18th Jan 2006 07:00
Avocet Mining PLC18 January 2006 Avocet Mining PLC7th Floor 9 Berkeley StreetLondon W1J 8DWTel +44 (0) 20 7907 9000Fax +44 (0) 20 7907 9019E-mail [email protected] AVOCET ENHANCES CASH FLOW AND REDUCES GOLD PRICE RISK Avocet Mining PLC ("Avocet" or "the Company") is pleased to announce that it hastaken advantage of recent high volatility in the current gold market to reducethe Company's existing sales commitment, retain the Company's leverage to highergold prices and protect the Company to any potential drop in the gold pricebelow US$450/oz over the next three years. This represents an improvement innext year's earnings of approximately US$ 4.5million at current gold prices.Additionally, this transaction underpins the Company's ability to fund expansionopportunities. Avocet currently delivers approximately 4,000 ounces of gold per month into anhistorical hedge position of 80,000 ounces with a delivery price that hasaveraged approximately US$300/oz. As part of this transaction Avocet has reducedthis position to 22,000 ounces at a fixed forward price of US$313/oz with finaldelivery scheduled for no later than mid July 2006. The Company has purchased European put options (the ability to deliver at acertain price, exercisable at specific periods) for 10,000 ounces per month atUS$450/oz over a 36 month period from April 2006 to March 2009. The Company hasalso sold European call options (the ability for a third party to purchase fromthe Company at a certain price, exercisable at specific periods) for 10,000ounces per month at US$700/oz over the same period from April 2006 to March2009. The options affect 57% of Avocet's current annual gold production ofapproximately 210,000 ounces which will continue to realise spot prices if theyare between US$700/oz and US$450/oz. Avocet fully expects its gold production toincrease in the next three years as ZGC's Jilau mine in Tajikistan increasesproduction substantially and new projects under feasibility come on stream. Allproduction above 10,000 ounces per month, which is currently 43% of estimatedannual production, will be sold at spot prices. This, together with theincreased production over the next few years, gives the Company upside to arising gold market. The transaction counterparty is Macquarie Bank, the Company's principal banker.Macquarie has already granted the Company a US$10 million revolving creditfacility. The transaction was entered into for zero cash consideration. Nomargin calls apply.Nigel McNair Scott, Chairman of the Company, commented on this transaction: "The strong volatility in the current gold market has provided an opportunityfor the Company to eliminate its $300/oz gold hedge by July this year andreplace it with a structure that provides exposure to the increasing gold price,while protecting the Company's cash flow should the market fall below $450/oz." Avocet is a mining company listed on the AIM market of the London StockExchange. The Company's principal activities are gold mining and exploration inMalaysia (as 100% owner of the Penjom mine, the country's largest goldproducer), Tajikistan (as 75% owner and operator of the ZGC, Tajikistan'sprincipal gold mine), and Indonesia (as 80% owner of the North Lanut gold minein North Sulawesi). The Company has a number of advanced mining and explorationprojects in Asia and owns 24% of Dynasty Gold Corporation, a Canadian listedexploration company active in Western China._____________________________________________________________For further information please contact: Avocet Mining PLC John Catchpole (Chief Executive) Jonathan Henry (Finance Director)020 7907 9000 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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