Avocet Mining has had a rough year and things have been looking bad for sometime now. It has been falling sharply because it has rising cash costs (now well over $1000), earlier this year announced a large fall in its reserves at the operating mine, had to borrow $15m from one of its major shareholders just to get through the year (which are secured on the assets in Guinea and must be repaid in full by Dec 31st 2013), still has around 130k oz in a hedge agreement with Macquarie at $938, which is just further eroding any possible profit from the rest of the production ozs, a falling gold price during 2013 and is burning through its remaining cash pile quickly (and $12m of that is restricted due to the revised terms of the hedge).
But perhaps the situation is not as disastrous as the above might make one believe and we could have reached bottoms now. In its latest interim statement on 8th August 2013 the mining company reported an improvement in gold production (recovered ounces amounting to 960,000 ounces compared with March 2013 LOM plan of 707,000 ounces) with a plan for refinancing and bringing costs down. AVM might just survive with the new mine plan and the fact that H2 2013 should produce 12k oz per month at lower cash costs than H1. Assuming they come in closer to the $938 of the hedge and the exploration costs are kept under control then they could generate enough cash to pay off Elliott and Macquarie. I still think they need a cash call at this point in time but I’m less of a doom merchant after the Qlies, even though costs this Q were above $1200. Not one I’m willing to continue adding due to the high risk and also because I already hold a chunk but there are some encouraging noises and developments for rest of FY.
