Avocet Mining Share Discussion Threads

[jsandrew] 10/3/2005 09:30

just rattled off a quick email to avocet inquiring about their hedging policy, and future hedge plans

because at a p/e of 7.99 this looks like a steal, but the hedge worries me, no point be bullish on gold if your holding a gold stock that is hedged

[mieke] 10/3/2005 07:49

Next confirmed news will come on or around April 27th (7 weeks away) which will be final quarter gold production. Should include first proper quarter production from N.Lanut mine. Also possibly some uptick in production from the other 2 mines perhaps?

[kojak78] 09/3/2005 14:50

that sounds about right ;)

btw, somebody suggested buying back the hedge, 80000 oz at US$ 300. That would be US$11.2 mio. Avocet was wise not to buy back the hedge as the capital was put into North Lanut which was a very good decision. Opportunity costs for the hedge buyback would have been higher than the 5mio our so we would have saved.

but why not buy back the hedge now as Avocet generates lots of cash? well, what about buying back shares? If one considers a very strong cushion of safety in the valuation I would say Avocet is still worth 250p. So 11.2 mio share buyback would generate US$16.8 mio for shareholders. So up to US$650 POG its much wiser to buy back shares than the hedge!
Even if we'd reached US$650 POG you have to consider the new value of Avocet vs. the share price.

[yikyak] 09/3/2005 14:24

Durban Roodeport was always the Americans favourite after the last gold bull and on the surface a natural favourite to ride the existing one. A lot has happened since the last gold bull and DR is not the company it once was, weak management and huge dilutions and more importantly the ZAR/cash gold price.

If Avocet was on the AMEX however it would already be £3 (arbitrage) and reflect day to day movements in cash gold. As it is we are on AIM and only move once cash gold moves are confirmed. AIM investors seem to be more interested in the likes of White Nile etc and other pump and dump new issues. Perhaps Avocet could de-list and then re-list the stock, would hit £10 on it's first day, lol.

Seriously though Avocet will be one of very few perfect vehicles to ride the next leg up available on AIM. It's always been known as a boring stock and then all of a sudden it blows upwards, just when you least expect it. As for tree shaking and removing weak hands I believe the tactic used by the market makers is to bore the weak holders to death. :-)

[kojak78] 09/3/2005 12:57

Perhaps we should just wait 2 more months until we get 60-80000 oz from North Lanut and combined cash costs for the company below US$200

[kojak78] 09/3/2005 12:47

I hear them say: "ooh, Avocet that very very overbought expensive stock. look, it already is up 870%. I'll buy more of that cheap company, DRDGold, it has declined 85% and is a great value buy"

In fact, Avocet investments are worth now 64x the amount an equal DRDGold investment in 2002 is worth now.

But value?

Durban has 1.8 mio oz in reserves outside of SA, 330000 oz production and much higher cash costs, so the international branch of DRDGold is very comparable to Avocet, in fact probably worth less because of higher costs. The SA mines aren't worth anything as nobody will buy them, the only offer so far is 1 Rand. A closure would cost tens of millions and further operation probably tens of millions, too.

Yet DRDGold costs 260 mio (+debt!!) and Avocet only 200 mio. Why is a near bankrupt company with less reserves still more expensive than Avocet? When DRDGold at US$6 was possible, why not Avocet at 64 pounds? When people talk about US$50 for DRDGold share price, why not 500 pounds (not pence) for Avocet? That are the comparable price levels at equal valuation..

Sometimes I think the less reserves you have, the less equipment and the more "exploration potential"/hot air the more you're worth.

[taylor20] 09/3/2005 12:27

I suspect a lot of people are hoping for a fall back to 90p before topping up. At some point in the future they're going to realise this isn't going to happen...

Who's going to break first?

[corrientes] 09/3/2005 12:11

Any old excuse. Gold goes up so AVM goes down.It's clearly pegged to the US dollar,not the gold price !

[kojak78] 09/3/2005 12:05

Share price should be 1.30 now. Avocet tends to outperform the XAU and the XAU has risen 16.75% when Avocet was 98p

Perhaps we must go back to 90 first to shake off some more folks.

[jk8] 09/3/2005 11:46

Is there any link at all between the POG and the SP??

[kojak78] 09/3/2005 09:43

The recent share price action is really bitter. Since early 2003 Avocet has advanced only 150%.

Most of my other picks from that time have done considerably better. Philip Morris Cz 85%, Amerada Hess 150% and USG 500% (still a p/e of 4).

The difference is that all of these stocks didn't have the huge "crashes" that gold stocks so often show. E.g. Avocet "crashing" from 80 to 57 etc.

Amerada has showed the same performance and only declined 17% at the worst point.

So there were much better investments than Avocet over the last 2 years and you didn't have to dig very deep to find them.

The ridiculous fact is that all of these other companies didn't improve fundamentals at all (besides higher oil price), mostly it is higher valuation.

Avocet hasn't risen in valuation at all, ALL of the 150% comes from better fundamentals and earnings. What about POG = Oilx16? US$830 that would be the fair price.

However, I expect gold stocks to double this year and Avocet to quintuple. At 5 pounds p/e would be 30 @ POG 530 if production stays at these levels. At 75% production increase to 260,000 it would be 16 to 17 so very reasonable.

Valued at the reserve level means 530 US$ POG - 230 US$ cash costs = ca. US$300/reserve oz which would mean that at 5 pounds or US$1bn we would need 3 to 3.5 mio oz. We already have 1.9 mio "scheduled production" and "implied reserves", which is roughly 1/2 of measured and indicated resources, is well above 2 mio. Add to that the fact that AVM is one of the lower cost producers and has very complex geology at some of the mines which understates reserves and we'll have no problem on that front, too.

[jk8] 08/3/2005 21:45

I thought that as the POG went North so did the hedge price albeit still lagging (and vice versa) - or have i misunderstood the situation.

[yikyak] 08/3/2005 21:39

Consider UK listed miners as an echo of their North American cousins and you won't go far wrong, it takes a day or two to feed in. This week will take us to £1.03 on the bid. Thursday morning is my guess.

Regarding the hedge I would like to see Avocet at least close a portion of it on any cash gold weakness going forward. Even if it's in 5000oz blocks spread over a few years from an investor standpoint it's being cleared. I don't see it as a problem either way though, afterall, it's about delivering the product that the company produces and has control over..................if you are a bullion bank that's holding toxic derivatives then it's a different matter.

[saucepan] 08/3/2005 20:08

Nice finish to the gold price; perhaps it will wake AVM up.

[kojak78] 08/3/2005 19:10

Hedge or not, the fact is that the XAU made 15% while Avocet traded in a line between 97 and 99. Once we'll break out it we'll reach 1.15 very soon.

[bionicdog] 08/3/2005 19:04

one equity trader saying that it will probably be well received is hardly a guarantee of any rocketing.
btw spamming is never well received here at dog mansions.

[pecker1] 08/3/2005 19:01

I had hoped that AVM would have grasped the hedging nettle by now. But I do expect them to announce a phased reduction at the current FY end, giving us, say, 10,000 oz reduction per Qtr. during the 2005/6 and 2006/7 FY's.

Both Catchpole and Henry are good managers but tend towards beancounterism and completely fail to understand the marketing kudos which would come to AVM from the unhedged sticker. Look at Wheaton River's announcement today re their unhedged status - hedging really is a turn-off to shareholders as the gold bull gets up steam.

The only CEO I know who has convincingly argued the case for some hedging is Mark Bristow of Randgold who seems to know exactly what he is doing.

[kojak78] 08/3/2005 18:36

I contacted the company in 2003 early and suggested closing the hedge..

however, the hedge does cost much money to close, but you have to consider the startup of North Lanut and opportunity costs. Close the hedge or explore and build a new mine, that was the decision.

I think now as we have some mio spare cash would be the ideal time to close it. Or deliver into it.

In the end the hedge isn't a big deal, 10 or 20 mio to close it isn't much if you consider a .3 mio oz producer should have a market cap of 500 mio.

[bionicdog] 08/3/2005 18:28

gold currently testing $440 in the US.

[dixi] 08/3/2005 17:54

I don't think I suffer from either of those, but I'll take a tablet just in case.

The longer the hedge goes on the worse it looks.

We would have moaned at the time if they'd sorted it a year or two ago - but now we'd be very happy. So if gold does rise as hoped for should they bite the bullet and clear it sooner rather than later??

If gold gets to $500 that hedge will look even worse!

[bionicdog] 08/3/2005 17:48

superlatives will be gratefully acknowledged without brumania , as long as they are neither acataleptic nor migisteriallic.

[doobydave] 08/3/2005 17:38

Trader,
See header and two recent posts!
DD

[trader horne] 08/3/2005 17:35

I see Goml post 178 says AVM output is hedged - damn - I didn't know that! No wonder the stock stays put regardless of the zigzags of the POG.
Anyoine know how much is hedged and for how long ?