Company Information for Avocet Mining PLC

Company stock charts - 12 Month chart

AIM; AVM View full financial data

Company Statement

Avocet is a mining company listed on the AIM market of the London Stock Exchange. The Company's principal activities are gold mining and exploration in Malaysia (as 100% owner of the Penjom mine, the country's largest gold producer) and Indonesia (as 80% owner of the North Lanut gold mine in North Sulawesi).

Avocet currently holds a 19.9% interest in Dynasty Gold Corporation ("Dynasty") and a 15.7% interest in Monument Mining Limited. Both companies are listed on the TSX Venture Exchange in Canada.
 
 

Current Operations

Indonesia – North Lanut/Bakan
In December 2007 North Lanut upgraded its resources following the completion of 34 RC infill drill holes at the operation’s Riska pit, representing 3,585 metres drilled. The upgrade added 99,000 ounces to the resource before depletion. Resource development work has continued since then as part of an ongoing effort to expand the reserves and mine life. In May 2008 the Company announced further encouraging results from resource definition drilling at Riska. This consisted of 173 RC and 9 diamond drill holes, representing 15,109 metres of a planned 21,200 metres programme, and included a number of high grade intercepts. The programme is scheduled to be completed by September 2008 when a new resource  estimate will be published to include both the Riska deposit and the nearby Effendi deposit where the resource is also  expected to grow following successful extension drilling. A deep drilling programme is also planned to assess the resource and reserve potential of the deep sulphide resources up to 250 metres below the current designed open pit.

A significant factor during the year was that ore grades were approximately 50 per cent higher than shown in the resource model, which is based on initial man portable diamond drilling prior to access roads having been developed to the property; the mine also experienced gains in ore tonnes compared with the model. Analysis has indicated that higher than expected grades were the result of gold in highly leachable rock being washed out during previous diamond drilling by high pressure water used to cool the drill bite, causing the grades to be underestimated. Ore mined in the year of 1,969,000 tonnes was 57 per cent higher than the previous year, partly reflecting the introduction of all weather trucks, and partly because during the previous year the mine was forced to focus on the movement of waste required for re-engineering of the waste dumps and storm water ponds, following unseasonal rainfall in early 2006. However, the benefits of higher grades and ore tonnes mined were partially offset by a decline in recovery from 69 per cent in the previous year to 54 per cent, caused by an increasing proportion of transitional and sulphide ore now being processed as the Riska pit deepens. A number of changes have been initiated to improve recovery, including crushing of ore prior to leaching, separate processing of different ore types and an upgrade to the processing plant.

North Lanut achieved record production of 74,183 ounces in the year, an increase of 54 per cent over the previous year, as the benefits of higher ore processed and higher grades more than compensated for lower recovery. Cash costs fell 17 per cent to US$295/oz. The reduction partly reflects the contribution of higher grades in increasing production, but also reflects operating efficiencies made during the year including improvements to drilling and blasting, and greater productivity from the new Volvo ADT trucks which are capable of operating in extremely wet conditions commonly encountered in tropical locations. Unit costs in the final quarter of the year were affected by higher fuel prices and by lower production associated with the change in ore type from oxide to transitional ore, which requires a longer leach time.

The open pit portion of the Riska resource will be remodelled once the current resource definition drilling programme is complete. Deep drilling will also assess the potential of the deep sulphide resources up to 250 metres below the current designed open pit. Construction of a new heap leach pad (HLP3) is scheduled to be completed around the middle of the next financial year, providing leach pad capacity for the next 3-4 years. The operation expects the trend of higher grades than in the resource model to continue albeit at a lower percentage increase. However, the change in ore type to more transitional and sulphide ore means that longer leach times will be required to optimise recovery levels and maximise life of mine gold production. This may also require a change to the processing route in the future. Ore tonnes irrigated and production of gold in the next year are therefore expected to be lower than in the year just ended. A number of initiatives will be completed in the next year to improve recovery. A mobile crusher has been purchased to allow ore to be crushed prior to leaching which is expected to enhance recovery by 5 to 8 per cent. Different types of ore will be processed separately allowing transitional and sulphide ores the medium and long leach times, respectively, that they require. A plant upgrade will also be completed which will double the adsorption circuit capacity and provide increased irrigation pumping capacity, allowing gold to be recovered more quickly from the leach pad solution.

Malaysia – Penjom
Penjom reached the historic milestone in April 2007 of producing its one millionth ounce of gold. This is especially rewarding for all involved given the mine was built in 1996 on a reserve base of less than 250,000 ounces of gold. With close to one million ounces of gold still in the resource category and further resource potential along strike and at depth, Penjom has developed into a much larger deposit than initially thought.

During the year Penjom completed the commissioning of a new owner operated mining fleet, following a decision to transition from smaller contractor trucks to larger more fuel efficient equipment capable of supporting a higher mining rate. The operation also successfully commissioned a larger SAG mill to increase the plant’s capacity by 25 per cent. Other work associated with the expansion, such as a tailings dam raise and stream diversion, continues as planned. These developments are part of a drive to increase mining and plant throughput in order to allow the economic exploitation of resources and reserves that continue to grow to the north and south of the main pit but at lower grade, as announced in December 2006. Resource development at Penjom in the last year focused primarily on infill drilling in order to upgrade the confidence in the resource and facilitate improved life of mine planning. Penjom’s resources were further upgraded during the year, with the addition of 47,500 ounces, before depletion, from 31,270 metres drilled in the year. This upgrade means that nearly one million ounces of gold resources and close to 600,000 ounces of gold reserves have been added at Penjom since 2002.

Mining activity in the year focused on expanding Penjom’s main Kalampong pit through cut backs on the east and west walls, as well as mining of ore from the bottom of the pit. Work also commenced on the Manik and Janik areas adjoining the Kalampong pit to the south, including a temporary diversion of a small creek currently running between the Kalampong and Manik pits. Total tonnes mined at 17.3 million were in line with the prior year. The new mining fleet was available for only part of the year as it ramped up, and this benefit was offset by mining deeper in the Kalampong pit. Ore mined increased 27 per cent. As previously anticipated, Penjom’s mined ore grade was lower than the previous year, as the operation transitions to being a larger mine but at lower grades. In addition the grade of ore at the bottom of the pit continued to be variable. The ore grade mined was therefore 21 per cent lower at 4.18 g/t. Penjom, with its complex geology and carbonaceous ore, has always been a challenging orebody to mine and process. Although the management team have been able to generate a much better understanding of the geological controls of the orebody, the last year was no exception to the challenge of getting the most efficient mining and processing techniques employed. Tonnes milled in the year of 596,000 were 5 per cent above the previous year, reflecting a partial year benefit of the larger mill which was commissioned at the end of January 2008. Mill feed grade of 4.84 g/t was higher than the grade of ore mined due to processing of a proportion of higher grade stockpile material, but was 15 per cent lower than the mill feed grade of 5.67 g/t in the previous year when higher grade material was available from the pit and from stockpiles. Recovery was maintained above 90 per cent despite the lower grade of ore milled.

Penjom’s gold production of 83,724 ounces was 13 per cent below the previous year. The full mining fleet and the 25% increase in milling capacity were only available towards the end of the year and therefore only partially compensated for lower grades throughout the year. The mining cost in the year of US$1.16/t was kept below last year’s cost of US$1.17/t despite year on year price rises for diesel and other consumables of over 20 per cent. This has been possible as the new mining fleet has operated with great efficiency at a time of increasing diesel prices. Full year cash cost per ounce was US$334/oz, after deferring US$6.9 million of excess stripping costs, equivalent to US$80/oz. This compares with US$351/oz in the previous year when no costs were deferred; if deferred stripping cost accounting had been applied in the previous year, Penjom’s cash cost would have been US$262/oz for that year, reflecting lower consumable costs and lower mining volumes required per ounce of gold produced than in the year just ended. Costs in the final quarter of the year were impacted by the global increase in fuel costs and by contract renewals for many of the operation’s consumables. Over one third of the mine’s operating costs are directly related to diesel fuel or kerosene, used in the plant to suppress highly carbonaceous ores, with many of the other consumable and related costs indirectly related to the price of oil.

As part of the Company’s strategy to grow its resources and reserves, a resource development drilling programme of over 70,000 metres is scheduled at Penjom over the next year. This includes deep drilling to help assess the potential for underground mining in the near future, where areas of high grade ore are known to exist. This programme is significantly larger than the year just ended, which reflects the Company’s commitment to maximising the value of its existing operations, as well as the addition of a new US$1.0 million drill rig capable of drilling to greater depth. Remodelling of the open pit resource will take place once the progamme of drilling is complete, which is expected to take 12 months. Work has already commenced on a review of existing resources that may allow for an early commencement of underground mining with associated exploration drilling from underground. A number of years ago an exploration drive was successfully developed at Penjom from the bottom of the open pit. These previous works have now been encompassed by the expanded open pit. Equipment and expertise remains on hand to recommence this process given favourable economics. In the next year gold production will benefit from a full year of expanded mining and milling capacity to offset the impact of lower grades mined. This should allow gold production levels to at least be maintained in the next year and is expected to ensure consistent gold production in the future despite an anticipated decline in grades. Four new trucks have been purchased to maintain cycle times as mining takes place deeper in the pit, bringing the total haulage fleet to 49 units. Mining will be less dependent on the bottom of the pit, with more production coming from the east wall, the north of the pit and to the south at the Manik pit where grades are expected to be less variable. Full development of the Manik pit will require the diversion of the Jaleh creek around the south of the mine and this project is in progress with forest clearance under way. An interim creek diversion is being carried out in the meantime to allow access to resources in the Janik area between the Manik and Kalampong pits. The joining of the Kalampong and Manik pits will result in a single pit almost three kilometres in length.Costs will remain under significant inflationary pressure, especially the direct and indirect effects of higher oil prices. The 7 per cent royalty paid on all gold sales will also have an adverse effect on unit production costs as the gold price remains stronger than previous years. Continuous operational improvement will be a top priority in order to minimise unit costs, both through cost controls and efforts to maximise gold production.

Exploration Overview
Avocet is committed to organic growth through exploration. During the year the Company spent US$13.9 million on resource development and greenfield exploration in Malaysia and Indonesia, and drilled 72,470 metres. The Company continues to generate and explore new targets in its existing countries and in other South East Asian countries, and has approved an exploration budget of up to US$28.0 million for the next year. This includes US$11.4 million for resource development programmes at Penjom, North Lanut and Bakan. The remainder is focused on greenfield exploration and includes a contingent amount of US$8.5 million that will only be spent if earlier phases of exploration justify further expenditure. The Company anticipates that its resource base may grow to over 6 million ounces in the next two years from these programmes. Strict performance measures are applied to ensure appropriate prioritisation and that all projects fit an optimal development pipeline as shown below. Where possible, projects that are deemed non-core to the development pipeline will be divested for value, as occurred with the Buffalo Reef prospect in Malaysia.

Exploration - Malaysia
Exploration around the Penjom mine remains the Company’s priority in Malaysia, although there continues to be an active but low-key generative programme. The latter has led us to a number of grass roots targets in East Malaysia which the Company will be pursuing in the next year. The team has focused exploration efforts in the last year on infill drilling to upgrade the confidence in the resource and facilitate improved life of mine planning. This has been a function of the limited depth capacity of the Company’s RC drilling rig. The Company has purchased a larger multi-purpose drilling rig capable of drilling to 600 metres that will enable exploration of the deeper parts of the ore body along and beneath the persistent Penjom Thrust where there is significant potential for a future underground mining operation. Deep drilling is illustrated by the thick black lines in the section below. During the year, the Company completed 31,270 metres of RC drilling at Penjom and spent a total of US$3.2 million on exploration in Malaysia. The budget for the current year is approximately US$3.5 million which will fund an expanded drill programme at Penjom of over 70,000 metres in addition to district and regional exploration initiatives. The latter are contingent on successfully obtaining tenements over selected target areas.

Exploration - Indonesia
During the year exploration in Indonesia focused on resource development at North Lanut and Bakan and evaluation of the newly acquired Banda properties. Drilling at North Lanut focused on resource extensions at Riska and Effendi; positive results received from both prospects may lead to such extensions in the next year. The Riska drilling also highlighted potential for deep high grade sulphide mineralisation beneath the Riska oxide deposit. Infill drilling in the next year will evaluate the potential for this resource to sustain a longer mine life, albeit with different processes for the  recovery of gold. Exploration in the district continues to seek incremental resource additions to sustain the current operation. Infill drilling at Bakan, in support of ongoing feasibility work, confirmed and increased the confidence in the resources at Durian and Osela. Scout drilling of nearby prospects has identified several low grade satellites that may add to the project’s resource base. The acquisition of the Banda properties in July 2007 transformed the Company’s exploration in Indonesia by significantly expanding its portfolio of advanced exploration projects. Of the Banda properties, Doup and Tanoyan are the most advanced. Both located close to North Lanut and initial scout drilling has produced positive results. Doup consists of two main prospects, Panang and Benteng, which were previously drilled by Placer Dome in the late 1980s. Placer defined a resource of 17Mt @ 2.15 g/t Au containing 1.2 million ounces of gold based on this drilling. This resource is currently not JORC compliant because the original drill core is no longer available and the underlying data cannot be substantiated. Avocet has completed two holes to validate Placer’s drilling results and allow for initial metallurgical testwork; both holes intersected mineralisation over significant lengths and confirmed the previous drilling results. The Tanoyan vein system has lower grade, lower temperature veining at higher levels, which is typically located above or adjacent to higher temperature, multiphase veins that may include boiling textures. These boiling textures are associated with gold deposition in the vein system and can host bonanza gold grades. Many of the scout holes drilled at Tanoyan have intersected the higher level veins, suggesting that the boiling zone(s) may exist at depth. Equally promising is the Seruyung project in North Kalimantan, for the acquisition of which the Company signed a Memorandum of Understanding in February 2008 with an Indonesian company. Seruyung is a high-sulphidation epithermal system. Exploration by previous companies inferred a resource in the region of 225,000 to 330,000 ounces. Avocet believes that the high grade feeders that form these deposits have not been fully explored or modelled in this resource estimate, and also recognises potential for additional low grade, heap-leachable mineralisation within the tenement. The Company believes that each of these three projects has the potential for a million ounce resource and are amenable to development as mines. Avocet completed a first round of scout drilling on the Mangkaluku project in South Sulawesi. This produced several significant intercepts that confirm the potential of the project. The results of this exploration programme are under review. The Company spent US$8.1 million in Indonesia on resource development and greenfield exploration in the year and drilled 41,200 metres. The budget for the next year is US$6.7 million for resource development and US$11.5 million for exploration, with a programme to drill 44,700 metres and 60,000 metres, respectively. One third of the next year’s exploration budget is contingent on the success of early phase exploration.

Geographical Spread

Malaysia – Penjom Gold Mine

Indonesia – North Lanut Gold Mine

Board of Directors and Key Management

Nigel McNair Scott	(Non-Executive Chairman)
Jonathan Henry	(CEO)
Mike Norris	(FD)
John Newman	(Non Executive Director)
Mike Donoghue	(Non Executive Director)
Robert Pilkington	(Non Executive Director)
Sir Richard Brooke	(Non Executive Director)
R S Robertson	(Non Executive Director)

Company Address 7th Floor 9 Berkeley Street London, United Kingdom W1J 8DW Telephone: (44) 207 907 9000 Facsimile: (44) 207 907 9019 Email: avocetmining[at]avocet.co.uk Website: http://www.avocet.co.uk

Additional Address/Key Contact Malaysia Specific Resources Sdn Bhd Penjom Gold Mine Empang Jalih P O Box 49 27207 Kuala Lipis Pahang Darul Makmur Malaysia Tel: +60 (9) 322 7288 Fax: +60 (9) 322 7292 Email: avocetmining@avocet.co.uk Indonesia PT Avocet Bolaang Mongondow J1 Kol Sugiono No 24 Kotabangun Kotamobagu 95712  Sulawesi Utara Indonesia Tel: +62 (434) 21018 Fax: +62 (434) 23387 Email: avocetmining@avocet.co.uk

Capital Number of shares in issue: 121,576,530 Number of shares in treasury: 910,000 Number of shares with voting rights: 120,666,530

Annual General Meeting 25 September 2008

Year End 31 March

Nominated Brokers JPMorgan Cazenove Limited Ambrian Partners Limited

Nominated Advisors Ambrian Partners Limited

Broker/Analyst Reports

14/11/07 - Evolution Securities

Major Shareholders

Elliot Associates	16%
Artemis	11.2%
JP Morgan	9.0%
Nigel McNair Scott	5.1%
Invesco	3.2%

Related News

09/07/08 - With $120 Million Cash As Insulation, Avocet Mining Looks Comfy And Cosy While The Storm Rages Outside
13/02/08 - Avocet Is Slowly Expanding Resource and Production Ounces
08/10/07 - Avocet Mining Restructures Gold Collar Position To Achieve Exposure To The Gold Spot Price For 2008 and 2009
11/07/07 - Avocet Mining Set For A Strong Year In 2007/8 Without ZGC

Most Recent Statement

18/08/08 - SIGNIFICANT REDUCTION IN HEDGE POSITION - INCREASED EXPOSURE TO LONG TERM SPOT PRICES
31/07/08 - Q1 GOLD PRODUCTION HIGHER GOLD PRICES AND CASH COSTS, LOWER PRODUCTION
16/07/08 - Exercise of options satisfied by treasury shares
09/07/08 - PRELIMINARY RESULTS FOR THE YEAR ENDED 31 MARCH 2008
02/07/08 - Encouraging Gold Grades From Scout Drilling At Tanoyan, North Sulawesi, Indonesia
20/05/08 - Completion of Banda Transaction Satisfied by Treasury Shares