Avocet Mining Share Discussion Threads

[onceabroker] 25/3/2013 16:06

Paul

Many thanks, and I totally agree with you on 'no more hedges'. In one scenario, I believe the company is looking at Souama and more importantly Tri-K Feasibility result to feed the value of the company going forward, this would then give them more options at the end of 2013. Its still a long way to go, but there are some important catalyst on the horizon IMHO.

Best regards

John

[polaris] 25/3/2013 15:56

onceabroker,

OK - that changes things considerably if they can mine a higher grade area this year. I was just working on likely 120k oz falling to 100k oz in following years flagged in the last announcement. If they hit the 36k oz per Q then costs should fall to $950 for the year and so the effect of the hedge will be mitigated and the gross profit you list would be achievable. If they then bring the Souma trend ozs to reserves then they can fill the mill and keep production above 100k oz in future years.

Guinea - feasibility this year but where are they finding the cash for building the mine? No more hedges!!!!

Still not inclined to buy back here but will continue filling the numbers into my spreadsheet. At some point i will probably also calculate the 'cost' of the JH hedge just to ram the point home to the legacy they left AVM.

regards.

Paul

[onceabroker] 25/3/2013 15:32

Well worth listening to the conference call, its on the company website now. On a question of production for 2013, we had a answer that Q1 is probably around 28k oz with cash costs up, BUT the next 3 quarters will be up to around 36k oz. The explanation is that the Inata north mine is heading towards a high grade area of around 206,000 tonnes or ore, with a estimate of 3 to 4 g/t (Q1 1.8 - 2.0 g/t), this will ensure target of 130k oz for 2013, and lead hopefully to reduced cost for the 3 Quarters.

Also of note, with the current reworked hedge, estimates are for $35m gross profit margin.

Tri-K feasibility presentation due Q3 to Guinea government.

Souma resource to be added to increase total resource from 0.9 to 1.1m shortly.

Best regards

John

P.s. Paul, they will deliver another 44,230 to the hedge for the rest of the year, 29k already brought back.

hedge deliveries in the last three quarters of 2013 will total 44,230 ounces, reducing the hedge to 100,000 ounces by end of 2013;

[polaris] 25/3/2013 15:05

cl2201,

This is another sticking plaster of a deal. They will now deliver at least 73k (actually 53k, from 33k before) into the hedge from production this year at $950 (everything from today at $938) and the projected cash costs for this year are $1050-1100. That means all general and admin, cap-ex, exploration etc will be funded out of the new loan deal and existing cash. That money will all be spent by the end of 2013 and the cash pile further reduced, possibly to the new minimum of $12m required by Macquarie. Accelerated payback of the hedge from Inata cashflows from 2014-16 would suggest that hedge will be paid in around 40k, 40k and 20k (actually 36,34,30). Unless the exploration proves up some further resources that can be turned into reserves then this is still hand to mouth stuff for the next 3 years. What are the terms of this new loan deal from Elliott?

edit - does help if i read all the announcement rather than half as the answers are there. Those terms are rather nasty - pay back everything by the end of 2013 secured on the guinea assets, a 9% interest rate and 4m warrants at 40p. Elliott are not far short of a holding to launch a bid and those warrants would put it close to 30%. There are all sorts of mini clauses there too for the cash held on account.

I doubt you will see much in the way of a long term recovery based on that statement, though happy to be proved wrong.

regards,

Paul

[drewz] 25/3/2013 11:04

I agree that 12 month price target should be circa 50p.

Five year price target (after the costly hedge has fully unwound) should be 150p+.

I expect the gold price to burst through $2000 within 12 months as the €urozone falls apart, in which case all gold juniors can expect a major rerating.

[mirabeau] 25/3/2013 10:33

Thanks for tft

Author thirty fifty twenty






Date posted today 10:27

Subject analysis and risk evaluation

Opinion Strong BUY

Avocet at 22p

They have hedge of 172,000 at $950

Thus with current price of gold at say 1600 there is liability of c. $115million.

This liability however is not real CASH flow (as long as the mine can produce the gold) - it is the notional difference between the market price and the price AVM have committed to sell at. So it represents the additional profit that could have been made but the important thing to remember is that it is NOT a CASH flow.

Because mining is risky the provider of the hedge takes some security i.e. demands protected CASH and no doubt comes with some conditions. When the hedge was entered into it was expected to be fulfilled taking c. 20% of production i.e. c. 32k oz out of expected 160k oz. So naturally enough as the theoretical liability has increased and there have been production issues at the mine Macq. were getting a little jumpy.

The hedge was 172k oz. They have bought back 26k oz. In 9 months of 2013 46k (c. 50% of production) will be sued to bring the hedge back to 100k oz. And then over the 3 years to 2016 it will be fulfilled by c. 33% of production i.e. 100k oz out of 300k oz production (conservative).

However the value of AVM should be based on the discounted value of its future CASH flows.

Let's look at AVM in 12 months time....
It has a mine (Inca) producing 100,000 + a year and let's say that it makes 100 USD profit an ounce = 10m USD profit a year and let's say the mine has 6 years left (conservative).
Inca = 100k * 100 USD * 6 * NPV 80% = 48m USD
It then has 2 deposits that look likely to have economic value – Souma with OR 200,000 ozs (and company very positive about increases) and Tri K maybe OR c. 600,000. Both should be able to generate 200 USD profit per oz

Souma thus worth 200k * 200 USD * NPV 60% = 24m USD
Tri K thus worth 600k * 200 USD * NPV 50% = 60m USD
CASH – currently net c.20m USD, which roughly half is restricted.
There also have other longer term deposits which i will value at zero.

Thus for me INITIAL est. total value is c. 48+24+60+20+0=152m USD (100m GBP) (50p).
Now what about CASH FLOW? If they have 20m USD in CASH why do they need a 15m USD loan? Well it makes sense that they spend money to release the value from Souma and Tri K. However half the CASH is restricted. And for 2013 half of their production is being sold at 950 and oz to fulfil the hedge and thus potentially is CASH FLOW negative! So easily seen why then need a loan. The loan however is for development and expansion i.e. for ANY MINE you need to spend up front costs to investigate and explore and then recur investment over future years of production. So i'm glad that a current shareholder is providing the loan at a reasonable rate 9% and not at all greedy re the warrants 40p. The alternative offers presumably could have been a lot more dilutive.

So this deal means that AVM is still developing its assets – that makes sense to me.
Also then they are bringing forward the % of production committed to the hedge so this is significantly reducing the risk profile of the company at the cost of say 50% of 1 year's production.

In fact going to the extreme and saying that Inca less hedge worth nothing. We are still left with 2 gold explorations which have an NPV of 90m USD + CASH (60m GBP) (30p).

Now there are still risks – i.e. mining risk, gold price risk, mgt have not performed well, financing risk (loan must be repaid by end of 2013).
I think it is 50 / 50 risk but i will work on only 40% chance of success.
If goes badly there will be need for fund raising etc.. and i think equity worth 15p
If it goes well then I think 50p realistic and 40p+ likely.

So with lots of caveats and discounts i get a weighted price of c.25p. with lots of geared upside. I've topped up at sub 22p as i think the relief for the significant risk reduction with AVM will take the price up to 30p in the short term. All of which is supported by chart capitulation with volume and trace back.

All IMHO, DYOR + BOL
AVM is in my portfolio

[technofiend] 25/3/2013 08:13

"Avocet have completed the hedge restructuring and secured the company's future. The structure of the hedge puts the stock on a near 70% discount to book value. This discount should reduce dramatically now the bankruptcy risk has disappeared and we expect a 30p+ price in the days ahead which, in our opinion, is still immensely cheap. Check out our analysis in the last edition of our magazine here -

The lack of dilution to existing shareholders should be commended. The Board should step up at this level and buy stock themselves.

The issue of warrants with a strike price of 40p to largest shareholder Elliot tells the market where it and management see a floor value - Issuance of warrants over four million ordinary shares with an exercise price of 40 pence per share and a three year term, with customary anti-dilution provisions, to the Elliott Lender.

More following the conference call. With over 23% of the stock out on loan, prepare for fireworks in the stock price!"

....more at

[cl2201] 25/3/2013 08:11

Perfect RNS. All those scare-mongering stories of equity raising has been put to rest. I wonder if the shorters are going to be burnt today?

[dmore2] 25/3/2013 06:55

Refinancing completed

[a.fewbob] 24/3/2013 13:33

Anyother stocks worth looking at?

[technofiend] 22/3/2013 13:48

Looks like UBS has re-sold the bulk of the shares they bought the other week.

[buywell2] 21/3/2013 10:12

Buying WEGA has screwed the pooch

[polaris] 18/3/2013 12:00

The jump back to 20 suggests some kind of end of day ploy. I also notice that there was similar action in Highland gold late on Friday. All looks a bit dodgy.

For AVM, the management statement along with the results will be key to determining medium to long term prospects. Every day that they do not come to an agreement with MBL will hurt if cap-ex is curtailed.

regards,

Paul

[onceabroker] 16/3/2013 16:46

Paul

The combination of sells are matched to a 3m buy within the UT. As declared already this is guess work until Monday.

Congratulations on making profit on AVM, and commiserations on the POG loss. My earlier post was not intended as a personal remark to you, but more of a generalization. I am as guilty as the next man!

Best regards

John

[polaris] 16/3/2013 15:37

onceabroker,

Could well be partly that as intra-day volume was high on Friday before the closing trade. However, there must be a seller to match the buyer as it was a crossing trade and the trade volume was in excess of the previous 2-day trading volume. It was 3% of the company that changed hands in that trade.

As for the one sided view from someone who took a hit on AVM. Err, no. AVM netted me 122k GBP from the bottom in 2008 until i sold around 220 in 2010. It was POG that i gave it all back on! ;-)

I know this company inside out as i have been around it for years. They are in the mire due to previous management legacy and no amount of positive spin makes the numbers add up. However, i do keep and eye on companies when i sell for opportunities to rinse and repeat. AVM is no compelling buy even at this level. Depending on the terms of whatever agreement they come to with MBL it might be a recovery play, but it would be wise to await the deal rather than second guessing.

regards,

Paul

[onceabroker] 16/3/2013 15:14

There is only one way a ex holder, who has taken a large hit will portray the offending company, and it is not going to be positive I'm afraid. Therefor it is worth taking their posts as a one sided argument only.

The action on Friday was pure and simply a closing of a position, and here is how its done (opinion only).

Mr fund manager borrows 2m shares to take out a short position, once he reads the Febuary RNS, and sells the lot at 40, as he firmly believes the share price is going to crash.

Mr fund manager now needs to buy back the 2m shares at a low price, to one, give the 2m shares back to lender, and any inevitable shares left over are his profit.

So he tests the waters at 15.36pm on Friday (remember the 22.5 spike), but finds he cannot buy the shares back at 21, because 2m shares are a large order, and he is getting offered almost 30 to buy in one hit by the MM.

Well Mr fund manager is not going to have that, he borrows another 1m shares, and hits the MM's with small sell orders, paced at a few second apart, this drives the share price downwards as if the whole world is selling after receiving bad news, Mr fund manager is not worried about the price he is selling for, because he knows he can buy back cheaper, so selling at 21 / 20 / 19 and even 18 is no issue.

Right on the button, he throws a 3m buy order, and buys the lot back at 18. The MM have just been mugged off, along with the hundreds of stop loss orders that initiated on the downward trend, exasperating the push down.

Very clever, very effective, within the rules and perfectly legal. They hide behind stories leaked, they hide between PI's making assumptions, and the only time people realize, is when there is no negative news on Monday morning. Quite the opposite really, because Mr fund manager closed his position because he hears whispers that a RNS is due which is positive, and he desperately needed to close the position on Friday.

Sounds unbelievable........Ask Elliot if they have had a position on AVM, who better to take a short then the one who knows whats happening at the company!!!!!!!!!!.

Best regards

John

[cl2201] 16/3/2013 14:25

Polaris - I'm not suggesting that the 6m+ trade was necessarily manipulation, more so the circumstances leading up to said trade....but the question that begs to be answered is why Friday afternoon with 30 minutes left to trade?.

I agree that it is more than likely that an II has offloaded that much, but the question is why? The AVM board have already distanced themselves from an equity raise, so I believe this is unlikely. However, could this supposed II be privy to information regarding financing? possibly.

I think you're painting a much gloomier picture than that really exists (given the low SP), but that's your opinion. Next week should certainly see a few questions answered.

[noirua] 16/3/2013 13:11

Massive equity issue was made by Barrick Gold to close out hedging positions:

Barrick raises share offer to $4-billion - The Globe and Mail

[noirua] 16/3/2013 12:35

Sons of Gwalia's $800 million decline to bust has too many similarities to those of Avocet.

Bust, Sons of Gwalia Limited hedged itself to death in 2004: Sons of Gwalia - Wikipedia, the free encyclopedia

[polaris] 16/3/2013 12:34

cl2201 - how on earth can you call a 6m+ trade a manipulation? It is either a big player getting out or the prelude to some kind of placing. If the former then it doesn't look good as they IIs tend to be closer to the company than the PIs. If the latter, it suggests a placing price somewhat below the level at which they were willing to offload to then subscribe to that placing.

The cash position of the company is a mess and the forward production stats cannot support the hedge structure either. MBL has all the aces here and they can really turn the screw. Makes no difference what the IIs think. Cather may be backed into a corner that he has no options. Never trust a bank!

regards,

Paul