per cent per annum. If the Elliott Lender were to enforce its rights under the terms of the Elliott Loans to demand repayment and enforce its security over the Company's assets (other than Inata), the Directors do not believe that there is any likelihood of being able secure alternative sources of finance, in which case the Company would enter an insolvency process as a result of which Shareholders should expect to lose all of the value of their Ordinary Shares.

The forecast working capital shortfall of the Group may be reduced should, for example:

· gold production be achieved consistent with the Group's original guidance for 2016 of 75,000-85,000 ounces of gold;

· production costs be achieved consistent with (or below) the Group's performance in the third quarter of 2016 at US$1,047 per ounce (being the latest available production data); or

· gold sales be realised at a price above US$1,200 per ounce.

However, whilst the occurrence of some of the above could generate additional cash, the Company has no expectation that these will materially reduce the Group's working capital shortfall by the end of 2017. Accordingly, the Directors will consider undertaking some, or all, of the following mitigating actions during the 12 months following First Closing:

· seeking approval from the Elliott Lender to restructure the Elliott Loans, which have an outstanding balance of US$26 million owed by the Company, carry interest of between 11 per cent and 14 per cent per annum, are repayable on demand and the majority of which are secured, such that the loans are repayable on terms which match realistic timescales for generation of cash from the Group's assets and the interest burden is reduced;

· seeking approval from other creditors with regard to repayment plans in respect of creditor balances over 90 days old which totalled approximately US$16.4 million as at 25 November 2016;

· seeking additional sources of cost-effective financing including, for example, gold prepayment financing; and/or

· seeking further capital injections from Shareholders or other investors.

If the Directors were unable to implement any of the mitigating actions set out above, in the event that the Elliott Lender were to enforce its rights under the terms of the Elliott Loans to demand repayment and enforce its security over the Company's assets (other than Inata), the Company would be forced into an insolvency process (be that administration or liquidation) as a result of which Shareholders should expect to lose all of the value of their Ordinary Shares.

If the Disposal does not proceed, the Company will not receive the Initial Consideration of US$4.0 million (approximately US$2.5 million net of expenses). The Company intends to use the Initial Consideration for working capital. The Company also expects to receive revenues from its ongoing production activities (which comprise management fees receivable by the Company from SMB) which it will use for working capital purposes and, to the extent possible, repayment of the Elliott Loans. Accordingly, if First Closing does not occur, the Company's cash resources will be lower and its ability to meet any demand from the Elliott Lender for repayment of its loans will be reduced and the Directors are of the opinion that, in such circumstances, the Company would be at a significantly greater risk of being forced into an insolvency process (be that administration or liquidation).

Furthermore, until and following First Closing, the Directors are of the opinion that the Group will continue to experience very material financial difficulties and may need to raise further capital in order to continue to operate.

In particular, if First Closing is delayed for any reason, such as, for example, a delay in the signing or ratification of the Mining Convention as discussed above, the Company will need to raise additional working capital to meet its costs until First Closing occurs and the Initial Consideration is received. The Company expects that its anticipated working capital requirements can be met by management fees payable by SMB, failing which it will need to seek an alternative source of capital.

If there are further gold seizures at Inata and gold sales are suspended again, SMB may not be able to pay management fees to the Company. In such circumstances, if necessary, the Company would request further funding from the Elliott Lender. If the Elliott Lender is not willing or able to provide further funding, the Directors do not believe that there is any likelihood of being able secure alternative sources of finance, in which case the Company would enter an insolvency process as a result of which Shareholders should expect to lose all of the value of their Ordinary Shares.

8. Current trading

Avocet announced its unaudited results for the six months ended 30 June 2016 on 26 August 2016, in which it noted:

· 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 per cent, 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 the 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 in H1 2016 compared with 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 in H1 2016 compared with US$6.7 million in H1 2015, with the variance reflecting working capital movements during the respective periods;

· with the focus on cash conservation, capital expenditure was kept low in H1 2016 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$0.8 million were drawn down between January and June 2016; and

· 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.

During the third quarter, gold production was lower at 17,694 ounces at a cash cost of US$1,047 per ounce, as a result of lower recoveries due primarily to the treatment of ore types with a higher preg-robbing index (PRI), and the impact of maintenance work on the plant.

On 7 October 2016, a bailiff acting on behalf of ex-employees at Inata seized a shipment of 1,400 ounces of gold. In consideration of the threat of further seizures, further gold shipments and production were suspended from 27 October 2016. On 7 November 2016, the court in Burkina Faso ordered the lifting of the seizure. However, to date that order has not become effective and the gold has not been released and gold shipments and production remain suspended.

On 24 November 2016, the Company reached agreement with representatives of the ex-employees for the release of the gold seized on 7 October 2016 and obtained assurance that they would not seek any further gold seizures for a period of 30 days. During this 30-day period, a committee including legal representatives from both sides and an independent adviser will determine the final figure, the balance of which would be payable at this point, subject to agreement.

Accordingly, workers returned to site on 24 November 2016 with a view to returning the mine to production and recommencing gold shipments as soon as practicable. The Company therefore anticipates that Inata will be able to pay management fees that will cover the Company's costs through to First Closing.

9. Prospects of the Continuing Group

Following First Closing, the Group will continue to operate Inata and will own Souma, the gold exploration asset in Burkina Faso, as well as its interest in Tri-K.

In the audited financial statements for the year ended 31 December 2015 and the unaudited interim financial statements for the six months ended 30 June 2016, the Company reported ongoing material uncertainties as to its financial position 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. Following First Closing, the Directors are of the opinion that the Group will continue to experience very material financial difficulties and that there will continue to be a material uncertainty as to the Company's ability to continue as a going concern.

Paragraph 7 above, sets out the Group's financial position and the Company's proposals to manage its financial difficulties in more detail.

It is anticipated that, subject to a successful conclusion of the Feasibility Study and the subsequent raising of the requisite funding to develop the mine, Tri-K will enter production by mid-2020. Avocet will generate value from Tri-K, once in production and generating a surplus, through a combination of the repayment of debt owed to Avocet, dividends paid on Avocet's equity interest in Tri-K or by disposing of some or all of its remaining interests.

Inata, whilst heavily indebted, is cash generative at an operating level and generated US$13.0 million of net cashflow from operations in the first half of 2016, which was used primarily to reduce its liabilities. However, at current gold prices, it will be challenging to ensure all creditors of the mine are settled in full by the end of the current life of mine. The Company is exploring the possibility of bringing additional deposits into production to extend the life of mine, including sites at Ouzeni and Pali, as well as Souma, located 20km east of the Inata plant.

Avocet's head office function in London had administrative costs of approximately US$1.0 million in H1 2016, and is expected to continue to incur costs at this level for the rest of 2016 and 2017. These costs have been primarily funded by loans from the Elliott Lender over the last two years together with management fees received from SMB since August 2016. If the Disposal proceeds, the Company will receive the Initial Consideration of US$4.0 million (approximately US$2.5 million net of expenses). The Company intends to use the Initial Consideration for working capital purposes. The Company also expects to receive revenues from its ongoing production activities (which comprise management fees receivable by the Company from SMB) which it will use for working capital purposes and, to the extent possible, repayment of the Elliott Loans. The Elliott Lender has not requested and the Company has not offered to make any repayment of the Elliott Loans. However, the Directors are cognisant that the Company must either repay, refinance or restructure the Elliott Loans as part of its overall strategy to generate shareholder value.

10. General Meeting

Set out in Part X of the Circular is a notice convening the General Meeting to be held at the offices of Fieldfisher LLP, Riverbank House, 2 Swan Lane, London EC4R 3TT at 11.00 a.m. on 22 December 2016 at which the Resolutions will be proposed, as follows:

1. To approve the Disposal;

2. To approve the Proposed Transfer; and

3. To approve the Proposed Reduced Notice Period.

The Disposal Resolution will be proposed as an ordinary resolution, requiring a simple majority of the votes cast, and the Transfer Resolution and the Notice Resolution will be proposed as special resolutions, requiring the approval of 75 per cent of the votes cast.

11. Recommendation

The Board considers the Proposals to be in the best interests of Shareholders as a whole. Accordingly, the Board unanimously recommends that the Shareholders vote in favour of the Resolutions to be proposed at the General Meeting as set out in Part X of the Circular. The Directors intend to vote in favour of the Resolutions in respect of their own beneficial holdings which amount in aggregate to 24,950 Ordinary Shares, representing approximately 0.11 per cent of the current issued Ordinary Share capital of the Company as at 28 November 2016, (being the last practicable day prior to the date of publication of the Circular).

Forward-looking Statements

This announcement may contain "forward-looking statements" with respect to the Group's financial condition, results of operations and business and certain of the Group's plans and objectives.

Forward-looking statements are sometimes, but not always, identified by their use of a date in the future or such words as "will", "anticipates", "aims", "due", "could", "may", "should", "expects", "believes", "intends", "plans", "targets", "goal" or "estimates". By their nature, forward-looking statements are inherently unpredictable, speculative and involve risk and uncertainty because they relate to events and depend on circumstances that will occur in the future. There are a number of factors that could cause actual results and developments to differ materially from those expressed or implied by these forward-looking statements.

 These factors include, but are not limited to, the following:

· general economic and political conditions in the jurisdictions in which the Group operates and changes to the associated legal, regulatory, competition and tax environments;

· changes in the economies and markets in which the Group operates;

· changes in the markets from which the Group raises finance;

· the impact of legal or other proceedings against, or which may affect, the Group; and

· changes in interest rates and foreign exchange rates.

Any written or oral forward-looking statements, made in this announcement or subsequently, which are attributable to the Group or any persons acting on their behalf are expressly qualified in their entirety by the factors referred to above. No assurances can be given that the forward-looking statements in this announcement will be realised. Subject to compliance with applicable law and regulations, the Group does not intend to update these forward-looking statements and does not undertake any obligation to do so.

Other than in accordance with its legal or regulatory obligations (including under the Listing Rules and the Disclosure Guidance and Transparency Rules), the Company is under no obligation and the Company expressly disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.