AVM.L Regulatory News (AVM)



Year-end resource and reserve update

Avocet Mining PLC ("Avocet" or "the Company") today announces its year end Mineral Resources and Ore Reserves for the Inata Gold Mine ("Inata") and Souma exploration project ("Souma") in Burkina Faso, and the Tri-K development project ("Tri-K") in Guinea. Key points for this year end update include:

·; Group Mineral Resources increased from 6.26 Moz. to 8.69 Moz. during course of 2012;

·; Increase in Inata Mineral Resources to 4.69 Moz. both within and around existing mining permit following over 124,000 metres of drilling in 2012;

·; Maiden resource estimates announced for the Filio, Pali and Ouzeni deposits, all located less than 10 km from the Inata processing plant;

·; Souma Mineral Resource increased by 38% to 0.78 Moz. as exploration continues along 16km strike length;Tri-K Mineral Resource increased by 43% to 3.22 Moz. as the project enters feasibility study stage;

·; Updated Inata Ore Reserve estimate of 0.92 Moz. (13.7 Mt at 2.07 g/t Au), compared with 1.85 Moz. reported previously. This excludes approximately 0.25 Moz. of Inferred material that would be upgraded to reserves via infill drilling; and

·; Selection of $1,200/oz. pit shells results in improved cash flows in the next five years relative to the US$1,400 basis, as a result of 22% increase in reserve grade and 42% reduction in life-of-mine stripping ratio when compared to the December 2011 reserve.

Mineral Resources

Group Mineral Resources rose to 8.69 million ounces during the year, a rise of 39% compared to the corresponding figure for 2011. The Mineral Resource estimate at Inata now stands at 4.69 million ounces, including additional resources delineated across the existing mining licence as well as from maiden Mineral Resource estimates at new areas such as Filio, Pali and Ouzeni, all of which sit outside the current 26km2 mining licence, but are located within 10 km of the Inata plant. Within the existing mining licence, the Company intends to conduct a short infill drilling programme on a series of shallow deposits that lie parallel to both the Inata and Minfo trends, which will upgrade approximately 250,000 ounces from the Inferred resource category and will consequently be added to the reserve estimate and life of mine plan.

A total of 124,170 metres were drilled during 2012 both within the Inata mining licence and in the area surrounding it, further adding to the pre-existing database of drilling. A table of Inata Mineral Resources by pit is provided in Appendix 1.

Resource increases were achieved at Souma (+38%) and Tri-K (+44%) during 2012. Project updates on both assets will be announced during H1 2013, including details of Souma's metallurgical and comminution test work and progress on Tri-K's feasibility study.

Ore Reserves

The Ore Reserve announced today marks the conclusion of a nine month review period of Inata's reserves, with input from independent consultants including Lycopodium, ALS Ammtec laboratories and Orway Mineral Consultants. The Company's understanding of the orebody, the processing of which has become more complex as mining has deepened, has increased significantly as a result of the technical work performed. In addition, the test work has allowed the Company to identify areas where further test work and modest capital expenditure could provide future improvements, notably in recoveries and plant throughput, which have been large contributors to the fall in reserves from 1.85 million ounces reported previously to 0.92 million ounces announced today.

As many of the new resource ounces are predominantly in shallow areas with benign metallurgy, the larger resource base at Inata and Souma is expected to allow reserves to rise from the 0.92 million ounces announced today. In particular, the new reserve does not incorporate any material from Pali and Ouzeni, which lie within 10 kilometres of the processing plant but outside the limits of the present mining licence. The reserve estimate also excludes Souma, which is situated 20 km from the existing Inata mining licence, and which, subject to economic analysis, could be a satellite pit for Inata or a stand-alone operation.

The updated Ore Reserves reflect evaluation and test work principally related to the Inata ore body at depth, where both metallurgy and hardness are known to be more challenging. By contrast, more recent drilling has targeted shallower, more oxidised areas that are expected to convert more readily to reserves.

The revised Ore Reserve of 0.92 million ounces is based on Inata's current operations without the benefit of any additional mining equipment or upgrades to the existing plant. While the Company plans further test work and technical evaluation of measures that could improve plant recoveries and throughputs, the results of these are not yet known and accordingly any such improvements remain as upside to the new reserve.

Compared to the previous Inata reserve at 31 December 2011, approximately 250,000 ounces of the reserve decrease is accounted for by the fact that the new reserve has been estimated based on pit shells run at a gold price of US$1,200 per ounce, compared with US$1,400 per ounce used previously. The result is higher grades and lower stripping ratios that make cash flow in the next five years higher on the US$1,200 per ounce basis than on the US$1,400 basis. In the event that further test work and future operating improvements during 2013 indicate better plant recoveries and throughputs, the Company will consider whether a larger reserve at US$1,400 per ounce will be more advantageous in terms of cash flow as well as longer mine life.

Further to the above, lower recoveries and reduced plant throughput accounted for decreases of approximately 250,000 and 200,000 ounces respectively, with a further 160,000 ounces reduction due to mining depletion during 2012.

Details are provided in this release of the test work and estimation process behind the updated reserve, including the factors affecting recoveries and throughput.

Based on the updated reserve estimate announced today, the Company has provided guidance that it expects production to remain in line with 2012 production, at a total cash cost of $1,050-1,100/oz. The life of mine plan underpinning the updated ore reserves is provided later in the announcement.

Group Mineral Resources (as at 31 December 2012):

[See www.avocet.co.uk for associated graphic]

Mineral Resources estimated by CSA Global and reported above a 0.5 g/t Au cut off and below the 31 December 2012 topographic surface. Inata figures exclude stockpiles and are net of mining depletion. Figures shown are gross (100%) for each project; ounces located within the Inata mining licence are 90% attributable to Avocet. All other projects are 100% owned by Avocet.

Mineral Resource estimates have been made and reported in accordance with the Australasian code for the reporting of Exploration Results, Mineral Resources and Ore Reserves (JORC Code). The Mineral Resource estimates are based on information compiled by Mr John Milovanovic (FAusIMM), Chief Resource Geologist for Avocet and Mr David Williams (MAusIMM, MAIG), Principal Consultant, CSA Global Pty Ltd. Mr Milovanovic and Mr Williams have experience relevant to the style of mineralisation and type of deposit under consideration and qualify as Competent Persons as defined by the JORC Code, and Mr Milovanovic and Mr Williams as Qualified Persons as defined by the Canadian National Instrument 43-101 (NI43-101), for the reporting of Exploration Results, Mineral Resources and Ore Reserves. Mr Williams and Mr Milovanovic consent to the inclusion of the technical information in this announcement in the form and context in which it appears.

Group Ore Reserves (as at 31 December 2012):

[See www.avocet.co.uk for associated graphic]

Ore Reserves estimated using a gold price assumption $1,200 per ounce. Figures shown above are gross (100%) and 90% are attributable to Avocet. The government of Burkina Faso holds the remaining 10%.

Ore Reserves were estimated by Mr Clayton Reeves (MSAIIM). Mr Reeves is a Competent Person as defined by the JORC Code. Mr Reeves has consented to the inclusion of the technical information in this report in the form and context in which it occurs.

Commenting on this update, CEO David Cather said: 

"This update on both Mineral Resources and Ore Reserves follows a pivotal year of exploration, resource definition and metallurgical test work on the Inata ore body. We now have a resource base at Inata of nearly 5 million ounces, while today's updated reserve estimate provides a higher grade base on which to operate at Inata. In view of the opportunities open to us, however, I view the new reserve as a base, and therefore look forward to converting more of our Mineral Resources into Ore Reserves through infill drilling, continued test work and process improvement, and enlarging our mining licence. We are excited that in Tri-K and Souma we have two projects with potential to become mines in the coming years, and we will continue to update the market on these projects when appropriate."

Management Conference Call

The Company will host an analyst conference call covering both this technical announcement and the Company's annual results (released on the same day as this announcement) at 9:00am (UK) on 7 March 2013.

Dial in details are as follows:

Participant dial-in numbers:

UK: 08006940257

Norway: 21563013

Alternative number: +44 (0)1452 555 566

Conference ID: 12227626

A recording of the conference call will also be made available on the Avocet website later on the same day.

FOR FURTHER INFORMATION PLEASE CONTACT

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 and its satellite deposits currently comprises a Mineral Resource of 4.71 million ounces and a Ore Reserve of 0.92 million ounces. The Inata Gold Mine poured its first gold in December 2009 and produced 135,189 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 assets are at Souma, some 20 kilometres from the Inata Gold Mine, where Mineral Resources of 0.78 million ounces exist.

In Guinea, Avocet owns 22 exploration licences in the north east of the country. Exploration has been ongoing since 2005 and the project at Tri-K is the most advanced. Within the Tri-K project, the Koulékoun Prospect has a Mineral Resource of 2.29 million ounces and the Kodiéran Prospect comprises 0.93 million ounces.

Mineral Resource estimate

Group resources have increased by 2.43 million ounces or 39%, comprising a 42% increase in global tonnes and a 2% decrease in Au grade since the December 2011 estimate, excluding mining depletion. Inata, which remains the largest component, has grown by 1.24 million ounces or 36%, comprising a 42% increase in global tonnes and a 4% decrease in Au grade.

Inata's Mineral Resource estimate is quoted for blocks above a nominated cut-off grade of 0.5g/t Au, depleted to the end December 2012 mining surface. The effect of different cut off grades is shown in the charts below, with each trend (Inata and Minfo) modeled separately (see Appendix 1 for resources by individual pit):

[See www.avocet.co.ukfor associated graphic]

Ore Reserves estimate

The key factors affecting the Ore Reserve, together with the work performed in each area, are discussed below. In addition, Whittle input parameters are explained in Appendix 3.

Gold price

A gold price of US$1,200 per ounce has been applied in modeling the Inata pit shells, compared with US$1,400 per ounce applied in the previous reserve. As can be seen in the table below, the result is higher grades and lower stripping ratios that make cash flow in the next five years higher on the US$1,200 per ounce basis than on the US$1,400 basis. Compared with the previous reserve, the overall grade of the updated Ore Reserve has increased by 22% to 2.07 g/t and the life-of-mine stripping ratio has reduced by 42%. The Company may elect to apply a higher pit shell price assumption in future.

Gold recovery

Results of test work to date indicate that the recovery of gold is primarily affected by preg-robbing nature of organic carbon in the ore and to a lesser extent a decrease in gold liberation due to gold lock-up in sulphides, primarily arsenopyrite. The term "preg-robbing" refers to the presence of active carbon naturally occurring in Inata's ore that provides an alternative surface on which dissolved gold can attach to and therefore the gold that adheres to this material is not recovered as part of the standard processing route.

In order to better predict recoveries throughout the orebody, the Company has used a system of ore characterisation for Inata known as a Preg-Robbing Index ('PRI'), which it has then used to estimate gold recoveries. PRI is a measure of a specific ore type's tendency to interfere with the standard carbon-in-leach process method through pre-robbing. Set out below is information on the PRI index.

·; PRI determination

The PRI determination stage of the metallurgical study into the carbonaceous ore was conducted by third party consultants ALS Ammtec. Test work was used to build a database of PRI data for the various ore-types at Inata, to provide an indication of the ore's tendency to preg-rob and provide a basis for composite-sample testing.

PRI is calculated based on the amount of gold in solution that adsorbs, or attaches to, the carbon present in the ore rather than the carbon added as part of the standard carbon in leach process. PRI values range from zero to 3.4, with this upper limit representing the known amount of gold in a spiked solution. PRI values of less than 1 are considered as lowly preg-robbing, samples with a value between 1 and 2.5 are considered as moderately preg-robbing and samples producing values above 2.5 are considered as highly preg-robbing. PRI values have been calculated for almost 5,000 individual samples across the Inata ore body.

The proportions of the updated Ore Reserve by PRI are shown in the table overleaf. The table excludes 36,000 reserve ounces at Filio where PRI test work is not yet complete.

·; PRI and gold recovery relationship

Composite samples were created in order to simulate various ore blends from the Inata pits. The composite samples were tested using methods similar to those used in the existing processing plant at Inata in order to determine the relationship between PRI values and gold recovery rates. As a result, the updated reserve estimate for Inata reflects the estimate of recoveries from the existing plant (gravity separation and carbon in leach circuits) without any plant enhancements, and such enhancements therefore offer upside opportunities that the Company plans to evaluate. In addition, the test work did not assume any benefit from diesel blanking prior to processing, which is seen as a low cost opportunity to improve recoveries for medium and high PRI material.

The chart and table below show the resulting recovery assumptions and the PRI relationship that have been modeled in the current Ore Reserve.

[See www.avocet.co.ukfor associated graphic]

·; Alternative process methods

As noted above, Inata's reserves have been estimated based on the existing process plant. However, work has been done to understand the potential for how recoveries for high PRI ore types could in future be improved through plant enhancements. Additional processing methods were modeled by Lycopodium in order to establish the optimal process flow-sheet, and these are summarised below.

- Diesel blinding of high PRI ore

Low cost amendments to the processing method with a positive impact on recoveries, such as diesel pre-treatment of high-PRI ore, will be implemented and represent upside to the assumptions behind the existing reserve estimate. Test work with various methods of diesel pre-treatment was carried out on the composites at diesel addition levels of 500 mL per tonne of ore and 1,000 mL per tonne of ore. The effect of pre-oxidation was also tested for both levels of diesel addition. As expected, gold recovery from high PRI ore improved with the diesel addition, with recovery results for composite samples averaging 80-81%, compared to 68.5% for the same composites tested without diesel pre-treatment.

- Sulphide flotation fine grind ("FRG")

This more capital-intensive option to process high PRI ore is being evaluated separately. The current plant does not feature a FRG circuit which therefore does not impact the updated reserve. It would involve using flotation to separate sulphide material out of the concentrate after the gravity circuit and treating it separately from other ore being treated. Sulphide flotation followed by leaching the tails and regrinding the concentrate to a particle fineness of 80% passing 38 μm, before leaching with activated carbon, was performed on the master composites.

The chart below shows the relationship between PRI and gold recovery relationship for both the existing process route (gravity and CIL circuits) and the sulphide flotation fine grind process route ("FRG").

[See www.avocet.co.ukfor associated graphics]

The chart indicates that a FRG process route could provide a significant increase in gold recovery for high PRI ore, with the fitted curve suggesting that average recoveries are closely correlated with PRI. This is consistent with the test work findings that, once preg-robbing is addressed, the secondary cause of lower gold recoveries is gold locked in sulphides.

Ore hardness

While it had previously been expected that ore would become harder as mining progressed deeper in the pits, the effect on the update reserve of recent test work has been more severe than anticipated, accounting for a decrease of approximately 0.2 million ounces.

Comminution test work was conducted to determine the hardness of ore. This is achieved by measuring the amount of grinding energy (expressed in kWh per tonne) needed for each type of ore to reduce it to the size needed for the gravity and CIL circuits. Ore types with differing hardness are measured on a scale known as the Bond Work Index, where a high number denotes harder ore. The test work aimed at understanding the variability of hardness throughout the ore body. It also aimed at deriving design parameters for a potential new comminution circuit, either as part of an expansion or as an enhancement to the existing plant. Since the test work programme, an expansion has been ruled out by the Company as uneconomic at the present time; this situation will be reviewed as new processing data becomes available and exploration continues to delineate additional ounces.

All tests were conducted at ALS Ammtec and an interpretation was provided by Orway Mineral Consultants ('OMC'). The new test work data provided to OMC suggested an increase in Bond Work Index assumptions used in the previous reserve estimate for the fresh ore from 13.6 to 17.1 kWh/t. Corresponding values for the oxide and transitional material are 10.5 and 14.3 kWh/t respectively.

Based on the energy requirements for fresh ore, a plant throughput of up to 153 tonnes per hour was predicted by OMC, equating to 1.2 million tonnes per annum at an average plant availability of 90%. In this scenario the circuit is limited by the grinding capacity. For transitional ore, a plant throughput of up to 203 tonnes per hour is predicted, which equates to 1.6 million tonnes per annum assuming an average 90% availability.

For the life of mine plan contained in this announcement, annual throughout levels have been determined taking into account the blend of ore types. Based on test work data received to date, it has also been assumed in the modeling process that transitional ore higher in the pits will be softer than transitional ore deper in the pits. Further comminution test work is in progress to provide more clarity on ore hardness through the orebody.

The following table shows the proportion of each ore type in the Ore Reserve, both in terms of tonnes and contained ounces.

Costs

Compared with the previous reserve, cost increases account for only approximately 5% of the decrease in reserve ounces. The cost assumptions used in the Ore Reserve update are shown below.

·; Mining costs

Differential haulage costs have been used for each mining area, and for ore versus waste, in order to reflect variation in haulage profiles. A default reference cost of US$1.39/tonne was calculated based on the waste mining cost at Sayouba pit, as this is taken to be the centroid. A bench-by-bench Mining Cost Adjustment Factor (MCAF) of US$0.027161/t per 10m depth was applied to the reference mining cost. This factor was determined from historical cost increases per bench at Inata. A separate haulage MCAF was calculated for each mining area to assign varying costs to each mining area due to changes in haulage distance. These factors are displayed in the table on the right below.

[See www.avocet.co.ukfor associated graphics]

·; Processing costs

The total processing cost applied to the pit optimisations varies with the material type processed. The table below illustrates these costs.

[See www.avocet.co.ukfor associated graphics]

Life-of-mine plan

The table below shows the latest life-of-mine plan for Inata, based on the updated Ore Reserve estimate.

[See www.avocet.co.ukfor associated graphics]

The above life-of-mine plan is based on pit shells optimised at US$1,200 per ounce. It includes reserve ounces from the expanded Inata mining licence area only, and excludes Souma.

It also assumes no improvements to the current processing plant, with capex assumed at sustaining levels only (US$20m in 2013 including the construction of the second tailings dam and purchase of rebuild kits for the mine fleet, US$7m per annum 2014‐2016, and approximately US$2m per annum for maintenance and restoration work thereafter).

The Company is undertaking test work on fresh ore samples and is reviewing the opportunities to improve throughputs and recoveries through enhancement capex, where returns are sufficiently high.

In addition to the projections shown above, the Avocet Group anticipates Corporate and Head Office expenditure of US$8‐10m per annum. SMB is subject to a corporation tax rate of 17.5% charged on taxable profits. Taxable profits are calculated after taking into account the impact of capital allowances, interest on group loans extended for the construction of the mine and other fees.

Mining of ore is scheduled at a rate greater than processing in years 2013-2016 in order to stockpile material, the processing of which requires a specific ore feed blend of material that accounts for grade, PRI and ore hardness that will ensure predicted recoveries are achieved. Stockpiling will provide the flexibility for the Company to achieve this ore feed blend. As part of the ongoing scheduled maintenance of the Inata plant, the Company intends to carry out maintenance on the SAG mill in the coming months and this proactive approach will require a plant shutdown. This activity is factored into the Company's guidance for 2013 and therefore production and cash cost guidance for the year remain unchanged.

Appendix 1: Inata Mineral Resources by pit

Appendix 2: Inata Ore Reserves by pit

Ore Reserves were estimated using a gold price assumption $1,200 per ounce. Figures shown above are gross (100%) with 90% are attributable to Avocet. The government of Burkina Faso holds the remaining 10%.

The Inata Gold Mine Open Pits contain 569kt of Inferred material with a grade of 1.54 g/t Au.

Appendix 3 - Whittle Input parameters

The following pages detail the Whittle parameters used in that particular optimisation process that was carried out for the Inata LOM Mining Study. It should be noted that all the below parameters remained the same for all optimisations apart from the alteration of the gold price.

Slope Sets

Slope set input parameters for Whittle were gathered from the geotechnical report Geotechnical Assessment of Inata Mine Slopes" (see Appendix 5) which was compiled by SRK Consulting Ltd. An inter-ramp slope angle of 45 degrees was used for the Whittle optimisation as was recommended in the above report. The total slope angles for the various pits were then determined by expected ramp layouts.

Study Base Date

The bulk of this LOM Study was carried out in the last quarter of 2012 and all supplied costs and revenues used and output resulting from this study must be referred to this period.

Initial Capital

No CAPEX costs were included in the optimisation and as such do not influence the selection of the optimal pit shell.

Plant Capacity

The plant capacity was set at 2.7Mtpa for oxide material in the Whittle optimisation based on Inata historical data. The plant capacity was set at 1.6Mtpa for transitional material and 1.2Mtpa for fresh material in the Whittle optimisations based on recommendations from Lycopodium.

Mining Limit

A mining limit of 41,500,000 tonnes per annum was applied to the optimisation to reflect the average overall yearly fleet production capacity over the entire life of the project. This limit is based on the current 100t fleet set up with the addition of the hired fleet.

Processing Recovery

A PRI dependent process recovery formula was determined which was implemented in Whittle. This formula was based on a combination of metallurgical test work data and historical Inata recovery data (Figure 58). Based on this data, a recovery of 90% was applied to all oxide material irrespective of PRI and to all Transitional and Fresh material with a PRI1. Table 42 below displays the recovery formulas applied to the three material types processed.

Grade Cut-Off

One of the necessary variables in allowing the determination of the economic cut-off for a project is a constant processing recovery. Due to the supplied processing recovery formula, no set cut off could be calculated since in this case the recovery is grade dependent. Therefore, the Whittle optimisations were run using the cash flow method. In this method, a block of 'ore' (ie: economic to process) is determined by comparing the cash flow which would be produced by processing it to the cash flow which would be produced by mining it as waste. If the cash flow from processing it is higher, the material is treated as ore. If not, it is treated as waste.

Mining Dilution

A 5% mining dilution factor was applied to the project within Whittle to account for dilution that may be expected to occur during the course of mining due to the mixing of ore and waste material during blasting and excavation processes. This figure was determined by historical figures from the mine.

Mining Recovery

A 97.5% mining recovery factor was applied to the project within Whittle to account for the amount of ore that might be lost due to spillage and/or re-handling. It also accounts for any unforeseen additional ore losses (ore trammed to waste dump, etc). This figure was determined by historical figures from the mine.

Commodity Price

The base case gold price utilised was $1,200 per ounce. A Royalty of 6.3% was applied to the gold price.

Discount Rate

A discount rate of 10% was used for the optimisation; implicit time costs were applied.