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TABLE OF CONTENTS Oct 28 - Nov 3, 2013 Volume 99 Number 37 - 0 comments

Avocet falters ahead of ramp-up

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Avocet Mining (LSE: AVM; US-OTC: AVVGF) failed to impress the market with third-quarter production results from its Inata mine in Burkina Faso.

The company reported lower-than-expected numbers from the mine, which is 220 km northeast of the country’s capital, Ouagadougou.

The London-based gold miner turned out 30,987 oz. gold from the mine and reduced its full-year guidance to 125,000 oz., from the previous 135,000 oz.

Avocet had expected that processing more oxide ore, combined with improving recoveries, would bring 12,000 oz. gold production per month.

The company blamed the reduced output on lower-than-expected grades and poorer mill availability. It went on to say that grades were lower because its mobile fleet wasn’t fully available. The situation delayed the waste stripping needed to reach the higher-grade ore.

Production missed BMO Capital Markets analyst Andrew Breichmanas’ forecast of 35,000 oz. for the quarter, and costs were higher than expected.

Breichmanas had anticipated US$1,000 per oz. in costs for the rest of the year, but says Avocet now expects US$1,204 per oz.

“A new mine plan released in August provides some encouragement for Inata’s future,” Breichmanas writes in a research note, “but refinancing appears necessary by year-end, given outstanding debt and hedge liabilities.”

BMO rates Avocet’s stock as “underperform,” with a target price of 20¢.

The new mine plan that Breichmanas refers to calls for a 36% increase in life-of-mine gold production to 960,000 oz., from the previous estimate of 707,000 oz.

The increased production would come from a process flow sheet  with an added carbon-blinding circuit, as well as two more carbon-in-leach tanks.

The blinding circuit would negate the effects of active carbon in certain ore types, and lead to higher recovery rates throughout the mine’s life. Avocet says it would cost US$6 million to add the circuit, and that the capex would be funded from the mine’s own cash flows.

The improvements are expected to boost annual production to 116,000 oz. per year, from the previous estimate of 96,000 oz. per year.

It also expects that costs will drive down from the improvements, as the company predicts life-of-mine, all-in cash costs of US$958 per oz., down from the previous estimate of US$1,028 per oz.

Inata has measured and indicated resources totalling 62.1 million tonnes grading 1.42 grams gold for 2.8 million contained oz., as well as inferred resources of 33.1 million tonnes grading 1.29 grams gold for 1.37 million oz. From this total, 90% is attributable to Avocet.

In London on Oct. 9 — the day the results were released — the company’s stock closed the day trading at 15 pence, which was 2% less than where it began.

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