AVM.L Regulatory News (AVM)

3 Feb 2009 07:00



Q3 GOLD PRODUCTION

* IMPROVED GOLD PRODUCTION AT NORTH LANUT

* PENJOM PRODUCTION AFFECTED BY POWER FAILURES

* TOTAL OPERATING COSTS DOWN

Avocet Mining PLC ("Avocet" or "the Company") announces gold production in its third quarter to 31 December 2008 of 26,766 ounces at a cash cost of US$554/oz, compared with the previous quarter to 30 September 2008 of 27,756 ounces at US$506/oz. The average sales price received during the quarter was US$798/oz.

Encouraging results were achieved during the quarter from the initiatives previously announced to enhance recovery at North Lanut. Recovery increased from 31% to 56% and as a result gold production was 5% up on the previous quarter, with cash cost per ounce down 7%.

At Penjom, mining successfully moved to new higher grade areas to the south of the main pit, as planned, and benefited from lower total costs. This progress was offset by power failures outside of the mine's control and by lower recoveries, resulting in Penjom's gold production being 8% below the previous quarter. Combined with the anticipated decline in deferred stripping costs, this lower production meant that Penjom's cash cost per ounce was 22% higher than the previous quarter.

Before deferred stripping adjustment, total costs of the Group during the quarter were US$16.3m compared with US$16.8m in the previous quarter, reflecting the benefit of declining fuel prices and other measures taken by management. 

Despite lower gold production in the quarter, higher gold prices, falling fuel prices and Avocet's focus on cost reduction mean that full year profits are expected to meet current analysts' consensus.

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 unit mining costs for each year, as well as the calculation of stripping costs deferred in Q3 FY2009.

North Lanut, Indonesia

North Lanut's gold production increased for the second consecutive quarter and at 10,463 ounces was 5% above Q2. Recovery in the quarter rose significantly from 31% to 56%. This reflected improvements made in segregation of ore types prior to treatment and the commencement of crushing of all Riska ore following commissioning of a new mobile crusher.

Ore mined in the Riska pit slowed due to low availability of oxide ore, with the decision taken to accelerate sulphide ore treatment only after commissioning of the new leach pad (HLP3A), which will further facilitate separate treatment of different ore types. In the interim changeover phase, ore treated was 41% lower than the previous quarter. Average grades of ore treated at 2.24g/t were in line with Q2.

North Lanut's cash cost of US$617/oz was 7% below Q2, reflecting declining fuel prices and a more efficient use of lime which accounted for 5% of total cash costs during the quarter compared with 18% for the previous quarter. 

Development of Effendi, which has now been re-designated into the Rasik and Effendi pits, continued throughout the quarter with mining of the oxide ore at Effendi forecast to commence at the end of the current financial year.

Penjom, Malaysia

During the quarter mining was focused, as planned, on the new higher grade Janik area south of the main Kalampong pit as well as the east wall cut-back, following accelerated stripping and stream diversion during Q2. Higher grades were successfully mined in both areas, however, the level of active carbon in the ore was higher than normal due to the fact that activity is being temporarily focused on mining through the Penjom Thrust in both areas. The Penjom plant is designed to cope with carbonaceous ore, and blending with low grade cleaner material from stockpiles was implemented to optimise gold recoveries. Nonetheless, gold recovery was reduced slightly to 82% from the previous quarter's 88%. The low grade of the stockpiles also meant that the blended mill feed was lower than the run-of-mine ore.

Gold production of 16,303 ounces in the quarter was also affected by intermittent mill downtime throughout the quarter due to failure of the regional power supplier's main underground supply cable, which caused approximately 280 hours of lost time. Further power failures in early January caused approximately 50 hours of mill downtime. Discussions are ongoing with the power supplier with a view to rectifying the problem as soon as practicable.

Before adjustment for deferred stripping, Penjom's cash cost per ounce of US$607/oz was 5% above the previous quarter, a direct result of the lower number of ounces produced. Total costs were US$0.4m lower than the previous quarter, as declining worldwide oil prices fed through into reduced fuel and kerosene prices, which accounted for 22% of total site costs during the quarter compared to 29% for the previous quarter. At a cost per ounce level, this benefit was offset by lower gold production. Deferred stripping costs per ounce in Q3 were US$94/oz, compared with US$156/oz in Q2, resulting in reported cash cost per ounce of US$513/oz.

Outlook

North Lanut aims to sustain the recent much improved recoveries and production is expected to be maintained at current levels until the new leach pad is fully operational in the first quarter of the next financial year. The adverse impacts at Penjom of the present high carbon ore feeds and the possibility of further power failures indicate that Penjom's H2 production is likely to be below the level previously anticipated. Falling fuel prices and a continuing focus on cost reduction mean that the Company expects to continue to improve profitability at the mines. 

Jonathan Henry, Chief Executive Officer, commented:

"The quarter was mixed with better recoveries at North Lanut but lower production at Penjom as we mine through the more carbonaceous ore in the shear zone. Despite production likely to be lower for the current year compared to last, we have made significant progress in reducing cash costs and increasing the efficiency of our mining operations. We are continuing to update our resource models, and remain confident of meeting current market expectations in terms of profitability. Together with the new 1 million ounce resource at Doup, also announced today, this is encouraging for our Company."

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For further information please contact:

Avocet Mining PLC Buchanan Communications Ambrian Partners Limited JPMorgan Cazenove

Financial PR Consultants NOMAD and Joint Broker Lead Broker

Jonathan Henry, Chief Executive Officer Bobby Morse Richard Brown Michael Wentworth-Stanley

Mike Norris, Finance Director Ben Willey Richard Greenfield Sam Critchlow

020 7907 9000 020 7466 5000 020 7634 4700 020 7588 2828

www.avocet.co.uk www.buchanan.uk.com www.ambrian.com www.jpmorgancazenove.com

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 major drilling programme in the coming 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 two years 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 over 200,000 ounces since it was commissioned in 2004. 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 Q3 waste and ore volumes