TIDMAVM
RNS Number : 1798I
Avocet Mining PLC
26 August 2016
26 August 2016
Unaudited Interim Results for the six months
ended 30 June 2016
Avocet Mining PLC ("Avocet" or "the Company") today announces
its unaudited interim results for the six months ended 30 June
2016.
Highlights
-- Q2 2016 gold production 21,086 ounces at cash cost of US$903
per ounce, compared with 20,528 ounces at US$925 per ounce in
Q1
-- H1 2016 gold production 41,614 ounces at a cash cost of
US$913 per ounce, compared with 39,859 ounces at US$1,021 per ounce
in H1 2015
-- EBITDA of US$6.9 million in H1 2016, and net cash generated
by operations of US$11.2 million, primarily used to meet loan
repayment obligations at Inata
-- Negotiations continue with financing partners for the Tri-K
project in Guinea and the Souma project in Burkina Faso, with
further announcements expected shortly
-- Short term cost pressures in H2 from additional waste
stripping and other factors. Production guidance is maintained at
75-85,000 ounces, at a cash cost of production of US$950-1,050 per
ounce
Six months ended Six months ended
30 June 2016 30 June 2015
KEY FINANCIAL METRICS Unaudited Unaudited
========================================================= ================= =================
Gold production (ounces) 41,614 39,859
========================================================= ================= =================
Average realised gold price (US$/oz) 1,213 1,203
========================================================= ================= =================
Total cash production cost (US$/oz) 913 1,021
========================================================= ================= =================
Profit/(loss) before tax and exceptional items (US$000) 3,891 (7,051)
========================================================= ================= =================
Profit/(loss) before tax (US$000) 3,891 (37,660)
========================================================= ================= =================
Earnings/(loss) per share (US cents per share) 1.72 (14.38)
========================================================= ================= =================
EBITDA (US$000) 6,864 (2,912)
========================================================= ================= =================
Net cash generated by operations (US$000) 11,197 8,949
========================================================= ================= =================
David Cather, Chief Executive Officer, commented:
"The first six months of the year have been positive for Avocet
and the gold mining sector as a whole. After a sustained period of
weakness, gold prices improved by 25% during H1 2016, leading to
improved margins for producers, and renewed investor interest. At
Inata, we managed to sustain production levels and reduce costs,
generating sufficient cashflow to meet the mine's financing
obligations. Meanwhile, discussions with potential finance partners
for the Tri-K project have moved towards resolution, and I hope to
be able to provide a full update in due course".
FOR FURTHER INFORMATION PLEASE CONTACT
Avocet Mining PLC Bell Pottinger J.P. Morgan Cazenove
Financial PR Consultants Corporate Broker
================= ========================= =========================
David Cather, CEO Daniel Thöle Michael Wentworth-Stanley
Jim Wynn, FD
----------------- ------------------------- -------------------------
+44 20 3709 2570 +44 20 3772 2555 +44 20 7742 4000
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. The
Inata Gold Mine poured its first gold in December 2009 and produced
74,755 ounces of gold in 2015. Other assets in Burkina Faso include
five 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.
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 the CIL processing method. An exploitation
permit was awarded for Tri-K on 27 March 2015.
CHIEF EXECUTIVE OFFICER'S REVIEW
The last few years have been extremely tough for the mining
sector as a whole, with junior gold miners such as Avocet
particularly affected by market conditions. By the end of 2015, the
gold price had fallen from a peak of approximately US$1,900 per
ounce in September 2011 to just US$1,062 per ounce. This fall put a
great deal of pressure on Inata, the Company's operating mine in
Burkina Faso (whose 2015 cash costs had been US$1,052 per ounce),
and reduced the NPV of the Company's Tri-K project in Guinea and
its Souma project in Burkina Faso at a time when investment was
sought for both.
These pressures were felt across the industry as a whole, with
producers often responding by high-grading operations, while
investors restricted their focus onto larger-scale projects with
more certain returns. For Avocet, this meant that refinancing was
particularly difficult, and expensive.
A business review was announced in December 2013, which aimed to
attract investment in, or realise value from, the Group's assets.
However, the mining sector in 2014 and 2015 proved extremely
uncompromising, and despite initial discussions with a number of
parties, little substantive progress was achieved.
Since the start of 2016, the market has begun to show tentative
signs of life, not least in response to an increase in the gold
price, which by 30 June 2016 had risen some 25%. A number of
financing and business combination transactions have also been
announced in the West African gold mining space in recent
months.
Burkina Faso - Inata Gold Mine and Souma Resource
At Inata, a number of measures had already been undertaken to
reduce the cost base in response to lower gold prices, and an
increase in spot rates provided a welcome benefit to gross margins.
The mine continues to face numerous challenges, ranging from
operational risks such as equipment availability and variability of
recovery levels, to supply chain concerns such as the ongoing
exposure to key creditors withholding critical supplies, as well as
the fact that the mine has trade creditors of US$31.4 million and
financial liabilities of US$31.5 million.
However, during the first six months of the year, the mine
produced 41,614 ounces at a cash cost of US$913 per ounce, and
generated Net Cashflow from Operations of some US$11.0 million,
with which it was able to reduce the mine's financial
indebtedness.
This represents a considerable achievement by the Inata team,
and there is cause for cautious optimism for the future of
Inata.
At the end of 2015, the life of mine had been expected to come
to an end in 2017, however work undertaken in the year has extended
this to 2019. Satellite deposits also exist which, for a modest
amount of drilling, may provide further mill feed to extend this
mine life still further.
However, costs are expected to be higher in the second half of
2016. This is a result of a combination of factors but particularly
waste mining volumes increasing in order to access high grade ore
at depth in North pit. This ore is known to be carbonaceous and
will therefore require processing through the Carbon Blinding
Circuit ('CBC') which will in turn require additional reagents and
an increase in power. There will also be an increase in ore haulage
costs from the newly opened Filio pits which are 7-8 kilometres
from the process plant. Therefore in spite of H1 cash costs of
US$913 per ounce, the overall cash cost forecast for the year of
US$950-1050 per ounce remains unchanged, together with production
guidance of 75-85,000.
The Souma deposit, a 0.7 million ounce resource located
approximately 20km to the east of Inata, is likely to be a source
of ore which could be trucked to the plant for processing. The
Company is currently in advanced discussions with financiers with a
view to securing the US$5-7 million needed to complete the drilling
and test work to support the feasibility study needed for a mining
permit application.
Tri-K project in Guinea
In the 2015 Annual Report released in April, we explained that
the Company was in ongoing talks with regard to financing the Tri-K
project in Guinea. Under the Guinean Mining Code, there are some
important deadlines in relation to the mining permit, which was
awarded on 27 March 2015: the Government has the right to impose
penalties of approximately US$100k per month if construction has
not commenced within 12 months of the date of the award of the
permit; and if construction has not commenced after 18 months (ie
by 27 September 2016), the Government has the right to withdraw the
permit.
Despite the approach of this deadline, the Company is in
advanced talks with interested parties and expects to be able to
announce a deal before this time. The Government has been kept
abreast of all discussions in this regard, and have indicated their
support for the transaction details under consideration.
The Company is aware that not only will a financing deal on
Tri-K provide a road map to developing the project into an
operating mine, but it will also ensure that the Company is able to
retain its interests in Guinea, which are secured in favour of an
affiliate of Elliott Management. The loss of these assets could
therefore have a significant and negative effect on the Going
Concern of the Company - see Note 1 to the accounts for further
details.
Further details regarding these discussions will be announced in
the coming weeks.
Corporate and head office
During the first half of the year, Inata remained unable to
provide funding to pay for head office and corporate costs, largely
due to the need to service its own external debt obligations, in
particular a short-term loan with Coris bank entered into in
November 2015. As a consequence, the Company was forced to obtain
an additional US$1.5 million of debt funding from an affiliate of
its largest shareholder, Elliott Management, bringing the total
balance owed to Elliott to US$25.0 million at 30 June 2016.
As the majority of this funding is secured over the Company's
Guinean assets, it is clear that the successful conclusion of the
Tri-K financing negotiations is key to addressing this debt. In the
near term, a portion of any cash consideration from the disposal
may be applied to reducing the debt; longer term, it is anticipated
that the Company will realise value from its interest in a larger,
successful gold mine, either through a disposal of its residual
interest, or preferably through access to a portion of the
cashflows from a producing asset.
The repayment of the Coris loan by July 2016 meant that,
although the final tranche of Elliott funding of US$200k was drawn
down on 25 July 2016, the Company expects to be able to draw
funding from the Inata mine to cover head office and corporate
costs until the completion of the Tri-K transaction, details of
which are expected to be announced before the end of September.
2016 has also been a busy year for the Company in terms of
corporate actions, with a number of matters being put to
shareholders for approval. Some of these have been driven by
compliance, including the need to approve the adoption of FRS 101
in the 2015 accounts, and the share consolidation exercise chiefly
driven by the need to comply with minimum share price requirements
of the Oslo Børs.
Conclusion
The Company has continued to operate during a difficult period
which has now lasted for several years. Much work remains to be
completed, including financing negotiations over the Tri-K project
in Guinea and the Souma deposit in Burkina Faso, while the Inata
gold mine remains exposed to a number of operational and supply
chain risks. With a US$25 million loan repayable on demand due to
Elliott Management, the Company remains in an uncertain financial
position, particularly in the event of the Tri-K transaction not
reaching a successful conclusion.
There is, however, cause for cautious optimism in all these
areas, particularly if the gold price remains strong. 2016 has so
far proved a challenging but successful year, and we hope this
progress will continue for the rest of the year and beyond.
David Cather
Chief Executive Officer
INATA OPERATIONAL REVIEW
Gold production and cash costs
2015 2016
-------------------------
Q1 Q2 Q3 Q4 FY 2015 Q1 Q2 H1
Ore mined (k tonnes) 393 397 233 290 1,313 310 397 707
Waste mined (k tonnes) 1,420 3,563 4,349 3,494 12,826 2,993 2,855 5,848
Total mined (k tonnes) 1,813 3,960 4,582 3,784 14,139 3,303 3,252 6,555
Ore processed (k tonnes) 437 471 448 509 1,865 544 537 1,081
Average head grade (g/t) 2.5 2.27 1.5 1.22 1.85 1.21 1.32 1.27
Process recovery rate 52% 67% 72% 89% 67% 91% 93% 92%
------- ------- ------- ------- ======== ------- ------- -------
Gold Produced (oz) 17,011 22,848 17,517 17,379 74,755 20,528 21,086 41,614
Cash costs (US$/oz)
Mining 262 313 362 335 318 291 298 294
Processing 540 408 486 430 462 375 347 361
Administration 236 155 188 251 203 184 163 173
Royalties 75 76 71 78 75 75 95 85
------- ------- ------- ------- ======== ------- ------- -------
1,113 952 1,107 1,094 1,058 925 903 913
In view of the Inata mine's excellent safety record in the past,
it was particularly regrettable that the first half of 2016 saw a
lost time injury to an employee, with another lost time injury
occurring in July 2016. In order to reinvigorate the safety
culture, a programme of re-inducting all employees and contractors
on the company's safety protocols and procedures has been
implemented.
Gold production of 41,614 ounces was achieved during the first
half of 2016. The overall recovery of 93% was as a result of the
ore treated being exclusively oxide and relatively soft in nature
which afforded high throughput rates in the mill. Head grades were
higher than Q1 at 1.32g/t, however ore mined needed to be
supplemented by blending marginal grade stockpiled ore of circa
0.8g/t into the mill.
Cash costs have remained on a downward trend with the average
cost of production of US$913 per ounce being achieved. The second
half of the year, however, is expected to see higher costs as a
result of significant waste stripping taking place in North pit to
access the remaining high grade but highly variable carbonaceous
ores, and the longer haul routes for ore to be transported from the
newly opened but remote Filio pit, which is located some 8
kilometres from the mill.
The guidance for the full year in 2016 remains at 75-85,000
ounces, with cash costs of between US$950 and US$1,050 per
ounce.
FINANCIAL RESULTS FOR THE SIX MONTHSED 30 JUNE 2016
Total gold sold in H1 2016 amounted to 42,752 ounces, compared
with 39,740 in the first half of 2015. This factor, combined with
average realised gold prices of US$1,213 per ounce being slightly
higher than H1 2015 (US$1,203 per ounce), translated into an
increase in revenue of US$4.0 million, or 8%, from US$47.8 million
in H1 2015 to US$51.8 million in the first half of 2016.
Gross margin increased from a US$6.6 million loss in H1 2015 to
a profit of US$7.6 million in H1 2016, partly due to the increase
in revenues mentioned above, but also partly due to cost reduction
measures at the Inata mine, as well as the reduction in
depreciation charge resulting from the impairments applied to the
mine's assets in 2015.
The impairments of US$30.1 million recognised in H1 2015 were
not repeated in H1 2016, as no triggers for impairment were
identified.
EBITDA, an indicator of underlying cash generation which
excludes working capital movements, showed a profit of US$6.9
million compared to a loss in H1 2015 of US$2.9 million. However,
net cash generated by operating activities, after interest and tax,
was US$9.4 million, compared to US$6.7m in H1 2015, with the
variance reflecting working capital movements during the respective
periods.
With the focus on cash conservation, capex was kept low in the
period at just US$0.1 million (H1 2015: US$2.7 million). No
exploration costs were capitalised during the period.
Two new Elliott loans of US$0.75 million and US$0.6 million were
drawn down between January and June.
Capital repayments under the Ecobank loan facility totalled
US$5.0 million. Capital repayments under the Coris Bank loan
facility totalled US$7.1 million, while the Ecobank VAT facility
payments (net of further advances) totalled US$1.7 million.
On 9 June 2016 the shareholders approved a 10:1 consolidation of
the Company's shares, in order to comply with minimum share price
requirements of the Oslo Børs.
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
CONDENSED CONSOLIDATED INCOME STATEMENT
For the six months ended 30 June 2016
Six months ended
Note 30 June 2016 30 June 2015
Unaudited Unaudited
=============================================== ===== ============= =============
US$000 US$000
Revenue 2 51,845 47,809
Cost of sales 2 (44,207) (54,374)
=============================================== ===== ============= =============
Gross profit/(loss) 7,638 (6,565)
=============================================== ===== ============= =============
Administrative expenses (954) (1,451)
Share based payments (12) (206)
Impairment of mining and exploration assets 3,8 - (30,609)
Profit/(loss) from operations 6,672 (38,831)
=============================================== ===== ============= =============
Finance items
Exchange losses/(gains) (160) 4,681
Finance expense (2,621) (3,510)
Profit/(loss) before taxation 3,891 (37,660)
=============================================== ===== ============= =============
Analysed as:
Profit/(loss) before taxation and exceptional
items 3,891 (7,051)
Exceptional items 3 - (30,609)
=============================================== ===== ============= =============
Profit/(loss) before taxation 3,891 (37,660)
=============================================== ===== ============= =============
Taxation (79) 4,595
=============================================== ===== ============= =============
Profit/(loss) for the period 3,812 (33,065)
=============================================== ===== ============= =============
Attributable to:
Equity shareholders of the parent company 3,227 (30,119)
Non-controlling interest 585 (2,946)
=============================================== ===== ============= =============
3,812 (33,065)
=============================================== ===== ============= =============
Earnings per share
- basic (cents per share) 5 1.72 (14.38)
- diluted (cents per share) 5 1.72 (14.38)
EBITDA (1) 4 6,864 (2,912)
=============================================== ===== ============= =============
(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 COMPREHENSIVE INCOME
For the six months ended 30 June 2016
Six months ended
30 June 2016 30 June 2015
=========================================== ====== ============= =============
Note Unaudited Unaudited
=========================================== ====== ============= =============
US$000 US$000
Profit/(loss) for the period 3,812 (33,065)
Total comprehensive income for the period 3,812 (33,065)
=================================================== ============= =============
Attributable to:
Equity holders of the parent company 3,227 (30,119)
Non-controlling interest 585 (2,946)
=================================================== ============= =============
Total comprehensive income for the period 3,812 (33,065)
=================================================== ============= =============
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
At 30 June 2016
30 June 2016 31 December 2015
Note Unaudited Audited
========================================== ===== ============= =================
US$000 US$000
Non-current assets
Intangible assets 6 17,206 17,206
Property, plant and equipment 7 1,649 1,692
========================================== ===== ============= =================
18,855 18,898
Current assets
Inventories 9 14,758 17,274
Trade and other receivables 10 4,622 6,648
Cash and cash equivalents - unrestricted 11 377 1,934
Cash and cash equivalents - restricted 11 3,927 3,922
========================================== ===== ============= =================
23,684 29,778
Current liabilities
Trade and other payables 43,786 42,681
Other financial liabilities 12 43,169 45,973
========================================== ===== ============= =================
86,955 88,654
Non-current liabilities
Other financial liabilities 12 13,377 21,960
Deferred tax liabilities 13 1,749 1,670
Other liabilities 7,055 6,813
========================================== ===== ============= =================
22,181 30,443
========================================== ===== ============= =================
Net liabilities (66,597) (70,421)
========================================== ===== ============= =================
Equity
Issued share capital 14 17,072 17,072
Share premium 146,391 146,391
Other reserves 17,895 17,895
Retained earnings (211,693) (214,932)
Total equity attributable to the parent (30,335) (33,574)
Non-controlling interest (36,262) (36,847)
========================================== ===== ============= =================
Total equity (66,597) (70,421)
========================================== ===== ============= =================
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Six months ended 30 June 2016
=======================================================================================================
Total
attributable
Share Share Other Retained to the Non-controlling Total
capital premium reserves earnings parent interest equity
================ ======== ======== ========= ========== ============= ================ =========
US$000 US$000 US$000 US$000 US$000 US$000 US$000
At 31 December
2015 (Audited) 17,072 146,391 17,895 (214,932) (33,574) (36,847) (70,421)
Profit for the
period - - - 3,227 3,227 585 3,812
================ ======== ======== ========= ========== ============= ================ =========
Total
comprehensive
income for the
period - - - (211,705) (30,347) (36,262) (66,609)
================ ======== ======== ========= ========== ============= ================ =========
Share based
payments - - - 12 12 - 12
================ ======== ======== ========= ========== ============= ================ =========
At 30 June 2016
(Unaudited) 17,072 146,391 17,895 (211,693) (30,335) (36,262) (66,597)
================ ======== ======== ========= ========== ============= ================ =========
Six months ended 30 June 2015
=======================================================================================================
Total
attributable
Share Share Other Retained to the Non-controlling Total
capital premium reserves earnings parent interest equity
================ ======== ======== ========= ========== ============= ================ =========
US$000 US$000 US$000 US$000 US$000 US$000 US$000
At 31 December
2014 (Audited) 17,072 146,391 17,895 (169,614) 11,744 (32,874) (21,130)
Loss for the
period - - - (30,119) (30,119) (2,946) (33,065)
Total
comprehensive
income for the
period - - - (199,733) (30,119) (2,946) (33,065)
================ ======== ======== ========= ========== ============= ================ =========
Share based
payments - - - 206 206 - 206
================ ======== ======== ========= ========== ============= ================ =========
At 30 June 2015
(Unaudited) 17,072 146,391 17,895 (199,527) (18,169) (35,820) (53,989)
================ ======== ======== ========= ========== ============= ================ =========
CONDENSED CONSOLIDATED CASH FLOW STATEMENT
For the six months ended 30 June 2016
Six months ended
30 June 2016 30 June 2015
============================================= ===== ============= =============
Note Unaudited
============================================= ===== ============================
US$000 US$000
Cash flows from operating activities
Profit/(loss) for the period 3,812 (33,065)
Adjusted for:
Depreciation of non-current assets 2,7 192 5,310
Impairment of mining and exploration
assets 8 - 30,609
Share based payments 12 206
Taxation in the income statement 13 79 (4,595)
Non-operating items in the income statement 3,892 (2,460)
============================================= ===== ============= =============
7,987 (3,995)
Movements in working capital
Decrease in inventory 2,516 7,319
Decrease in trade and other receivables 1,817 4,273
(Decrease)/increase in trade and other
payables (1,123) 1,352
============================================= ===== ============= =============
Net cash generated by operations 11,197 8,949
Interest paid (1,633) (2,213)
Taxation paid (167) -
============================================= ===== ============= =============
Net cash generated by operating activities 9,397 6,736
============================================= ===== ============= =============
Cash flows from investing activities
Payments for property, plant and equipment 7 (149) (2,663)
Exploration and evaluation expenses - -
============================================= ===== ============= =============
Net cash used in investing activities (149) (2,663)
============================================= ===== ============= =============
Cash flows from financing activities
Proceeds from new loans 12 1,350 3,000
Net loan repayments 12 (11,998) (6,776)
Payments in respect of finance lease 12 (132) (288)
============================================= ===== ============= =============
Net cash used in financing activities (10,780) (4,064)
============================================= ===== ============= =============
Net cash movement (1,532) 9
Exchange gains/(losses) (20) 21
============================================= ===== ============= =============
Total (decrease)/increase in cash and
cash equivalents (1,552) 30
============================================= ===== ============= =============
Cash and cash equivalents at start of
the period 5,856 4,816
============================================= ===== ============= =============
Cash and cash equivalents at end of period 4,304 4,846
============================================= ===== ============= =============
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 2015, 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 2016 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
2015. 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 2015, 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 2016. These have not had a material impact on the
Group.
The Company's statutory financial statements for the year ended
31 December 2015 are available on the Company's website
www.avocetmining.com. The auditor's report on those financial
statements was qualified with respect to physical stock contained
in ore stockpile, in circuit and in finished goods of $11.5m
included within inventory of$17.3m as disclosed in note 18 of the
Company's statutory financial statements. The company also received
an emphasis of matter relating to going concern and the carrying
value of the Tri-k asset, refer to notes 1 and15 of the Company's
statutory financial statements.
Going Concern
Elliott Loans
The Company has debts totaling US$25.0 million which it owes to
Manchester Securities Corp, an affiliate of Elliott Management at
30 June 2016 (see note 12).
Since 2014, the cashflow shortages resulting from gold prices
and lower production at the Inata mine meant that the Company has
relied primarily on loan financing from Elliott in order to meet
its running costs of its head office and Guinea administrative
functions. During 2016, the Company drew down new loans totaling
US$1.55 million (of which US$1.35 million was during the first 6
months) for such purposes.
These loans represent short-term facilities with high interest
rates (between 11% and 14%). All of these loans are repayable on
demand, and if repayment was requested by Elliott, the Company
would be unlikely to be able to raise the external finance it would
need to settle these obligations.
However the Company believes that the most likely means that
these loans will be repaid is through a financing deal in respect
of the Tri-K project, over which the majority of the loans are
secured. The terms of such a deal remain subject to contract (see
below), however are expected to result in a combination of a cash
payment together with an earn-in, in return for Avocet ceding a
majority interest in the project to a third party.
This would allow a portion of the loan to be repaid immediately,
with the balance potentially able to be repaid either out of the
cash generated by an asset in production at the Tri-K site, or a
subsequent sale of the residual interest in the project.
Provided Elliott believe that the prospects of repayment under
the existing structure are reasonable, Avocet's management believe
that they will not exercise their right to demand the repayment of
the loans, as this might have a damaging effect on the Company's
assets, and prospects, in both Guinea and Burkina Faso.
However there can be no certainty that Elliott will remain
supportive, particularly if the discussions around Tri-K become
protracted or less likely to lead to a satisfactory outcome. In the
event that their support was withdrawn, the Company would need to
agree funding from an alternative source at short notice, which is
likely to be extremely challenging, if indeed possible at all. If
Elliot exercises its rights to demand repayment and the loans
cannot be refinanced, the Group would cease to be a going concern
and would likely enter an insolvency process.
Ability to secure financing for Tri-K
Since 2013, the Company has been actively pursuing funding for
its Tri-K project in Guinea. A Feasibility Study for this project
was submitted in September 2013, which outlined a heap leach
operation with a capex of approximately US$88 million. Since then,
work has been undertaken to revise the design of the project with
the result that the capex estimation has now reduced to
approximately US$60 million.
A mining permit for the project was awarded on 27 March
2015.
Financing discussions in 2014 and 2015 were made more
challenging by the slump in the mining sector, which resulted in
many institutions restricting their focus to larger and more
profitable projects, in jurisdictions with a lower perceived risk.
In addition, the ebola crisis in West Africa meant that many
potential investors were unable or unwilling to undertake site
visits necessary for their due diligence procedures.
Nevertheless, interest in the project picked up in the latter
part of 2015 and into 2016, buoyed by an increase in the gold
price.
At the present time, the Company is in advanced discussions with
a preferred party, with a view to concluding a partial disposal of
the asset in return for a consideration including a cash element
and an earn-in element. Such a deal would leave Avocet with a
minority share in an expanded project that would be ready to
commence construction.
However, until a deal has been formally concluded with a
preferred financing partner, there can be no guarantee that the
Tri-K project will be funded.
Loss of Tri-K permits
The Tri-K mining permit was awarded on 27 March 2015. Under
Article 34 of the Guinea mining code, if construction of the mine
has not commenced within 12 months of the date of the award, the
government has the right to impose penalties, and if construction
has still not commenced after a further 6 months, the government
may withdraw the permit.
No such construction activity has commenced in respect of this
permit, and there is therefore a risk that the Company may incur
penalties (of approximately US$100k per month of delay) and even
lose the permit after 27 September 2016.
The Company has been in regular contact with the Guinean
authorities with regard to this matter, and in particular has
pointed to the delays in attracting the necessary financing
resulting from the global slump in the mining sector, as well as
the 2014-2015 ebola crisis (which prevented potential investors
visiting the site).
Senior members of the Guinean government have expressed
understanding, and have indicated that they would remain
sympathetic provided Avocet could demonstrate progress with regard
to securing financing for the project (see above).
The government has been actively involved in discussions with
Avocet's preferred interested party, and has given indications that
provided a transaction can be agreed before 27 September 2016, it
would not exercise its right to withdraw the permits after this
date.
The Company believes it will be in a position to agree and
announce such a transaction by this date. However, if a delay were
introduced for any reason, the Company would need to renegotiate
with the Government of Guinea. Under such circumstances, there
could be no guarantees that the Government would not exercise its
right to withdraw the permit which would likely have a significant
and negative effect on the Group's going concern position.
Gold price
The profitability of both the Tri-K project and the Inata gold
mine (including surrounding deposits) depends on the gold
price.
The cash costs at Inata during 2015 and into 2016 have ranged
between US$900 and US$1,100 per ounce, and therefore a modest fall
in gold prices from current levels would result in margins becoming
extremely tight, which would make the servicing of the mine's debts
and creditors challenging.
The Company has no control over the gold price, and is not in a
position to enter into any hedging arrangements in view of its
financial difficulties.
The rise in the gold price since January 2016, however, has
given cause to believe that the decline in spot prices seen between
2012 and 2015 may be at an end.
Nevertheless, it remains clear that a sustained fall in the gold
price would put severe pressure on the operations at Inata, and
would also threaten the economic viability of the Tri-K project -
as well as the Avocet Group as a whole.
Support from Inata's creditors
The Inata gold mine at the end of June 2016 had approximately
US$31.4 million in trade creditors, and a further US$31.5 million
in bank and other debt facilities. Many of the balances owing to
suppliers are overdue, and the mine has faced a number of demands
to bring balances within credit limits.
There can be no guarantee that one or more creditors might not
refuse to allow critical supplies to be delivered to the mine, or
might otherwise initiate legal action that could disrupt
operations.
Inata's management have spent a considerable amount of time
discussing the mine's predicament with key suppliers, pointing to
the fact that the best means to ensure creditors are repaid is to
allow supplies to continue to be made, and for the mine to produce
gold.
The recent uptick in gold prices, together with improved
production plans and lower operating costs, are encouraging
developments for Inata's creditors and wider stakeholders, however
production challenges and an increase in costs are anticipated in
the second half of 2016 which may increase creditor pressure.
Souma permit
The future of the Inata gold mine beyond 2018 will rely upon the
successful completion of a Feasibility Study for the Souma deposit,
located 20km east of the Inata plant.
The work needed to complete the study, which is expected to cost
between US$5-7 million, must be completed in order for an
application for a mining permit to be submitted by July 2018.
The Company is currently in negotiation with its financiers with
regards to the funding of this activity. However, until any
financing package is negotiated, there can be no guarantee that
this funding will be made available.
Conclusion
The above areas of risk represent material uncertainties that
may cast significant doubt over the ability of the Group to
continue as a Going Concern and that it may be unable to realise
all of its assets and discharge all of its liabilities in the
normal course of business. Nevertheless, the Directors have a
reasonable expectation that these risks can be managed, or will not
come to pass, and accordingly the Financial Statements have been
prepared on a Going Concern basis and do not include the
adjustments that would result if the Group were unable to continue
as a Going Concern.
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 2015, with the exception
of those highlighted in the exceptional items and impairments notes
to these financial 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
yearend were set out in detail in the Directors and Governance
section of the Annual Report 2015 (pages 14-16), and have not
changed significantly since. Key headline risks relate to the
following:
-- Withdrawal of financial support by Elliott Management
-- Ability to complete financing transaction in respect of Tri-K
-- Loss of Tri-K permits
-- Gold prices
-- Adverse action taken by creditors of the Inata mine
-- Loss of Souma permit
-- Operating issues at Inata
-- Civil unrest and terrorism
The Annual Report 2015 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).
For the six months ended 30 June 2016 Burkina
(unaudited) UK Faso Guinea Total
========================================== ======== ========= ======= =========
US$000 US$000 US$000 US$000
INCOME STATEMENT
Revenue - 51,845 - 51,845
========================================== ======== ========= ======= =========
Cost of Sales - (43,689) (518) (44,207)
========================================== ======== ========= ======= =========
Cash production costs:
- mining - (12,250) - (12,250)
- processing - (15,013) - (15,013)
- overheads - (7,205) - (7,205)
- royalties - (3,550) - (3,550)
========================================== ======== ========= ======= =========
- (38,018) - (38,018)
Changes in inventory - (3,516) - (3,516)
Expensed exploration and other
cost of sales (a) - (2,006) (475) (2,481)
Depreciation and amortisation (b) - (149) (43) (192)
=================================== ===== ======== ========= ======= =========
Gross profit/(loss) - 8,156 (518) 7,638
Administrative expenses and share
based payments (954) - - (954)
Share based payments (12) - - (12)
(Loss)/profit from operations (966) 8,156 (518) 6,672
Exchange loss (21) (139) - (160)
Net finance items (928) (1,693) - (2,621)
========================================== ======== ========= ======= =========
(Loss)/profit before taxation (1,915) 6,324 (518) 3,891
Taxation - (79) - (79)
========================================== ======== ========= ======= =========
(Loss)/profit for the period (1,915) 6,245 (518) 3,812
========================================== ======== ========= ======= =========
Attributable to:
Equity shareholders of parent
company (1,915) 5,660 (518) 3,227
========================================== ======== ========= ======= =========
Non-controlling interest - 585 - 585
Loss/(profit) for the period (1,915) 6,245 (518) 3,812
========================================== ======== ========= ======= =========
EBITDA (c) (966) 8,305 (475) 6,864
=================================== ===== ======== ========= ======= =========
(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.
Burkina
At 30 June 2016 (unaudited) UK Faso Guinea Total
================================= ========= ========= ======= ==========
US$000 US$000 US$000 US$000
STATEMENT OF FINANCIAL POSITION
Non-current assets - - 18,855 18,855
Inventories - 14,703 55 14,758
Trade and other receivables 222 4,281 119 4,622
Cash and cash equivalents 200 4,072 32 4,304
Total assets 422 23,056 19,061 42,539
================================== ========= ========= ======= ==========
Current liabilities (26,678) (59,991) (286) (86,955)
Non-current liabilities (164) (22,017) - (22,181)
================================== ========= ========= ======= ==========
Total liabilities (26,842) (82,008) (286) (109,136)
================================== ========= ========= ======= ==========
Net (liabilities)/assets (26,420) (58,952) 18,775 (66,597)
================================== ========= ========= ======= ==========
For the six months ended 30 June 2016 (unaudited) UK Burkina Faso Guinea Total
======================================================== ===== ======== ============= ======= =========
US$000 US$000 US$000 US$000
CASH FLOW STATEMENT
(Loss)/profit for the period (1,915) 6,245 (518) 3,812
Adjustments for non-cash and non-operating items (d) 1,152 2,709 314 4,175
Movements in working capital (1,184) 4,128 266 3,210
=============================================================== ======== ============= ======= =========
Net cash (used in)/generated by operations (1,947) 13,082 62 11,197
Net interest paid - (1,633) - (1,633)
Tax paid (167) - (167)
Purchase of property, plant and equipment - (149) - (149)
Financing - loan drawdowns 1,350 - - 1,350
Financing costs - loan repayments - (11,998) - (11,998)
Other cash movements (e) 624 (622) (154) (152)
======================================================== ===== ======== ============= ======= =========
Total increase/(decrease) in cash and cash equivalents 27 (1,487) (92) (1,552)
=============================================================== ======== ============= ======= =========
(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.
For the six months ended 30 June 2015 Burkina
(unaudited) UK Faso Guinea Total
============================================= ======== ========= ======= =========
US$000 US$000 US$000 US$000
INCOME STATEMENT
Revenue - 47,809 - 47,809
============================================= ======== ========= ======= =========
Cost of Sales - (53,764) (610) (54,374)
============================================= ======== ========= ======= =========
Cash production costs:
- mining - (11,607) - (11,607)
- processing - (18,508) - (18,508)
- overheads - (7,555) - (7,555)
- royalties - (3,013) - (3,013)
============================================= ======== ========= ======= =========
- (40,683) - (40,683)
Changes in inventory - (6,691) - (6,691)
Expensed exploration and other
cost of sales (a) - (1,169) (521) (1,690)
Depreciation and amortisation (b) - (5,221) (89) (5,310)
====================================== ===== ======== ========= ======= =========
Gross loss - (5,955) (610) (6,565)
Administrative expenses (1,451) - - (1,451)
Share based payments (206) - - (206)
Impairment of mining and exploration
assets - (30,609) - (30,609)
Loss from operations (1,657) (36,564) (610) (38,831)
Exchange gains 47 4,634 - 4,681
Net finance items (1,107) (2,403) - (3,510)
============================================= ======== ========= ======= =========
Loss before taxation (2,717) (34,333) (610) (37,660)
Taxation (19) 4,614 - 4,595
============================================= ======== ========= ======= =========
Loss for the period (2,736) (29,719) (610) (33,065)
============================================= ======== ========= ======= =========
Attributable to:
Equity shareholders of parent
company (2,736) (26,773) (610) (30,119)
============================================= ======== ========= ======= =========
Non-controlling interest - (2,946) - (2,946)
Loss for the period (2,736) (29,719) (610) (33,065)
============================================= ======== ========= ======= =========
EBITDA (c) (1,657) (734) (521) (2,912)
====================================== ===== ======== ========= ======= =========
(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.
Burkina
At 30 June 2015 (unaudited) UK Faso Guinea Total
================================= ========= ========= ======= ==========
US$000 US$000 US$000 US$000
STATEMENT OF FINANCIAL POSITION
Non-current assets - - 18,934 18,934
Inventories - 31,386 65 31,451
Trade and other receivables 256 3,461 42 3,759
Cash and cash equivalents 166 4,552 128 4,846
Total assets 422 39,399 19,169 58,990
================================== ========= ========= ======= ==========
Current liabilities (22,796) (55,823) (332) (78,951)
Non-current liabilities - (34,028) - (34,028)
================================== ========= ========= ======= ==========
Total liabilities (22,796) (89,851) (332) (112,979)
================================== ========= ========= ======= ==========
Net (liabilities)/assets (22,374) (50,452) 18,837 (53,989)
================================== ========= ========= ======= ==========
For the six months ended 30 June 2015 (unaudited) UK Burkina Faso Guinea Total
======================================================== ===== ======== ============= ======= =========
US$000 US$000 US$000 US$000
CASH FLOW STATEMENT
Loss for the period (2,736) (29,719) (610) (33,065)
Adjustments for non-cash and non-operating items (d) 1,285 27,809 (24) 29,070
Movements in working capital (2,181) 14,224 901 12,944
=============================================================== ======== ============= ======= =========
Net cash (used in)/generated by operations (3,632) 12,314 267 8,949
Net interest paid - (2,213) - (2,213)
Purchase of property, plant and equipment - (2,663) - (2,663)
Financing costs - loan drawdowns 3,000 - - 3,000
Financing costs - loan repayments (6,776) - (6,776)
Other cash movements (e) 653 (742) (178) (267)
======================================================== ===== ======== ============= ======= =========
Total (decrease)/increase in cash and cash equivalents 21 (80) 89 30
=============================================================== ======== ============= ======= =========
(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.
3. Exceptional items
30 June 2016 (six months) Unaudited 30 June 2015
(six months)
Unaudited
=================================== ===================================== ==============
US$000 US$000
Impairment of Inata mining assets - (30,609)
=================================== ===================================== ==============
Exceptional loss - (30,609)
=================================== ===================================== ==============
Impairments of Inata mining assets at 30 June 2016
No impairments were recognised during the six months to 30 June
2016.
Impairments of Inata mining assets at 30 June 2015
In June 2015, Avocet recognised a US$30.6 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.
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.
30 June 2016 30 June 2015
(six months) (six months)
Unaudited Unaudited
US$000 US$000
Profit/(loss) before taxation 3,891 (37,660)
Exceptional items - 30,609
Depreciation 192 5,310
Exchange loss/(gain) 160 (4,681)
Net finance expense 2,621 3,510
=============================== ============== ==============
EBITDA 6,864 (2,912)
=============================== ============== ==============
5. Earnings per Share
Earnings per share are analysed in the table below.
30 June 2016 (six months) 30 June 2016 (six months)
Unaudited Unaudited
============================================================== ========================== ==========================
Shares Shares
Weighted average number of shares in issue for the period
- number of shares with voting rights 187,345,174 209,054,701
- effect of share options in issue - -
============================================================== ========================== ==========================
- total used in calculation of diluted earnings per share 187,345,174 209,054,701
============================================================== ========================== ==========================
US$000 US$000
Earnings per share
Profit/(loss) for the period 3,812 (33,065)
Less non-controlling interest 585 2,946
============================================================== ========================== ==========================
Profit/(loss) for the period attributable to equity
shareholders of the parent 3,227 (30,119)
============================================================== ========================== ==========================
Earnings/(loss) per share
- basic (cents per share) 1.72 (14.40)
- diluted (cents per share) 1.72 (14.40)
============================================================== ========================== ==========================
The number of shares with voting rights reduced in the period as
a result of the 10:1 share consolidation which came into effect on
10 June 2016. There were no other movements in share capital in the
period.
As the strike price of all share options in issue was below the
market share price, in calculating the diluted earnings per share
the effect of share options in issue has been ignored for the 6
months ended 30 June 2016 and for the 6 months ended 30 June
2015.
6. Intangible assets
Intangible assets represent deferred exploration expenditure.
The movement in the period is analysed below:
Burkina Faso Guinea Total
============================ ============ ====== ======
US$000 US$000 US$000
At 1 January 2016 (audited) - 17,206 17,206
Movement - - -
============================ ============ ====== ======
At 30 June 2016 (unaudited) - 17,206 17,206
============================ ============ ====== ======
Intangible assets in Guinea consist of capitalised exploration
and development costs in respect of the Tri-K project. No costs
were capitalised during the six months to 30 June 2016.
The Company's exploration assets in Burkina Faso and Mali were
impaired to nil in previous periods.
7. Property, plant and equipment
Mining
=================================================
Mine Vehicles, Exploration
development Plant and fixtures, & property &
costs Machinery equipment plant Office equipment
=============== =============== =============== =============== ================
Six months ended
30 June 2016 Note Burkina Faso Burkina Faso Burkina Faso Guinea UK Total
================ ===== =============== =============== =============== =============== ================ =======
US$000 US$000 US$000 US$000 US$000 US$000
Cost
At 1 January 2016
(audited) 76,420 37,649 42,181 3,123 770 160,143
Additions 149 - - - 149
At 30 June 2016 76,420 37,798 42,181 3,123 770 160,292
(unaudited)
======================= =============== =============== =============== =============== ================ =======
Depreciation
At 1 January 2016
(audited) 76,420 37,649 42,181 1,431 770 158,451
Charge for the period - 149 - 43 - 192
At 30 June 2016 76,420 37,798 42,181 1,474 770 158,643
(unaudited)
======================= =============== =============== =============== =============== ================ =======
Net Book Value
At 30 June 2016 - - - 1,649 - 1,649
(unaudited)
======================= =============== =============== =============== =============== ================ =======
At 1 January 2016
(audited) - - - 1,692 - 1,692
8. Impairments
Impairments at 30 June 2016
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.
No impairments were recognised during the six months to 30 June
2016. In spite of a rally in the gold price, there remain
sufficient uncertainties around production and cashflows to suggest
that a reversal would not be appropriate at the present time. The
Company intends to complete a full Life of Mine production plan
before the year end, which will form the basis of the impairment
review at 31 December 2016.
Impairments at 30 June 2015
In June 2015, Avocet recognised a US$30.6 million impairment of
non-current mining assets in respect of the Inata Gold Mine driven
by changes to the Life of Mine Plan (LoMP).
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:
Assumption Judgements Sensitivity
---------------- ----------------------------------- ------------------------------------
Timing of cash Cash flows were forecast over An extension or shortening
flows the current life of the mine, of the mine life would have
which showed mining activities resulted in a corresponding
to continue until April 2017, increase or decrease in impairment,
with a further four months the extent of which it was
during which stockpiles would not possible to quantify.
be processed and rehabilitation
costs would be incurred.
---------------- ----------------------------------- ------------------------------------
Production costs Production costs were forecast A change of 10% in production
based on detailed assumptions, costs excluding royalties
including staff costs, consumption would have varied the pre-tax
of fuel and reagents, maintenance, impairment attributable by
and administration and support US$15.1 million(1) .
costs.
---------------- ----------------------------------- ------------------------------------
Gold price A gold price of US$1,100 per A change of 10% in the gold
ounce was assumed. price assumption would have
varied the pre-tax impairment
recognised in the year by
US$18.1 million(1) .
---------------- ----------------------------------- ------------------------------------
Discount rate A discount rate of 20% (pre-tax) An increase in the discount
was used in the VIU estimation, rate of five percentage points
based on estimations of Avocet's would have decreased the pre-tax
cost of capital, adjusted impairment recognised in the
for specific risk factors year by US$0.1million(1) .
related to Inata including
liquidity and production risks.
---------------- ----------------------------------- ------------------------------------
Gold production The life of mine plan in place A 10% change in ounces produced
at the time showed total gold would have varied the pre-tax
production of 0.21 million impairment recognised in the
ounces. year by US$18.1 million(1)
.
---------------- ----------------------------------- ------------------------------------
(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. Inventories
31 December
30 June 2016 2015
Unaudited Audited
US$000 US$000
Consumables 4,591 5,824
Stockpile 7,336 7,283
Work in progress 1,086 2,079
Finished goods 1,745 2,088
================== ============= ============
14,758 17,274
================== ============= ============
Work in progress reflects the cost of gold contained in circuit.
Finished goods represent gold that has been poured but has not yet
been sold, whether in transit or undergoing refinement.
10. Trade and other receivables
31 December
30 June 2016 2015
Unaudited Audited
US$000 US$000
Payments in advance to suppliers 1,509 1,182
VAT 1,900 4,415
Prepayments 1,213 1,051
================================== ============= ============
4,622 6,648
================================== ============= ============
11. Cash and cash equivalents
31 December
30 June 2016 2015
Unaudited Audited
US$000 US$000
Cash at bank and in hand - unrestricted 377 1,934
Cash at bank and in hand - restricted 3,927 3,922
========================================= ============= ============
Cash and cash equivalents 4,304 5,856
========================================= ============= ============
Included within the cash balance of US$4.3 million at 30 June
2016 was US$3.9 million of restricted cash (31 December 2015:
US$3.9 million), representing a US$2.1 million minimum account
balance held in relation to the Ecobank loan (31 December 2016:
US$2.1 million), and US$1.8 million (31 December 2015: US$ 1.8
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.
12. Other financial liabilities
30 June 31 December
2016 2015
Unaudited Audited
US$000 US$000
Current liabilities
Interest-bearing debt 42,500 44,987
Finance lease liabilities 605 732
Warrant on company equity 64 254
================================================ =========== ============
Total current other financial
liabilities 43,169 45,973
================================================ =========== ============
Non-current liabilities
Interest-bearing debt 12,637 21,073
Finance lease liabilities 740 887
================================================ =========== ============
Total non-current other financial liabilities 13,377 21,960
================================================ =========== ============
Total other financial liabilities 56,546 67,933
================================================ =========== ============
Interest-bearing debt
Interest-bearing debt includes US$25.0 million in respect of
loans due an affiliate of Elliott Management, the Company's largest
shareholder, US$26.3 million in respect of a loan due to Ecobank,
US$1.5 million in respect of a loan due to Coris Bank and US$2.3
million of net advances from Ecobank, secured on VAT recoverable
amounts which have been confirmed but not yet settled by the
Burkina Faso government.
Elliott loan
As at 30 June 2016, the Company had debts totalling US$25.0
million due to Manchester Securities Corp, an affiliate of Elliott
Management (the 'Elliott Loans'). The Elliott Loan balance is made
up of three individual loans, which are the subject of separate
loan agreements, with different interest rates and security, as
summarised in the table below:
First Loan Second Loan Third Loan Total
US$000 US$000 US$000 US$000
* Principal at 1 January 2016 15,000 1,500 2,450 18,950
* Accrued interest at 1 January 2016 3,300 169 114 3,583
=========================================== =========== ============ =========== =======
Total Elliott loans due at 1 January 2016 18,300 1,669 2,564 22,533
Loans drawn down in period - 1,350 - 1,350
Interest accrued in period 823 149 147 1,119
* Principal at 30 June 2016 15,000 2,850 2,450 20,300
* Accrued interest at 30 June 2016 4,123 318 261 4,702
=========================================== =========== ============ =========== =======
Total Elliott loans due at 30 June 2016 19,123 3,168 2,711 25,002
=========================================== =========== ============ =========== =======
The First Loan was entered into in March 2013 in order to
finance the feasibility study for the Tri-K project, as well as
corporate activities. Although due to be repaid on 31 December
2013, the financial circumstances of the Company at that time meant
that this repayment could not take place, and the loan, together
with accrued interest, remains outstanding. The loan is secured
over the Tri-K project, and has an interest rate of 11%.
The Second Loan was initially entered into as a US$1.5 million
unsecured facility in January 2015. This facility was increased by
US$750k in January 2016 and again by US$800k in April 2016 in order
to provide working capital for corporate and head office activities
during 2016. The last tranche of this facility was drawn down on 25
July 2016. This loan has an interest rate of 14%.
The Third Loan was entered into in August 2015 to repay an
unsecured facility of US$1.5 million, and to provide a further
US$700k of working capital for the second half of 2015. This loan
is secured over shares in various group subsidiaries, intra-group
loans, and gold inventory at the Inata mine. It carries an interest
rate of 12%.
As all three loans are on demand, they have been classified
under Current Liabilities.
Ecobank Inata loan
At 30 June 2016, a loan balance of US$26.3 million was due in
respect of a medium term loan facility with Ecobank Burkina Faso
("Ecobank"), which was drawn down in October 2013. The loan amount
was provided and held in FCFA, which is the legal currency of
Burkina Faso. The Ecobank loan was 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. Monthly debt service payments
of 0.6 billion FCFA (currently equal to US$1.1 million) comprising
interest and principal 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 (currently equal to US$2.1 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.
During H1 2016, payments totalling US$6.4 million were made in
respect of this loan, which was made up of US$5.0 million in loan
repayments, US$1.2 million of interest, and US$0.2 million in VAT
charged on interest. The weighted average interest on the loan
during the year was 8.0%.
The facility is recognised at amortised cost and the amounts due
within twelve months are included as current US$13.6 million with
the remaining balance of US$12.7 million included as
non-current.
Ecobank VAT loan
Avocet's Burkinabe subsidiary SMB has 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$8.0
million (4 billion FCFA). The balance drawn down as at 30 June 2016
under this facility was US$2.3 million.
During H1 2016, advances under this facility amounted to US$1.0
million, while US$2.7 million was repaid out of the proceeds of VAT
reclaimed in the period.
Coris bank Inata loan
At 30 June 2016, a loan balance of US$1.5 million was due in
respect of a short term loan facility with Coris Bank International
("Coris Bank"), which was drawn down in November 2015. The loan
amount was provided and held in FCFA, which is the legal currency
of Burkina Faso. The Coris Bank loan was provided to the Company's
90% subsidiary, Société des Mines de Bélahouro SA ("SMB"), which
owns the Inata mine.
The Coris Bank facility has a 6 month term and bears an interest
rate of 10% per annum. The Coris bank loan facility has no hedge
requirement.
During H1 2016, payments totalling US$7.4 million were made in
respect of this loan, which was made up of US$7.1million in capital
repayments, and US$0.3 million of interest. The weighted average
interest on the loan during the year was 10%.
The facility is recognised at amortised cost and as the amounts
are due within twelve months, they are included as current. This
loan was fully repaid in July 2016.
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 First
Loan facility. These warrants had a strike price of GBP 0.40 each.
Of these, 3 million expired on 3 June 2016, and the remaining
warrants, which, following the 10:1 share consolidation in June
2016, were reduced to 100,000 in number at an increased strike
price of GBP 4.00, are due to expire on 2 September 2016.
Finance lease liabilities
Also included within other financial liabilities are liabilities
in respect of assets held under finance lease, US$0.6 million of
which is included within current financial liabilities, and US$0.7
million is included within non-current financial liabilities.
13. Deferred tax
As at 30 June 2016, the Group increased its deferred tax
liability by US$0.1 to US$1.8 million in relation to the
withholding tax (WHT) that would be due in Burkina Faso on
settlement of intragroup management fee invoices.
14. Share Capital
31 December 2015
30 June 2016 Audited
------------------- -------------------
Number US$000 Number US$000
==================================== =========== ====== =========== ======
Authorised:
Ordinary share of 1p (2015 5p) 80,000,000 1,395 800,000,000 69,732
Deferred shares of 4.9p 800,000,000 68,337 - -
==================================== =========== ====== =========== ======
Total 880,000,000 69,732 800,000,000 69,732
==================================== =========== ====== =========== ======
Allotted, called up and fully paid:
Ordinary shares 20,949,671 341 209,496,710 17,072
Deferred shares 209,496,710 16,731 - -
==================================== =========== ====== =========== ======
Closing balance 230,446,381 17,072 209,496,710 17,072
==================================== =========== ====== =========== ======
On 10 June 2016, the Company's share capital was subdivided from
209,496,710 ordinary shares of 5p each into 209,496,710
intermediate shares of 0.1p each and 209,496,710 deferred shares of
4.9p each.
On the same day the Company consolidated the intermediate
ordinary shares on a 10:1 basis and the intermediate ordinary
shares were re-designated as 1 new ordinary share of 1p each.
The deferred shares have no rights to vote, attend or speak at
general meetings of the Company or to receive any dividend or other
distribution and have no valuable economic rights to participate in
any return of capital on a winding up or liquidation of the
Company.
15. Related party transactions
The table below sets out charges in the six month period and
balances at 30 June 2016 between the Company (Avocet Mining PLC)
and Group companies that were not wholly owned, in respect of
management fees.
Avocet Mining PLC Wega Mining AS
========================== ============================ ===============================
Charged in Balance at Charged in six Balance at
six months 30 June 2016 months 30 June 2016
ended 30 ended 30 June
June 2016 2016
========================== ============ ============== =============== ==============
US$000 US$000 US$000 US$000
Société des
Mines de Bélahouro
SA (90%) 398 137 224 - 58,080
========================== ============ ============== =============== ==============
16. Contingent liabilities
PT Lebong Tandai claim
In the Annual Report for the year ended 31 December 2015, note
30 to the financial statements contains a description of Indonesian
law suits brought by PT Lebong Tandai against Avocet and other
parties. The Company is unaware of any new developments in the
Indonesian case since the publication of the Annual Report on 26
April 2016.
The Board remains confident that all the actions taken in
respect of the transaction have been in accordance with prevailing
rules and regulations and there are no grounds for any such legal
action by PT LT. As any financial settlement with PT LT is
considered to be remote, this matter does not constitute a
contingent liability, however the matter is disclosed in these
financial statements to replicate statements already made by the
Company.
The buyer, J&Partners, has notified Avocet that in the event
PT LT was successful in actions against J&Partners,
J&Partners would make a claim for damages against Avocet. The
basis for the claim would be that Avocet had breached a warranty in
the sales agreement, which is governed by English law, in which it
stated that it was selling the assets free of encumbrance. Avocet
strongly disagrees that there was any such breach and initiated
arbitration in the English courts to have any such claim
dismissed.
The arbitration hearing took place in London in January 2015 and
the arbitrator's verdict was delivered in December 2015. Although
the verdict was partial and certain areas remained unresolved, the
Company does not believe there to be any further contingent
liabilities with regard to the arbitration.
Claim for Repayment of VAT
In March 2016, the Company received notification from HM Revenue
and Customs that its VAT registration status had been challenged on
the grounds that its management fees were not considered taxable
supplies due to not having been fully settled in cash. The Company
believes that these were valid taxable supplies in respect of bona
fide services performed by Avocet Mining PLC on behalf of its
subsidiaries (notably the Inata gold mine), and the non-payment was
the result of temporary cashflow shortages and other restrictions
in connection with its subsidiary's loan facilities. In the event
that the VAT registration were to be held to be invalid (which the
Board considers a remote possibility), the total VAT reclaimed that
would be repayable by the Company would be approximately GBP950k
(US$1.25 million).
17. Unaudited quarterly income statement
Quarter ended Year ended
Quarter Half year
31 March ended ended 31 December
30 June 30 June
2016 2016 2016 2015
(Unaudited) (Unaudited) (Unaudited) (Audited)
=============================== ============== ============= ============= =============
US$000 US$000 US$000 US$000
Revenue 25,649 26,196 51,845 85,038
Cost of sales (20,476) (23,731) (44,207) (89,933)
Cash production costs:
- mining (5,969) (6,281) (12,250) (23,772)
- processing (7,702) (7,311) (15,013) (34,492)
- overheads (3,766) (3,439) (7,205) (15,256)
- royalties (1,549) (2,001) (3,550) (5,570)
=============================== ============== ============= ============= =============
(18,986) (19,032) (38,018) (79,090)
Changes in inventory 141 (3,657) (3,516) (5,895)
Expensed exploration
and other cost of sales (1,499) (982) (2,481) 426
Depreciation and amortisation (132) (60) (192) (5,374)
Gross profit/(loss) 5,173 2,465 7,638 (4,895)
=============================== ============== ============= ============= =============
Administrative expenses (465) (489) (954) (2,061)
Share based payments (6) (6) (12) (414)
Net impairment of mining
and exploration assets - - - (45,148)
Profit/(loss) from operations 4,702 1,970 6,672 (52,518)
=============================== ============== ============= ============= =============
Exchange (losses)/gains (777) 617 (160) 3,136
Finance expense (1,512) (1,109) (2,621) (6,316)
Finance income - - - -
Profit/(loss) before
taxation 2,413 1,478 3,891 (55,698)
=============================== ============== ============= ============= =============
Analysed as:
Profit before taxation
and exceptional items 2,413 1,478 3,891 (10,550)
Exceptional items - - - (45,148)
=============================== ============== ============= ============= =============
Taxation - (79) (79) 5,993
Profit/(loss) for the
period 2,413 1,399 3,812 (49,705)
=============================== ============== ============= ============= =============
Attributable to:
Equity shareholders of
the parent company 2,078 1,149 3,227 (45,732)
Non-controlling interest 335 250 585 (3,973)
=============================== ============== ============= ============= =============
2,413 1,399 3,812 (49,705)
=============================== ============== ============= ============= =============
EBITDA (1) 4,834 2,030 6,864 (1,996)
(1) 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.
This information is provided by RNS
The company news service from the London Stock Exchange
END
IR SEDFIIFMSEFA
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August 26, 2016 02:00 ET (06:00 GMT)
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