Unaudited results for quarter ended 31 March 2013

Avocet Mining PLC unaudited results for thequarter ended 31 March 2013

·; Q1 production at Inata in line with life of mine plan: 30,481 oz (Q4 2012: 30,909 oz) produced at a total cash cost (including royalties) of US$1,169 per oz (Q4 2012: US$1,246 per oz).

·; Full year guidance remains 135,000 oz at a total cash cost of $1,100 per oz

·; EBITDA of US$6.7 million (Q4 2012: US$5.3 million) reflecting sale of 28,751 oz during quarter

·; Cash outflow from operating activities US$15.4 million. Excluding US$20.2 million buyback of forward contracts, positive cash generated from operating activities of US$4.8 million (Q4 2012: US$16.4 million)

·; Gold hedge restructured - total forward contracts reduced by 29,020 oz and remainder rescheduled to be cleared 18 months earlier at 31 December 2016

·; Loan agreement with affiliate of largest shareholder, Elliott Management, to finance feasibility study at Tri-K and corporate costs for remainder of 2013

·; Revised Inata Ore Reserves announced in quarter - reduction to 0.9 million ounces, based on US$1,200/oz pit shells

KEY FINANCIAL METRICS

[1] Key Financial Metrics are presented for continuing operations only, and represent results excluding the Group's former operations in South East Asia.

2 Q1 2013 includes net US$45.0 million of exceptional items: US$20.2 million cost of hedge buy-back; US$96.6 million loss on initial recognition of forward contracts; US$72.2 million gain on reversal of impairment; and US$0.3 million cost of impairment of discontinued Mali projects. See note 3 for further details.

3 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.

David Cather, Chief Executive Officer, commented:

"The recent revision to the input assumptions behind our Ore Reserves at Inata and the resulting revised life of mine plan provides us with a more conservative platform on which to operate. Inata's Q1 production was a solid first step in achieving this year's targets, with mining now moving to include the Minfo pit as a source of higher grade ore for the rest of the year. Our focus at Inata will also be on operating improvements in order to achieve better plant recoveries and throughputs. We are on track to meet guidance of 135,000 ounces of production for the year, and by year end we will have a greatly reduced hedge book.

Our Souma Project will add to these achievements by presenting an opportunity to enhance Inata's cash flows as a satellite operation and to extend its mine life. In Guinea, by year end we will also have advanced our Tri-K Project through the milestones of a feasibility study and maiden reserve estimate. Delivery on these key areas will serve to rebuild the Company's asset base and enable us to realise shareholder value.

Recent gold price volatility is a key concern of investors at present, and whilst we cannot control the gold price, this has underlined the importance of our ongoing cost improvement initiatives and conservative approach to mining at Inata - exemplified by our decision in March to rebase our reserves on a gold price of US$1,200 per ounce."

Management Conference Call

The Company will host a conference call for investors and analysts at 9am (UK) on Thursday

2 May 2013.

Dial in details are as follows:

UK: 08444 933800

Norway: 21563013

Alternative number: +44 (0)1452 555 566

Conference ID # 58502724

A recording of the conference call will also be made available on the Avocet website later on the same day.

FOR FURTHER INFORMATION PLEASE CONTACT

NOTES TO EDITORS

Avocet Mining is a 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 deposit at Inata currently comprises a Mineral Resource of 4.7 million ounces and an Ore Reserve of 0.9 million ounces. The Inata Gold Mine poured its first gold in December 2009 and produced 135,189 ounces of gold in 2012. Other assets in Burkina Faso include eight 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, where there is a Mineral Resources estimate of 0.8 million ounces.

In Guinea, Avocet owns exploration licences in the north east of the country. Mineral Resource development has been ongoing since 2005 and the Tri-K project is the most advanced, which currently has a Mineral Resource estimate of 3.2 million ounces and where a feasibility study is underway.

CHIEF EXECUTIVE OFFICER'S REVIEW

During Q1, the Company made significant progress in the restructuring of its finances, and is now funded for the 2013 work programme that will focus on optimising the Inata operation and demonstrating value from Souma and Tri-K. Operations at Inata are progressing in line with guidance for the year. We are encouraged by Souma's potential as a satellite deposit, whilst we are examining the effect it could have on the longer term economics at Inata.

In March 2013, the process to reassess Inata's reserve concluded with a decrease from 1.8 million ounces to 0.9 million ounces. This reduction was partly driven by the conservative approach we have adopted in managing our assets, exemplified by the use of a lower gold price of US$1,200 per ounce and the assumption of no additional major investment to achieve this production schedule.

In addition to the reduction in the assumed gold price and depletion during 2012, the key drivers behind this decrease in reserves were metallurgy and ore hardness, both of which have proved more challenging than estimated in the previous reserve.

The reserve reduction resulted in lower production forecasts over the life of mine, and required the Company's hedge book with Macquarie Bank Limited to be restructured. Consequently Avocet bought back 29,020 hedged ounces at a cost of US$20 million, and shortened the period over which the remaining 144,230 ounces are to be delivered by 18 months to 31 December 2016.

The hedge restructure utilised cash that would otherwise have been used to advance the Company's growth projects. As a result, a US$15 million loan was agreed with Manchester Securities Corp, an affiliate of our largest shareholder, Elliott Management ('Elliott'), to be drawn down in three tranches (the 'Elliott loan'). Being a transaction with a related party, the second and third tranches of this loan, which are to be secured over Avocet's assets in Guinea and will include the provision of 4 million warrants at 40 pence per share, will require shareholder approval at a General Meeting ('GM'), which is scheduled for 28 May 2013. To this end, a circular will be issued to our shareholders today outlining details of this proposal, and comes with the endorsement of the Avocet Board.

Assuming shareholder approval is granted, the Elliott loan will be repayable in full on 31 December 2013, and the Company intends to put in place further financing by this time. Throughout the remainder of 2013, we intend to remain focussed on evaluating lower capital cost options for the development of Souma and Tri-K, and entrenching operational improvements at Inata. We believe that the completion of the feasibility study at Tri-K in Guinea, as well as the advancement of Inata and Souma, should demonstrate the potential value to be realised from the Group's portfolio of assets during the rest of 2013, which ought to assist the Group in raising additional longer-term financing by 31 December 2013..

OPERATIONAL REVIEW

Gold production and cash costs

Gold production in the first quarter of 2013 of 30,481 ounces was in line with the life of mine plan announced in March 2013. Grades were nearly 20% lower than in Q4 2012, and tonnes milled were also lower, but these were largely offset by favourable inventory movements, with 1,977 ounces drawn out of gold in circuit inventory in Q1, whereas in Q4 3,708 ounces had been added to gold in circuit inventory. Mining of higher grade ore from Minfo has commenced and quarterly production is scheduled to increase as a result. Guidance for the full year remains at 135,000 ounces.

Mining volumes exceeded 9.9 million tonnes in the quarter, not only an improvement on Q4 2012, but also the highest quarterly tonnage since mining began at Inata in 2008. This improvement is in part due to the performance initiatives put in place over the latter half of 2012, and is the aggregate effect of a number of individual improvements, including training programmes, supervision monitoring, and revised schedules and timetables. Improved mining performance has in turn increased availability of ore stockpiles, and therefore enables greater flexibility in processing ore going forward.

Plant throughput levels (616,000 tonnes) were 6% lower than Q4 2012 but remain in line with the life of mine plan. Head grades fell from 2.03 g/t in Q4 to 1.65 g/t in this quarter, as ores fed to the mill were from slightly lower grade areas (chiefly the Sayouba pit). Recoveries were also slightly lower than the previous quarter, at 82%, as ores treated in January and February in particular were lower grade and included carbonaceous material.

Total cash costs (including royalties) in the quarter were US$1,169 per ounce, a decrease of six per cent compared with Q4 2012.

Total mining costs were US$16.5 million, lower than the previous quarter. Mining costs on a unit basis were US$1.66 per tonne, a reduction of 6% compared to the previous quarter, reflecting cost improvement initiatives being implemented at site.

The total processing cost for the quarter was US$11.0 million, which is in line with the previous quarter. On a unit basis, the processing cost was US$17.81 per tonne, 8% higher than Q4 2012 as a result of fewer tonnes milled and increased usage of consumables such as lime and cyanide. Cost improvement initiatives are underway to optimise reagent usage, particularly with respect to lime consumption.

Unit costs for both mining and processing are in line with the full year guidance given in March of US$1,100 per ounce.

Souma exploration project, Burkina Faso

In January and February, a diamond drill rig collected geotechnical data and metallurgical samples in support of planned feasibility work on the Souma project and new resources at Inata (Minfo East and Filio). In March, a reverse circulation rig conducted scout drilling on geochemical and geophysical anomalies at Souma with a view to identifying and prioritising resource candidates for infill drilling in 2014.

During the quarter, an updated Mineral Resource estimate of 0.8 million ounces (16.3 million tonnes grading 1.48 g/t Au) was announced, representing an increase of 38% on the previous estimate. Souma's geological setting is distinct from that at Inata, and preliminary testwork has indicated gold recoveries of +90% for all nine samples that were submitted. 

Testwork results from drilling undertaken in 2012, which were received during the quarter, emphasise the high grade core at Souma, which will be the focus of any operation involving the trucking of ore to the Inata processing plant. Results received during Q1 include:

- 16m @ 6.3 g/t Au from 35m;

- 11m @ 7.3 g/t Au from 61m;

- 21m @ 2.8 g/t Au from 6m;

- 6m @ 7.8 g/t Au from 72m; and

- 10m @ 3.9 g/t Au from 33m.

Tri-K development project, Guinea

The feasibility study for the phase 1 development of the Tri-K project is underway, targeting a heap leach project exploiting oxide ore from two deposits at Tri-K - Koulékoun and Kodiéran. National, regional and local authorities are supportive of the project, and discussions with regards to securing a Mining Convention have commenced. The feasibility study is expected to be completed in H2 2013, and a mining licence application submitted shortly thereafter.

Exploration in Guinea has focused on supporting the Tri-K feasibility study by conducting infill drilling on the upper oxide portion of the Kodiéran Mineral Resource. Geologists are undertaking a geochemical survey of termite mound samples in an effort to generate new exploration targets for 2014 and help illustrate the upside potential of the Tri-K District.

As part of the feasibility study process, infill drilling is ongoing in order to establish a maiden reserve estimate for Tri-K. Results received during the quarter for Kodieran include:

- 22m @ 5.5 g/t Au from 1m;

- 21m @ 5.7 g/t Au from 30m; and

- 14m @ 2.2 g/t Au from 45m.

FINANCIAL REVIEW

Revenue in the quarter was US$40.9 million, reflecting sales of 28,751 ounces of gold at an average realised price of US$1,422 per ounce, (including 8,250 ounces delivered into forward contracts at US$950 per ounce), compared with revenue of US$44.5 million in Q4 2012, representing 30,276 ounces at an average realised price of US$1,468 per ounce.

EBITDA for the quarter totalled US$6.7 million, compared with US$5.3 million in Q4 2012.

Favourable inventory movements totalled US$4.1 million in the quarter, with increases in stockpile (due to additional tonnes and higher average cost) and gold in transit, partly offset by a reduction in gold in circuit.

A number of exceptional items arose in the quarter as a result of the restructure of the hedge book with Macquarie Bank Limited. These include a charge of US$20.2 million representing the cost of closing out 29,020 ounces of forward gold sales. In addition, a non-cash expense of US$96.6 million was recognised as a result of bringing onto the balance sheet the mark-to-market liability of the remaining 144,230 ounces of forward sales at US$937.50 per ounce. The recognition of the mark-to-market liability is in accordance with IAS 39 (see note 13 for more information), and reflects the fact that the recent buy back demonstrates a practice of cash-settling forward contracts. Under IAS 39, this means that the own-use exemption previously applied is no longer appropriate.

The inclusion of the hedge liability resulted in a partial reversal of the impairment recognised in December 2012. The original impairment reflected the shortfall between the net present value of Inata's cash flows, including the effect of hedge sales, and its net assets, which excluded the hedge liability. Following the recognition of the mark-to-market liability at 31 March 2013 the net present value of Inata's cash flows is now significantly greater than Inata's net assets, resulting in an impairment reversal in Q1 2013 of US$81.7 million.

Profit from operations in the quarter was US$73.6 million, which included the effect of the impairment reversal, compared with an operating loss of US$139.7 million in Q4 2012, which included the original impairment. Excluding the impairment and impairment reversal, operating profit in Q1 2013 would have been US$1.4 million compared with an operating loss of US$4.4 million in Q4 2012.

The loss before tax for the quarter, including exceptional items, was US$44.8 million, compared with a loss of US$140.0 million in Q4 2012. Excluding exceptional items, the pre-tax profit was US$0.2 million compared with a loss of US$4.7 million in Q4 2012. Net cash consumed by operating activities in the period was US$15.4 million, including the impact of the US$20.2 million hedge buy-back which is reported as an operating cash flow item. Excluding this, Net cash flow from operating activities in Q1 2013 was US$4.8 million.

Other cash flow items in the quarter include capex of US$5.4 million (principally US$2.4 million work on the second tailings facility at Inata and US$2.6 million on mining equipment and engine rebuilds), US$5.7 million of capitalised exploration expenses (US$3.1 million in Burkina Faso and US$2.5 million in Guinea), as well as US$5.0 million drawn down on the Elliott Loan.

Net cash decreased in the quarter by US$22.0 million, with closing cash standing at US$32.9 million, and US$10.0 million of external debt (US$5.0 million each with Macquarie Bank Limited and Elliott).

OUTLOOK

Over the remainder of 2013, Avocet will be focussed on optimising cash flow at Inata, while meeting its production guidance of 135,000 ounces at a total cash cost of US$1,100 per ounce. Subject to shareholder approval, the Company expects to draw down a further US$10.0 million under the Elliott Loan, to finance the completion of the feasibility study at Tri-K in Guinea, and to meet corporate costs. Further low capital cost improvements at Inata are being investigated in order to demonstrate the upside potential compared with the March life of mine plan, with work at Souma geared to add longer term value to Inata.

Further financing is expected before the end of 2013 to provide funds for repayment of the US$15.0 million Elliott loan and for working capital for 2014. The Board is confident that undertaking the value-generative initiatives outlined above should assist the Group in its discussions regarding future financing.

DAVID CATHER

Chief Executive Officer

(1) During 2011, the Group disposed of all of its trading subsidiaries which were classified as discontinued operations. All operations for 2012 are continuing. Refer to note 3 for further information.

(2) EBITDA represents earnings before 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 CHANGES IN EQUITY

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 2012, 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 three months ended 31 March 2013 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 2013. 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 2012, 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 2013. These have not had a material impact on the Group.

The Company's statutory financial statements for the year ended 31 December 2012 are available on the Company's website www.avocetmining.com. The auditor's report on those financial statements was unqualified and did not contain a statement under sections 498(2) or (3) of the Companies Act 2006.

Going Concern

On 25 March 2013, the Company announced it had completed discussions regarding financing with Macquarie Bank Limited ("Macquarie") and an affiliate of its largest shareholder, Elliott Management ("Elliott"), which is the beneficial owner of 27% of the Company's shares. The Company has executed financing agreements with both parties. 

Due to Inata's reduction in Ore Reserves and revised life of mine plan Macquarie placed restrictions on the use of cash within Société des Mines de Bélahouro SA ("SMB"), the Company's trading subsidiary that holds Inata, pending agreement on restructuring Inata's hedge. Following the hedge restructure announced on 25 March, the minimum cash balance required by Macquarie to be held in SMB fell from US$37 million to US$12 million.

The hedge restructure agreed with Macquarie, including the US$20.2 million hedge buy back, meant that funds previously held in SMB were no longer available to fund the Tri-K project in Guinea and general corporate activities. The Company therefore entered into a loan agreement with Manchester Securities Corp. ("the Elliott Lender"), which, as an affiliate of its largest shareholder Elliott, made the Elliott Lender a related party under the UK Listing Rules. The Elliott loan facility will ensure that sufficient funds are available to complete the feasibility study at Tri-K as well as for general corporate purposes in 2013.

One of the covenants related to the MBL loan and hedge facility relates to the ratio between the hedge liability and the future cash flows at the Inata mine over the term of the hedge. For the purposes of calculating this ratio, the hedge liability is reduced by cash in SMB and the prevailing spot price is applied to all sales, including hedge deliveries, in calculating future cash flow. The directors have a reasonable expectation that SMB's cash flow and hedge commitments can be managed so that this and other covenants will not be breached.

The funding arrangements between the Elliott Lender and the Company consist of two facilities: an initial facility of US$5 million, drawn down at the end of March 2013; and a second secured facility of US$15 million, which is subject to shareholder approval. US$5 million of this second secured facility will be used to repay the initial unsecured facility.

The Directors have concluded that the shareholder approval of this facility represents a material uncertainty that may cast significant doubt upon the Company's ability to continue as a going concern and that, therefore, the possibility exists that the Company could be unable to continue to fund its corporate and exploration activities as currently envisaged. However, the directors have a reasonable expectation that shareholders will approve the Elliott funding.

Assuming shareholder approval is obtained, the Elliott loan facility of US$15m will be due for repayment 31 December 2013. Further finance will be required in order to repay the Elliott Lender at that date and provide working capital for 2014. The directors have concluded that obtaining the required finance represents a material uncertainty that may cast significant doubt upon the Company's ability to continue as a going concern and that, therefore, the possibility exists that the Company could be unable to repay amounts owed to the Elliott Lender and to fund its corporate activities in 2014. Nevertheless, the directors have a reasonable expectation that the Company will obtain sufficient funding prior to 31 December 2013 and for these reasons, they continue to adopt the going concern basis of accounting in preparing the annual financial statements.

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 2012, with the exception of those highlighted in the exceptional items in notes of these statements.

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, West Africa mining operations (which includes exploration activity within the Inata mine licence area), and West Africa exploration (which includes exploration projects in Burkina Faso, Guinea and Mali). Discontinued operations for 2012 represent the disposal of one of the remaining assets in South East Asia that was subject to the agreement with J&Partners L.P. (note 3).  

2. Segmental Reporting

(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.

2. Segmental Reporting (continued)

(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.

2. Segmental Reporting (continued)

(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.

2. Segmental Reporting (continued)

(d) Includes depreciation and amortisation, share based payments, movement in provisions, taxation in the income statement, and other non-operating items in the income statement;

(e) Other cash movements include cash flows in respect of the sale of subsidiaries, deferred consideration paid, cash flows from financing activities, and exchange gains or losses;

3. Exceptional items

Restructure and recognition of forward contracts

On 25 March 2013, Avocet announced the restructure of the Macquarie forward contracts for delivery of gold bullion. The restructure consisted of eliminating 29,020 ounces under the forward contracts at a cost of US$20.2 million and shortening the delivery profile of the remaining ounces by 18 months so that all ounces are delivered by December 2016. 

The recognition of the liability is in accordance with IAS 39 (see note 13 for more information), and reflects that the recent buy back demonstrates a practice of cash-settling forward contracts. Under IAS 39, this means that the own-use exemption previously applied is no longer appropriate. The fair value of the forward contracts has been recognised at $96.6m. Further details are provided in note 13.

Partial reversal of impairment on mining assets

In March 2013 Avocet recognised a partial reversal of impairment of non-current mining assets in respect of the Inata Gold Mine. Further details are provided in note 7.

Impairment of Mali exploration asset

During Q1 the company decided to discontinue operations at the N'tjila permit located in the Republic of Mali. As a result the $0.3m capitalised in relation to the permit has been impaired and recognised as an exceptional item.

Loss on disposal of subsidiaries

Completion of one of the last two exploration assets occurred on 16 February 2012 for proceeds of US$2.0 million, resulting in a loss of US$0.1 million. There are no remaining assets or liabilities recognised in the Group statement of financial position in respect of the last remaining South East Asian exploration company, which the Company no longer expects to sell.

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 and profit or loss from discontinued operations.

5. Earnings per Share

Earnings per share are analysed in the table below, presenting earnings per share for continuing and discontinued operations.

1 As a result of the loss for the period, in calculating the diluted earnings per share the effect of share options in issue has been ignored for the 3 months ending 31 March 2013.

6. Intangible assets

Intangible assets represent deferred exploration expenditure. The movement in the period is analysed below:

1 Capitalised depreciation represents the depreciation of items of property, plant, and equipment which are used exclusively in the Group's exploration activities. The consumption of these assets is capitalised as an intangible asset, in accordance with accounting standards and industry practice.

7. Partial reversal of impairment on mining assets

At 31 December 2012, the Group recognised an impairment of $135.3m in respect of mining assets at Inata. In accordance with IAS 36 Impairment of Assets, an entity is required to assess at the end of each reporting period whether there is any indication that a previous impairment loss may no longer exist or may have decreased. If such an indication exists, the entity should estimate the recoverable amount of that asset.

The forward contract liability at fair value in March 2013 has been excluded from both the carrying amount of the cash generating unit ('CGU') and the cash flows of the value in use ('VIU') calculation. This avoids double counting of the liability's cash flow and provides a more stable basis to assess the CGU's fair value. The Company has concluded that the requirements of an indication of a reversal of impairment were identified in relation to the Inata mining assets. An assessment was therefore carried out of the fair value of Inata's assets, using the discounted cash flows of Inata's latest estimated life of mine plan to calculate the VIU. As a result of the review, a pre-tax partial reversal of impairment losses of $72.2m has been recorded in Q1 2013 and allocated to mine development costs.

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. The key assumptions are outlined below:

8. Property, plant and equipment

1 Capitalised depreciation represents the depreciation of items of property, plant, and equipment which are used exclusively in the Group's exploration activities. The consumption of these assets is capitalised as an intangible asset, in accordance with accounting standards and industry practice.

9. Other financial assets

Other financial assets represent available for sale financial assets which are measured at fair value. The fair value adjustment is the periodic re-measurement to fair value, with gains or losses on re-measurement recognised in equity.

Other financial assets relate to shares in Golden Peaks Resources Limited. The shares were acquired as consideration for the disposal of two of the Group's assets in South East Asia in 2011. In January 2012 Golden Peaks announced that it had changed its name to Reliance Resources. Reliance Resources is listed on the Toronto Stock Exchange. 

10. Inventories

Work in progress includes ore in stockpiles and gold in circuit. Finished goods represents gold in transit or undergoing refinement, prior to sale.

11. Trade and other receivables

12. Cash and cash equivalents

Included in US$32.9 million cash and cash equivalents at 31 March 2013 is US$13.4 million of restricted cash (31 December 2012: US$38.4 million), representing a minimum account balance held in Macquarie Bank Limited of US$12.0 million, a condition of the Inata project finance facility, and US$1.4 million (31 December 2012: US$1.4 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.

In relation to the minimum account balance held in Macquarie Bank Limited of US$12.0 million, there are no restrictions on the use of funds above the minimum amount by SMB. Restrictions apply to the other companies in the Group regarding access to the surplus funds above the $12.0m, as set out per the press release on 25 March 2013.

13. Other financial liabilities

Interest bearing debt

Interest bearing debt includes the remaining balance under the Macquarie Bank Limited Inata project finance facility of US$5.0 million (31 December 2012: US$5.0 million) and the Elliott Lender loan of US$5.0 million (31 December 2012: US$nil). 

As announced on in the press release on 25 March 2013, the remaining balance of US$5.0 million under the Macquarie Bank Limited Inata project finance facility, previously due on 31 March 2013, was re-negotiated as part of the hedge restructure and is now due by 30 September 2013.

The initial facility of US$5.0 million, under the loan agreement with the Elliott Lender was drawn down on 25 March 2013 and is payable on 24 September 2013. Subject to shareholder approval, the Company intends to repay this loan facility earlier then the due date using the second Elliott Lender facility.

Forward contracts

On 25 March 2013, Avocet announced a restructure of the Macquarie forward contracts for delivery of gold bullion. The partial settlement of the contract means that the remaining forward contracts no longer qualifying for the 'own use exemption' and are therefore now within the scope of IAS 39 financial instruments. Under IAS 39 the forward contracts are classified as a financial liability designated at fair value through profit or loss (FVTPL) as they meet the requirements to be classified as held-for-trading.

The fair value of the forward contracts were assessed to be US$96.6 million based on a closing spot rate of US$1,598.25/oz, analysed between current (US$35.2 million) and non-current (US$61.4 million) in accordance with the schedule delivery of forward sold ounces.

Finance lease liabilities

Also included within other financial liabilities are liabilities in respect of assets held under finance lease, US$0.9 million of which is included within current financial liabilities, and US$2.2 million is included within non-current financial liabilities.

14. Related party transactions

The table below sets out charges in the three month period and balances at 31 March 2013 between the Company (Avocet Mining PLC) and Group companies that were not wholly owned, in respect of management fees and interest on loans. There were no other related party transactions in the period requiring disclosure.

Compensation paid to key management of the Group during the quarter was US$0.8 million, including pension contributions of US$0.04 million. A share based payment expense of US$0.3 million was recognised in the quarter in respect of awards made under the Performance Share Plan, the details of which were reported in the announcement made on 13 March 2012. No dividends were received by Directors during the period in respect of shares held in the Company.

During the quarter the Company entered into a US$15.0 million loan agreement with Manchester Securities Corp. ("the Elliott Lender"), an affiliate of Avocet's largest shareholder, Elliott Management. Under the UK listing rules, the Elliott Lender and Elliott Management are related parties to the Company. US$5.0m was drawn down in March 2013 under the initial facility in accordance with the loan agreement. The terms of the initial facility, which is unsecured are considered to be normal commercial terms. The availability of the second facility under the agreement, which is secured, is subject to shareholder approval at a GM to be held on 28 May 2013.

15. Contingent liabilities

There were no contingent liabilities at 31 March 2013 or 31 December 2012.