ENP Newswire - 24 December 2013 Release date- 20122013 - As a consequence of lower than expected production in Q4 2013, Avocet Mining PLC now expects 2013 production at the Inata gold mine to be 115,000-120,000 ounces compared with previous guidance of 125,000-130,000 ounces. The Company has also commenced a business review of options to maximise the value of its assets. The deterioration in Q4 production has led to higher unit costs and lower cash generation and has been caused largely by breakdowns in mobile and plant equipment. There is a requirement for capital expenditure to refurbish the processing plant and mobile fleet and also to complete construction of the blinding circuit. In addition, there is a need for maintenance processes to improve, having suffered from a cash squeeze during 2013. Q4 production was also affected by two minor pit slope failures which generated additional volumes of waste material and slowed production at a time of low excavator availabilities. The plant shutdown for refurbishment of the SAG mill, which was noted in the 2012 Annual Report, is now expected to halt gold production for up to four weeks in H1 2014. In August, when the gold price was approximately US$1,300 per ounce, the Company announced an eight year Inata life of mine plan and positive cash flows in every year, based on pit shells run at US$1,200 per ounce and mining costs of US$1.75 per tonne. With the potential for a lower gold price environment over the coming years, the Company has estimated the cash flows of a four year life of mine plan based on pit shells run at US$950 per ounce, with mining costs of approximately US$2.15 per tonne. This estimate ('the estimated LOMP') includes higher capex to refurbish the mine fleet and the four week plant shutdown. The effect of pit shells based on a lower gold price is to improve cash generation at lower prices by reducing the proportion of waste mined and increasing the grade of ore mined, albeit over a shorter mine life. The estimated LOMP indicates that in 2015-2018 Inata should generate cash flow before financing of approximately US$180m , based on an assumed gold spot price of US$1,200 per ounce. However, this plan shows negative cash flow in 2014 and a requirement for further short term funding in 2014, amounting to between US$20 million and US$30 million , depending on the extent of refurbishment costs, whether a decision is taken to adopt contract mining, and the level of production in 2014. The further funding requirement would be in addition to the remaining funds from the Ecobank loan facility, which was drawn down in November by the Company's 90% subsidiary, Societe des Mines de Belahouro SA ('SMB'). The loan is for 30 billion Francs de la Communaute Financiere d' Afrique ('FCFA'), the legal currency of Burkina Faso , which is currently equivalent to US$61 million . Of the Ecobank loan funds, US$29 million was used to buy back SMB's gold hedge with Macquarie Bank Limited and US$3.4 million was paid in tax to the Burkina Faso authorities. Approximately US$18 million is expected to be used as working capital during November and December, due to weak gold production and a build-up of creditors in preceding months when the mine was required to deliver a high proportion of its production into the hedge at $938 per ounce. Group cash balances at year end are forecast to total approximately US$15 million , which is less than the US$16 million loan repayment (including accrued interest to the 31 December 2013 loan maturity date) owed to an affiliate of the Company's largest shareholder, Elliott Associates . The Company has informed both Ecobank and the Elliott lender about the anticipated additional funding requirement and estimated LOMP, and intends to conduct discussions with both lenders in parallel with the business review. Further work is needed to confirm the conclusions of the estimated LOMP. In parallel with this, and its discussions with lenders, the Company has initiated a business review to consider options for maximising the value of its assets for the benefit of shareholders, namely: At Inata, evaluating options to ensure the mine is optimised and adequately funded for 2014, thus enabling it to generate significant cash flow for subsequent years, including contractor mining, which should alleviate the need for extensive mobile fleet capex and deliver improved availability and productivity; The Souma deposit, located 20 kilometres from Inata, which currently has a Mineral Resource estimate of 0.8 million ounces: treatment of economic Souma material at the Inata plant is assumed in the estimated LOMP and The Tri-K project in Guinea , which currently has a Mineral Resource estimate of 3.0 million ounces and is awaiting the issuance of an exploitation permit for a heap leach operation treating oxide ore. This resource also has the potential to facilitate the development of a larger, longer life carbon in leach operation, which would encompass the much larger fresh ore resources. Evaluation of both processes is in progress. In a separate release today, the Company has announced that two of its non executive directors have advised the Board of their intention to leave in the near future. These departures will allow the Company to reduce its Board and committee memberships to a level commensurate with its current market capitalisation. Furthermore, the non-executive directors have agreed to accept a reduction in fees, back dated to 1 March 2013 . Corporate costs will also benefit from a decrease of eight head office employees during 2013, representing approximately half of the corporate function. CONTACT: Avocet Mining PLC David Cather CEO Tel: +44 20 7766 7676 Bell Pottinger Daniel Thole Tel: +44 20 7861 3232 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 Bors (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 4.7 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 Belahouro 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. Development of a CIL processing plant to exploit the remaining 2.4 million ounces will also be considered. [Editorial queries for this story should be sent to email@example.com ] ((Comments on this story may be sent to firstname.lastname@example.org ))
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