AVM.L Regulatory News (AVM)

Avocet Mining Unaudited Results forthe Quarter ended 30 September 2012

·; Operational improvements at Inata yield increase in mining volumes of 11%

·; Gold production of 33,067 oz. (Q2 2012: 32,917 oz.) at cash costs US$937 per oz.(Q2 2012: US$1,006 per oz.)

·; Net cash generated by operating activities lower at US$1.4 million (Q2 2012:US$20.7 million) due to timing of supplier payments

·; EBITDA of US$6.3 million (Q2 2012: US$8.7 million), as gold inventory reduces byUS$5.6 million over the quarter

·; Cash of US$62.0 million, with external debt reduced to US$11.0 million

·; Results from Inata metallurgical testwork received

·; Anticipated reduction in Inata Mineral Reserves at Inata makes expansion unlikely in the short term - engineering now focused on recovery enhancements at existing plant

·; Group total Mineral Resources increased 23% to 7.70 million oz.

KEY FINANCIAL METRICS

[1] Key Financial Metrics are presented for continuing operations only, and represent results excluding the Group's former operations in South East Asia, which were sold in June 2011. Refer to note 2 of these interim financial statements for further information.

2 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.

David Cather, Chief Executive Officer, commented:

"Our main focus in the third quarter has been driving operational improvements at Inata. This has begun to bear fruit, with a noticeable increase in mining volumes in the quarter. Further operating efficiency gains in both mining and processing are expected to be achieved in the coming months.

Engineering cost studies on an expansion at Inata have progressed. The early indications from these studies, as well as the anticipated reduction in Mineral Reserves are informing our views on an optimal expansion strategy. Accordingly, our earlier ambition to expand production through the construction of a second processing plant appears unlikely in the near term. Instead our focus has turned to optimising the existing plant, while adding Mineral Reserves at Souma and elsewhere in the Bélahouro district."

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NOTES TO EDITORS

Avocet Mining is a 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 deposit at Inata currently comprises a Mineral Resource of 3.99 million ounces and a Mineral Reserve of 1.85 million ounces. The Inata Gold Mine poured its first gold in December 2009 and produced 167,000 ounces of gold in 2011 and is expected to produce 135,000 - 140,000 ounces of gold in 2012.

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 are Souma, some 20 kilometres from the Inata Gold Mine, and Filio, adjacent to the mine licence area, where Mineral Resources of 0.56 million ounces and 0.14 million ounces respectively exist.

In Guinea, Avocet owns twelve exploration licences in the north east of the country. Mineral Resource development has been ongoing since 2005 and the project at Tri-K is the most advanced. Within the Tri-K project, Koulékoun has a Mineral Resource of 2.15 million ounces and Kodiéran of 0.87 million ounces.

CHIEF EXECUTIVE OFFICER'S REVIEW

We made some encouraging operational improvements at Inata during the third quarter, with our new management team working effectively with consultants Alexander Proudfoot. Mining operations, which underperformed earlier in the year due to a combination of poor equipment availability and sub-optimal operating practices, achieved an increase in average daily volumes of 11%. The challenge now is to achieve and exceed this level on a consistent basis into 2013.

The metallurgical testwork associated with the Inata expansion scoping study has yielded extensive results. This testwork involved the taking of 5,000 samples from across the ore body which were analysed for PRI (Preg Robbing Index), Quick Leach Test, sulphurs, carbon and a suite of other minerals. Analysis of this data has been used to generate block models of the various geological and metallurgical parameters across the ore body.

The metallurgical testwork identified two main factors affecting gold recoveries namely: preg-robbing by active carbonaceous material and fine grained gold locked up in sulphide ores. The testwork indicates that there is a significant proportion of the ore body (50 - 60%) which is regarded as having very low to no preg-robbing capacity, while less than 3% of the ore body is considered highly preg-robbing. The testwork also indicates that processing options identified would achieve acceptable recoveries for ore with low preg-robbing capacity, with only a minor drop in recoveries when treating the highly preg-robbing ore. Accordingly a number of potential processing options have been identified, developed using conventional techniques that can deliver acceptable recoveries across the ore body.

The Company is re-estimating its Mineral Reserves at Inata using current cost levels and the lower forecast metallurgical recoveries that have been estimated as a result of the metallurgical testwork. These factors are likely to negatively influence the estimate, with the result that Mineral Reserves are expected to decrease from the 1.85 million ounces previously announced. Although engineering work has not yet been completed, the anticipated reduction in Mineral Reserves indicates that the significant investment that would be required for a new processing plant is unlikely to provide a satisfactory return. Accordingly engineering studies are now focused on optimising operations at the current plant, including more modest capital expenditure..

The 2011/2012 drilling season was completed in the second quarter of 2012 and revised Mineral Resource estimates for operations in Burkina Faso and Guinea were recently announced. At Bélahouro, Burkina Faso, Mineral Resources increased by 17% to 4.69 million ounces, of which 3.99 million ounces are within the Inata mine licence area. Infill and step-out drilling is ongoing at Souma where a Mineral Resource update is anticipated in Q1 2013. The ongoing evaluation of Souma, that includes metallurgical testwork, has been prioritised with a view to submitting an application for a mining licence in 2013.

The Mineral Resources in Guinea also increased, growing 34% to 3.02 million ounces at Koulékoun and Kodiéran in the Tri-K region. Constructive discussions with the Guinean Government continued during the quarter and the Ministry of Mines and Geology has granted Avocet an extension to its Koulékoun exploration licence to the third quarter of 2013. A revised mining code is widely anticipated but not yet confirmed. We have commenced the environmental studies and have started the metallurgical testwork programme both of which will form part of the feasibility study, which the decision has been taken to progress.

On 19 September 2012 the second Indonesian civil case brought by PT Lebong Tandai (PTLT) against Avocet and other parties in April 2012 was dismissed by the South Jakarta District Court, on the grounds of lack of jurisdiction. PTLT has appealed the District Court's decision, as it did after the first case was similarly dismissed in 2011. The Company has no knowledge of when either appeal may be heard by the High Court of Indonesia.

OPERATIONAL REVIEW

Gold production and cash costs

Gold production in the quarter was 33,067 ounces, in line with the previous quarter. This was ahead of expectations as gold in circuit was drawn down by 2,630 ounces.

Daily mining volumes improved by some 11% compared with Q2 2012, as a result of a programme of operating improvement initiatives implemented in conjunction with Alexander Proudfoot as well as the commissioning of additional rented equipment in September. These initiatives included revised haul cycles, operator training programmes, improved supervisor monitoring, loading optimisation and a detailed revision of standard operating practices. Total mining volumes of 8,124,000 tonnes averaged approximately 88,000 tonnes per day across the quarter as a whole, up from 80,000 per day in Q2 2012. By the quarter end, daily production in excess of 110,000 tonnes was achieved on a number of days. Although a programme of haul truck maintenance is planned for Q4 2012, efforts to achieve further volume improvements will continue in the quarter.

Plant throughput was in line with the previous quarter as plant availability remained good with only scheduled maintenance and minor outages. As expected, head grades were lower at 1.62 g/t Au during the quarter, down 11% compared with Q2 2012. However, recoveries of 91% were higher than the previous quarter, reflecting mining of predominantly oxide ore which leaches more easily.

Cash costs were US$937 per ounce in the quarter. Whilst cost savings were achieved on reagent consumption and operating efficiency improvements, overall cash costs reduced by lower maintenance activity and less grade control drilling, both of which are expected to reverse in Q4 2012. Included in cash costs were fees paid to Alexander Proudfoot, whose work at Inata will continue until Q1 2013. Full year production guidance is maintained at 135,000 - 140,000 ounces at a cash cost of US$1,000 to 1,050 per ounce.

Whilst the political situation in Northern Mali, which is to the north of the Inata mine, remains unstable Inata has not been affected by the ongoing unrest.

Exploration

With the advent of the rainy season, little drilling has been undertaken either in Burkina Faso or in Guinea during the third quarter. Instead, work focused on analysing the samples collected during the 2011/2012 field season, and modelling the results. This work culminated in the Mineral Resource increase of 23% to 7.70 million ounces announced on 25 October. The Company is re-estimating its Mineral Reserves at Inata using current cost levels and lower forecast metallurgical recoveries. As highlighted these factors are likely to negatively influence the Mineral Reserves estimate.

During the fourth quarter, exploration activities will focus on completing the drilling at Filio, where a maiden resource was recently announced, and developing the resources at Souma through step-out and infill drilling.

FINANCIAL REVIEW

Revenue in the quarter was US$50.1 million, reflecting sales of 33,298 ounces of gold at an average realised price of US$1,506 per ounce, (including 8,250 ounces into forward contracts at US$950 per ounce), compared to revenue of US$49.3 million in Q2 2012, representing 34,218 ounces at an average realised price of US$1,439 per ounce. At the quarter end Avocet's outstanding hedge was 189,750 ounces.

EBITDA for the quarter totalled US$6.3 million, compared with US$8.7 million in Q2 2012. Although cash costs were lower in the period, this was offset by adverse movements in both stockpile (as the mining schedule delivered less ore to the stockpile), and by gold inventory, which largely reflects the timing of gold pours, shipments and sales.

Negative working capital movements contributed to net cash from operating activities being US$1.4 million in the quarter, compared with US$20.7 million in Q2 2012. In particular, the quarter on quarter timing of supplier payments accounted for a decrease in cash flow of US$19.2 million, as the positive movement in Q2 of US$11.6 million was followed by a negative movement in Q3 of US$7.6 million. However, on a year to date basis, movement in creditors is US$1.5 million positive, as quarterly movements offset each other. During Q3, US$8.9 million was invested in capital expenditure, the bulk of which was on the second tailings facility at Inata, and only US$4.9 million on exploration.

At the end of the period, the cash balance stood at US$62.0 million, with debt reduced to US$11.0 million, leaving net cash at US$51.0 million, compared with US$63.4 million at the end of Q2 2012.

As noted in the Company's Interim Results announcement, in anticipation of Inata's existing project finance facility with Macquarie Bank being fully repaid by March 2013, discussions are in progress with various lenders, including Macquarie Bank, with a view to replacing the existing facility. A new financing facility would be used for standby and Inata development purposes. The amount of funding required for Inata development will depend on the outcome of the ongoing studies outlined above.

OUTLOOK

In view of our encouraging progress, we retain our guidance for 2012 and 2013, and believe that our efforts over the coming months will re-establish Inata as a strong cash generative operation. In the meantime, the receipt of the metallurgical testwork along with initial process flow sheet designs is enabling management and the Board to evaluate the optimal means by which to further develop Inata.

DAVID CATHER

Chief Executive Officer

(1) During 2011, the Group disposed of all of its trading subsidiaries which were classified as discontinued operations. All operations for 2012 are continuing. Refer to note 2 for further information.

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

(1) During 2011, the Group disposed of all of its trading subsidiaries in South East Asia, which were classified as discontinued operations. All operations for 2012 are continuing. In Q1 2012 the Group completed the disposal of one of the remaining exploration assets in South East Asia. Refer to note 2 for further information.

(2) EBITDA represents earnings before 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 CHANGES IN EQUITY

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 2011, 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 three and nine months ended 30 September 2012 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 2012, which are not expected to be significantly different to those set out in note 1 to the Group's audited financial statements for the year ended 31 December 2011.

The Company's statutory financial statements for the year ended 31 December 2011 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.

After review of the Group's operations, the directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. Accordingly, the directors continue to adopt the going concern basis in preparing the unaudited condensed interim financial statements.

2. Disposal group classified as held for sale and discontinued operations

On 24 June 2011, Avocet completed the sale of its main South East Asian assets, namely its 100% interest in the Penjom gold mine in Malaysia and its 80% interest in PT Avocet Bolaang Mongondow (PT ABM), which owned the North Lanut mine and Bakan project in North Sulawesi, Indonesia, for proceeds of US$170 million. In the third quarter of 2011, Avocet announced that further sales had been concluded, namely PT Avocet Mining Services, Avocet Mining (Malaysia) OHQ Sdn. Bhd., its 75% interest in PT Gorontalo Sejahtera Mining, and its 60% interest in PT Arafura Surya Alam. The combined gross proceeds for the disposals completed in the third quarter of 2011 were US$27 million. All of the sales completed in 2011 were originally announced on 24 December 2010.

In accordance with IFRS 5, Non-current Assets Held for Sale and Discontinued Operations, all of the assets and liabilities of the Indonesian and Malaysian operations, apart from cash, were treated as a disposal group from the date of the announcement of the sale on 24 December 2010, and were disclosed separately in the statement of financial position at 31 December 2010 and 31 March 2011, and the remaining unsold entities were disclosed separately at 30 June 2011, 30 September 2011, and 31 December 2011. As the transaction was on a cash free debt free basis, the cash held by entities held for sale was classified as continuing operations rather than discontinued operations. Prior to the reclassification, management reviewed the carrying values and recognition of assets and liabilities respectively, and no adjustments were required to measure assets and liabilities at the lower of carrying value or fair value less costs to sell. Since 24 December 2010, the date on which the criteria for being held for sale were met, no depreciation was charged in the Group financial statements for the Malaysian and Indonesian assets, in accordance with IFRS.

In 2011, Avocet completed the sale of PT Arafura Mandiri Semangat (PT Arafura) and PT Aura Celebes Mandiri (PT ACM) to Reliance Resources Limited, a company owned by Golden Peaks Resources Limited (Golden Peaks). Consideration was in the form of 7.9 million Golden Peaks shares, which are classed as available for sale financial assets and are recognised at fair value at the reporting date (note 7). Golden Peaks announced that it had changed its name to Reliance Resources in January 2012. Reliance Resources is listed on the Toronto Stock Exchange. PT AMS and PT ACM held non-core exploration projects in Indonesia. 

The results of the disposal group are presented separately in the comparative consolidated income statement and the segmental analysis, as required by IFRS.

The profit on disposal of the entities sold during 2011 is presented in full in the annual report for the year ended 31 December 2011.

Completion of one of the last two exploration assets occurred on 16 February 2012 for proceeds of US$2.0 million, resulting in a loss of US$0.1 million. There are no remaining assets or liabilities recognised in the Group statement of financial position in respect of the last remaining South East Asian exploration company, which the Company no longer expects to sell.

3. 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 the prior year, this segmental information was presented for the UK and West Africa as continuing operations, and Malaysia and Indonesia as discontinued operations. The disposal of Avocet's assets in South East Asia enabled the strategic refocus of the Group, with the Inata operating mine and exploration projects in West Africa being the core focus. To reflect this change, management has reassessed the segments which should be reported under IFRS 8. In this report, operating segments for continuing operations are determined as the UK, West Africa mining operations (which includes exploration activity within the Inata mine licence area), and West Africa exploration (which includes exploration projects in Burkina Faso, Guinea and Mali). Exploration projects are aggregated into the single reportable segment because the projects are managed by a single operating division and reported to the CODM on this basis. Discontinued operations for 2012 represent the disposal of one of the remaining assets in South East Asia that was subject to the agreement with J&Partners L.P. (note 2). Comparative periods have been represented on this basis to allow for a consistent comparison.

3. 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.

3. Segmental Reporting (continued)