AVM.L Regulatory News (AVM)

31 Jul 2008 07:00



Q1 GOLD PRODUCTION

HIGHER GOLD PRICES AND CASH COSTS, LOWER PRODUCTION

Avocet Mining PLC ("Avocet" or "the Company") announces first quarter FY2009 gold production of 28,022 ounces to 30 June 2008 from the Company's continuing operations at Penjom in Malaysia and North Lanut in Indonesia. All gold sales were into the spot market during the quarter with an average realised price of US$891/oz compared with US$667/oz for the same period last year. 

Initiatives are in progress to access the higher grades at Penjom, close to the shear zone and to the south of the main Kalampong pit, and to improve recovery rates at North Lanut. The Company expects these initiatives to improve production and unit costs, compared with the Q1 figures, which are not seen as representative of the cash cost and gold production profile anticipated for the full financial year to March 2009. Nevertheless, depending on the timing of these initiatives, production and cost levels for the second quarter to 30 September 2008 may be broadly similar to those experienced in the first quarter.

Appendix 1 sets out key operating statistics including production and cash costs by quarter for this year and the prior year for both Penjom and North Lanut. Appendix 2 sets out Penjom's waste and ore volumes and mining cost per tonne for each year, as well as the calculation of stripping costs deferred in the first quarter of FY2009.

Penjom, Malaysia

Gold production in the first quarter of FY2009 at Penjom of 18,729 ounces was 19% below the corresponding period of the prior year and 13% below the preceding quarter. The average grade milled of 3.44 g/t was 39% below the 5.62 g/t in the corresponding period, which included mining of some high grade areas that pushed the milled grade to 7.14 g/t in April 2007. This variability reflects the complex, nuggety nature of the Penjom orebody.  Mining continues to focus on accessing moderate to high grade ore and on accelerating the push back of the east wall. The majority of the grade shortfall was compensated by tonnes milled being 36% above the prior year following the successful upgrade of the Penjom plant in January this year. Penjom's cash cost per ounce of US$481/oz was 64% higher than the previous year's US$293/oz. This is partly because of lower production, but mainly due to significantly higher prices for consumables, notably diesel, for which the mine has seen a year on year increase of 80% in unit prices, equivalent to US$61/oz. Diesel accounted for 29% of total costs at the mine during the first quarter of the current year compared with 19% in the prior year. In addition, the increase in gold prices resulted in a US$17/oz higher royalty cost reflecting the royalty payable to the Malaysian government at 7% of revenue. 

In the second half of the year a higher proportion of mining is scheduled to take place in the area to the south of the main Kalampong pit following completion of a temporary stream diversion to allow mining of this area where grades are expected to be higher than those achieved in the first quarter of FY2009.

North Lanut, Indonesia

North Lanut's gold production in the first quarter of FY2009 of 9,293 ounces was 41% below the corresponding period of the prior year when the mine processed oxide ores which yield a higher recovery; and 35% below the preceding quarter when transitional ores benefited from high levels of secondary leaching. This year's Q1 production reflected an 18% reduction in tonnes irrigated in order to allow longer leach times required to improve gold recovery of more transitional and sulphidic material processed this year. The change to longer leach times has led to a lower reportable gold recovery of 38% in the FY2009 first quarter compared with last year's first quarter recovery of 51%; however, additional recovery is expected from the ore currently under leach. The grade of ore treated for the quarter at nearly 2 g/t was similar to last year. North Lanut's cash cost per ounce of US$601/oz was nearly double the previous year's US$314/oz owing to lower production compounded by diesel and consumable price inflation similar to levels seen at Penjom. Diesel accounted for 19% of total costs at North Lanut during the first quarter of the current year compared with 13% in the corresponding quarter last year. 

In the second half of the year, recovery and gold production are scheduled to benefit from:

* the new HLP3 leach pad which will provide separate cells for each different type of ore;

* the crushing of ore following the commissioning of a new mobile crushing unit; and

* a plant upgrade, together with a number of other initiatives that are ongoing to reduce costs and improve gold production.

Jonathan Henry, Chief Executive Officer, commented:

"Short term operational issues of lower treated grades at Penjom and lower recovery at North Lanut have reduced production compared with levels reported for the first quarter of last year. Cash costs per ounce, as with many gold mining operations globally, have been additionally hit by significant price inflation of key consumables, especially diesel.  We anticipate the benefit of the measures under way to improve production from both mines, with a corresponding decrease in unit costs, will become apparent during the second half of the financial year to 31 March 2009."

For further information please contact:

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 and exploration in Malaysia (as 100 per cent owner of the Penjom mine, the country's largest gold producer), and Indonesia (as 80 per cent owner of the North Lanut gold mine and Bakan project in North Sulawesi). The Company has a number of other advanced mining and exploration projects in South East Asia.

Background to operations

The Penjom gold mine is Malaysia's largest gold producer and was developed by Avocet after applying modern technology to grass roots exploration in an area of historic mining. The mine was commissioned in December 1996 with reserves of 223,000 ounces. Successful resource development, particularly over the last five years, means Penjom has produced over one million ounces of gold to date and still has nearly one million ounces of resources. This resource is expected to grow further following a drilling programme expected to total 70,000 metres over the next year which includes deep drilling to help assess the potential for underground mining in the near future, where areas of high grade ore are known to exist. In November 2005, the Company announced a significant increase in Penjom's life of mine plan to over half a million ounces, which resulted in the design of a much larger pit to allow the additional ounces to be mined. Over the last year Penjom has expanded its mining and plant capacity accordingly. Avocet was able to overcome initial problems of highly carbonaceous ore at Penjom by developing unique processing systems including complex gravity circuits and resin-in-leach (RIL) technology. These processes have potential applications at other carbonaceous orebodies.

The North Lanut gold mine in North Sulawesi, Indonesia, was developed by Avocet from the exploration stage and has produced nearly 200,000 ounces since it was commissioned in 2004, including record production in the year ended 31 March 2008 of 74,183 ounces. Recent high grade exploration drilling results indicate the potential for a significant increase in resources and extension in the mine's life. In 2002 Avocet purchased its 80 per cent interest in PT Avocet Bolaang Mongondow (PT ABM), an Indonesian company holding a 6th generation Contract of Work (CoW), from Newmont Mining Corporation. The North Lanut gold mine is located within the CoW, which includes exploration and mining rights over approximately 50,000 hectares in an area highly prospective for gold. An Indonesian company, PT Lebong Tandai, owns the remaining 20 per cent.

Appendix 1 - Key operating statistics by quarter

Appendix 2 - Penjom waste and ore volumes