Avocet Mining Share Discussion Threads

[bionicdog] 22/7/2004 21:08

nothing new here , but an feature on minesite is welcome nonetheless.

Feature Story



Date : July 23, 2004



Avocet Reports Exploration Successes And Sticks To Forecast of Gold Production At Annualised Rate Of 300,000 Ozs By End 2005.

The good results for the year to end March announced by Avocet Mining had been well signalled. Even so it was good to see that its main Penjom mine in Malaysia continued to deliver the goods with a record 124,430 ozs and that earnings/share had risen from US3.03 cents to US12.2 cents. Yes, the company has succumbed to the current trend of reporting in US dollars on the basis that some of its peers do and gold tends to be denominated in US dollars. Hands up the number of Australian gold producers who report their financial statements in US dollars. It can be quite misleading when the A$ is strong against the US$ and the same applies to the UK where the gold price denominated in £s has not performed nearly as well as the gold price in deteriorating greenbacks.

And one last question. When the company gets round to paying a dividend, as it surely must before long now that it is restructuring the balance sheet with that in mind, will it send out the cheques in US$s? Its financial position is certainly strong and was boosted further by a US$15.5 million placement last September to help fund the development of the 80 per cent owned North Lanut project in Indonesia. At the year end cash balances stood at US$23.6 million and it also had a US$5 million credit facility from Macquarie Bank up its sleeve. Debt has been reduced to US$6 million and the company is therefore clearly well funded to complete all existing project including new expansion initiatives. A huge improvement over the last two years.

The Zeravshan Gold company in Tajikistan, where Avocet has a 49 per cent stake and total control, has not been a success no matter which way it is spun. In the chairman's statement it says that " ZGC generated positive cash flow and profit for the group." Charles Kernot, the very experienced mining analyst at Seymour Pierce, points out, however, that Zeravshan continues to underperform with cash costs of production still as high as US$322/oz and production on the low side at 55,000 ozs last year. The company is throwing money at it with US$8 million budgeted over the next 18 months on an expanded mining fleet, plant and infrastructure refurbishment and the installation of a 2.5 million tonne/year dump leach facility. The aim is to get production up to 100,000 ozs/year at a cash cost of US$250/oz, but even so gold production is not expected to advance this year.

The new project at North Lanut in Indonesia looks to be on track to start production in November as expected , ramping up to a rate of 50,000ozs/year from an open pit and dump leaching operation at a cash cost below US$200/oz. There is a cost over-run, however which is blamed on dollar depreciation, but unbudgeted items look a major culprit. This deal was brought to Avocet by Peter Flindell who joined the company from Newmont as chief geologist a couple of years ago. . During his career with Newmont, part of which was spent as exploration manager of the western Pacific region, he played a leading role in the exploration and development of the two million ounce Mesel gold mine in North Sulawesi, Indonesia, and was responsible for the discovery of North Lanut project which is about 40 km from Mesel. He was also involved in the early assessment and evaluation of Newmont's US$2 billion Batu Hijau copper-gold mine in Sumbawa, Indonesia.

It was his decision to remain in this region when offered a job elsewhere in the world by Newmont and he is clearly convinced that there is plenty of potential at Avocet's recent acquisition. Clearly he is monitoring a number of other possible deals, but at least equal priority has to be given to expanding resources around the existing projects and here he has been remarkably successful. Last year measured and indicated resources to JORC standards rose by over 1 million ozs to 4.89 million ozs on top of last year's production. And there are another 10 million ounces at Zeravshan in Russian categories C and P which will steadily be brought into JORC categories.

At Penjom a new deposit was added at Kurnia and there are a number of other targets identified to the south west. Drilling has also started on the Laylee prospect at Zeravshan and the mineralised zone between the Olympic and Khirskhona open pits is being explored. At North Lanut work is continuing on the nearby Talugon prospect and a new gold prospect 25 kms to the north has been identified. In Malaysia positive progress has been made on the Sungai Luit property and Avocet now has a 100 per cent interest in Damar Consolidated which owns the partially explored Buffalo Reef gold property near Penjom which already contains 90,000 ozs of mineral resources. The exploration potential should therefore be attracting more attention and the chairman, Nigel McNair Scott, is still happy with his forecast that the company will be producing at a rate of 300,000 ozs/year by the end of 2005.

[holdontight] 22/7/2004 20:51

I'll 2nd that !

[goml] 22/7/2004 14:25

biswell,
what's the difference between a puss and a wuss please?

[carntyne] 22/7/2004 13:30

But maybe the risk factor has to be priced in. After all the South Africans used to give yields in that region. I'm always worried that profits are dissipated under the law of diminishing returns. Hope it doesn't happen here.

[jeddah jo] 22/7/2004 13:20

Precisely Kojak, and once they change their covenants to allow them to pay a dividend, what will the yield on the share be? If you take their present cash at bank and in hand plus the rate at which they are generating cash now and will in the future it could be anything from a 10-20% annual yield!!!

JJ

[holdontight] 22/7/2004 13:19

Biswell....I was referring to Fincialsense not Jack and the Beanstalk !

[pecker1] 22/7/2004 10:56

kojak,

bald statement, bold prediction.

Results in US$ will help US investors to compare results with peer group.Re-rating should be on the cards over next few months, particularly if exploration results good.Well done AVM.

[kojak78] 22/7/2004 10:43

Hello,

I'm a long term Avocet holder and bought for 13 pence..

I don't know why anybody even considers selling Avocet.

The facts are:
(((Gold price -cash costs) * production) -7.5 mio US overhead) * 0.7 gives you the earnings figure in US$ (0.7 for the taxes)
divide by 1.85 to get GBP figures and by 107 mio to get earnings per share. 107 is fully diluted, oustanding shares are 104 mio.

One calculates 12.4 cent eranings per share for the last year, so the approach is very accurate.

What is the 2006 p/e of avocet?

Assumptions for 2006:
cash costs US$ 206
POG $396
annual production 310,000 oz

result:
18.2 pence earnings per share, p/e 3.6

US$ 500 POG gives you a p/e of 2.2

What should be the p/e of Avocet? Well, the North Americans trade at ca. p/e 40. they have a reserve life of about 9 to 10 years. Avocet has 4 years. Does that mean Avocet should have 4/9.5 * 40 as a p/e? No. Because Penjom has a special geological background which means there are more reserves but these reserves are insecure and can't be accounted for like e.g. in Nevada. So the real reserve life is perhaps 8 years. Still there is higher risk, 6 years would be a conservative figure.
On top of that the lower the reserve life the more worth is one reserve oz! Why? Because of discounted cash flow. 1 oz you'll get in 4 years is worth more than one oz you get only 10 years down the road.

A sensible p/e for Avocet is 0.6 times the average p/e of gold miners or 24!

So one Avocet share will be worth GBP 4.40 at POG US$396 and GBP 7.20 at POG US$500 in 2006.

regards
kojak

[biswell] 21/7/2004 21:43

Hold on

I wrote the book
B

[holdontight] 21/7/2004 21:39

Biswell, a word or warning....don't believe evrything you read !

[biswell] 21/7/2004 21:15

When markets crash hard like tommorrow is a fortaste of

Mining stocks get taket down as well

biswell knows bestest
B

[holdontight] 21/7/2004 20:46

Today's action was SO predictable. Next 4 weeks will see us move CONSIDERABLY higher. EVERYTHING about the results was good...EPS, 04/05 prod fcst; and overall longer term resource increase strategy.
150p is still to cheap imho......wer are headed for £2 and then £6+++
Work it our for yourselves guys....all based on POG at $450 min,,,anything more all the better !!

[the fox] 21/7/2004 16:18

And compared to peers undervalued.

DR

[theberg] 21/7/2004 15:44

402.64% increase in EPS not bad well above 5.90p projections (circa 6.64p) PER 10.69 x at 71.00p mid.

LONDON (AFX) - Avocet Mining PLC year to March 31 2004
Sales - 68.84 mln usd vs 48.55 mln
Pretax profit - 15.59 mln usd vs 3.65 mln
EPS - 12.20 cents vs 3.03

vjt/

[sideburnsam1979] 21/7/2004 13:20

Penjom is a fantastic cash cow that just keeps ticking over year after year since 1996, just look at the cash reserves and the reduced debt, it is enabling massive investment in exploration now and in the future and without the need to tap the market for further equity, this event is only going to be needed if they want to pull off a large deal which is likely to be the purchase of another company or a existing producing mine not to fund exploration, with $23m in the bank you don't have to.

If Avocet where sitting on there hands and the cash in the bank i would be worried but there not thats the point, they are expanding penjom and the surronding areas all the time, ZGC which as stated is cashflow positive and profitable, this will only strengthen with investment. North Launt which sounds better and better everytime they report news, increased reserves, production, lower running costs.

AVOCET IS CHEAP & UNDERVALUED!

[stevie blunder] 21/7/2004 12:49

I bought these at 63 quite recently, having previously sold out at 37 doh.....

Anyway, I have come to the conclusion that one of the things holding the share price back is the short mine life attributed to Penjom. At 4 years it looks like it could leave a big hole in production in the future. Now we all know that they will not be closing Penjom in 4 years, but we need to see the full plans to develop beyond that. A committment to an underground development and an analysis of underground production and costs would be helpful, as would successful exploration in the Penjom neighbourhood. Son of Penjom at Buffalo Reef would be just the ticket.

It is encouraging to see therefore in the results :

"While most of the Company's exploration efforts were focused on increasing
mineable resources at existing operations, new discoveries of deposits and
targets within the area of operations were also made............. The
most recent results for some of these prospects will be announced shortly."

I wonder what "shortly" means? I'll hang on for that, at least.


steve

[phillis] 21/7/2004 12:46

Proven and probable reserves are 7.65 years at constant levels of production. Assume same average selling price of gold as 03 and you get 90cents of earnings until today's reserves are depleted i.e.50p

[carntyne] 21/7/2004 12:28

What a shorter.On every thread that's going.Never answers questions, so B is a
computer controlled robot.

[biswell] 21/7/2004 12:22

Take the money and run.......nice tune
B

[biswell] 21/7/2004 12:21

US rates will be 4% by the end of 2005

That is eight rises, one every two months, 5 of the 0.25% and a further 3 of them 0.5%

That has not been factored into the $ or gold ....but it will be

B

[biswell] 21/7/2004 12:08

Have a look at www.financialsense.com

Look at yesterday´s wrap up

Have a look at CBM, could be some action coming
B

[the fox] 21/7/2004 11:57

Guess it's all about your viewpoint. Gold will drop in the short term but I personally believe we are in the early stages of a bull market in gold. 2005 will see real rises in the POG, once the US elections are out of the way. In a few years $400/oz will seem an abysmal under-valuation. Silver, Copper and Platinum will also rise but to what extent I cannot guess.

For AVM, any price above $350 will mean increasing absolute profit as that was the average POG for 2003. Each $35 above that means a 10% increase in revenue and profits without increasing production at all. I can see gold touching $380, maybe even $370 short term so Biswell is correct. He neglects the longer term view, I feel.

Good luck to all :)

DR