Avocet Mining Share Discussion Threads

[holdontightuk] 19/4/2006 22:10

Minews Story Date: April 20, 2006

Mercator Gold Expects To Start Production At Meekatharra Early Next Year.

By Our Man In Oz

Systematic, thoughtful and prudent are not words normally associated with goldmining at Meekatharra, an almost forgotten outpost in the middle of Western Australia. After all, this was the town that the wife of a former Australian Prime Minister once famously described as "the end of the earth". Residents, in what is geologically classified as the Murchison District, were not amused with Tammie Fraser's put down, though a few might privately have agreed over their beers at the Royal Mail Hotel. Rough and tough is a better description of Meekatharra, both the town and the way in which a long list of previous owners have tackled the gold found in the Murchison.

Among the former owners is the once troubled, but now reviving, St Barbara Mines, which last year sold effective control of the entire Meekatharra mining district, including the three million tonne-a-year Bluebird processing facility, to AIM listed Mercator Gold for a lowly A$18 million. After that deal, Meekatharra and Mercator virtually disappeared off the investment world's radar screen – for a very good reason. Mercator management had decided to pull up the drawbridge and spend time identifying precisely what it had in the way of a gold resource, and to plan a serious, long-term, mining operation that could ride high in the good times, and ride out the bad times. The immediate aim is to pinpoint 600,000 ounces of mineable resources before re-starting production at the old Bluebird processing plant.

"We want to know that we have those 600,000oz before we re-start operations," Mercator's exploration director, Julian Vearncombe, told Minesite. "We might decide to go mining before we have those ounces in a formal report, so long as we can see them." On that basis, it is possible for Mercator to be in production before the end of 2006 because it has a plant requiring minimal improvement before being re-started – though a more likely re-start date is the first half of next year with a gold production target in the range of 150,000oz to 170,000ozs a year.

The challenge for Vearncombe and his surprisingly large team of 17 exploration geologists is to nail down precisely what can be mined from a series of pits worked by previous owners. The biggest of the old mines is Bluebird, but after that comes the Paddys Flat mine, and then a series of up to 60 prospects and old-workings, some with delightful names such as Bottle Dump, Aladdin North and Maid Marion. Surrounding these historic workings, which are estimated to have yielded 3.5 million ounces of gold, is an under-explored greenstone belt waiting for detailed scientific analysis.

"We're starting with a seriously under-utilised data base that would cost us A$150 million to assemble if we started today," Vearncombe said. "What we're doing now is re-establishing the integrity of that imperfect data, targeting an immediate 600,000oz of mineable material, and then raising our global resource base from 1.9million ozs to around 5million. The total outlay this year on exploration and data analysis will be around A$4 million, plus another A$5.4 million on re-commissioning the mill."

To an outsider watching the gold price soar it is hard to not believe that there isn't a temptation inside Mercator to get the mill turning as soon as possible. But that, according to Vearncombe, would be a mistake similar to that made by previous owners who quickly worked through the high grade zones of gold and found themselves processing big tonnages of low-grade ore for little reward. "Bluebird wasn't always low-grade," said Vearncombe. "It was modelled and mined on a set of parameters that always had the pressure on to shift tonnes, and mine the low grade. The geology of most of these deposits, Bluebird is one of them, is a high-grade core which, in our case, is averaging 4.5 grams a tonne, but around that is a vast sea of low-grade."

"What we've done at Bluebird is model the high-grade and the low-grade, and announced them separately, which doesn't impress everybody because they say it's confusing. But, the whole point about what we're doing is that we want to be able to respond to falling or rising gold prices. And we want to know that we could just mine the high-grade and stockpile the low-grade. Previously, there was never the commitment to work out the geology, and exploration was simply being driven by the mining engineers who needed feed for the mill. We are determined to pause, and take a serious look at what we've got."

One of the tricky geological questions is to know when to switch from open pit to underground mining, an issue which has troubled earlier miners because of the deep level of rock oxidation. Weathering along fractures extends down to 150 metres, making for difficult underground rock mechanics. One of the plans being considered by Mercator is to take the re-opened open pit mines down to between 200metres and 300metres to get through the weathering, and then look at underground mining.

As well as gaining a better understanding of the geology, Mercator is determined to re-start mining at Meekatharra debt free, with hedging at the discretion of management, not the company's bankers. Beyond the re-start of mining at Bluebird there are the first tentative steps being made in the direction of a bigger business. "We're starting to look within out tenement package for a second project," Vearncombe said. "We've got 2000 square kilometres of highly prospective ground that should support a second mining operation. It might even be preferable to have one mill processing high-grade underground material, and the other mill processing the lower grade material." The key point emerging from Mercator's work at Meekatharra is that it is determined not to repeat the past by operating a single mill on a feed of low-grade ore. "We certainly do not want to be putting in half-gram dirt just to keep the mill turning," Vearncombe said.

The key issue for followers of Mercator is not so much whether it's got the gold, but when will it start mining. "We've in advanced negotiations with mining and mill maintenance contractors, and we're waiting for all the detail to come together," he said. "If we wanted to we could press the button today and be in production in November, but that would fail our aim to be a long-term, sustainable operation. The answer to the question of when will we be in production is the first half of 2007." Managing director Patrick Harford may amplify this forecast further when he presents at our 31st Forum in London next Monday.

[bionicdog] 19/4/2006 20:21

Gold currently at $640 and still rising , I think we might open up blue tomorrow.

[kojak78] 19/4/2006 17:51

But who's the winner and who's the loser?
AVM? flat/down since last week
MFN? 26% up

Then if you take a look at the price performance since 2002.. one is up well over 1000% the other is flat.

If prices for MFN go up I'll have made a mistake.. which means I am not allowed to sell more MFN shares.

My last AVM transaction was a buy of 2000 shares at 140.50, I need to do something at that front in order to get a new reference point.

AVM and MFN match very well, when one is cheap the other is dear and vice versa. MFN has silver and is listed in North America. AVM is cheaper and has no international following.

[davebowler] 19/4/2006 17:35

Kojak,I bought Minefinders a few weeks ago- thanks for the idea.I also hold AVM-will continue with both.

[reefseeker] 19/4/2006 17:23

Geez kojak, repeat after me;

hold the winners, sell the losers!
hold the winners, sell the losers!!
hold the winners, sell the losers!!!

[kojak78] 19/4/2006 17:16

I have sold 3000 Minefinders at 9.43 today, bought them at 7.43 just one week ago, 26.9%. I'll keep the remaining 17000 shares though. Perhaps I'll buy more AVM..

[mattybuoy] 19/4/2006 15:18

From today's RNS it seems likely that the recent price rise was caused by institutional accumulation. A bit disappointing in a way, I was rather hoping that we were developing a "gold bug" community of retail punters here in London. It seems not ...

P.S. I do like Jim Rogers' outlook. It echoes my own :) Bull market will last until at least 2012 IMHO.

[yikyak] 19/4/2006 14:39

Rogers Says Gold to Reach $1,000 as Commodities Soar (Update2)
April 19 (Bloomberg) -- Jim Rogers, the former George Soros partner who foresaw the start of a commodity rally in 1999, said the boom in energy and raw material prices will endure, driving gold to a record $1,000 an ounce.

``The shortest bull market for commodities lasted 15 years, the longest 23 years,'' Rogers, 63, said in an interview. So if history is any guide, ``they've got a long way to go.''

Prices of crude oil, copper and zinc are at records as speculators and hedge funds seek investments delivering greater returns than stocks and bonds. Global supplies have been curbed by lack of investment and output disruptions, making it harder to meet demand led by China, the world's fastest growing major economy. The Goldman Sachs index of 24 commodities reached an all-time high yesterday.

``Supply and demand is terribly out of balance for nearly all commodities right now,'' Rogers said in Singapore April 17. ``This is not a bubble.''

Bullion for immediate delivery reached a 25-year high of $624.80 an ounce today, still below an all-time peak of $850 for spot gold in 1980. Crude oil rose to a record $71.60 a barrel in New York yesterday and copper gained the most in nine years.

Price `Attainable'

``Gold at $1,000 is attainable, but to achieve it we'll have to see a further deterioration in the macro-economic environment leading to a decline in the dollar,'' said Hong Kong-based Alastair McIntyre, head of marketing at ScotiaMocatta, the bullion unit of the Bank of Nova Scotia.

``Jim Rogers is a respected figure as he saw the move in commodity prices before it happened,'' he said by phone today.

The Goldman Sachs Commodity Index has increased 13 percent this year, compared with a 4.8 percent gain in the Standard & Poor's 500 stock index. Benchmark U.S. Treasuries have lost about 1.6 percent, according to Merrill Lynch & Co. indexes.

``Nearly everything makes a new all-time high in a bull market,'' said Rogers, who co-founded the Quantum hedge fund with Soros in the 1970s. He didn't predict when gold would reach $1,000 an ounce. The precious metal traded at $623.10 an ounce at 1:45 p.m. Singapore time today.

China's booming economy is fueling demand for energy and raw materials needed for factories, homes and cars. The nation, home to 1.3 billion people, grew 10.2 percent in the first quarter, up from 9.9 percent in the previous three months. China is the world's biggest consumer of steel, copper and zinc and the second-largest user of energy.

Copper Gains

Copper prices in Shanghai have gained 88 percent in the past year to a record on expectations of increased demand. Gold prices in India, the world's largest consumer of the metal, have increased about 35 percent in the past year.

Lack of investment in new supplies of commodities is driving up prices.

``Nobody has discovered a major oilfield in over 35 years. All the major oilfields are in decline,'' said Rogers. ``Unless someone does something quickly, the price of oil is going to go a lot higher over the next decade.''

He depicted a similar scenario for metals. ``Nobody has opened any major mines anywhere in the world for many years and it takes a long time to bring new mines on stream,'' he said. ``All the old mines are in the process of being depleted and demand is continuing to grow.''

Farm Commodities

Agricultural commodities may offer new investment opportunities. ``That's where prices have moved least.'' Cotton prices are more than 50 percent below their all-time high; soybeans are 60 percent below their peak and sugar 80 percent, Rogers said. ``These agricultural commodities are very cheap on any historical basis,'' he said.

Rogers, who lives in New York, traveled through China by motorcycle and car as part of trips around the world to pick up investment ideas. The journeys culminated in the books ``Investment Biker'' and ``Adventure Capitalist.'' Rogers also wrote the book ``Hot Commodities.''

The commodity index fund he started in late 1998 has more than tripled.



To contact the reporters on this story:
James Poole in Singapore: [e-mail]
Jeremy Naylor in London: [e-mail]
Last Updated: April 19, 2006 01:57 EDT

[yikyak] 19/4/2006 12:00

£terling gold @ £350, wahooooooooo.

[kojak78] 19/4/2006 10:56

BTW, 220p is a NPV valuation, a common mistake many pundits make when analyzing gold stocks. 10% for Penjom and 12% for the other mines were used. Just do that sort of analysis on Newmont and what price target do you reach? $14 for Newmont?

Hm, $450 gold price long-term. $250 cash costs. 7.2m production, mine life let's say 13 years. A few hundreds overhead etc., taxes, makes net $700m per annum, NPV at 10% (stable regions) = $5470m.
Divided by 448.53m shares = $12.20/share. But wait, why does Newmont stocks cost $56 then?

Better read Barry Cooper's (CIBC World Markets) "Eureka! A Better Valuation Method" (2002).

[kojak78] 19/4/2006 10:19

We're all wrong, there is no revaluation of AVM, the higher share price is driven by exploration mainly IMHO.

"A 27 hole, 3,511m programme on Durian has been
completed and confirmed continuous, oxidised, high sulphidation epithermal
mineralisation. The minimum strike length is estimated at 600 meters, with a width
of 100-150m and a depth of 150m. Results announced on 29 March 2006 include
78m at 2.47g/t, 58m at 1.88g/t, 86m at 1.4g/t, 79.3m at 1.56g/t and 29m at 3.5g/t
gold. All drill rigs have now been moved to complete a similar programme on
Osela, with results expected in May 2006."

Can't be better than that! 600m*150m*150m*2.55t/m^3*.8g/31.1024g/oz = 880000 ozs

"Pusian, the most recent discovery within the CoW, produced results including 8.8m
at 4.1g/t and 16.1m at 6.41g/t from trenching. Management have mapped the main
vein over a 600m strike distance but believe that this will double."

"The eventual aim is to more than treble
ZGC 2008 forecast production of around 85,000oz to around 300,000oz pa
over time."!!!

Evolution reports have always had unrealistic, too conservative price targets. Who cares? When did analysts predict share prices correctly? IMHO we, the investors, are way better in doing that because we have made much more money. However, those reports can guide us, can give us a glimpse behind the curtains. I believe AVM managements feeds Evolution with a lot of "quotes" that they can't make in their own name because of liability reasons.

[supersturrock] 19/4/2006 09:57

AVM just appeared in top 10 holdings of Artemis Small Cos UT.

[kojak78] 18/4/2006 20:08

Don't remember what costs they assumed, must be something like 250 or 270. That means at $615 gold price the margin is double from $450 gold price and the price target is 400 to 440 at current gold prices instead of 220p at $450. Not too bad.

AVM management is very honest and puts everything that is written about the company on the web page.

[brad1] 18/4/2006 18:54

us long term holders, not to mention recently acquired holders, already know (or should know) the potential of AVM and what it could be worth in the future. We also know that the management have been very cautious in what they state and therefore we have not got let down by results / announcements. I still believe the company is in development stage, in that they are way off their ultimate goal! I have not read the EVO reasearh note and will not have time for a while, so a good summary would be good if not already supplied by posts. But a conservative estimate using $450/oz is the worst case scenario as we all know (well at least for next 3 years).

If they start stating $600 or even $800 this will rocket and become a very volatile share with extreme buy and sell volumes. Personally I am happy they state the lower end values and let the market govern the price, after all the management have been conservative but ARE delivering the goods (or should I say value) to shareholders. I have done very rough calculations myself (far to rough to quote) and I know what this could potentially be worth. The hedge will be gone shortly, although the recent options are with us for just less than 3 years. These options could prove a not so prudent move as the gold price could rocket, and once again i return to my earlier statements that I am expectying a fairly significant announcement shortly regarding what they are going to do with this short term cash flow. It had better be good or otherwise the management have made a serious, but far from fatal, error. Anyway lets see what happens over the coming 6 months as I am sure it will be very interesting for gold and avm.

[tamref] 18/4/2006 18:34

New to this bb. Bought in this am.

Yep...seems like the target price is way too low and strange of management to publicise the report in this way. Although, I do like the way management has vastly reduced AVM's gold hedge over the last year (when gold price was lower) so that cashflows into the future will benefit from the current and future higher price of gold.

Heard this morning that a US investment fund (link provided to TV report on EKA board earlier courtesy of unionhall) is projecting gold to be about 800USD by year end.

[kojak78] 18/4/2006 16:33

Hm, you could be right, perhaps AVM is using $450 long term gold price forecast as well?

IMHO Taror/Chore musn't be included into the exploration category as these are partially or fully developed mines. It's as if Gold Fields had put some of its ozs in Driefontein or Kloof into exploration category..

Perhaps the prices are held artificially low in order to suggest to the reader that he has found a hidden gem no one else will buy because of the low target. Who knows.. AVM could trade well above 700p (in overvalued territory, but so are all the others) now if it was promoted in the right way.

I guess we still have years and years and years to hold on until AVM realizes a fair price.

[dixi] 18/4/2006 16:06

If it is so wide of the mark why do Avocet put this on their website. They must surely approve of the contents and work with the broker to get the info as correct as possible? Otherwise why put it on the AVM website?

I don't doubt it may contain inaccuracies - but why do AVM let this slip in such a flipant manner?

[kojak78] 18/4/2006 15:41

Once again, EVBG Research with their twisted sense of reality.. target of 220p, who will buy because of such a research note? Their resource tables are way off the mark, too. No word of Taror/Chore resources. More and more it seems as if they try to suppress the share price.

[arpowell99] 18/4/2006 14:31

sorry, should have given a link; AVM website on the 'investors' page - link near the bottom

[dixi] 18/4/2006 13:58

Oh well - not this one - I notice that certain threads now have relevant words highlighted in posts as advertising links.

Back to AVM.....................

[dixi] 18/4/2006 13:57

ARPOWELL99 - can you provide a link - I have not been able to find the report - is it a subscriber document?


Test:

Are our BB posts being used for advertising by adding links to certain words such as money, retire, pension, isa, stockbroker, investment, bank, mortgage?

If so do I get a cut for using the words in every sentence?

[arpowell99] 18/4/2006 13:04

Hi to all long term holders.
28page EVO note available via the website. Haven't yet had a chance to read myself though.

[hosede] 18/4/2006 12:49

Looks like we saw the bottom of the dip at 180 - but it might still consolidate for a while before taking off again - unless the loony Neocons nuke Iran of course when gold will climb into the stratosphere!

[kojak78] 18/4/2006 08:57

Really gets interesting.. last year North Lanut wasn't at full production yet, waste stripping at Jilau, delivery into the hedge positions, so yes, earnings will be somewhat disappointing.

This year will still see some waste stripping at Jilau.

However, the "rolling p/e" as I call it is still below 10. I assume current annual production of 220,000 to be increased to 240,000 with ZGC dump leaching and improved production from Jilau. Cash costs let's say still very high $280 (oil's expensive you know). Gold price $615.
(($615-$280)*.24m - 15m overhead) * 65% (after tax) = US$42.5m = GBP 24.3m = 22.9p per share net earnings, rolling p/e 8.8 at 201.50p per share. Unbelievable..