Avocet Mining PLC Avocet Operational and Expansion Update (5021G)

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RNS Number : 5021G

Avocet Mining PLC

29 June 2012

Avocet Operational and Expansion Update

Ahead of the announcement of its financial results for the half year on 1 August 2012, Avocet Mining PLC ("Avocet" or "the Company") provides an update on its production for 2012 and 2013, and on its expansion project at the Inata mine.

Production Update

Following lower than expected gold production for the year to date and a reassessment of mining for the remainder of the year, the Company now expects its gold production for 2012 to be reduced from 160,000 ounces to between 135,000 and 140,000 ounces. This reduction reflects the following challenges at the Inata mine in the first half of the year:

-- lower than planned availabilities among the Company's own excavators, and among the rented excavators introduced in late 2011/early 2012 to increase waste stripping capacity;

-- lower than expected plant head grades in the second quarter, with inadequate waste movement in the first half of 2012 limiting access to areas of higher grade ore;

-- slightly lower recoveries, reflecting preg-robbing from carbon-rich ore and lower grades processed in the second quarter;

-- processing rates slightly lower than planned due to treatment of a higher proportion of harder transitional and fresh ore

Since our last update on 3 May 2012, mining equipment availabilities have continued to be lower than planned and ore blending has not mitigated the effect of preg-robbing carbon and maximized gold recoveries to the extent it had done previously. As a result, full year 2012 guidance has been lowered to reflect the second quarter performance.

Several measures have been introduced to ensure improved mining capacity during the second half of 2012 and into 2013. The action taken is expected to allow a higher rate of waste stripping, ensuring access over the next three years to ore at depth where grades are significantly higher:

   --      additional rented excavators will be commissioned in the third quarter of 2012; 

-- a new wheel loader has been ordered, and is expected to arrive in the third quarter of 2012;

-- the purchase of further equipment, representing a fourth mining fleet, is under consideration by the board, subject to which orders are anticipated in the near term;

-- the recent installation of a gravity circuit at the existing processing plant is expected to help reduce the impact of preg-robbing as a greater proportion of gold is recovered outside of the carbon-in-leach process;

-- as the distribution of gold at depth is increasingly coarse, gravity separation for gold recovery on fresh rock will become increasingly effective

The Company has engaged the services of leading mining consultants, Alexander Proudfoot (part of Management Consulting Group plc) to assist Avocet in realising material, measurable and sustainable business improvements, with an initial focus on increasing mining capacity. This will be achieved through analysing operating procedures and streamlining processes to gain greater equipment availability and efficiency.

Cost Guidance

Lower production in 2012 and additional mining costs mean that 2012 full year cash cost guidance has increased by US$200 per ounce from previous guidance of US$800-US$850 to US$1,000 - US$1050. Additional equipment rental and other mining costs of up to US$10m will be incurred as waste stripping is increased in the second half of 2012, and will add approximately US$75 per ounce, with the remaining increase of US$125 per ounce attributed to the total costs being spread over the revised production profile of 135,000 - 140,000 ounces compared with previous guidance of 160,000 ounces.

For 2013, production guidance is lowered from the previous figure of 160,000 ounces to between 150,000 and 160,000 ounces. Increased waste stripping capacity will allow access to higher grade ore in the North Pit during 2013, but expectations for recoveries have been lowered. Lower production and higher equipment rental mean that cash costs per ounce for 2013 are now forecast at US$900 - US$950.

It is anticipated that from 2014 the mining capacity requirements will be met by the purchase and commissioning of a fourth fleet, expected to total approximately US$25 million. Approximately 25% of this capital expenditure will be incurred in 2012, with the remainder in 2013. Additionally, the cost guidance above does not factor in any potential cost cutting exercises in other areas of the operation that were commenced in Q1 2012, or any potential cost savings identified by Alexander Proudfoot.

Inata expansion update

In the last six months, the expansion study at Inata has focused on extensive metallurgical test work with a view to determining an optimal plant configuration. Owing to delay in turnaround of this test work, the Company has concluded that it cannot be certain of confirming the appropriate process plant expansion designs within the July 2012 timeframe as previously indicated.

Avocet will continue its evaluation of how best to exploit Inata's reserve and growing resource base, but does not currently expect commencing construction of the planned expansion by year end 2012, or achieving first gold from an expanded production platform by the end of 2013, as previously anticipated. Final consultant reports, including metallurgical test work results, are scheduled for review in August 2012. Additionally, the Company is planning to expedite the introduction of higher grade ore from the Souma trend, with further step out and infill drilling planned in 2012 and 2013, and a feasibility study planned for 2013 to support an application for an exploitation license.

The Company will continue to give updates on the Inata Expansion Study and the development of resources at Inata as appropriate. An update on progress will be provided with the Q2 2012 results on 31 July 2012.

Despite short term production pressures, Avocet is committed to realising Inata's full potential as a key step in delivering on its strategy of becoming a leading West African mid-tier gold producer.

Commenting on this update, CEO Brett Richards said:

"We have had a difficult second quarter in 2012, with issues related to equipment availability continuing to affect mining rates and capacity. We continue to aggressively address the issues impacting production and envisage production of between 150,000 and 160,000 ounces for our revised 2013 production target. The Inata resource remains very robust and will continue to increase as we focus on exploration drilling in the Belahouro region. Ongoing work to increase our understanding of the resource will leave us better placed to optimise the production at the mine, and I am confident that this will allow us to maximise the value from Inata."

For further information please contact

 
 Avocet Mining     Buchanan          J.P. Morgan                 Arctic        SEB Enskilda 
  PLC               Financial         Cazenove                    Securities    Market Maker 
                    PR Consultants    Lead Broker                 Financial 
                                                                  Adviser 
                                                                  & Market 
                                                                  Maker 
================  ================  ==========================  ============  ================= 
 Brett Richards,   Bobby Morse       Michael Wentworth-Stanley   Arne Wenger   Fredrik Cappelen 
  CEO               James Strong      Neil Passmore               Petter 
  Mike Norris,                                                    Bakken 
  FD 
  Angela Parr, 
  IR 
================  ================  ==========================  ============  ================= 
 [phone]       [phone]       [phone]                 +47 2101 
  7676              5000              2828                        3100         [phone] 
 

Notes to Editors

Avocet Mining PLC is a gold mining and exploration company listed on the London Stock Exchange (Ticker: AVM.L) and the Oslo Bors (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 3.46 million ounces and a Mineral Reserve of 1.85 million ounces. The Inata Gold Mine poured its first gold in December 2009 and produced 167,000 ounces of gold in 2011.

Other assets in Burkina Faso include eight exploration permits in surrounding the Inata Gold Mine in the broader Belahouro region. The most advanced of these projects is at Souma, some 20 kilometres from the Inata Gold Mine, where a Mineral Resource of 0.56 million ounces exists.

In Guinea, Avocet owns twelve exploration licenses in the north east of the country. Mineral Resource development has been ongoing since 2005 and the project at Tri-K is the most advanced. Within the Tri-K project, Koulekoun has a Mineral Resource of 1.83 million ounces and Kodieran of 0.4 million ounces.

This information is provided by RNS

The company news service from the London Stock Exchange

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