05.08.14 - 18:27 Uhr

Avocet Mining (Price: 7.40p | Target: 7.57p | Rec: Hold)

Avocet’s interim results reflected another tough operational quarter leading to a trimming of production guidance to 105koz (Investec 102koz) for FY14. H1 output reached 44,798oz, down 27% yoy due to processing lower grade ore. Cash costs stood at US$1,246/oz in the period. Work continues to tackle the complex ore types with a reduction in financing required to US$15-20m from US$20-30m. Management is also examining the potential to deliver a 200kozpa operation through underground and heap leach developments.

* Another weak quarter operationally that, in conjunction with a US$25.8m impairment charge, delivered a H1 loss of US$55.6m. Inata is currently processing low grade ores ahead of commissioning the carbon blinding circuit, to enable it to process carbonaceous higher grade. A funding shortfall of US$15-20m remains with discussions advancing with its financiers such as Ecobank, its current lender. Discussions are also progressing over the Elliott loan that is secured against its Guinean properties.
* On a positive note, AVM provided some detail on the potential to develop an underground aspect to Inata from a steeply dipping shoot in the Inata North Pit that appears to lend itself to bulk mechanised mining techniques. Although it is still early days and subject to funding, the company estimates 18 months’ work to better delineate this potential. Heap leaching options in the region are also being identified that, in conjunction with the underground and current mine plan, could extend mine life and deliver a 200kozpa operation.
* We retain our Hold but downgrade our TP, reflecting the continued tough operational conditions, and await an updated mine plan once financing has been secured. We value AVM on a risked NPV basis (35% value attributed) of Inata, factoring in debt and cash. Key risks relate to commodity prices, delivery and financing. The company has also yet to settle with the Burkina government a tax claim that it disputes and has booked a contingent liability of US$4.7m.

To access the full note please click here<

Analyst: Marc Elliott +44 (0)20 7597 5189

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