AVM.L Regulatory News (AVM)

14 Apr 2008 07:00

Avocet Mining PLC14 April 2008 FOURTH QUARTER AND FULL YEAR TRADING UPDATE Avocet Mining reports full year trading ahead of expectations Avocet Mining PLC ("Avocet" or "the Company") today provides a trading update inadvance of its audited preliminary results for the financial year ended 31 March2008 (FY2008), which will be released on 9 July 2008. Highlights for the 12 month period include: • Full year gold production from continuing operations up 10% at 157,907 ounces; • Average realised gold price up 26% at US$767/oz; • Expected average cash cost 10% below prior year at US$316/oz for continuing operations; • Profit before tax and exceptionals expected to be between US$47-52 million (unaudited) - ahead of market consensus and more than double the prior year; • Sale of loss making ZGC for cash consideration of US$45.1 million; • Year end cash balance of US$122 million and no debt; • Strong exploration and development pipeline - significant resource upside: - addition of 10 new exploration projects in Indonesia; - drilling in progress on multiple exploration prospects; - continued excellent drilling results at Penjom, North Lanut and Bakan. Between 15 - 18 April a number of mining industry analysts will visit Avocet'soperations in Malaysia and Indonesia. A copy of the corporate presentation tobe made to the analysts will be available on Avocet's website from 15 April. Trading overview For the full year ended 31 March 2008, gold production from continuingoperations increased by 10% to 157,907 ounces with cash costs decreasing 10% toUS$316/oz, compared with the previous year when production from continuingoperations was 144,136 ounces at a cash cost of US$352/oz. Total gold production in the previous year was 178,318 ounces, which included34,182 ounces from the ZGC mine, the disposal of which was completed on 9 July2007. For the fourth quarter ended 31 March 2008 gold production was 35,829 ounces ata cash cost of US$409/oz. This compares with 35,721 ounces at US$338/oz for thesame period last year for continuing operations. Cash costs per ounce in thequarter were higher than the prior year and previous quarter, impacted by higherdiesel prices, together with contract renewal increases in January for many ofthe mines' consumables. Compared with the third quarter of FY2008, Penjom'sfourth quarter cash costs per ounce were also impacted by downtime associatedwith the mill commissioning noted below, and by a lower amount of strippingcosts deferred, as the stripping ratio of 27 was lower than the 81 ratio in thethird quarter. The increase in cash costs at North Lanut compared with the thirdquarter of FY2008 is accounted for by lower production in the fourth quarter dueto longer leach times and lower ore tonnes irrigated. Appendix 1 sets out production and cash costs by quarter for this year and theprior year for both Penjom and North Lanut. Penjom, Malaysia Penjom's fourth quarter production of 21,507 ounces was higher than the twoprevious quarters and only marginally lower than the prior year, due to plannedmill expansion work which necessitated 8 days of downtime. The mill expansionwas successfully completed on schedule and was commissioned on 29 January 2008.The mill is now operating at its new capacity of 700,000 tonnes per year, 25%higher than previously. This will allow gold production to increase in thecurrent year and is expected to ensure consistent gold production in the futuredespite an anticipated decline in grades. Penjom's full year gold production of 83,724 ounces was 13% below the prioryear. Expanded mining and milling capacity was only available towards the endof the year and therefore only partially compensated for lower grades throughoutthe year. Mining cost in the year of US$1.16/t was kept below last year's costof US$1.17/t despite year on year price rises for diesel and other consumablesof over 20%. This has been possible as the new mining fleet has operated withgreat efficiency at a time of high diesel prices. Full year cash cost per ouncewas US$334/oz in FY2008 compared with US$351/oz in the prior year. The FY2008figure is after deferring US$6.7 million of excess stripping costs, equivalentto US$80/oz. If deferred stripping cost accounting had been applied in FY2007,Penjom's full year cash cost would have been US$262/oz, reflecting lowerconsumables costs and lower mining volumes required per ounce of gold producedthan in FY2008. Appendix 2 sets out Penjom's waste and ore volumes and mining costs per tonnefor each year, as well as the calculation of stripping costs deferred. North Lanut, Indonesia Fourth quarter production at North Lanut was 6% above the prior year at 14,322ounces despite longer leach times and lower ore irrigated, as a result of whichrecovery achieved was higher than in previous quarters. For the full year, North Lanut achieved record gold production of 74,183 ounces,compared with 48,170 ounces in the previous year. Production in the year hasbenefited from the fact that the grade of ore mined has been approximately 50%higher than shown in the resource model, which is based on previous drilling.Analysis has indicated this was the result of gold in highly leachable rockbeing washed out during previous diamond drilling by high pressure water used toflush the drill holes. Recovery during the year was lower, reflecting anincreasing proportion of transitional and sulphide ore; going forward, longerleach times and crushing are in progress to maintain recovery levels andmaximise life of mine gold production Full year cash cost in FY2008 fell 17%from US$354/oz to US$295/oz. The reduction reflects operating efficiencies madeduring the year including improvements to drilling and blasting and greaterproductivity from the new Volvo ADT trucks which are capable of operating in wetconditions. Re-scoping of Bakan project, Indonesia Drilling at Bakan over the past several months has continued to indicate thepotential for a larger resource than previously announced. In addition, thehigher grades experienced this year at North Lanut are expected to haveimplications for the Bakan resource. Given the similar drilling method appliedin previous resource definition drilling at Bakan, and with similar metallurgyas North Lanut, management believes that the grades at Bakan also have thepotential to be understated. The Company has taken the decision to re-scope the project to reflect thesedevelopments, with a view to enhancing the value of the new mine. There-scoping will involve: • reverse circulation drilling to reassess ore grades; • further drilling to add resources, especially in the Durian area where prospects of adding resources are good with additional strike extensions, parallel structures and splays relatively untested; • optimising the mine's infrastructure, equipment and processes, including crushing to enhance recoveries; • obtaining of all permitting approvals required for the re-scoped project. This re-scoping means that the project's feasibility study is now expected to becompleted over the next 6-9 months. As a result, commissioning of the mine atBakan is likely to occur during the course of calendar 2009. Strong exploration pipeline In February the Company announced the signing of a Memorandum of Understandingwith a local party in Kalimantan in respect of the Seruyung property. Thisexpanded Avocet's exploration portfolio in Indonesia following the acquisitionof nine new exploration projects in July 2007 as part of the Banda transaction.Drilling has taken place during the year on several of the Indonesian prospectsand positive drilling results have so far been announced at Doup in NorthSulawesi and at Mangkaluku in South Sulawesi. In addition, continued growth ofresources has been achieved with the upgrading of resources at both Penjom andNorth Lanut. Taken together, these projects represent a strong pipeline fororganic growth. Group Results The Company will announce its full year financial results on 9 July 2008. Basedon the strength of the gold price and its strong operating performance, theCompany expects to announce record operating cash generation and underlyingprofit before tax(Note 1) in excess of current market consensus. Profit before tax and exceptionals is expected to be between US$47-52 millionfor the full year. This excludes the profits on disposals totaling US$21.1million which the Group made in the first half on the sale of ZGC and theBuffalo Reef prospect in Malaysia. It also excludes a non-cash, unrealised markto market loss of US$36.0 million on the Company's gold collar. At its year enddate of 31 March 2008 the Company's gold collar(Note 2) represented a liabilityof US$45.6 million compared with a liability of US$9.6 million at 1 April 2007and US$20.1 million at 30 September 2007. In its full year results, Avocet willtherefore report a pre-tax mark to market loss on the collar of US$36.0 million,reflecting the strengthening of the gold price since the start of the financialyear. Full details of each operation, including any updated resources and reserves,will be announced at the time of the Company's preliminary year end auditedresults announcement on 9 July 2008. Jonathan Henry, Chief Executive Officer, commented: "Record gold prices during the year combined with strong operational performancehave allowed Avocet to again return a strong financial performance. Operatingefficiencies have helped to increase production and mitigate the threat ofhigher consumables costs. These improvements to our core Penjom and North Lanutoperations, and the sale of ZGC in the first half, leave us well placed tocontinue to prosper in South East Asia. We have also built a firm foundationfor growth in the region and our pipeline of exploration projects will continueto underpin the medium term growth of the business. We continue to discusspotential acquisition opportunities with a number of third parties." Note1: Profit before tax after adjusting for items not associated with theGroup's normal operational activities, such as profits on disposals and the markto mark loss on the gold collar. Note2: As previously announced, the Group has a gold collar consisting of calloptions over 190,000 ounces exercisable at US$755/oz between January 2010 andJuly 2011, and put options over 400,000 ounces exercisable at US$600/oz betweennow and July 2011. In accordance with IFRS the collar is fair valued at eachbalance sheet date and changes in fair value are taken to the income statement. For further information please contact: Avocet Mining PLC Buchanan Communications Ambrian Partners Limited JPMorgan Cazenove Financial PR Consultants NOMAD and Joint Broker Lead BrokerJonathan Henry, Chief Bobby Morse Richard Brown Michael Wentworth-StanleyExecutive Officer Mike Norris, Finance Director Ben Willey Richard Greenfield Sam Critchlow020 7907 9000 020 7466 5000 020 7634 4709 020 7588 2828www.avocet.co.uk www.buchanan.uk.com www.ambrian.com www.jpmorgancazenove.com Notes to Editors Avocet is a mining company listed on the AIM market of the London Stock Exchange(Ticker: AVM). The Company's principal activities are gold mining andexploration in Malaysia (as 100% owner of the Penjom mine, the country's largestgold producer), and Indonesia (as 80% owner of the North Lanut gold mine andBakan project in North Sulawesi). The Company has a number of other advancedmining and exploration projects in South East Asia. Appendix 1 - Production and cash costs by quarter FY2007 FY2008 Q1 Q2 Q3 Q4 Total Q1 Q2 Q3 Q4 TotalProduction(oz) Penjom 24,613 26,146 22,961 22,246 95,966 23,069 20,895 18,253 21,507 83,724North 10,273 13,206 11,216 13,475 48,170 15,733 23,133 20,995 14,322 74,183LanutContinuing 34,886 39,352 34,177 35,721 144,136 38,802 44,028 39,248 35,829 157,907operations ZGC 10,061 7,819 8,523 7,780 34,182 6,925 6,925Total 44,947 47,171 42,700 43,501 178,318 45,727 44,028 39,248 35,829 164,832 Cash costs(US$/oz) Penjom 381 360 333 324 351 293 352 275 410 334North 354 319 387 361 354 314 232 276 407 295LanutContinuing 373 346 351 338 352 301 289 276 409 316operations ZGC 683 830 757 771 750 983 983Total 443 426 432 415 428 405 289 276 409 344 Note If deferred stripping accounting had been applied in FY2007, Penjom's Q4 andfull year cash costs in FY2007 would have been US$319/oz and US$262/ozrespectively. Appendix 2 - Penjom waste and ore volumes Tonnes mined Bench Cubic Metres mined(1)Full year FY2007 FY2008 Variance FY2007 FY2008 Variance Full year Full year Full year Full yearWaste 16,941,814 16,696,750 -1% 6,274,748 7,274,136 16%Ore 442,538 561,267 27% 157,226 207,873 32%Total 17,384,352 17,258,017 -1% 6,431,974 7,482,009 16% Mining cost per tonne/BCM US$ 1.17 1.16 -1% 3.16 2.67 -15% Stripping ratio(1) (2) x 35.0Life of mine stripping ratio x 22.5Excess stripping ratio x 12.5Excess waste stripping(3) Million BCM 2.5Excess stripping cost US$m 6.7deferred(4) Tonnes mined Bench Cubic Metres mined(1)Fourth quarter FY2007 FY2008 Variance FY2007 FY2008 Variance Q4 Q4 Q4 Q4Waste 3,724,096 4,662,010 25% 1,379,295 1,851,328 34%Ore 171,092 185,006 8% 57,669 68,521 19%Total 3,895,188 4,847,016 24% 1,436,964 1,919,849 34% Mining cost per tonne/BCM US$ 1.06 1.25 19% 2.87 3.17 10% Stripping ratio(1) (2) x 27.0Life of mine stripping ratio x 22.5Excess stripping ratio x 4.5Excess waste stripping(3) Million BCM 0.3Excess stripping cost US$m 0.9deferred(4) (1) Bench cubic metre (BCM) is a measure of volumes mined and is equal to the weight of rock (measured in tonnes)divided by its specific gravity. BCM is used in mine planning where volumes are the key driver and it is necessary toavoid distortion due to differing specific gravities. The Group bases its deferred stripping calculations on BCM. (2) Ratio of waste to ore. (3) Represents the amount of waste BCM mined in the period in excess of the life of mine stripping ratio. Calculatedas: excess stripping ratio multiplied by ore BCM mined. (4) Represents cost of waste mining carried out as part of the long term pit expansion, rather thanassociated with the ore mined in the period. This information is provided by RNS The company news service from the London Stock Exchange