AVM.L Regulatory News (AVM)

5 August 2014

Unaudited Interim Results for the

six months ended 30 June 2014

Operational highlights

· Q2 gold production of 21,650 ounces, 6% below Q1 due to processing of lower grade oxide ore ahead of carbon blinding circuit commissioning; H1 production of 44,798 ounces lower than 61,726 ounces in H1 2013 for similar reason

· H1 cash cost of US$1,246 per ounce of gold slightly above Q1 2014 and H1 2013

· Lower Q2 production means that full year guidance is now approximately 105,000 ounces

· Inata forecast to produce more gold per month following commissioning of the new carbon blinding circuit - on track for September commissioning

· On 23 July Inata passed 3 million man hours without a lost time injury

· Examining potential for heap leach processing of material from Souma and other targets at Bélahouro, as well as existing low grade stockpiles at Inata

· Evaluating potential for underground mining of high grade shoot beneath Inata North pit

Financial highlights

· Inata funding requirement considerably reduced to US$15-20m through a revised mine plan and additional cost reductions

· Negotiations continue with Ecobank and other parties to satisfy this funding requirement and a number of measures have been agreed to ease short term liquidity

· Assuming remaining negotiations are concluded satisfactorily with these parties, and subject to successful commissioning of the carbon blinding circuit, the current life of mine plan indicates that the funding requirement of US$15-20m will be satisfied

· Business review ongoing, with a view to addressing the Elliott loan as well as providing additional working capital for the parent company and Inata

· H1 loss before tax reflects low production and a US$25.8m impairment of Inata assets

David Cather, Chief Executive Officer, commented:

"Today's announcement highlights the hard work and encouraging progress the company has made at Inata. As a result of efforts to reduce costs and capex in 2014, Inata's funding requirement of US$15-20m is now expected to be addressed by arrangements with Ecobank and other parties that will ease liquidity in the rest of the year. The focus at Inata over the second half of 2014 will be on further cost reductions and on successfully commissioning the carbon blinding circuit in September, which will increase monthly gold production. With a lower cost base and higher production expected for the future, we are now looking at the upside potential in and around Inata."

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. Across the Bélahouro district, which includes both Inata and Souma, there is a Mineral Resource of 6.1 million ounces and an Ore Reserve of 0.5 million ounces. The Inata Gold Mine poured its first gold in December 2009 and produced 118,443 ounces of gold in 2013. Other assets in Burkina Faso include eight exploration permits surrounding the Inata Gold Mine in the broader Bélahouro region. The most advanced of these projects is Souma, some 20 kilometres from the Inata Gold Mine, where there is a Mineral Resource estimate of 0.8 million ounces.

In Guinea, Avocet owns 100% of the Tri-K Project in the north east of the country. Drilling to date has outlined a Mineral Resource of 3.0 million ounces, and in October 2013 the Company announced a maiden Ore Reserve on the oxide portion of the orebody, which is suitable for heap leaching, of 0.5 million ounces. As an alternative, the potential exists to exploit the entire 3.0 million ounce Tri-K orebody via CIL processing method.

CHIEF EXECUTIVE OFFICER'S REVIEW

As expected, the first half of 2014 proved challenging. Inata has been limited to processing lower grade clean ore, in order to preserve higher grade carbonaceous ore until it can be processed with higher recoveries in the new carbon blinding circuit, commissioning of which is scheduled for September. As sources of clean ore, which is predominantly oxide, have become increasingly scarce, the grade of ore processed has steadily fallen during the year, with the result that gold production and revenues have dropped significantly compared with previous periods.

The mine has therefore taken a number of steps to defer and, where possible, reduce capital expenditure in 2014, and to reduce the absolute level of costs. As a result, in June we announced that the funding requirement at Inata, which in December last year was estimated at US$20-30 million, had been reduced to US$15-20 million. To address this funding gap, negotiations have continued with Ecobank and other parties, and a number of measures have been agreed to ease short term liquidity. Assuming remaining negotiations are concluded satisfactorily with these parties, and subject to successful commissioning of the carbon blinding circuit, the current life of mine plan indicates that the funding requirement of US$15-20 million will be satisfied.

While steps have been taken to address Inata's funding requirements, Inata's cash constraints mean that it cannot be relied upon in the short term to meet the wider Group's funding requirements. The Company's business review therefore continues with a view to addressing the outstanding Elliott loan as well as providing additional working capital for the parent company and Inata. Discussions are ongoing with several parties about a range of potential transactions, including refinancing, investment or asset sales.

The revised life of mine plan indicates lower costs and higher monthly production once the carbon blinding circuit is commissioned in September. With a view to adding value beyond what is included in the current life of mine plan, the Company is evaluating a number of potential upside opportunities including development of more areas at Souma, heap leach processing of low grade mineralisation, and underground mining beneath the Inata North pit. Of the five gold deposits at Souma, only one is currently included in the life of mine and the remaining four represents further potential sources of high grade, clean ore.

For heap leach processing, targets for 1-1.5 g/t oxide ore include areas south of the Dynamite deposit in Souma, where mineralisation lies close to surface, and other areas within the Bélahouro district, as well as Inata's existing low grade stockpile. Inata has infrastructure and a management team already in place that could reduce capex and opex for a heap leach operation, and it is expected that the final stages of gold processing for a Souma heap leach operation could be carried out using existing plant at Inata. Subject to available funds for in-fill drilling and initial test work, management estimates that approximately six months would be required for PFS level economic assessment.

Re-examination of existing drilling data below the current Inata North pit shows the existence of a steeply plunging shoot of mineralisation with grades that may support extraction by underground methods. The shoot is open at depth and is a short distance from the mill. A preliminary evaluation of this underground option would require further drilling, confirmatory metallurgical testwork, a geotechnical study and an updated economic study. Depending upon the outcome of this work, this may lead either to a decision on a more definitive evaluation or to a trial mining operation. Subject to available funding, it is estimated that this work would take approximately 18 months.

Based on very preliminary estimates, management considers that heap leach and underground operations, in conjunction with the current open pit life of mine plan, could double the life of mine, with gold production potentially approaching 200,000 ounces in some years. It should be noted that this illustrative upside is subject to significant engineering and drilling work before it can be established whether the underground or heap leach operations are technically feasible or financially viable.

The Company remains fully committed to safety, and on 23 July 2014 Inata passed the milestone of 3 million man hours since the last lost time injury. In the context of operational and financial challenges faced by teams on the ground, this represents a considerable achievement.

The award of an exploitation permit at Tri-K in Guinea is still expected in the near future. Pending the award of the licence, minimal exploration activity has been undertaken at site.

INATA OPERATIONAL REVIEW

Gold production and cash costs

Gold production in the second quarter was 21,650, a fall of 6% compared to Q1. This lower production was expected as the mill has been processing lower grade clean ore ahead of the commissioning of the carbon blinding circuit, expected in September 2014. Mining tonnages were also lower in Q2 compared to Q1 (4.4m tonnes v 5.0m tonnes), partly as a result of a deliberate strategy to minimise mining costs in the period leading up to commissioning of the carbon blinding circuit.

Mill throughput increased in Q2 from the low level in Q1, which reflected the SAG mill nine-day shutdown in March, but was affected by the hardness of ores treated towards the end of the quarter. The need to process exclusively clean (non-carbonaceous) ores restricted the available ore feed to lower grade areas, and as a result, head grades fell to 1.44 g/t in the quarter, down from 1.61 g/t in Q1. A considerable reserve of higher grade carbonaceous ore remains, however, and will be processed once the carbon blinding circuit is commissioned.

Cash costs per ounce of gold increased from US$1,178 in Q1 to US$1,317 in the second quarter, with the majority of this increase caused by the need to process increasingly lower grade clean ore. In absolute terms, monthly operating costs have been kept consistently below US$10 million per month, compared to an average of approximately US$12 million per month throughout 2013. Cost savings achieved to date include a reduction in headcount of both expatriate and national workers, both in operational roles and in support functions, as well as a number of savings in accommodation, transportation, and other discretionary activities.

RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 2014

Avocet's underlying operational performance for the first half of 2014 was affected by low production in both quarters, with the necessity to campaign treatment of lower grade clean ore leading to lower gold production and consequently higher cash costs on a per ounce basis.

Total gold produced in H1 2014 amounted to 44,798 ounces, compared with 61,726 in the first half of 2013. With average realised gold prices of US$1,287 per ounce compared with US$1,361 in H1 2013 this translated into a fall in revenue of US$21.1 million, from US$80.5 million in H1 2013 to US$59.4 million in the first half of 2014.

In response, a number of cost reduction measures have been implemented, notably the reduction in mining volumes as pit shells were reduced in size to minimise waste stripping. As a result, cost of sales fell by US$8.7 million (or 11%) in H1 2014 compared to the equivalent period in 2013, and administrative expenses fell by a further US$2.1 million (or 45%).

The net loss before taxation and exceptionals was US$20.2 million in the six months to 30 June 2014, compared with a loss of US$8.2 million for the first half of 2013. The revised life of mine plan announced on 12 June 2014 showed a shorter mine life and a lower reserve base, which resulted in an impairment of US$25.8 million against the Inata assets. The government of Burkina Faso continues to seek further payment with regard to a tax assessment for the years 2009-11. The Company maintains that the decision of the government to tax hedge sales at spot prices rather than realised prices is not appropriate, but a tax provision of US$5.0 million has been recognised. The total loss for the six months ended 30 June 2014 was US$55.6 million, compared with US$65.7 million for the six months ended 30 June 2013.

The Company's efforts to manage working capital resulted in a positive net cash generated by operations of US$4.4 million in H1 2014. EBITDA, which does not include working capital movements, was negative US$2.9 million. Measures to ease short term liquidity included arrangements with Ecobank and other parties regarding timing of VAT receivables and supplier payments.

Capital expenditure was reduced and deferred where possible, with expenditure in the period focused on construction of the carbon blinding circuit which will allow higher gold production once commissioned. Capex amounted to US$6.9 million in H1 2014, compared with US$9.5million in H1 2013. Exploration activities were also curtailed in the period.

In addition to the US$61 million loan put in place in Q4 2013, Ecobank made short term advances during H1 totalling US$6.9 million. The advances allowed Inata to receive funds earlier in respect of VAT rebates and are secured on VAT receivables.

OUTLOOK

The focus at Inata over the second half of 2014 will be on further cost reductions and on successfully commissioning the carbon blinding circuit in September, which will increase monthly gold production. With a lower cost base and higher production expected for the future, we are now looking at adding value beyond what is in the current life of mine plan, by assessing the feasibility of developing more areas at Souma, heap leach operation, and underground mining at Inata North. At Tri-K, we continue to expect the award of an exploitation licence in the very near future. Meanwhile the business review will continue, to address the Elliott loan and the Group's working capital needs.

DAVID CATHER

Chief Executive Officer

DIRECTORS RESPONSIBILITY STATEMENT

We confirm that to the best of our knowledge:

· The condensed set of financial statements has been prepared in accordance with IAS 34 'Interim Financial Reporting' as adopted by the EU;

· The interim management report includes a fair review of the information required by:

i) DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of important events during the first six months of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and

ii) DTR 4.2.8R of the Disclosure and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period; and any changes in the related party transactions described in the last annual report that could do so.

By order of the Board

DAVID CATHER

Chief Executive Officer

(1) EBITDA represents earnings before exceptional items, finance items, taxation, depreciation and amortisation. EBITDA is not defined by IFRS but is commonly used as an indication of underlying cash generation.

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Basis of preparation

The condensed consolidated interim financial statements, which are unaudited, have been prepared in accordance with the requirements of International Accounting Standard 34 as adopted for use in the European Union. This condensed interim report does not include all the notes of the type normally included in an annual financial report. Accordingly, this condensed report is to be read in conjunction with the Annual Report for the year ended 31 December 2012, which has been prepared in accordance with IFRS as adopted by the European Union, and any public announcements made by the Group during the interim reporting period.

The financial information set out in this interim report does not constitute statutory accounts as defined in Section 435 of the Companies Act 2006. The unaudited condensed financial statements for the six months ended 30 June 2014 have been drawn up using accounting policies and presentation expected to be adopted in the Group's full financial statements for the year ending 31 December 2014. The accounting policies are not different to those set out in note 1 to the Group's audited financial statements for the year ended 31 December 2013, with the exception of certain amendments to accounting standards or new interpretations issued by the International Accounting Standards Board, which were applicable from 1 January 2014. These have not had a material impact on the Group.

The Company's statutory financial statements for the year ended 31 December 2013 are available on the Company's website www.avocetmining.com. The auditor's report on those financial statements was unqualified and did not contain a statement under sections 498(2) or (3) of the Companies Act 2006.

Going Concern

On 2 January 2014, the Company announced that it had not repaid the US$15.0 million loan due to an affiliate of Elliott Associates, its largest shareholder, which had been due on 31 December 2013 and is secured against the Tri-K exploration asset in Guinea. This was a consequence of a funding shortfall, due to the fall in the gold price during 2013, operational issues encountered during the year, and also the identification of investment requirements to repair mobile machinery and the processing plant during 2014, as part of an estimated revised Life of Mine Plan ('LoMP'). The estimated LoMP indicated a requirement for further short term funding at Inata in 2014 amounting to between US$20 million and US$30 million.

The announcement of a business review on 20 December 2013 was in response to these funding requirements and disclosed that the board were considering various options for maximising the value of its assets for the benefits of shareholders, namely at Inata, Souma and Guinea. The aim of this review, which remains ongoing, is to secure sufficient funding to address the US$15 million Elliott loan as well as any ongoing funding for corporate activities and Inata.

On 12 June 2014, the Company announced that a revised Life of Mine Plan for Inata had been completed, which indicated a reduced funding shortfall at Inata in 2014 of approximately US$15-20 million. Discussions continue with Inata's primary lender, Ecobank Burkina SA, and with other parties to satisfy this funding requirement and a number of measures have been agreed to ease short term liquidity. Assuming remaining negotiations are concluded satisfactorily, and subject to successful commissioning of the carbon blinding circuit, the current life of mine plan indicates that the funding requirement of US$15-20 million will be satisfied. However as negotiations have not been concluded, this cannot be stated as a certainty.

While discussions with other interested parties have been encouraging, as part of the business review, it cannot be guaranteed that such funding for the wider group will be secured. Nevertheless, the Board has a reasonable expectation that the outcome of the financing process will be successful, based on the parties involved, the nature of early stage discussions, and feedback from its advisors. The Board has therefore continued to adopt the going concern basis in preparing the financial statements for the six months ended 30 June 2014.

Should the Board's judgement prove wrong and sufficient funding arrangement are not obtained as envisaged, the presentation of the accounts on the going concern basis would be inappropriate and the accounts would need to be represented on a break up basis

Estimates

Certain amounts included in the condensed consolidated interim financial statements involve the use of judgement and/or estimation. These are based on management's best knowledge of the relevant facts and circumstances, having regard to prior experience. However, judgements and estimations regarding the future are a key source of uncertainty and actual results may differ from the amounts included in the financial statements.

In preparing these condensed interim financial statements, the significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those applied to the consolidated financial statements for the year ended 31 December 2013, with the exception of those highlighted in the exceptional items in notes of these statements.

Principal risks and uncertainties

Avocet Mining PLC is exposed to a variety of risks and uncertainties which may have a financial, operational or reputational impact on the Group.

The principal risks and uncertainties facing the Group at the year end were set out in detail in the Directors and Governance section of the Annual Report 2013 (pages 44-45), and have not changed significantly since. Key headline risks relate to the following:

· Gold prices

· Oil and other commodity prices

· Availability of finance

· Reliability of Mineral Resource and Ore Reserve estimates

· Operating risks

· Changes in fiscal and regulatory regimes

· Political risk

The Annual Report 2013 is available on the Group's website www.avocetmining.com.

2. Segmental reporting

IFRS 8 requires the disclosure of certain information in respect of reportable operating segments. One of the criteria for determining reportable operating segments is the level at which information is regularly reviewed by the Chief Operating Decision Maker (CODM) for the purposes of making economic decisions. In this report, operating segments for continuing operations are determined as the UK, Burkina Faso operations (which includes the Inata gold mine as well as exploration activity within the Inata and wider Bélahouro licence areas), and Guinea (which includes the Tri-K project and its support functions).

In the accounts for the year ended 31 December 2013, the exploration activities in relation to the Bélahouro licences, which surround the Inata mining licence, had been grouped together with the Guinea and Mali exploration projects and shown as West African Exploration. However, as any mining activities which might take place in the Bélahouro licence area (including Souma) are now considered likely to be integrated into the Inata mining operation, it is considered more appropriate to group these together as a single segment.

2. Segmental Reporting

(a) Other cost of sales represents costs not directly attributable to production, including exploration expenditure expensed;

(b) Includes amounts in respect of the amortisation of mine closure provision at Inata;

(c) EBITDA represents earnings before exceptional items, finance items, tax, depreciation and amortisation. EBITDA is not defined by IFRS but is commonly used as an indication of underlying cash generation.

2. Segmental Reporting (continued)

(d) Includes depreciation and amortisation, share based payments, taxation in the income statement, and other non-operating items in the income statement;

(e) Other cash movements include cash flows from financing activities, intragroup transfers, and exchange gains or losses.

2. Segmental Reporting (continued)

(a) Other cost of sales represents costs not directly attributable to production, including exploration expenditure expensed;

(b) Includes amounts in respect of the amortisation of mine closure provisions at Inata;

(c) EBITDA represents earnings before exceptional items, finance items, tax, depreciation and amortisation. EBITDA is not defined by IFRS but is commonly used as an indication of underlying cash generation.

2. Segmental Reporting (continued)

(d) Includes depreciation and amortisation, share based payments, movement in provisions, taxation in the income statement, and other non-operating items in the income statement;

(e) Other cash movements include deferred consideration paid, cash flows from financing activities, and exchange gains or losses;

3. Exceptional items

Impairments of Inata mining assets

In June 2014, Avocet recognised an US$25.8 million impairment of non-current mining assets in respect of the Inata Gold Mine driven by changes to the Life of Mine Plan (LoMP). Further details are provided in note 8.

An impairment had also been recognised at 30 June 2013, as a result of the fall in gold prices during the first half of that year. In addition, in March 2013, Avocet recognised a partial reversal of impairment of non-current mining assets in respect of the Inata Gold Mine driven by the requirement to recognise on the balance sheet the financial liability of the forward contracts held at that time. Further details of the 2013 impairments are provided in note 9.

Impairment of Mali exploration asset

During Q1 2013, the Company decided to discontinue operations at the N'tjila permit located in the Republic of Mali, and therefore impaired the US$0.3 million capitalised costs held at that time.

Restructure and recognition of forward contracts

On 25 March 2013, Avocet announced the restructure of its book of forward contracts held with Macquarie Bank Limited (MBL), for the delivery of gold bullion. The restructure consisted of eliminating 29,020 ounces under the forward contracts at a cost of US$20.2 million and shortening the delivery profile of the remaining ounces by 18 months so that all ounces were to be delivered by December 2016. 

The recognition of the liability was in accordance with IAS 39 (see note 14 for more information), and reflected the fact that the buy back demonstrated a practice of cash-settling forward contracts. This meant that, under IAS 39, the own-use exemption which had previously applied was no longer appropriate. The fair value of the forward contracts recognised at 31 March 2013 was $96.6m. 

Change in fair value of forward contracts

The forward contracts were required to be valued at each reporting date and the movement recognised through the income statement. Based on a spot price of $1,192 per ounce, the forward contracts as at 30 June 2013 had a fair value of $35.8 million. This represented a decrease of $60.8 million, which was recognised as a gain in the period.

On 15 November 2013, the Company announced that it had bought back the entire hedge book for US$41m, and continues to be unhedged.

4. EBITDA

Earnings before interest, tax, depreciation and amortisation (EBITDA) represents profit before depreciation/amortisation, interest and taxes, as well as excluding any exceptional items and changes in fair value of forward contracts.

5. Earnings per Share

Earnings per share are analysed in the table below.

1 As a result of the loss for the period, in calculating the diluted earnings per share the effect of share options in issue has been ignored for the 6 months ending 30 June 2013

6. Intangible assets

Intangible assets represent deferred exploration expenditure. The movement in the period is analysed below:

7. Property, plant and equipment

1 Capitalised depreciation represents the depreciation of items of property, plant, and equipment which are used exclusively in the Group's exploration activities. The consumption of these assets is expensed.

8. Impairment of mining assets

In accordance with IAS 36 Impairment of Assets, at each reporting date the Company assesses whether there are any indicators of impairment of non-current assets. When circumstances or events indicate that non-current assets may be impaired, these assets are reviewed in detail to determine whether their carrying value is higher than their recoverable value, and, where this is the result, an impairment is recognised.

Recoverable value is the higher of value in use ('VIU') and fair value less costs to sell. VIU is estimated by calculating the present value of the future cash flows expected to be derived from the asset cash generating unit ('CGU'). Fair value less costs to sell is based on the most reliable information available, including market statistics and recent transactions. The Inata mine has been identified as the CGU. This includes all tangible non-current assets, intangible exploration assets, and net current assets excluding cash. Since 31 December 2013 the exploration assets in Souma and Inata surrounds have now been included as part of the Inata CGU as they are not expected to become a separate CGU. The full amount was impaired at that time, as it would have been fully written down upon transfer of the asset to property, plant and equipment.

At 30 June 2014, the Company reviewed its latest Life of Mine Plan forecast (details of which were announced on 12 June 2014), and concluded that the reduction in gold production (and therefore cash generation) compared to previous forecasts represented an indicator of impairment.

An assessment was carried out of the fair value of Inata Mine's CGU, using the discounted cash flows of the mine's latest estimated life of mine plan to calculate their VIU. As a result of this review, a pre-tax impairment loss of US$25.8 million was recorded in the accounts at 30 June 2014, which was applied against the carrying value of mine development costs at Inata.

When calculating the VIU, certain assumptions and estimates were made. Changes in these assumptions can have a significant effect on the recoverable amount and therefore the value of the impairment recognised. Should there be a change in the assumptions which indicated the impairment, this could lead to a revision of recorded impairment losses in future periods. The key assumptions are outlined as follows:

1 Sensitivities provided are on a 100% basis, pre-tax. 10% of the post-tax impairment would be attributed to the non-controlling interest.

9. Impairments in H1 2013

On 31 March 2013, the fact that the Company had recognised the hedge liability on its balance sheet meant that the net carrying value of the Inata assets, which had been impaired previously, was lowered significantly. As a result, a partial impairment reversal of US$72.2 million was recognised at that time.

At 30 June 2013, the Company again reviewed its cashflow forecasts in respect of the Inata gold mine and concluded that, in view of lower gold price expectations and production amendments, there existed an indicator for impairment.

An assessment was therefore carried out of the fair value of Inata's assets, using the discounted cash flows of Inata's estimated life of mine plan at the time to calculate their VIU. As a result of this review, a pre-tax impairment loss of US$73.3 million was recorded in June 2013, being an impairment of mine development costs.

When calculating the VIU, certain assumptions and estimates were made. Changes in these assumptions can have a significant effect on the recoverable amount and therefore the value of the impairment recognised. Should there be a change in the assumptions which indicated the impairment, this could lead to a revision of recorded impairment losses in future periods. The key assumptions used at that time are outlined below:

1 Sensitivities provided are on a 100% basis, pre-tax. 10% of the post-tax impairment would be attributed to the non-controlling interest.

10. Other financial assets

Other financial assets relate to shares in Golden Peaks Resources Limited. The shares were acquired as consideration for the disposal of two of the Group's assets in South East Asia in 2011. In January 2012 Golden Peaks announced that it had changed its name to Reliance Resources. Reliance Resources is listed on the Toronto Stock Exchange.

During H1 2014, it was considered that these shares were insufficiently liquid to warrant revaluation to quoted market prices, and the remaining value was written down to nil.

11. Inventories

Work in progress includes ore in stockpiles and gold in circuit, while finished goods represents gold in transit or undergoing refinement, prior to sale.

12. Trade and other receivables

13. Cash and cash equivalents

Included within the cash balance of US$10.3 million at 30 June 2014 was US$4.8 million of restricted cash, representing a US$2.6 million minimum account balance held in relation to the Ecobank loan, and US$2.2 million relating to amounts held on restricted deposit in Burkina Faso for the purposes of environmental rehabilitation work, as required by the terms of the Inata mining licence.

14. Other financial liabilities

Interest-bearing debt

Interest-bearing debt includes US$15.7 million in respect of a loan due to an affiliate of Elliott Associates, the Company's largest shareholder, US$55.3 million in respect of a loan due to Ecobank, and US$6.9 million of net advances from Ecobank, secured on VAT recoverable amounts which have been confirmed, but not yet settled by the Burkina Faso government. The net movement on loans in the period amounts to US$1.6 million, consisting of this US$6.9 million less US$5.4 million of repayments under the Ecobank loan facility.

Elliott loan

The Elliott loan of US$15.7 million was repayable on 31 December 2013. Although the interest was paid in January 2014, the principal has not been repaid and is considered due at the time these accounts were completed. The settlement of the loan is discussed in note 1. The facility is recognised as a current liability held at amortised cost and includes the US$15.0 million drawn down and accrued interest of US$0.7 million.

Ecobank Inata loan

A US$62.8 million medium term loan facility with Ecobank Burkina Faso ('Ecobank') was drawn down in October 2013. The loan amount was provided and held in Francs de la Communauté Financière d'Afrique ('FCFA'), which is the legal currency of Burkina Faso. The Ecobank loan has been provided to the Company's 90% subsidiary, Société des Mines de Bélahouro SA ('SMB'), which owns the Inata mine.

The Ecobank facility has a five year term and bears an interest rate of 8% per annum. Ecobank has the right to secure the balance against certain of the assets of SMB. The first monthly repayment of 0.6 billion FCFA (US$1.3 million) comprising interest and principal was made in November 2013 and will continue for the 60 month duration of the loan. The facility requires that an amount equal to two months' payments, 1.3 billion FCFA (US$2.6 million), be held as a debt service reserve account. Subject to the debt service reserve account requirement, there are no restrictions on SMB's use of loan proceeds or cash flow generated, including the transfer of funds from SMB to Avocet for corporate purposes. The Ecobank loan facility has no hedge requirement.

The facility is recognised at amortised cost and the amounts due in 2014 are included as current US$10.7 million with the remaining balance of US$44.6 million included as non-current.

Ecobank VAT loan

During the first half of 2014, Avocet's Burkinabe subsidiary SMB put in place an arrangement with Ecobank to allow short term funding to be drawn down, secured against recoverable VAT balances. Under the terms of this agreement, SMB is able to receive funding in the amount of 80% of any VAT balances that have been confirmed by the government of Burkina Faso, but for which actual payment has not yet been received, up to an aggregate maximum of approximately US$8 million (4 billion CFA). The balance drawn down as at 30 June 2014 under this facility was US$6.9 million.

Warrants over Company shares

During 2013, 4 million warrants over shares in Avocet Mining PLC were issued to the Elliott Lender as consideration for the loan facility. The warrants have been treated as a financial instrument rather than a share based payment on the basis that the warrants were issued as part of the loan and not as a result of services provided. Furthermore, the warrants have been considered to be a liability rather than equity, on the basis that the exercise price is quoted in GBP, and therefore the cash payment from Elliott would not be fixed when accounted for by the Company, whose functional currency is USD.

These warrants have a strike price of GBP 0.40 and expire three years from their issuance on 28 May 2013. The warrants have been valued using a Black-Scholes model.

Finance lease liabilities

Also included within other financial liabilities are liabilities in respect of assets held under finance lease, US$0.8 million of which is included within current financial liabilities, and US$1.8 million is included within non-current financial liabilities.

15. Deferred tax

At 30 June 2014 the Group recorded a deferred tax liability of US$4.5 million in relation to the withholding tax (WHT) and interest tax (IRVM) that would be due on settlement of intragroup management fees and loan interest invoices. Restrictions on payments to Group companies as a result of Avocet's loan arrangements (first with Macquarie Bank Limited and later with Ecobank), together with limited cash availability, have meant that a number of these invoices remain unpaid. As it is the intention to settle these amounts in full, it is appropriate to accrue the cost of the WHT and IRVM under deferred tax.

16. Related party transactions

The table below sets out charges in the six month period and balances at 30 June 2014 between the Company (Avocet Mining PLC) and Group companies that were not wholly owned, in respect of management fees and interest on loans.

17. Contingent liabilities

PT Lebong Tandai claim

Note 32 to the financial statements for the year ended 31 December 2013 contains a description of the Indonesian civil cases being brought by PT Lebong Tandai against Avocet and other parties, and the reader is therefore referred to the Company's Annual Report for 2013 for further details. The Company is not aware of any change in circumstances and as any financial settlement is considered to be remote, this matter does not constitute a contingent liability.

Burkina Faso tax claim

At 31 December 2013, the Company disclosed a contingent liability of US$4.7 million in respect of a tax assessment for the years 2009, 2010, and 2011 of SMB, its operating subsidiary in Burkina Faso. This amount represented the difference between the tax paid in this matter (US$3.5 million), and a subsequent revised assessment of US$8.2 million. At the time, the Company felt confident that the amount paid was appropriate, and in line with discussions held with the government at that time.

Since the publication of the 2013 year end results, the government of Burkina Faso has hardened its position, such that, although the Company still does not believe the revised amount to be appropriate and the matter remains under discussion, this difference has nevertheless been fully provided for in the accounts at 30 June 2014.

18. Unaudited quarterly income statement