O N L I N E
Avocet MINING PLC
C O R P O R AT E B R O C H U R E
or the past 16 years, Avocet Mining Plc has had its focus on South East Asia, firstly mining tungsten and latterly, gold. However, a major refocus is now underway that has indeed seen the company go west—specifically, to West Africa. The man overseeing this huge shift in strategy is CEO Brett Richards. “The company began in 1994 with gold and tungsten assets and that year it discovered Penjom in Malaysia,” he explains. “From that point the business was focused on South East Asia. We operate two mines in the region (the second site is called North Lanut and is located on the Indonesian island of North Sulawesi) and have a series of pipeline projects in Indonesia.
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Avocet Mining Plc
Avocet Mining Plc
“However, these existing assets are coming towards the end of their mine lives, with higher than desired costs and we have found it is becoming increasingly hard to manage operations in two distinct geographic locations, seven time zones apart. We now have an opportunity to focus on developing early stage exploration projects in a highly prospective district of Burkina Faso, with our fully commissioned first mining operation in West Africa—as there is simply lower hanging fruit in this part of the world. By being able to simplify our story and uncomplicate our lives, it will give us the chance to focus on understanding the quantum of the ore bodies we have under licence in Burkina Faso and Guinea, so as we can expedite building a bigger business in West Africa,” he says. The opportunity has manifested at Inata, in the southern Sahara region of emerging gold producer Burkina Faso. The chance to enter the new market arrived with perfect timing—the old management team at Avocet were beginning to look at alternative regions as South East Asia began to frustrate. “The West African assets were originally controlled by Wega Mining,” states Richards, “however, through a combination of factors primarily driven by being in a financial crisis during a time when the world was going through a financial crisis lead them to immediately look for a strategic partner to acquire the business. Wega Mining had no experience building or developing a mine, and had limited experience in West Africa. They went through a feasibility study and believed the project cost would be under US$100MM, and that construction would take less than 12 months. However, as they experienced financial problems they quickly looked for strategic alternatives.” At that point, 18 months ago, Avocet came in as a strategic partner and Richards became involved in the project to turn Inata into a fully functioning gold mine, and Avocet into an emerging producer in West Africa. However, this was no easy task— the construction project was poorly advanced, the contractors were poorly managed and there was significant re-engineering and re-work required in many areas. The site is located very close to the Sahara desert and the project started with no power, no water source, no road system and no capable infrastructure. Everything had to be built
Avocet Mining Plc
HGS Ltd is a supply and service company focusing
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on the industrial and mining sectors in West
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distributor for Goodyear Earthmoving tyres in West
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WATS Ltd. is the retail partner of Goodyear and operates
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its premium retail stores—“VULCO” in Ouagodougou.
“We now have an opportunity to focus on developing early stage exploration projects in a highly prospective district of Burkina Faso” from scratch. “When Avocet took control of the assets from Wega Mining, it was clear that serious changes were required to get the project back on track, and to mitigate any delays in start-up and commissioning. When we took over, we quickly set about a re-engineering and reconstruction plan that ended up extending the construction period by four months and adding $30 million of costs to the project. The guys at site did a tremendous job getting the operation to first gold on December 20, 2009,” says Richards. However, the turnaround since then has been extraordinary. Avocet poured its first gold in December 2009 and is now up to full production capacity. “This year has been all about commissioning and ramping up production, and the extra time and cost spent to ‘do it right’ last year has paid significant dividends in allowing for minimal start-up delays and extremely well positioned costs in such a short time frame; and is really testament to the skills and expertise of our guys getting it right.” The acquisition saw a number of existing Norwegian shareholders become part of Avocet Mining and the company, which was already listed on the London Alternative Investment Market (AIM), has now listed on the Oslo Børs as well.
The requirement of raising equity capital is not currently a consideration as the company is now producing 150,000 ounces of gold (annualised) per year with good cash flow. It has already started re-paying project debt and is delivering into the project hedge that came with the project facility as a result of the Wega Mining acquisition. “Now we are in a position to quickly understand the quantum and quality of the ore body at Inata, and in Belahouro—in an effort to support expansion plans of the construction of a new mine in Belahouro,” says Richards. “We have an area covering 1,660 square kilometres, and although our mining licence fits into around 10 per cent of that, we are quickly exploring a series of priority drill targets by commencing a large drill programme over the next 10 months, costing approximately US$25MM in 2011. Wega Mining simply drilled Inata out enough to justify an economic feasibility study to procure project financing, and did not completely drill the ore body’s extension out enough to understand the magnitude of the deposit—simply because of their financial distress,” explains Richards. “We need to gain a better understanding of Inata, and we need to do it quickly and efficiently,” he continues. “What we do know is we have recently
Avocet Mining Plc
increased the resources by 25 per cent, taking the deposit back to over one million ounces in reserves, which gives us a revised mine life of eight years. It is our goal to double the reserves and resources at Inata from feasibility study figures, and we are hoping to accomplish that by the third quarter 2011.” Inata is an open pit mine and has a relatively soft ore—it is fairly user-friendly and has simple metallurgy and provides for good recoveries. “We have been mining for over 18 months, and we only began drilling and blasting in the second quarter of this past year,” says Richards. “But more importantly to the upside is that the deposit is not fully understood yet, as it is open to the north; open at depth; and to the south. To understand the area better, we have embarked on an extensive 200,000 metre drilling programme that will cost approximately $10 million this quarter and a further $25 million during 2011.” In addition to investment in Burkina Faso, Richards says that Avocet will be investing $5 million to $10 million next year in Guinea, where the company acquired two exciting packages of land in the Wega Mining transaction. At the same time, he is busy working on a plan to completely move the company out of South East Asia and expects to make an announcement by the end of the year. “I’d like to make a clean break—our new mission will be to be a leading West African gold mining and exploration company,” he indicates. “Investment in West Africa is very much in vogue at present. Burkina Faso only brought out a Mining Code in 2003—and three years ago there was only one operational mine here. It is today becoming one of the world’s hottest fastest rising countries for gold projects.” With 400 people employed in Burkina Faso and an increasing shift towards local workers as training pays off, Avocet is clearly keen to help
the local community. The company invested $10 million and took eight months to build a barrage on a dry river that has provided a yearround water supply not just for the business, but for 10,000 local people who have moved settlements to the site. It is a project that has even drawn praise from the country’s prime minister, who hailed it the biggest corporate social programme in Burkina Faso’s history. The business has also built a school and birthing clinic and contributed housing for 250 people, ensuring its workforce has good living conditions. Today, Avocet Mining is a thriving business with a comfortable cash flow; and Richards has an organic growth plan to increase production to 500,000+ ounces per year in the next four years, and with inorganic growth, could very easily be a million ounce mid-tier producer in that same time frame. “Firstly we want to devise a plan to grow to the half a million ounce mark organically and that should be achievable in the next four years,” he says. “We are in a good position and do not need to rely on raising equity to procure the exploration, as Inata’s free cash flow is more than ample to finance all of the needs of the business in the foreseeable future. Investing in these projects will be the foundation of Avocet’s future, and by expediting new ounces of production into the group, it has a profound effect on diluting the hedge and increasing the cash resources,” says Richards. Richards goes on: “Our corporate philosophy is to be an unhedged gold mining company, and I would like to give our shareholders full exposure to the gold prices, but the hedge acquired in the Wega transaction limits this exposure—so introducing new, sustainable organic or inorganic ounces significantly dilutes the effect of the hedge, and the sooner we are able to do that, the greater the positive impact will be for the business.” www.avocet.co.uk
Avocet MINING PLC