29th Oct 2015 08:30
LONDON (Alliance News) - Avocet Mining PLC shares plummeted on Thursday after it dealt a blow to shareholders after lowering its full year production guidance for the second time in a matter of months whilst reporting lower production levels and higher costs.
The West African gold miner is also racing to get funding in place, but alleviated concerns slightly by confirming it has enough cash to surpass October through "prudent cash management".
Avocet shares were down 18% to 2.79 pence per share on Thursday morning.
Avocet has lowered its production guidance for the full year to 70,000 to 75,000 ounces of gold due to significantly lower head grades and faltering production levels. It had already cut its original guidance of 86,000 ounces to 75,000 to 70,000 ounces in August after production fell as the result of strike action in late 2014 continued to hit production in the first half of the year.
That means Avocet will be producing around 11,000 to 16,000 ounces of gold less than originally planned at the start of 2015.
The second downgrade to guidance came after the company's average head grade fell to only 1.50 grammes of gold per tonne in the third quarter of 2015 from 2.27 grammes of gold in the second quarter - representing a steep drop over a three month period.
That hampered production, which came in lower at 17,517 ounces in the quarter compared to 22,848 ounces in the second. That was also compounded by higher cash costs of USD1,107 per ounce compared to only USD952 an ounce in the previous quarter - also a steep rise in a three month period.
To put those costs into perspective, spot gold was trading at around USD1,159 per ounce on Thursday morning.
For the full year, Avocet its cash cost should average around USD1,000 per ounce, suggesting it expects costs to increase further in the fourth quarter of 2015, which will squeeze its already tight margin further.
Its gold shipments were also suspended for three weeks during the quarter due to the military coup and political instability in Burkino Faso, putting further strain on the company's already fragile finances.
"Cashflow at Inata remains tight. The coup in Burkina Faso in September and October resulted in gold shipments being suspended for three weeks. No supplier payments could be made during this period, which put the relationship with creditors under considerable strain. The situation in the country has largely returned to normal, and efforts are underway to address the financing of the mine to ensure the continued provision of critical supplies," said the company.
Back in August, Avocet said it only had enough cash to last until October, but said Thursday it has sufficient funds to last "beyond this point" due to its "prudent cash management".
"However, working capital remains limited and the company believes it will need to raise further funding in the near term. Discussions are ongoing in this regard," it said.
Causing further worries about the company;'s finances is its arbitration with J&P Partners. The hearing is expected to be delivbered in November, which could either lead to Avocet receiving a share of a USD1.8 million claim or having to shell out up to USD4.8 million if it loses.
"The company is advised that it has a better than evens chance of success in the arbitration," it said on Thursday.
By Joshua Warner; [email protected]; @JoshAlliance
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