TIDMAVM
RNS Number : 4936L
Avocet Mining PLC
28 April 2015
Avocet Mining PLC
2014 Full Year Results
2014 SUMMARY
-- 86,037 ounces produced at Inata at cash cost of US$1,186 per ounce
-- Safety and health standards maintained: over 5 million hours
now worked since the last lost time injury
-- New, lower cost organisational structure implemented at Inata
-- Environmental and social baseline studies progressed at Souma
-- Tri-K exploitation permit awarded following successful
government liaison throughout the year
KEY FINANCIAL METRICS
Year ended Year ended
31 December 2014 31 December 2013
Audited Audited
================================================= ================= =================
Gold production (oz) 86,037 118,443
================================================= ================= =================
Average realised gold price (US$/oz) 1,263 1,261
================================================= ================= =================
Revenue (US$000) 110,444 149,261
================================================= ================= =================
Cash production cost (US$/oz) 1,186 1,203
================================================= ================= =================
Loss before tax and exceptional items (US$000) (28,443) (45,993)
================================================= ================= =================
Exceptional items (US$000) (111,692) (103,392)
================================================= ================= =================
EBITDA (US$000) (2,231) (10,463)
================================================= ================= =================
Cash generated by/(used in) operations (US$000) 12,095 (73,345)
================================================= ================= =================
David Cather, Chief Executive Officer, commented:
"After a challenging year in 2014, the recent award in March of
an exploitation permit for Tri-K was an important milestone for
Avocet. It clears the way for what I am confident will be a new
mine for the Company, and over the coming months our efforts will
be focused on progressing Tri-K towards the start of construction
of a heap leach operation as early as possible in 2016. I also look
forward to the results of the drilling and metallurgical test work
programme at Souma, which has potential either as a new standalone
operation or as a source of additional ore feed for Inata.
Meanwhile, we are fully committed to continuing the work begun last
year at Inata to improve production and reduce costs, and to
recover from the effects of the strike in December. I believe these
developments will assist in our efforts to secure financing for our
projects and for our corporate activities, and thus put the Company
in a more robust financial position."
FOR FURTHER INFORMATION PLEASE CONTACT
Avocet Mining PLC Bell Pottinger J.P. Morgan Cazenove
Financial PR Consultants Corporate Broker
David Cather, CEO Daniel Thöle Michael Wentworth-Stanley
Mike Norris, FD
+44 203 709 2570 +44 20 2772 2555 +44 20 7742 4000
NOTES TO EDITORS
Avocet Mining PLC ("Avocet" or the "Company") is an unhedged
gold mining and exploration company listed on the London Stock
Exchange (ticker: AVM.L) and the Oslo Børs (ticker: AVM.OL). The
Company's principal activities are gold mining and exploration in
West Africa.
In Burkina Faso the Company owns 90% of the Inata Gold Mine. The
Inata Gold Mine poured its first gold in December 2009 and produced
86,037 ounces of gold in 2014. Other assets in Burkina Faso include
eight exploration permits surrounding the Inata Gold Mine in the
broader Bélahouro region. The most advanced of these projects is
Souma, some 20 kilometres from the Inata Gold Mine.
In Guinea, Avocet owns 100% of the Tri-K Project in the north
east of the country. Drilling to date has outlined a Mineral
Resource of 3.0 million ounces, and in October 2013 the Company
announced a maiden Ore Reserve on the oxide portion of the orebody,
which is suitable for heap leaching, of 0.5 million ounces. As an
alternative, the potential exists to exploit the entire 3.0 million
ounce Tri-K orebody via the CIL processing method. The Company
announced on 2 April 2015 that an exploitation permit had been
awarded for Tri-K.
CHAIRMAN'S STATEMENT
2014 was another challenging year for the mining industry and
for Avocet. Our focus during the year was on recoveries and costs
at Inata and on positioning Tri-K and Souma as sources of real
value for shareholders. These objectives were made harder by a
strike in December and by continuing weakness in the gold
market.
At Inata a priority for the year was to build and commission the
carbon blinding circuit (CBC) designed to allow high grade
carbonaceous ore to be processed at high recoveries. Until
commissioning of the CBC in September, production was dependent on
clean oxide ore, which had become increasingly scarce and lower
grade. Following its commissioning, work continued to maximise
recoveries, including further performance test work to optimise
processing of each ore type. Initial recoveries were lower than
expected despite the positive impact of the CBC. However, the test
work was disrupted by the strike and must continue in order to
establish the ultimate level of recoveries achievable. Another
ongoing priority was on reducing costs, notably through lower waste
mining levels and reduced labour costs.
Disappointingly, gold production of 86,037 ounces was 27% lower
than in 2013, as the period of processing low grade oxide ore was
followed by lower than expected recoveries and the strike which
cost four weeks lost production. Importantly, however, the mine's
cost reduction efforts meant that total cash costs fell 28% from
US$142.5 million in 2013 to US$102.0 million. Cash costs per ounce
were therefore slightly lower at US$1,186 compared with US$1,203 in
2013.
In October the Ministry of Mines in Guinea advised the Company
that its Tri-K feasibility study had been examined and approved by
the Department of Mines and Geology. On 2 April 2015, the Company
announced that it had been granted an exploitation permit for
Tri-K, which is a considerable landmark for Avocet. In the
meantime, work has been ongoing to optimise the project in the face
of lower gold prices, including reductions in capital expenditure
and operating costs.
At Souma, a programme of drilling and metallurgical test work
has been prepared for the coming months and commenced in April
2015. The objectives are to confirm that Souma's metallurgy is
oxide and non-carbonaceous, and to generate a maiden ore reserve,
either as a standalone heap leach operation or as satellite feed
for Inata.
Our business review continued in 2014 and remains ongoing.
Discussions took place throughout the year with different parties,
including Avocet's largest shareholders, regarding Tri-K, Souma and
financing for the Company. These resulted in a GBP0.7 million share
placing in August and further short term loan funding of US$1.5
million in January 2015 and US$2.1 million in April 2015, both for
corporate purposes. The Company envisages that the latest funding
will be sufficient for its corporate activities through to the end
of September, during which time the Company expects to complete its
plans for financing and developing the Tri-K project, as well as
seeking longer term financing.
At the Company's head office, the number of employees has been
significantly reduced, down from 16 in 2012 to just four today, in
order to reduce costs and realign with the Company's current size.
In addition, the Company's Board is to be reduced further,
following the decision by Mike Donoghue, who has been a director
since July 2006, to stand down at the AGM on 19 June 2015. On
behalf of the Company, I would like to thank Mike for his
contributions over the years.
In addition to the usual resolutions at the AGM, this year we
will have some additional matters which we need to refer to
shareholders at a separate general meeting to be held immediately
following the AGM on the same day. The impairments recognised in
the year have resulted in the Group's consolidated shareholders'
funds showing a negative balance. There are two consequences of
this. The first is that under section 656 of the Companies Act
2006, we are required to convene a shareholder meeting to discuss
this with shareholders, as well as outlining how we will endeavour
to improve the situation in the future. The second is that the
Directors' borrowing powers under the Articles of Association,
which are calculated by reference to a multiple of shareholder
funds, are effectively removed. We will need to modify this clause
to ensure the Board is able to obtain the short term financing it
needs to develop its interests in Guinea and cover corporate
costs.
In addition, shareholder approval will be needed for the
proposed secured loan with Elliott Management, as set out in the
announcement on 24 April 2015.
Further details on all of these matters will be set out in the
requisite notices to shareholders, which we intend to send out
along with the Annual Report during May.
Looking ahead at 2015, it is clear improved recoveries and/or
gold prices at Inata are critical. The operation has struggled to
maintain production levels and its life of mine is now less than
three years. However, our management is determined to overcome the
current challenges and circumstances can of course improve.
Regarding the Company's other assets, I am encouraged by the
exploitation permit award for Tri-K and the prospect of a revised
Tri-K feasibility study based on lower costs, and by the potential
for new production at Souma. Our focus will be on exploiting these
opportunities in order to add value for shareholders and create a
platform for longer term financial stability.
Russell Edey
Chairman
CHIEF EXECUTIVE'S STATEMENT
Review of Inata, Burkina Faso
The mine faced a number of operational challenges during 2014,
including a strike which adversely impacted the year's total gold
production and cash flow. Total production of 86,037 ounces was
disappointing when compared to the target of 95,000 ounces.
Nonetheless, despite the reduced ounces produced, the continued
downward pressure on costs resulted in cash costs of US$1,186 per
ounce compared to US$1,203 in the prior year, reflecting our
management team's efforts to improve margins.
The timing of the strike in December was unfortunate as it
coincided with performance testing of the newly commissioned carbon
blinding circuit (CBC) and caused disruption to the plant set up
that persisted for several weeks. In particular, it interrupted
treatment of ore which is high grade but also has the highest
preg-robbing index (PRI) characteristics. The performance testing
to optimise gold recoveries therefore had to be deferred until the
first quarter of 2015 and is ongoing. Following the strike, a new
lower cost organisational structure was put in place that more
appropriately meets the mine's operational needs, including lower
mining activity.
It is pleasing to report that no lost-time injuries (LTI) were
suffered by any employees or contractors during the year. The last
LTI occurred in September 2013 and by the end of the year 458 LTI
free days had been achieved in the year, equivalent to 4.38 million
hours of work - which has since increased to over five million.
This was particularly commendable given the amount of work
undertaken in a more demanding, non-routine environment during the
construction of the CBC within the existing confines of the ongoing
operation of the CIL processing plant.
The operating strategy continued to focus on minimising the
strip ratio in response to lower gold prices. In 2014 this key
metric was reduced to 4.5 from 9.7 in 2013, resulting in
substantial reductions in mining costs - especially fuel usage and
mobile fleet maintenance.
Total Mineral Resources in the Bélahouro district have decreased
from 6.1 million ounces to 4.2 million ounces. The reduction
reflects a higher cut-off grade of 0.8 g/t rather than the 0.5 g/t
used previously, consistent with the operating strategy focused on
higher grade material. It also reflects a more conservative
approach in respect of material with high carbon content. Inata's
Ore Reserves of 0.33 million ounces have decreased for similar
reasons, as well as mining depletion during 2014. The mine plan has
a remaining life of 2-3 years, which excludes any ore feed from
Souma. Should gold prices rise significantly in the future, there
remains the possibility of increasing the gold price planning
assumptions and restoring a longer life of mine, but for the time
being management will maintain a conservative approach with a focus
on reducing costs and assessing potential ore feed from Souma.
In order to increase the gold produced in the remainder of the
life of mine, work is focussed on improving the precision of the
PRI estimate of each mining block of the ore reserves by increasing
the number of samples in the grade control drilling and assaying
prior to mining of the ore. It is apparent that the organic carbon
in the transition and fresh sectors of the orebody is more randomly
distributed than when previous block models of the reserves were
configured. Knowledge of the PRI prior to treating the ore is
important in order to maximise recoveries whilst minimising the
consumption of reagents and hence their cost.
There remain additional sources of oxide ore in the life of mine
plan. When this is planned to be processed, the CBC section of the
processing plant will not be operated given that no organic carbon
is present in this category of ore. The life of mine plan includes
nearly two million tonnes of low grade (approximately 1 g/t) ore on
the Rompad stockpile which will be processed following completion
of mining of the planned open pits.
A key theme in the mining industry, particularly in West Africa,
remains the downward pressure on all costs. Inata is no exception,
with the revised organisational structure reducing headcount by
over 200 positions, including more than thirty fewer high cost
expatriate roles.
Review of Burkina Faso exploration, including Souma
Within the Inata mine licence area and its surrounding area,
which includes the Souma project, only a very limited amount of
activity was carried out during 2014 owing to constrained
funding.
However, a modest drilling programme of four scout holes was
conducted within the Oka Gakinde exploration licence where an
aerial magnetic survey, followed by ground reconnaissance and grab
sampling, had identified a potentially significant magnetite
outcrop hosting vanadium minerals. Further work is planned in 2015
to evaluate the tonnage and grade of the discovery.
The Souma drilling and metallurgical test work programme that
commenced in April 2015 will determine to what extent Souma might
provide satellite ore feed to Inata, with minimal capital cost, or
would be best suited to a low cost standalone heap leach operation
benefiting from synergies with Inata.
Review of Tri-K, Guinea
Avocet announced on 2 April 2015 that the exploitation permit
had been awarded for Tri-K, following constructive liaison
throughout the year between the Company's representatives in Guinea
and government officials. In the intervening period since
submitting its feasibility study in October 2013, optimisation work
has been carried out to reduce capital and operating expenditure
significantly. In addition, as part of the Company's business
review, Avocet has been seeking appropriate partners for financing,
developing and operating the project. These discussions are ongoing
and will benefit from the granting of the exploitation permit.
Avocet is working to ensure that its financing and project
development plans will allow it to start construction as early as
possible in 2016.
Corporate Review
Operating difficulties in 2013 left Inata short of amenable ore
for processing and resulted in Avocet being unable to repay its
shareholder loan from Elliott when it fell due at the end of 2013.
As a result, during 2014 Inata was forced to operate on clean but
low grade ore while it constructed and commissioned the CBC, with
very limited cash flow to meet its working capital and capital
expenditure needs, and insufficient funding for Souma
exploration.
The Company obtained funding in August 2014 in the form of a
share placing with its largest shareholders, and since the year end
has secured two short term loans from Elliott. This ensured that
the Company was able to revise its Tri-K project with a view to
reducing its capital expenditure and operating costs significantly
in response to lower gold prices. Availability and draw down of
part of the most recent loan is conditional on shareholder approval
at a separate general meeting to be held immediately following
Avocet's annual general meeting on 19 June, and is at Elliott's
discretion. On the basis the Company is able to draw the loan down
in full, the current funding is expected to be sufficient through
the end of September during which time the Company expects to
conclude its efforts in financing and development planning for
Tri-K.
The Board believes that the activities at Tri-K and Souma should
generate value for the Group and should assist the Group in its
discussions regarding future financing, both for development of its
projects and for corporate purposes including repaying loans to
Elliott, which are repayable on demand. With this in mind, the
Company will continue to explore the options available to secure
longer term funding for the remainder of 2015 and beyond.
David Cather
Chief Executive Officer
FINANCIAL REVIEW
Financial highlights(1)
2014 2013
Year ended 31 December Audited Audited
--------------------------------------------------------------------- --------- ---------
US$000
Revenue 110,444 149,261
Gross loss (19,272) (30,388)
Loss from operations (137,537) (80,608)
EBITDA (2,231) (10,463)
Loss before tax (140,135) (149,385)
--------------------------------------------------------------------- --------- ---------
Analysed as:
Loss before taxation and exceptional items (28,443) (45,993)
Exceptional items (111,692) (103,392)
--------------------------------------------------------------------- --------- ---------
Loss for the year (149,788) (152,869)
--------------------------------------------------------------------- --------- ---------
Net cash generated by/(used in) operations (before interest and tax) 12,095 (73,345)
--------------------------------------------------------------------- --------- ---------
Net cash outflow (10,385) (39,687)
--------------------------------------------------------------------- --------- ---------
(1) Prepared in accordance with International Financial Reporting Standards.
Revenue
Group revenue for the year was US$110.4 million compared with
US$149.3 million in 2013. The Group sold 87,425 ounces at an
average realised price of US$1,263 per ounce during 2014, compared
with 118,334 ounces sold at an average realised price of US$1,261
per ounce (including hedge deliveries) in 2013. The lower revenue
reflected lower gold production in the year (30,909 fewer ounces
sold), as well as a fall in the average realised spot price in the
year from US$1,423 per ounce in 2013 to US$1,263 per ounce in 2014.
The 2013 total average realised price was impacted by the delivery
of 40,500 ounces into forward contracts at an average price of
US$950 per ounce.
Gross loss and unit cash costs
The Group gross loss in 2014 was US$19.3 million compared with
US$30.4 million in 2013, an improvement of US$11.1 million. While
gold production was adversely affected by lower throughput levels
and lower recoveries, the impact of this on gross profit was offset
by lower mining costs following a reduction in tonnages in response
to smaller pit sizes, a deliberate strategy to minimise the cost of
waste stripping in order to maximise cash generation at Inata. A
number of additional factors also contributed to this variance,
some of which were negative (including lower prices and higher unit
costs per tonne both mined and milled), and some beneficial (weaker
CFA rates meaning lower local costs expressed in US$ terms, lower
depreciation, and fewer one-off cost items in the year).
Unit cash costs at Inata decreased from US$1,203 per ounce in
2013 to US$1,186 per ounce in 2014. The impact of lower gold
production was mitigated by reduced mining volumes and cost savings
achieved in the year.
The table below reconciles the Group's cost of sales to the cash
cost per ounce. Further detail is provided in note 4 of the
financial statements.
2014 2013
Year ended 31 December US$000 US$000
---------------------------------------------------------------------------------------- -------- --------
Cost of sales 129,716 179,649
---------------------------------------------------------------------------------------- -------- --------
Depreciation and amortisation (23,614) (29,418)
---------------------------------------------------------------------------------------- -------- --------
Changes in inventory (895) 4,935
---------------------------------------------------------------------------------------- -------- --------
Adjustments for exploration expenses and other costs not directly related to production (3,172) (12,708)
---------------------------------------------------------------------------------------- -------- --------
Cash costs of production 102,035 142,458
---------------------------------------------------------------------------------------- -------- --------
Gold produced (ounces) 86,037 118,443
---------------------------------------------------------------------------------------- -------- --------
Cash cost per ounce (US$/oz) 1,186 1,203
---------------------------------------------------------------------------------------- -------- --------
Loss before tax
The Group reported a loss before tax of US$140.1 million in the
year ended 31 December 2014, compared with a loss of US$149.4
million in the year ended 31 December 2013.
In 2014, the Group recognised a number of impairments in
relation to its mining and exploration assets. The assets of Inata
were impaired by a total of US$105.5 million during the year, as a
result of lower gold prices, and changes in production assumptions
which had the effect of shortening the mine life and reducing the
expectation of cash generation. The Tri-K project in Guinea was
also impaired by US$6.1 million, mainly as a result of lower gold
price expectations.
Before exceptional items, the loss before tax for the year ended
31 December 2014 was US$28.4 million compared with a pre-tax profit
of US$46.0 million for the year ended 31 December 2013.
Taxation
The Group reported a tax charge in the income statement of
US$9.7 million in 2014 (2013: US$3.5 million), analysed as
follows:
2014 2013
Year ended 31 December US$000 US$000
----------------------- ------- -------
Inata, Burkina Faso 9,641 3,484
Avocet Mining PLC, UK 12 -
----------------------- ------- -------
9,653 3,484
----------------------- ------- -------
The 2014 tax charge in Burkina Faso included a US$5.0 million
provision in respect of a tax assessment undertaken in 2012
covering the years 2009-2011. At the time of the 2013 accounts,
management believed a full and final settlement of US$3.5 million
paid during 2013 would be accepted by the government of Burkina
Faso as a final settlement, however the tax authorities hardened
their position such that management now feel that the full amount
claimed by the government of US$8.5 million should be provided
for.
Also included in the tax expense in 2014 is a deferred tax
charge of US$4.6m in respect of withholding tax (WHT) and interest
tax (IRVM) that would be due on settlement of intragroup management
fees and loan interest invoices payable by the Company's Burkinabe
subsidiary, Société des Mines de Bélahouro SA (SMB).
EBITDA
EBITDA represents operating profit before
depreciation/amortisation, interest and taxes, as well as excluding
any exceptional items in the period. It is not defined by IFRS but
is commonly used as an indicator of the underlying cash generation
of the business.
EBITDA improved from a loss of US$10.5 million in 2013 to a loss
of US$2.2 million in 2014. The reasons for this are outlined in the
changes to gross loss as described above.
A reconciliation of Loss before tax and exceptionals to EBITDA
is set out below:
2014 2013
Year ended 31 December US$000 US$000
--------------------------------- -------- --------
Loss before tax and exceptionals (28,443) (45,993)
--------------------------------- -------- --------
Depreciation 23,614 29,418
--------------------------------- -------- --------
Exchange (gains)/losses (5,856) 109
--------------------------------- -------- --------
Finance income (2) (17)
--------------------------------- -------- --------
Finance expense 8,456 6,020
--------------------------------- -------- --------
EBITDA (2,231) (10,463)
--------------------------------- -------- --------
Cash flow and liquidity
A total cash outflow of US$10.4 million was reported for the
year ended 31 December 2014. Net cash generated by operating
activities (after interest and tax) totalled US$5.2 million, while
capital expenditures amounted to US$11.6 million.
Financing during the year represented an outflow of US$3.9
million including the net repayment of debts of US$4.4 million to
Ecobank, finance lease payments of US$0.7 million, and net proceeds
from an equity placement in August 2014 of US$1.2 million.
A summary of the movements in cash and debt is set out
below:
2014 2013
----------------------------- -----------------------------
Net cash/ Net cash/
Cash Debt (debt) Cash Debt (debt)
US$000 US$000 US$000 US$000 US$000 US$000
---------------------------------- -------- -------- --------- -------- -------- ---------
At 1 January 15,201 (76,475) (61,274) 54,888 (5,000) 49,888
---------------------------------- -------- -------- --------- -------- -------- ---------
Net cash generated by/(used
in) operating activities 5,208 - 5,208 (78,711) - (78,711)
---------------------------------- -------- -------- --------- -------- -------- ---------
Deferred exploration costs (28) - (28) (14,478) - (14,478)
---------------------------------- -------- -------- --------- -------- -------- ---------
Property, plant and equipment (11,613) - (11,613) (15,667) - (15,667)
---------------------------------- -------- -------- --------- -------- -------- ---------
Net loan repayments (4,371) 4,371 - 71,000 (71,000) -
---------------------------------- -------- -------- --------- -------- -------- ---------
Other movements including foreign
exchange 419 5,901 6,320 (1,831) (475) (2,306)
---------------------------------- -------- -------- --------- -------- -------- ---------
At 31 December 4,816 (66,203) (61,387) 15,201 (76,475) (61,274)
---------------------------------- -------- -------- --------- -------- -------- ---------
Included within cash at 31 December 2014 was US$4.2 million of
restricted cash (31 December 2013: US$5.6 million), representing a
US$2.3 million debt service reserve account held in relation to the
Ecobank loan (2013: US$2.7 million), and US$1.9 million (2013:
US$1.4 million) relating to amounts held on restricted deposit in
Burkina Faso for the purposes of environmental rehabilitation work,
as required by the terms of the Inata mining licence. US$1.5
million held in escrow in relation to the Burkina Faso tax dispute
at 31 December 2013 was released during the year.
The US$15.0 million Elliott loan fell due on its maturity date
of 31 December 2013, however the Company was unable to repay this
amount from unrestricted funds. At 31 December 2014, this amount,
and accrued interest of US$1.7 million, remained outstanding, and
two further loans, each of US$1.5 million, were drawn down from
Elliott during January and April 2015. Availability and draw down
of a further US$0.6 million under the most recent loan facility is
conditional on shareholder approval, and is at Elliott's
discretion. On the basis the Company is able to draw the loan down
in full, the current funding is expected to be sufficient through
the end of September during which time the Company expects to
conclude its efforts in financing and development planning for
Tri-K. The Board believes that the activities at Tri-K and Souma
should generate value for the Group and should assist the Group in
its discussions regarding future financing, both for development of
its projects and for corporate purposes including repaying loans to
Elliott, which are due on demand. With this in mind, the Company
will continue to explore the options available to secure longer
term funding for the remainder of 2015 and beyond.
Depreciation
The Group's depreciation charge decreased from US$29.4 million
in the year ended 31 December 2013 to US$23.6 million in the year
ended 31 December 2014. The majority of this related to the
depreciation of assets at Inata, which is predominantly calculated
on a unit of production basis against the life of mine plan as
established at the beginning of each financial year.
2014 2013
Year ended 31 December US$000 US$000
----------------------- ------- -------
Inata 23,614 29,223
----------------------- ------- -------
Other - 195
----------------------- ------- -------
23,614 29,418
----------------------- ------- -------
Capital expenditure
The Group's capital expenditure in the year was US$11.6 million
analysed as follows:
2014 2013
---------------------------------- ----------------------------------
Property, Property,
Deferred plant and Deferred plant and
exploration equipment Total exploration equipment Total
Year ended 31 December US$000 US$000 US$000 US$000 US$000 US$000
------------------------- ------------ ---------- -------- ------------ ---------- --------
Inata gold mine (Burkina
Faso) - 11,613 11,613 7,541 14,122 21,663
------------------------- ------------ ---------- -------- ------------ ---------- --------
Tri-K project (Guinea) 28 - 28 7,996 169 8,165
------------------------- ------------ ---------- -------- ------------ ---------- --------
Head office (UK) - - - - - -
------------------------- ------------ ---------- -------- ------------ ---------- --------
28 11,613 11,641 15,537 14,291 29,828
------------------------- ------------ ---------- -------- ------------ ---------- --------
Capital investment both in property, plant and equipment and in
exploration activity was reduced compared with 2013 in response to
the fall in the gold price and lower production from Inata.
Significant investments in the year included the construction of
the carbon blinding circuit (US$7.7 million), the tailings
management facility (US$1.7 million), and other plant and mining
equipment (US$2.2 million).
Non-financial Key Performance Indicators (KPIs)
The Company's non-financial KPIs primarily relate to gold
production at the mine.
Mike Norris
Finance Director
REVIEW OF OPERATIONS
Inata Gold Mine
Production Statistics 2014 2013 2012 2011
Ore mined (k tonnes) 2,529 3,114 2,653 2,494
Waste mined (k tonnes) 11,495 30,100 30,474 22,707
Total mined (k tonnes) 14,024 33,214 33,127 25,201
Ore processed (k tonnes) 1,903 2,353 2,556 2,471
Average head grade (g/t) 1.77 1.75 1.95 2.26
Process recovery rate 79% 86% 87% 91%
Gold produced (oz) 86,037 118,443 135,189 166,744
Unit Cash Costs US$/oz 2014 2013 2012 2011
Mining 422 547 412 217
Processing 442 373 309 244
Administration 234 187 161 139
Royalties 88 96 118 93
Total 1,186 1,203 1,000 693
Production at Inata in 2014 of 86,037 ounces was below the
guidance of 95,000 ounces and 2013 production of 118,443
ounces.
An illegal strike during December at Inata resulted in the
suspension of all mining activities. On 12 December, the Company
announced that the strike had been brought to a peaceful end, with
all strikers having been removed from site, together with the
majority of the workforce. In the subsequent days, a skeleton crew
of senior staff remained on site to inspect the mine's assets and
begin the process of returning to production. However, the loss of
production was a major contributor to the guidance target being
missed.
The commissioning of the carbon blinding circuit (CBC) at the
end of the third quarter meant that higher grade carbonaceous
material could be treated. Head grades averaged 2.92 g/t in Q4,
compared with 1.53 g/t in the previous quarter when only oxide ore
had been treated as had been the case in the first half of the year
whilst the new CBC unit was under construction. Processing of
carbonaceous ore meant that recoveries in Q4 were lower at 61%,
despite the positive impact of the CBC, compared with 85% in Q3.
Until disrupted by the strike, the CBC was being performance tested
against various combinations of ore grade and organic carbon
contents together with differing blends of blinding reagents.
Although the CBC outperformed expectations against laboratory test
work, other factors in the ore metallurgy negatively impacted
overall recoveries.
The mine continued with the operational strategy which was
adopted in 2013 of the LoMP being based on pit shells run at lower
gold price assumptions. This move to lower gold prices was made in
order to reduce stripping costs and increase grades, and thereby
make the mine more robust at lower gold prices, albeit over a
shorter mine life. The mine has a 2-3 year mine life, with a lower
strip ratio and higher grades as a result of focusing on a higher
grade portion of the orebody. Accordingly, 14.0 million tonnes were
mined by the fleet compared with 33.2 million tonnes in 2013. This
substantial reduction allowed the judicious standing down of mobile
equipment whilst still maintaining the mine's call factor in order
to reduce fuel and maintenance costs.
As a result of entering the transition zone of the orebody
during the year, the hardness of the ore increased with a
commensurate reduction in mill throughput. Despite similar
availability, the total tonnes processed reduced from 2.35 million
tonnes in 2013 to 1.90 million tonnes, partly reflecting a nine day
SAG mill shutdown in March. With recoveries also lower at 79%
compared to 86%, despite head grades being slightly higher at
1.77g/t compared to 1.75g/t, the overall gold produced was
substantially lower at 86,037 ounces, compared to 118,443 ounces in
2013.
Safety
In 2014, there were no Lost Time Injuries (LTI) reported at
Inata, and by the end of the year, the number of man hours worked
since the previous LTI had reached 4.38 million.
Bélahouro Mineral Resource development
During 2014, limited funds were available for exploration within
the Bélahouro group of licenses, which includes Inata and Souma.
Efforts of the exploration team were focussed on providing
geological support for activities within the mine lease. In the
light of the low gold price environment and higher milling and
mining costs it was decided to raise the cut-off grade for resource
calculations from 0.5g/t to 0.8g/t, which is closer to the actual
mining cut-off grades currently applied. After depletion and
applying the higher cut-off grade, total resources at the end of
2014 stood at 4.2 million ounces (77.7 million tonnes at an average
grade of 1.7g/t), down by 31% from 6.1 million ounces previously
stated.
Souma
The Souma deposit is located within an exploration licence
approximately 20 kilometres east of the Inata gold mine. Avocet
owns 100% of the exploration licence, which extends until 2017.
Mineralisation at Souma has the advantage that the ore is quartz
hosted and not associated with the carbonaceous shales seen at
Inata. Test work conducted during 2013 confirmed that material from
Souma is amenable to standard carbon-in-leach (CIL) processing
techniques and of the eight samples submitted, all returned gold
recovery rates above 90%.
Due to financing constraints, no additional drilling was carried
out on the Souma project during 2014. In April 2015 a drilling and
metallurgical test work programme commenced that is designed to
increase the confidence in the resources already delineated, grow
the resources and collect additional metallurgical data. Based on
results of this programme a feasibility study will be completed
early in 2016 and an application made for a mining licence.
A number of options are available for advancing the Souma
project. Souma could become a satellite operation for Inata, with
high grade Souma ore trucked to the Inata plant, and development
costs principally including the construction of a haul road
covering the 20 kilometres between Inata and Souma. Mining
equipment would be transferred from Inata to Souma at the
appropriate time, and haulage of ore to Inata might be carried out
by a local contractor.
Alternatively, oxide ores at Souma could be treated in a
standalone heap leach facility close to the deposits. High grade
material and ores not suitable for heap leaching could still be
trucked to Inata.
Oka Gakinde
Within the Oka Gakinde exploration permit a number of massive
magnetite lenses have been located in a large gabbro intrusion.
These cover a strike length of at least 4km and individual zones
are tens of metres thick. Assay of these has revealed that these
contain up to 56% Fe, 11.2% TiO(2) , and 0.85% V(2) O(5) . At depth
these zones are associated with sulphides. A small drilling
programme was undertaken to more clearly define the potential.
Five holes were completed to test this zone. The magnetite
mineralisation is stratiform with thin layers of magnetite
interbedded with gabbro and dolerite. The main zone of
mineralisation is characterised by numerous beds of massive
magnetite from a few centimetres up to 3.5 metres developed within
a broad zone of matrix hosted magnetite. Magnetite mineralisation
occurs over an interval of up to 100m. Matrix magnetite is
characterised by magnetite filling interstitial spaces to silicate
crystals. Sulphide minerals are present within the magnetite zones
and can represent up to 7% of the rock. Pyrite and pyrrhotite are
the dominant sulphide minerals. Assays of this material are still
pending. A potentially large resource is located here but
individual massive magnetite horizons are thin and some form of
upgrading would be required to produce a high grade product from
the massive and matrix magnetite zones.
Tri-K
In announcing the completion of the Tri-K feasibility study in
October 2013, the Company declared a maiden Ore Reserve for the
oxide component of the Tri-K orebody of 480,000 ounces (7.9 million
tonnes at a grade of 1.89 g/t Au). The life of mine plan announced
for a heap leach development was for a total of 7 years, with
average annual production of 55,000 ounces, through processing of
1.2 million tonnes of ore per annum.
An application for the exploitation permit was submitted in Q4
2013. No drilling activity took place in 2014, while the permitting
process was in train. On 2 April 2015, the Company announced that
the exploitation permit had been granted.
The development plan in the feasibility study outlined the
construction of a heap leach operation at the Kodiéran orebody,
towards the south of the Tri-K group of permits. In parallel to
mining of Kodiéran, a second mining operation will be established
at the Koulékoun orebody, which is located 20 kilometres to the
north of Kodiéran.
Metallurgical work determined that oxide material at Tri-K is
amenable to heap leaching. Samples of oxide material from both
Kodiéran and Koulékoun were subjected to column leach tests to
simulate the processing of ore on a heap leach pad, and both types
of ore returned gold recovery rates in excess of 80%. Kodiéran ore
exceeded expectations with overall recoveries in excess of 90%,
although a conservative assumption of 80% was assumed in the
feasibility study for both ore types.
The environmental and social impact study (ESIA) was also
completed in parallel to the feasibility study, and this was
approved by the Guinea government in September 2014. The study was
completed to international and national standards and where a
conflict arose between the international and national standards,
the code with the more rigorous requirement was applied.
Since submitting the feasibility study in 2013, further work has
been undertaken to re-engineer the project and reduce capital and
operating expenditure significantly. However, a new Ore Reserve has
not yet been completed.
ORE RESERVES AND MINERAL RESOURCES
Burkina Faso
Avocet Mining PLC (Avocet) owns 90% of Société des Mines de
Bélahouro SA (SMB), owner of the Inata gold mine. Avocet owns 100%
of the exploration permits surrounding the Inata mining licence
through its wholly owned subsidiary, Goldbelt Resources (West
Africa) SARL. Avocet, through its Burkina Faso operating subsidiary
SMB, commissioned CSA Global Pty Ltd (CSA) to report the Mineral
Resource estimates for the Inata and Souma Gold Projects during the
first quarter of 2015.
The Company's Burkina Faso Mineral Resource estimates are
presented in the tables below, quoted for blocks above a nominated
cut-off grade of 0.8g/t Au. The Inata and Minfo Mineral Resources
were depleted to the end December 2014 mining surface.
Inata's Ore Reserves were estimated to be 0.33 million ounces as
at 31 December 2014 based on optimised pits shells determined on a
gold price assumption of US$1,100 per ounce, reduced from 0.49
million ounces as at 31 December 2013, which had been based on
optimised pits shells determined on a gold price assumption of
US$950 per ounce. Cut off grades within the US$1,100 per ounce
shells were based on a gold price assumption of US$1,250 per ounce.
The reduction in Ore Reserves is largely attributable to mining
depletion and an increase in the cut-off grade. The increased
cut-off grade is influenced by the decrease in the assumed
metallurgical recovery of carbonaceous and refractory ore to be
mined for the remainder of the mine life.
A portion of Measured Resources (1.0 million tonnes) has been
classified as Probable Ore Reserves. This downgrading in confidence
is due to uncertainty relating to the metallurgical modifying
factors under JORC (2012) for material with an active carbon
content. The introduction of the carbon blinding circuit in 2014 is
a significant step to mitigate this drop in recovery, but a capped
metallurgical recovery has been used until actual performance
consistently supports a calculated value for metallurgical
recovery.
The operating mine life for Inata extends to 2017. The financial
analysis of the Ore Reserve Statement is independent of future
financing requirements.
Inata and Minfo Trends
Ore Reserve estimates are reported beneath the 31 December 2014
topographic surface and above an effective weighted average 0.78
g/t Au economic cut-off grade within mine designs based on economic
shell optimisations. Mineral Resources are reported above a 0.8 g/t
Au cut-off and below the 31 December 2014 topographic surface.
Changes to the Mineral Resources are after mining depletion during
2014.
Gross Attributable
----------------------------- -----------------------------
Grade Contained Grade Contained
Tonnes (g/t) ounces Tonnes (g/t) ounces
------------------------ ---------- ------ --------- ---------- ------ ---------
Ore Reserves
Proven 1,060,000 2.11 72,000 950,000 2.11 64,800
Probable 2,240,000 2.35 169,000 2,020,000 2.35 152,100
ROM stockpiles 1,980,000 1.34 85,000 1,780,000 1.34 76,500
------------------------ ---------- ------ --------- ---------- ------ ---------
Ore Reserves total 5,280,000 1.92 326,000 4,750,000 1.92 293,400
------------------------ ---------- ------ --------- ---------- ------ ---------
Mineral Resources
Measured 8,970,000 1.74 500,700 8,073,000 1.74 450,600
Indicated 22,720,000 1.75 1,279,300 20,448,000 1.75 1,151,400
------------------------ ---------- ------ --------- ---------- ------ ---------
Measured + Indicated 31,690,000 1.75 1,780,000 28,521,000 1.75 1,602,000
------------------------ ---------- ------ --------- ---------- ------ ---------
Inferred 29,170,000 1.61 1,513,400 26,253,000 1.61 1,362,100
------------------------ ---------- ------ --------- ---------- ------ ---------
Mineral Resources total 60,860,000 1.68 3,293,400 54,774,000 1.68 2,964,100
------------------------ ---------- ------ --------- ---------- ------ ---------
Note: rounding errors may occur
Souma
Gross Attributable
----------------------------- -----------------------------
Grade Contained Grade Contained
Tonnes (g/t) ounces Tonnes (g/t) ounces
------------------------ ---------- ------ --------- ---------- ------ ---------
Mineral Resources
Measured - - - - - -
Indicated 2,410,000 2.32 179,500 2,410,000 2.32 179,500
------------------------ ---------- ------ --------- ---------- ------ ---------
Measured + Indicated 2,410,000 2.32 179,500 2,410,000 2.32 179,500
------------------------ ---------- ------ --------- ---------- ------ ---------
Inferred 9,220,000 1.67 496,100 9,220,000 1.67 496,100
------------------------ ---------- ------ --------- ---------- ------ ---------
Mineral Resources total 11,630,000 1.81 675,600 11,630,000 1.81 675,600
------------------------ ---------- ------ --------- ---------- ------ ---------
Filio and Ouzeni
Gross Attributable
---------------------------- ----------------------------
Grade Contained Grade Contained
Tonnes (g/t) ounces Tonnes (g/t) ounces
------------------------ --------- ------ --------- --------- ------ ---------
Mineral Resources
Measured - - - - - -
Indicated - - - - - -
------------------------ --------- ------ --------- --------- ------ ---------
Measured + Indicated - - - - - -
------------------------ --------- ------ --------- --------- ------ ---------
Inferred 5,190,000 1.62 269,700 5,190,000 1.62 269,700
------------------------ --------- ------ --------- --------- ------ ---------
Mineral Resources total 5,190,000 1.62 269,700 5,190,000 1.62 269,700
------------------------ --------- ------ --------- --------- ------ ---------
Total Burkina Faso
Gross Attributable
----------------------------- -----------------------------
Grade Contained Grade Contained
Tonnes (g/t) ounces Tonnes (g/t) ounces
------------------------ ---------- ------ --------- ---------- ------ ---------
Ore Reserves
Proven 1,060,000 2.11 72,000 950,000 2.11 64,800
Probable 2,240,000 2.35 169,000 2,020,000 2.35 152,100
ROM stockpiles 1,980,000 1.34 85,000 1,780,000 1.34 76,500
------------------------ ---------- ------ --------- ---------- ------ ---------
Ore Reserves total 5,280,000 1.92 326,000 4,750,000 1.92 293,400
------------------------ ---------- ------ --------- ---------- ------ ---------
Mineral Resources
Measured 8,970,000 1.74 500,700 8,073,000 1.74 450,600
Indicated 25,130,000 1.81 1,458,800 22,858,000 1.81 1,330,900
------------------------ ---------- ------ --------- ---------- ------ ---------
Measured + Indicated 34,100,000 1.79 1,959,500 30,931,000 1.79 1,781,500
------------------------ ---------- ------ --------- ---------- ------ ---------
Inferred 43,580,000 1.63 2,279,200 40,663,000 1.63 2,127,900
------------------------ ---------- ------ --------- ---------- ------ ---------
Mineral Resources total 77,680,000 1.70 4,238,700 71,594,000 1.70 3,909,400
------------------------ ---------- ------ --------- ---------- ------ ---------
Tri-K, Guinea
Mineral Resources as at 31 December 2014.
The table below reports the Mineral Resource above a 0.5 g/t Au
cut-off.
Avocet owns 100% of the Tri-K permits through its wholly-owned
subsidiary, Wega Mining Guinée SA.
Gross Attributable
----------------------------- -----------------------------
Grade Contained Grade Contained
Tonnes (g/t) ounces Tonnes (g/t) ounces
------------------------ ---------- ------ --------- ---------- ------ ---------
Ore Reserves
Proven - - - - - -
Probable 7,909,000 1.89 480,000 7,909,000 1.89 480,000
Ore Reserves total 7,909,000 1.89 480,000 7,909,000 1.89 480,000
------------------------ ---------- ------ --------- ---------- ------ ---------
Mineral Resources
Measured - - - - - -
Indicated 41,300,000 1.51 1,998,000 41,300,000 1.51 1,998,000
------------------------ ---------- ------ --------- ---------- ------ ---------
Measured + Indicated 41,300,000 1.51 1,998,000 41,300,000 1.51 1,998,000
------------------------ ---------- ------ --------- ---------- ------ ---------
Inferred 25,200,000 1.26 1,020,000 25,200,000 1.26 1,020,000
------------------------ ---------- ------ --------- ---------- ------ ---------
Mineral Resources total 66,400,000 1.41 3,018,000 66,400,000 1.41 3,018,000
------------------------ ---------- ------ --------- ---------- ------ ---------
Note: rounding errors may occur
The information in this report that relates to Inata Ore
Reserves is based on information compiled by Mr Karl van Olden, a
Competent Person, who is a Fellow of The Australasian Institute of
Mining and Metallurgy. Karl van Olden is employed by CSA Global Pty
Ltd, an independent consulting company. Mr van Olden has sufficient
experience which is relevant to the style of mineralisation and
type of deposit under consideration and to the activity which he is
undertaking to qualify as a Competent Person as defined in the 2012
Edition of the "Australasian Code for Reporting of Exploration
Results, Mineral Resources and Ore Reserves". Mr van Olden consents
to the inclusion in the report of the matters based on his
information in the form and context in which it appears.
Tri-K Ore Reserves were estimated by Mr Clayton Reeves (MSAIIM).
Mr Reeves is a Competent Person as defined by the JORC Code. Mr
Reeves has consented to the inclusion of the technical information
in this report in the form and context in which it appears.
The information in this report that relates to Mineral Resources
is based on information compiled by Mr David Williams, a Competent
Person, who is a Member of The Australasian Institute of Mining and
Metallurgy. David Williams is employed by CSA Global Pty Ltd, an
independent consulting company. Mr Williams has sufficient
experience which is relevant to the style of mineralisation and
type of deposit under consideration and to the activity which he is
undertaking to qualify as a Competent Person as defined in the 2012
Edition of the "Australasian Code for Reporting of Exploration
Results, Mineral Resources and Ore Reserves". David Williams
consents to the inclusion in the report of the matters based on his
information in the form and context in which it appears.
The information in this report that relates to Exploration
results is based on information supplied by Mr Robert Seed, a
competent person. Robert Seed is employed by Avocet Mining and has
sufficient experience which is relevant to the style of
mineralisation and type of deposit under consideration and to the
activity which he is undertaking to qualify as a Competent Person
as defined in the 2012 Edition of the "Australasian Code for
Reporting of Exploration Results, Mineral Resources and Ore
Reserves". Robert Seed consents to the inclusion in the report of
the matters based on his information in the form and context in
which it appears.
Consolidated income statement
For the year ended 31 December 2014
Year ended Year ended
31 December 2014 31 December 2013
Note US$000 US$000
------------------------------------- ---- ----------------- -----------------
Revenue 110,444 149,261
Cost of sales 4 (129,716) (179,649)
------------------------------------- ---- ----------------- -----------------
Gross loss (19,272) (30,388)
------------------------------------- ---- ----------------- -----------------
Administrative expenses (5,717) (8,218)
Share based payments (856) (1,275)
Net impairment of assets 5,7 (111,692) (40,727)
------------------------------------- ---- ----------------- -----------------
Loss from operations (137,537) (80,608)
------------------------------------- ---- ----------------- -----------------
Restructure of hedge 5,25 - (20,225)
Loss on recognition of forward
contracts 5,25 - (96,632)
Change in fair value of forward
contracts 5,25 - 54,192
Finance items
Exchange gains/(losses) 5,856 (109)
Finance income 12 2 17
Finance expense 12 (8,456) (6,020)
Loss before taxation (140,135) (149,385)
------------------------------------- ---- ----------------- -----------------
Analysed as:
Loss before taxation and exceptional
items 9 (28,443) (45,993)
Exceptional items 5 (111,692) (103,392)
Loss before taxation (140,135) (149,385)
------------------------------------- ---- ----------------- -----------------
Taxation 13 (9,653) (3,484)
------------------------------------- ---- ----------------- -----------------
Loss for the year (149,788) (152,869)
------------------------------------- ---- ----------------- -----------------
Attributable to:
Equity shareholders of the parent
company (136,120) (142,483)
Non-controlling interest (13,668) (10,386)
------------------------------------- ---- ----------------- -----------------
Loss for the year (149,788) (152,869)
------------------------------------- ---- ----------------- -----------------
Earnings per share:
Basic loss per share (cents per
share) 14 (67.09) (71.56)
Diluted loss per share (cents per
share) 14 (67.09) (71.56)
------------------------------------- ---- ----------------- -----------------
EBITDA(1) 6 (2,231) (10,463)
------------------------------------- ---- ----------------- -----------------
(1) EBITDA represents earnings before exceptional items, finance
items, depreciation and amortisation. EBITDA is not defined by IFRS
but is commonly used as an indication of underlying cash
generation.
The accompanying accounting policies and notes form an integral
part of these financial statements.
Consolidated statement of comprehensive income
For the year ended 31 December 2014
Year ended Year ended
31 December 2014 31 December 2013
----------------- -----------------
Note US$000 US$000
--------------------------------- ---- ----------------- -----------------
Loss for the year (149,788) (152,869)
Reclassification adjustments
for loss included in the income
statement 17 - 1,714
Total comprehensive loss for
the year (149,788) (151,155)
--------------------------------- ---- ----------------- -----------------
Attributable to:
Equity holders of the parent (136,120) (140,769)
Non-controlling interest (13,668) (10,386)
--------------------------------- ---- ----------------- -----------------
Total comprehensive loss for
the year (149,788) (151,155)
--------------------------------- ---- ----------------- -----------------
The accompanying accounting policies and notes form an integral
part of these financial statements.
Consolidated statement of financial position
At 31 December 2014
31 December 2014 31 December 2013
Note US$000 US$000
------------------------------ ---- ---------------- ----------------
Non-current assets
Intangible assets 15 17,206 23,249
Property, plant and equipment 16 32,750 131,988
Other financial assets 17 - 74
------------------------------ ---- ---------------- ----------------
49,956 155,311
Current assets
Inventories 18 41,004 58,919
Trade and other receivables 19 8,502 17,972
Cash and cash equivalents 20 4,816 15,201
------------------------------ ---- ---------------- ----------------
54,322 92,092
Current liabilities
Trade and other payables 21 45,751 34,934
Other financial liabilities 22 32,648 27,179
------------------------------ ---- ---------------- ----------------
78,399 62,113
Non-current liabilities
Financial liabilities 22 35,902 52,415
Deferred tax liabilities 23 4,614 -
Other liabilities 24 6,493 6,249
------------------------------ ---- ---------------- ----------------
47,009 58,664
------------------------------ ---- ---------------- ----------------
Net (liabilities)/assets (21,130) 126,626
------------------------------ ---- ---------------- ----------------
Equity
Issued share capital 29 17,072 16,247
Share premium 146,391 146,040
Other reserves 30 17,895 17,895
Retained earnings (169,614) (34,350)
------------------------------ ---- ---------------- ----------------
Total equity attributable to
the parent 11,744 145,832
Non-controlling interest (32,874) (19,206)
------------------------------ ---- ---------------- ----------------
Total equity (21,130) 126,626
------------------------------ ---- ---------------- ----------------
These financial statements were approved and signed on behalf of
the Board of Directors.
RP Edey AM Norris
The accompanying accounting policies and notes form an integral
part of these financial statements.
Avocet Mining PLC is registered in England No 3036214
Consolidated statement of changes in equity
For the year ended 31 December 2014
Total
attributable
Share Share Other Retained to the Non-controlling Total
capital premium reserves earnings parent interest equity
Note US$000 US$000 US$000 US$000 US$000 US$000 US$000
--------------------------- ---- -------- -------- --------- --------- ------------- --------------- ---------
At 1 January 2013 16,247 146,040 16,117 106,221 284,625 (8,820) 275,805
--------------------------- ---- -------- -------- --------- --------- ------------- --------------- ---------
Loss for the year - - - (142,483) (142,483) (10,386) (152,869)
Impairment of other
financial
assets 5,17 - - 1,714 - 1,714 - 1,714
Total comprehensive income
for the year - - 1,714 (142,483) (140,769) (10,386) (151,155)
--------------------------- ---- -------- -------- --------- --------- ------------- --------------- ---------
Share based payments - - - 1,663 1,663 - 1,663
Release of treasury and own
shares 30 - - 64 249 313 - 313
At 31 December 2013 16,247 146,040 17,895 (34,350) 145,832 (19,206) 126,626
--------------------------- ---- -------- -------- --------- --------- ------------- --------------- ---------
Loss for the year - - - (136,120) (136,120) (13,668) (149,788)
Total comprehensive income
for the year - - - (136,120) (136,120) (13,668) (149,788)
--------------------------- ---- -------- -------- --------- --------- ------------- --------------- ---------
Issue of shares 825 351 - - 1,176 - 1,176
Share based payments - - - 856 856 - 856
At 31 December 2014 17,072 146,391 17,895 (169,614) 11,744 (32,874) (21,130)
--------------------------- ---- -------- -------- --------- --------- ------------- --------------- ---------
The accompanying accounting policies and notes form an integral
part of these financial statements.
Consolidated cash flow statement
For the year ended 31 December 2014
Year ended Year ended
31 December 2014 31 December 2013
----------------- -----------------
Note US$000 US$000
-------------------------------------------- ---- ----------------- -----------------
Cash flows from operating activities
Loss for the year (149,788) (152,869)
Adjusted for:
Depreciation of non-current assets 16 23,614 29,418
Net impairment of non-current assets 5, 7 111,692 40,727
Share based payments 856 1,275
Taxation in the income statement 9,653 3,484
Other non-operating items in the income
statement 28 199 6,438
(3,774) (71,527)
Movements in working capital
Decrease/(increase) in inventory 2,063 (1,970)
Decrease in trade and other receivables 3,029 7,152
Increase/(decrease) in trade and other
payables 10,777 (7,000)
-------------------------------------------- ---- ----------------- -----------------
Net cash generated by/(used in) operations 12,095 (73,345)
Interest received - 2
Interest paid (5,981) (1,847)
Income tax paid (906) (3,521)
-------------------------------------------- ---- ----------------- -----------------
Net cash generated by/(used in) operating
activities 5,208 (78,711)
-------------------------------------------- ---- ----------------- -----------------
Cash flows from investing activities
Payments for property, plant and equipment (11,613) (15,667)
Exploration and evaluation expenses (28) (14,478)
Net cash used in investing activities (11,641) (30,145)
-------------------------------------------- ---- ----------------- -----------------
Cash flows from financing activities
Net proceeds from equity issued 1,175 -
Loans repaid 22 (4,371) (6,805)
Proceeds from debt - 77,805
Payments in respect of finance leases 22 (744) (573)
Financing costs - (1,444)
Net cash flows (used in)/generated
by financing activities (3,940) 68,983
-------------------------------------------- ---- ----------------- -----------------
Net cash movement (10,373) (39,873)
-------------------------------------------- ---- ----------------- -----------------
Exchange (losses)/gains (12) 186
-------------------------------------------- ---- ----------------- -----------------
Total decrease in cash and cash equivalents (10,385) (39,687)
-------------------------------------------- ---- ----------------- -----------------
Cash and cash equivalents at start
of the year 15,201 54,888
-------------------------------------------- ---- ----------------- -----------------
Cash and cash equivalents at end of
the year 20 4,816 15,201
-------------------------------------------- ---- ----------------- -----------------
The accompanying accounting policies and notes form an integral
part of these financial statements.
Notes to the financial statements
For the year ended 31 December 2014
1. BASIS OF PREPARATION AND ADOPTION OF INTERNATIONAL FINANCIAL
REPORTING STANDARDS ('IFRS')
The Group financial statements consolidate those of the Company
and of its subsidiary undertakings; the Group financial statements
have been prepared in accordance with IFRS and International
Financial Reporting Interpretations Committee ('IFRIC')
interpretations as adopted by the European Union at 31 December
2014.
The Group financial statements have been prepared under the
historical cost convention except for share based payments that are
fair valued at the date of grant and other financial assets and
liabilities that are measured at fair value. The accounting
policies applied in these financial statements are unchanged from
those used in the previous annual financial statements.
IAS 1 Presentation of Financial Statements (Revised 2007)
requires presentation of a comparative statement of financial
position as at the beginning of the first comparative period, in
some circumstances. Management considers that this is not necessary
in these financial statements as the 31 December 2013 statement of
financial position is the same as previously published.
Certain amounts included in the consolidated financial
statements involve the use of judgement and/or estimation.
Judgements, estimations and sources of estimation uncertainty are
discussed in note 2.
In issue but not effective for periods commencing on 1 January
2014
New standards and interpretations currently in issue but not
effective, based on EU mandatory effective dates, for accounting
periods commencing on 1 January 2014 are:
IFRS 9 Financial Instruments (IASB effective date 1 January
2018)(1)
IFRS 14 Regulatory Deferral Accounts (effective 1 January 2016)
(1)
IFRS 15 Revenue from Contracts with Customers (effective 1
January 2017) (1)
IFRIC Interpretation 21 Levies (IASB effective 1 January 2014)
(2)
Defined Benefit Plans: Employee Contributions (Amendments to IAS
19) (IASB effective date 1 July 2014) (3)
Amendments to IFRS 11: Accounting for Acquisitions of Interests
in Joint Operations (IASB effective date 1 January 2016) (1)
Clarification of Acceptable Methods of Depreciation and
Amortisation - Amendments to IAS 16 and IAS 38 (IASB effective date
1 January 2016) (1)
Annual Improvements to IFRSs 2010-2012 Cycle (IASB effective
date generally 1 July 2014) (3)
Annual Improvements to IFRSs 2011-2013 Cycle (IASB effective
date 1 July 2014) (4)
Annual Improvements to IFRSs 2012-2014 Cycle (effective 1
January 2016) (1)
Amendments to IAS 16 and IAS 41: Bearer Plants (effective 1
January 2016) (1)
Amendments to IAS 27: Equity Method in Separate Financial
Statements (effective 1 January 2016) (1)
Sale or Contribution of Assets between an Investor and its
Associate or Joint Venture - Amendments to IFRS 10 and IAS 28
(effective 1 January 2016) (1,5)
(1) Not adopted by the EU (as at 20 April 2015)
(2) EU mandatory effective date is financial years starting on
or after 17 June 2014
(3) EU mandatory effective date is financial years starting on
or after 1 February 2015
(4) EU mandatory effective date is financial years starting on
or after 1 January 2015
(5) Not likely to be adopted in its current form as the IASB is
redeliberating this issue
The Directors anticipate that the above pronouncements, where
relevant, will be adopted in the Group's financial statements for
the year beginning 1 January 2015 and will have little impact on
the Group's accounting policies or results.
Going concern
The Company has three loans due to an affiliate of Elliott
Associates, its largest shareholder, as follows:
1. First loan - taken out in March 2013, under which US$16.7
million was outstanding at 31 December 2014, comprising US$15.0
million principal and US$1.7 million accrued interest. The first
loan was due on 31 December 2013 and is secured against the Tri-K
exploration asset in Guinea;
2. Second loan - unsecured demand loan of US$1.5 million taken out in January 2015; and
3. Third loan - demand loan of US$1.5 million taken out in April
2015. The US$1.5 million drawn down in April is part of a facility
totalling US$2.1 million of which the remaining US$0.6 million is
subject to shareholder approval and at Elliott's discretion.
Shareholder approval will be sought at a separate general meeting
to be held immediately following the Company's Annual General
Meeting on 19 June for the third Elliott loan to be secured on
certain of Avocet's assets. If shareholder approval is not
obtained, the remaining US$0.6 million will not be available for
draw down.
These loans reflect the fact that Avocet's single mine, Inata in
Burkina Faso, has been unable to repay intercompany debts to the
Company that relate to the mine's construction and subsequent
lending. The weak gold market and Inata's disappointing operational
performance in the last three years mean that the Company has to
date been unable to raise sufficient equity to provide funding for
corporate purposes or to repay the above loans. In the absence of
funding from Inata or the capital markets, the Company envisages
that repayment of the above loans will be achieved through the
development or sale of its Tri-K project in Guinea or its Souma
exploration project in Burkina Faso.
Société des Mines de Bélahouro (SMB), the Avocet subsidiary that
owns Inata, has debt of US$42 million with Ecobank and trade
creditors totalling US$31 million. Inata continues to struggle
operationally and work continues to improve its gold recoveries and
production. Based on current circumstances the mine is not
presently expected to be able to make debt repayments to Avocet.
The liabilities of SMB are non-recourse to Avocet.
Since the start of 2014, the Company has conducted a business
review in response to the financial status of the group, including
considering various options for maximising the value of its assets
for the benefits of shareholders, namely at Inata, Souma and
Guinea. The aim of this review, which remains ongoing, is to secure
sufficient funding to address the Elliott loans as well as any
ongoing funding for corporate activities and Inata. During this
time a US$1.2 million placing in August 2014 and the second and
third Elliott loans have provided funds for corporate
activities.
While business review discussions have been encouraging with
parties interested in the development or sale of Tri-K or Souma, it
cannot be guaranteed that such funding for the Company or the wider
group will be secured. The combination of these circumstances
represents a material uncertainty that may cast significant doubt
on the Group's ability to continue as a going concern and,
therefore, that the Group may be unable to realise its assets and
discharge its liabilities in the normal course of business.
Nevertheless, the Board has a reasonable expectation that the
outcome of the financing process will be successful, including
obtaining shareholder approval for the third Elliott loan, based on
its view of the prospects for Tri-K and Souma, the parties involved
and the nature of early stage discussions. The Board has therefore
continued to adopt the going concern basis in preparing the
financial statements for the year ended 31 December 2014.
Should the Board's judgement prove wrong and sufficient funding
arrangements are not obtained as envisaged, the presentation of the
Group financial statements on the going concern basis would be
inappropriate and the Group financial statements would need to be
represented on a break up basis.
2. JUDGEMENTS IN APPLYING ACCOUNTING POLICIES AND SOURCES OF
ESTIMATION UNCERTAINTY
Certain amounts included in the financial statements involve the
use of judgement and/or estimation. These are based on management's
best knowledge of the relevant facts and circumstances, having
regard to prior experience. However, judgements and estimations
regarding the future are a key source of uncertainty and actual
results may differ from the amounts included in the financial
statements. Information about judgements and estimation is
contained in the accounting policies and/or other notes to the
financial statements. The key areas are summarised below:
Mineral Resources and Ore Reserves
Quantification of Mineral Resources requires a judgement on the
reasonable prospects for eventual economic extraction.
Quantification of Ore Reserves requires a judgement on whether
Mineral Resources are economically mineable. These judgements are
based on assessment of mining, metallurgical, economic, marketing,
legal, environmental, social and governmental factors involved, in
accordance with the Australasian Code for Reporting of Exploration
Results, Mineral Resources and Ore Reserves ('JORC code') produced
by the Australasian Joint Ore Reserves Committee. These factors are
a source of uncertainty and changes could result in an increase or
decrease in Mineral Resources and Ore Reserves. This would in turn
affect certain amounts in the financial statements such as
depreciation and closure provisions, which are calculated on
projected life of mine figures, and carrying values of mining
property and plant which are tested for impairment by reference to
future cash flows based on life of mine Ore Reserves. Certain
relevant judgements are discussed in note 7 in respect of the
impairment of mining assets.
Deferred exploration expenditure
The recoverability of exploration expenditure capitalised within
intangible assets is assessed based on a judgement about the
feasibility of the project and estimates of its future cash flows.
Future gold prices, operating costs, capital expenditure and
production are sources of estimation uncertainty. The Group
periodically makes judgements as to whether its deferred
exploration expenditure may have been impaired, based on internal
and external indicators. Any impairment is based on estimates of
future cash flows. In particular, the Group recognises that, if it
decides, or is compelled due to insufficient funding, to withdraw
from exploration activity at a project, then the Company would need
to assess whether an impairment is necessary based on the likely
sale value of the property. Certain relevant judgements are
discussed in note 7 in respect of the impairment of mining
assets.
Carrying values of property, plant and equipment
The Group periodically makes judgements as to whether its
property, plant and equipment may have been impaired, based on
internal and external indicators. A detailed impairment assessment
was undertaken at 31 December 2014, which was triggered by a
reduction in the gold price, as well as a reassessment of the Inata
life of mine plan.
The carrying value of assets was compared to the recoverable
amount. The recoverable amount used in the impairment review was
calculated on the Value in Use ('VIU') basis, being the discounted
cash flow of the Cash Generating Unit ('CGU'). A CGU is the
smallest group of assets that generate cash inflows from continuing
use. The Inata Mine has been identified as the CGU for the purposes
of impairment testing.
Key assumptions used in the calculation of VIU involve judgement
and estimation of uncertainties, including assessment of
recoverable Mineral Resources and Ore Reserves, gold prices,
operating costs, capital expenditure, and discount rates. Further
information is provided on key assumptions, and the judgements
made, in note 7.
Deferred stripping costs
The recoverability of deferred stripping costs is assessed based
on the projected future cash flows of the project. The Company does
not anticipate deferring any stripping costs from its current
operations.
Functional currencies
Identification of functional currencies requires a judgement as
to the currency of the primary economic environment in which the
companies of the Group operate. This is based on analysis of the
economic environments and cash flows of the subsidiaries of the
Group.
Taxation and deferred tax
Within the Group there are entities with significant losses
available to be carried forward against future taxable profits. The
quantum of the losses or available deductions for which no deferred
tax asset is recognised is set out in note 13. Estimates of future
profitability are required when assessing whether a deferred tax
asset may be recognised. The entities in which the losses and
available deductions have arisen are principally non-revenue
generating exploration companies and corporate management
functions. It is not expected that taxable profits will be
generated in these entities in the foreseeable future, and
therefore the Directors do not consider it appropriate to recognise
a deferred tax asset. Judgements made in estimating future
profitability include forecasts of cash flows, and the timing of
intercompany recharges.
Inventory valuations
Valuations of gold in stockpiles and in circuit require
estimations of the amount of gold contained in, and recovery rates
from, the various works in progress. These estimations are based on
analysis of samples and prior experience. A judgement is also
required about when stockpiles will be used and what gold price
should be applied in calculating net realisable value; these are
both sources of uncertainty.
Restoration, rehabilitation and environmental provisions
Such provisions require a judgement on likely future
obligations, based on assessment of technical, legal and economic
factors. The ultimate cost of environmental remediation is
uncertain and cost estimates can vary in response to many factors,
including changes to the relevant legal requirements, the emergence
of new restoration techniques and changes to the life of mine.
Provisions and contingent liabilities
Judgements are made as to whether a past event has led to a
liability that should be recognised in the financial statements or
disclosed as a contingent liability. Quantifying any such liability
often involves judgements and estimations. These judgements are
based on a number of factors including the nature of the claim or
dispute, the legal process and potential amount payable, legal
advice received, previous experience and the probability of a loss
being realised. Each of these factors is a source of estimation
uncertainty.
Recoverability of VAT
Recoverability of the VAT receivable in Burkina Faso is assessed
based on a judgement of the validity of the claim and, following
review by management, the carrying value in the financial
statements is considered to be fully recoverable. At year end,
US$5.7 million of VAT recoverable was impaired as a result of
uncertainty relating to its recoverability.
Forward contracts
On 25 March 2013, the Company announced a restructure of the
Macquarie forward contracts for delivery of gold bullion.
Management reviewed the transaction and concluded that the partial
settlement meant the remaining forward contracts no longer
qualified for the 'own use exemption'. The conclusion was made on
the basis that the transaction did not represent a one-off
settlement as the Group anticipated making further settlements and
therefore represented a practice of net settlement. In accordance
with IAS 39 financial instruments the forward contracts were
classified as a financial liability designated at fair value
through profit or loss as they met the requirements to be
classified as held-for-trading.
Previously the Group deemed these contracts to be outside of the
scope of IAS 39, as exempted by IAS 39.5, on the basis that they
were for own use, and gold produced would be physically delivered
to meet the contractual requirement in future periods. Following
the disposal on 24 June 2011 of the Company's two producing mines
in South East Asia, the forward contracts were restructured to buy
back approximately 20% of the forward contracts and extend the
delivery profile of the remaining ounces outstanding, with the
result that the hedged proportion of production from the Company's
one remaining producing mine, Inata, was reduced from approximately
60% to approximately 20%. Management at the time reviewed the
transaction and concluded that the contract remained outside the
scope of IAS 39 on the basis that a one-off settlement, in response
to the changing operational profile of the Group following the
disposal of South East Asian assets, did not represent a practice
of net settlement such that the contracts should be treated as
financial instruments
under IAS 39.
3. ACCOUNTING POLICIES
Consolidation
The Group financial statements consolidate the results of the
Company and its subsidiary undertakings using the acquisition
accounting method. On acquisition of a subsidiary, all of the
subsidiary's identifiable assets and liabilities which exist at the
date of acquisition are recorded at their fair values reflecting
their condition on that date. The results of subsidiary
undertakings acquired are included from the date of acquisition. In
the event of the sale of a subsidiary, the subsidiary results are
consolidated up to the date of completion of the sale.
The cost of an acquisition is measured by the fair value of the
assets given, equity instruments issued and liabilities incurred or
assumed at the date of exchange, plus costs directly attributable
to the acquisition where the acquisition completed prior to
accounting periods commencing 1 January 2010. For any acquisitions
occurring after 1 January 2010, the costs of acquisition are
recognised in the income statement. Identifiable assets acquired
and liabilities and contingent liabilities assumed in a business
combination are measured initially at their fair values at the
acquisition date irrespective of the extent of any Non-controlling
interest. The excess of the cost of acquisition over the fair value
of the Group's share of the identifiable net assets acquired is
recorded as goodwill. If the cost of the acquisition is less than
the fair value of the net assets of the subsidiary acquired, the
difference is recognised directly in the income statement as a
gain.
Exchange differences arising from the translation of the net
investment in foreign entities are taken to equity. All other
transactions, balances and unrealised gains and losses on
transactions between Group companies are eliminated, unless the
unrealised loss provides evidence of an impairment of the asset
transferred.
Exceptional items
Exceptional items are those significant items which are
separately disclosed by virtue of their size or incidence to enable
a full understanding of the Group's financial performance.
Transactions which may give rise to exceptional items include the
impairment of property, plant and equipment and deferred
exploration expenditure, the cost of restructuring forward
contracts, and material profit or losses on disposals.
Segmental reporting
An operating segment is a component of the Group engaged in
exploration or production activity that is regularly reviewed by
the Chief Operating Decision Maker ('CODM') for the purposes of
allocating resources and assessing financial performance. The CODM
is considered to be the Board of Directors. The Group's operating
segments are determined as the UK, Burkina Faso (which includes the
Inata mine as well as exploration activity within the Bélahouro
licence area), and Guinea (which includes the Tri-K project).
The Group does not report geographic segments by location of
customer as its business is the production of gold which is traded
as a commodity on a worldwide basis. Sales are made into the
bullion market, where the location of the ultimate customer is
unknown. During 2013, 40,500 ounces of gold were sold into forward
contracts with Macquarie Bank Limited, an international bank with a
stock exchange listing in Australia.
Foreign currency translation
1. Functional and presentational currency
The functional currency of the entities within the Group is the
US dollar, as the currency which most affects each company's
revenue, costs and financing. The Group's presentation currency is
also the US dollar.
2. Transactions and balances
Foreign currency transactions are translated into the functional
currency using the exchange rates prevailing at the dates of the
transactions. Foreign exchange gains and losses resulting from the
settlement of such transactions, and from the translation at
reporting period end exchange rates of monetary assets and
liabilities denominated in foreign currencies, are recognised in
the income statement.
Revenue
Revenue is the fair value of the consideration receivable by the
Group for the sale of gold bullion. Currently, all revenue is
derived from the sale of gold produced by the Inata gold mine. Gold
doré is produced at Inata and shipped to South Africa for refining
into gold bullion, being gold of 99.99% purity. Revenue is
recognised when the risks and rewards of ownership pass to the
purchaser, which occurs when confirmation is received of the
conclusion of a trading instruction to sell gold into the bullion
market at spot prices or to sell at pre-determined prices as part
of a forward contract.
Intangible assets
All directly attributable costs associated with mineral
exploration including those incurred through joint venture projects
are capitalised within Non-current intangible assets pending
determination of the project's feasibility. If an exploration
project is deemed to be economically viable based on feasibility
studies, the related expenditures are transferred to property,
plant and equipment and amortised over the life of the mine on a
unit of production basis. Where a project is abandoned or is
considered to be no longer economically viable, the related costs
are written off. The cost of ancillary services supporting the
exploration activities are expensed when incurred.
Property, plant and equipment
Mining property and plant consists of mine development costs
(including mineral properties, buildings, infrastructure, and an
estimate of mine closure costs to be incurred at the end of the
mine life), plant and machinery, and vehicles, fixtures and
equipment.
Mining property and plant is initially recognised at the cost of
acquisition, and subsequently stated at cost less accumulated
depreciation and any impairment. The cost of acquisition is the
purchase price and any directly attributable costs of acquisition
or construction required to bring the asset to the location and
condition necessary for the asset to be capable of operating in the
manner intended by management.
Mining property and plant is depreciated over the shorter of the
estimated useful life of the asset using the straight-line method,
or the life of mine using the unit of production method and life of
mine reserve ounces. Residual values and useful lives are reviewed
on an annual basis and changes are accounted for over the remaining
lives.
Exploration property, plant and equipment comprises vehicles and
camp buildings specifically used in the Group's exploration
programmes. Exploration property and plant is depreciated over 3-7
years on a straight-line basis.
The following depreciation methods and asset life estimates are
used for the components of mining and exploration property and
plant:
Category Depreciation method Asset life
--------------------------------- ------------------- ------------
Mine development costs Unit of production Life of mine
Plant and machinery Unit of production Life of mine
Vehicles, fixtures, and equipment Straight-line 3-7 years
Exploration property and plant Straight-line 3-7 years
--------------------------------- ------------------- ------------
Deferred stripping costs
Stripping costs incurred during the development phase of the
mine as part of initial pit stripping are capitalised as mine
development costs within mining property and plant. Subsequently,
these costs are depreciated from the point at which commercial
production commences using the units of production method and life
of mine ore reserves. Changes to life of mine ore reserves are
accounted for prospectively.
Stripping costs incurred during the production stage of the mine
are treated as either part of the cost of inventory produced or a
non-current deferred stripping asset, depending on the expectation
of when the benefit of the stripping activity is realised through
the processing of ore.
To the extent that the bene t from the stripping activity is
realised in the form of inventory produced in the current period,
the directly attributable costs of that mining activity is treated
as part of the ore stockpile inventory.
To the extent that the bene t from the stripping activity is the
improved access to ore that will be mined in future periods, and
the cost is material, the directly attributable costs are treated
as a non-current 'stripping activity asset'. Stripping activity
costs are only capitalised during a sustained period of waste
stripping, such as significant push backs or pit expansion. The
costs of short term variations from a life of mine stripping ratio
are absorbed as part of current period mining costs or ore
stockpiles, rather than being capitalised.
Stripping activity assets are depreciated using the unit of
production method based on the ore reserves for the component of
the orebody for which the stripping activity relates.
Treasury shares
Treasury shares are held at cost, and are deducted from equity.
Any gain or loss on the sale or transfer of treasury shares is
recognised in the statement of changes in equity.
Own shares
Own shares are held in the EBT and SIP, and are recorded at
cost, and deducted from equity. Any gain or loss on the sale or
transfer of these shares is recognised in the statement of changes
in equity.
Impairment of intangible assets and property, plant and
equipment
The Group carries out a review at each balance sheet date to
determine whether there is any indication that the above assets are
impaired. Assets are assessed for indicators of impairment (and
subsequently tested for impairment if an indicator exists) at the
level of a cash generating unit ('CGU'). A CGU is the smallest
group of assets that generates cash inflows from continuing use. If
an indication of impairment exists, the recoverable amount of the
asset or CGU is estimated based on future cash flows, in order to
determine the extent of impairment. Future cash flows are based on
estimates of the life of mine Ore Reserves together with estimates
of future gold prices and cash costs. Deferred exploration costs
are tested for impairment at least annually.
The recoverable amount is the higher of fair value less cost to
sell and value in use. An impairment is recognised immediately as
an expense. Where there is a reversal of the conditions leading to
an impairment, the impairment is reversed as income through the
income statement.
Inventories
Inventories comprise consumables, work in progress and finished
goods. Consumables are recognised at average cost and are
subsequently held at the lower of cost less a provision for
obsolescence and net realisable value. Work in progress consists of
ore in stockpiles and gold in process, and is valued at the lower
of average production cost and net realisable value. Finished goods
represent gold doré that is undergoing refining processes, or gold
bullion awaiting sale. Finished goods are valued at the lower of
average production cost and net realisable value. Net realisable
value is the estimated selling price less the estimated cost of
completion and any applicable selling expenses.
Financial assets
Financial assets are classified into the following specific
categories which determine the basis of their carrying value in the
statement of financial position and how changes in their fair value
are accounted for: at fair value through profit and loss, available
for sale , and loans and receivables. Financial assets are assigned
to their different categories by management on initial recognition,
depending on the purpose for which the investment was acquired.
Available for sale financial assets are included within
non-current assets unless designated as held for sale in which case
they are included within current assets. They are carried at fair
value at inception and changes to the fair value are recognised in
other comprehensive income; when sold, or impaired, the accumulated
fair value adjustments recognised in other comprehensive income are
reclassified through the income statement.
Trade and other receivables are measured on initial recognition
at fair value and subsequently at amortised cost using the
effective interest rates.
De-recognition of financial instruments occurs when the rights
to receive cash flows from the investments expire or are
transferred and substantially all of the risks and rewards of
ownership have been transferred. An assessment for impairment is
undertaken at least annually at each balance sheet date whether or
not there is objective evidence that a financial asset or a group
of financial assets is impaired.
Cash and cash equivalents
Cash and cash equivalents are defined as cash on hand, demand
deposits and short term highly liquid investments and are measured
at cost which is deemed to be fair value as they have short-term
maturities.
Leases
Finance leases are recognised as those leases that transfer
substantially all the risks and rewards of ownership. Assets held
under finance leases are capitalised and the outstanding future
lease obligations are shown in liabilities at the fair value of the
lease, or if lower at the present value of the lease payments. They
are depreciated over the term of the lease or their useful economic
lives, whichever is the shorter. The interest element (finance
charge) of lease payments is charged to the income statement on a
constant basis over the period of the lease.
All other leases are regarded as operating leases and the
payments made under them are charged to the income statement in the
period on a straight-line basis. The Company does not act as a
lessor.
Financial liabilities
Financial liabilities include loans, overdrafts, forward
contracts and trade and other payables. In the statement of
financial position these items are included within Non-current
liabilities and Current liabilities. Financial liabilities are
recognised when the Group becomes a party to the contractual
agreements giving rise to the liability. Interest related charges
are recognised as an expense in Finance costs in the income
statement unless they meet the criteria of being attributable to
the funding of construction of a qualifying asset, in which case
the finance costs are capitalised.
Trade and other payables and loans are recognised initially at
their fair value and subsequently measured at amortised costs using
the effective interest rate, less settlement payments.
Forward contracts are designated as held for trading financial
assets or liabilities at fair value through profit or loss, in
accordance with IAS39, on the basis that they represent derivatives
not designated as hedging instruments. As a result the forward
contracts are recognised at fair value as defined under IFRS
13.
Borrowing costs
Borrowing costs that are incurred in respect of the construction
of a qualifying asset are capitalised where the construction of an
asset takes a substantial period of time to be prepared for use.
Other borrowing costs are expensed in the period in which they are
incurred and reported in finance costs.
Income taxes
Current income tax liabilities comprise those obligations to
fiscal authorities in the countries in which the Group carries out
mining operations and where it generates its profits. They are
calculated according to the tax rates and tax laws applicable to
the financial period and the country to which they relate. All
changes to current tax assets and liabilities are recognised as a
component of the tax charge in the income statement.
Deferred income taxes are calculated using the liability method
on temporary differences. This involves the comparison of the
carrying amount of assets and liabilities in the consolidated
financial statements with their respective tax bases. However,
deferred tax is not provided on the initial recognition of
goodwill, nor on the initial recognition of an asset or liability
unless the related transaction is a business combination or affects
taxes or accounting profit.
Deferred tax liabilities are provided for in full; deferred tax
assets are recognised when there is sufficient probability of
utilisation. Deferred tax assets and liabilities are calculated at
tax rates that are expected to apply to their respective period of
realisation, provided they are enacted or substantively enacted at
the balance sheet date.
Pension obligations
The only defined benefit pension scheme operated by the Group
relates to a former US subsidiary undertaking which is no longer
part of the Group. Accordingly full provision has been made for
outstanding post retirement benefits. The liability recognised in
the statement of financial position is the present value of the
defined benefit obligation ('DBO') at the balance sheet date less
the fair value of plan assets, together with adjustments for
unrecognised actuarial gains or losses and past service costs. The
DBO is calculated annually by independent actuaries using the
projected unit credit method or an accepted equivalent in the USA,
and independent assumptions. The present value of the DBO is
determined by discounting the estimated future cash outflows using
interest rates of high quality corporate bonds that are denominated
in the currency in which the benefits will be paid and that have
terms to maturity approximating the terms of the related pension
liability. Actuarial gains and losses are not recognised in the
income statement.
Provisions, contingent liabilities and contingent assets
Other provisions are recognised when the present obligations
arising from legal or constructive commitment, resulting from past
events, will probably lead to an outflow of economic resources from
the Group which can be estimated reliably. Provisions are measured
at the present value of the estimated expenditure required to
settle the present obligation, based on the most reliable evidence
available at the balance sheet date. All provisions are reviewed at
each balance sheet date and adjusted to reflect the current best
estimates.
Restoration, rehabilitation and environmental costs
An obligation to incur restoration, rehabilitation and
environmental costs arises when environmental disturbance is caused
by the development or ongoing production of a mining property. Such
costs arising from the decommissioning of plant and other site
preparation work, discounted to their net present values, are
provided for in full as soon as the obligation to incur such costs
arises and can be quantified. On recognition of a full provision,
an addition is made to property, plant and equipment of the same
amount; this addition is then charged against profits on a unit of
production basis over the life of the mine. Closure provisions are
updated annually for changes in cost estimates as well as for
changes to life of mine Ore Reserves, with the resulting
adjustments made to both the provision balance and the net book
value of the associated non-current asset.
Share based payments
The Group operates equity settled share based compensation plans
for remuneration of its employees, which may be settled in cash
under certain circumstances. All employee services received in
exchange for the grant of any share based compensation are measured
at their fair values. These are indirectly determined by reference
to the share based award. Their value is appraised at the grant
date and excludes the impact of any non-market vesting
conditions.
All share based compensation is ultimately recognised as an
expense in profit and loss with a corresponding credit to retained
earnings, net of deferred tax where applicable. Where share based
compensation is to be cash settled, such as certain share based
bonus awards, the corresponding credit is made to accruals or cash.
The Group has certain share option schemes that may be settled in
cash at the absolute discretion of the Board. Currently, it is the
expectation that the options will be settled in shares, when
exercised.
If any equity settled share based awards are ultimately settled
in cash, then the amount of payment equal to the fair value of the
equity instruments that would otherwise have been issued is
accounted for as a repurchase of an equity interest and is deducted
from equity. Any excess over this amount is recognised as an
expense.
If vesting periods or other vesting conditions apply, the
expense is allocated over the vesting period, based on the best
available estimate of the number of share options expected to vest.
Non-market vesting conditions are included in assumptions about the
number of options that are expected to become exercisable.
Estimates are subsequently revised if there is any indication that
the number of share options expected to vest differs from previous
estimates. No adjustment to the expense recognised in prior periods
is made if fewer share options are ultimately exercised than
originally granted.
Upon exercise of share options, the proceeds received, net of
any directly attributable transaction costs, up to the nominal
value of the shares issued, are allocated to share capital with any
excess being recorded in share premium.
Non-current assets and liabilities classified as held for sale
and discontinued operations
A discontinued operation is a component of the entity that
either has been disposed of, or is classified as held for sale, and
represents a separate major line of business or geographical area
of operations; is part of a single coordinated plan to dispose of a
separate major line of business or geographical area of operations;
or is a subsidiary acquired exclusively with a view to resale.
The results from discontinued operations, including
reclassification of prior year results, are presented separately in
the income statement.
When the Group intends to sell a non-current asset or a group of
assets (a disposal group), and if sale within twelve months is
judged to be highly probable, the assets of the disposal group are
classified as held for sale and presented separately in the
statement of financial position. Liabilities are classified as held
for sale and presented as such in the statement of financial
position if they are directly associated with a disposal group.
Assets classified as held for sale are measured at the lower of
their carrying amounts immediately prior to their classification as
held for sale and their fair value less costs to sell. However,
some held for sale assets such as financial assets or deferred tax
assets, continue to be measured in accordance with the Group's
accounting policy for those assets. No assets classified as held
for sale are subject to depreciation or amortisation subsequent to
their classification as held for sale.
4. SEGMENTAL REPORTING
Burkina
UK Faso Guinea Total
For the year ended 31 December 2014 US$000 US$000 US$000 US$000
-------------------------------------- ------- --------- ------- ---------
INCOME STATEMENT
Revenue - 110,444 - 110,444
-------------------------------------- ------- --------- ------- ---------
Cost of Sales - (128,645) (1,071) (129,716)
Cash production costs:
* mining - (36,296) - (36,296)
* processing - (38,084) - (38,084)
* overheads - (20,118) - (20,118)
* royalties - (7,537) - (7,537)
-------------------------------------- ------- --------- ------- ---------
- (102,035) - (102,035)
Changes in inventory - (895) - (895)
Expensed exploration and other cost
of sales(1) - (2,101) (1,071) (3,172)
Depreciation and amortisation(2) - (23,614) - (23,614)
-------------------------------------- ------- --------- ------- ---------
Gross loss - (18,201) (1,071) (19,272)
Administrative expenses and share
based payments (6,573) - - (6,573)
Net impairment of assets (74) (105,547) (6,071) (111,692)
-------------------------------------- ------- --------- ------- ---------
Loss from operations (6,647) (123,748) (7,142) (137,537)
Net finance items (1,695) (903) - (2,598)
-------------------------------------- ------- --------- ------- ---------
Loss before taxation (8,342) (124,651) (7,142) (140,135)
-------------------------------------- ------- --------- ------- ---------
Analysed as:
Loss before tax and exceptional
items (8,268) (19,104) (1,071) (28,443)
Exceptional items (74) (105,547) (6,071) (111,692)
-------------------------------------- ------- --------- ------- ---------
Taxation (12) (9,641) - (9,653)
-------------------------------------- ------- --------- ------- ---------
Loss for the year (8,354) (134,292) (7,142) (149,788)
-------------------------------------- ------- --------- ------- ---------
Attributable to:
Equity shareholders of parent company (8,354) (120,624) (7,142) (136,120)
Non-controlling interest - (13,668) - (13,668)
-------------------------------------- ------- --------- ------- ---------
Loss for the year (8,354) (134,292) (7,142) (149,788)
-------------------------------------- ------- --------- ------- ---------
EBITDA(3) (6,573) 5,413 (1,071) (2,231)
-------------------------------------- ------- --------- ------- ---------
(1) Expensed exploration and other cost of sales represents
costs not directly related to production, including exploration
expenditure not capitalised and intercompany charges.
(2) Includes amounts in respect of the amortisation of closure provision at Inata.
(3) EBITDA represents earnings before exceptional items, finance
items, tax, depreciation and amortisation.
Burkina
UK Faso Guinea Total
At 31 December 2014 US$000 US$000 US$000 US$000
-------------------------------- -------- --------- ------- ---------
STATEMENT OF FINANCIAL POSITION
Non-current assets - 30,933 19,023 49,956
Inventories - 40,936 68 41,004
Trade and other receivables 352 7,992 158 8,502
Cash and cash equivalents 145 4,632 39 4,816
-------------------------------- -------- --------- ------- ---------
Total assets 497 84,493 19,288 104,278
-------------------------------- -------- --------- ------- ---------
Current liabilities (19,355) (58,673) (371) (78,399)
Non-current liabilities (164) (46,845) - (47,009)
-------------------------------- -------- --------- ------- ---------
Total liabilities (19,519) (105,518) (371) (125,408)
-------------------------------- -------- --------- ------- ---------
Net (liabilities)/assets (19,022) (21,025) 18,917 (21,130)
-------------------------------- -------- --------- ------- ---------
Burkina
UK Faso Guinea Total
For the year ended 31 December 2014 US$000 US$000 US$000 US$000
-------------------------------------------- ------- --------- ------- ---------
CASH FLOW STATEMENT
Loss for the year (8,354) (134,292) (7,142) (149,788)
Adjustments for non-cash and non-operating
items(1) 2,632 137,405 5,977 146,014
Movements in working capital 797 14,248 824 15,869
-------------------------------------------- ------- --------- ------- ---------
Net cash (used in)/generated by operations (4,925) 17,361 (341) 12,095
Net interest (paid)/received (755) (5,226) - (5,981)
Tax paid - (906) - (906)
Purchase of property, plant and equipment - (11,613) - (11,613)
Deferred exploration expenditure - - (28) (28)
Loans repaid - (4,371) - (4,371)
Proceeds from equity issued 1,175 - - 1,175
Other cash movements(2) 723 (1,800) 321 (756)
-------------------------------------------- ------- --------- ------- ---------
Total decrease in cash and cash equivalents (3,782) (6,555) (48) (10,385)
-------------------------------------------- ------- --------- ------- ---------
(1) Includes impairments, depreciation and amortisation, share
based payments, movement in provisions, taxation in the income
statement and non-operating items in the income statement.
(2) Other cash movements include cash flows from financing activities, and exchange losses.
Burkina
UK Faso Guinea Total
For the year ended 31 December 2013 US$000 US$000 US$000 US$000
------------------------------------------ -------- --------- -------- ---------
INCOME STATEMENT
Revenue - 149,261 - 149,261
------------------------------------------ -------- --------- -------- ---------
Cost of Sales 2,904 (176,805) (5,748) (179,649)
Cash production costs: -
* mining - (64,833) - (64,833)
* processing - (44,111) - (44,111)
* overheads - (22,175) - (22,175)
* royalties - (11,339) - (11,339)
------------------------------------------ -------- --------- -------- ---------
- (142,458) - (142,458)
Changes in inventory - 4,935 - 4,935
Expensed exploration and other cost
of sales(1) 3,099 (12,781) (3,026) (12,708)
Depreciation and amortisation(2) (195) (29,223) - (29,418)
------------------------------------------ -------- --------- -------- ---------
Gross profit/(loss) 2,904 (30,266) (3,026) (30,388)
Administrative expenses and share
based payments (9,493) - - (9,493)
Net impairment of assets (2,589) (30,500) (7,638) (40,727)
------------------------------------------ -------- --------- -------- ---------
Loss from operations (9,178) (60,766) (10,664) (80,608)
Loss on recognition of forward contracts - (96,632) - (96,632)
Restructure of forward contracts - (20,225) - (20,225)
Change in fair value of forward contracts - 54,192 - 54,192
Net finance items (2,567) (3,547) 2 (6,112)
------------------------------------------ -------- --------- -------- ---------
Loss before taxation (11,745) (126,978) (10,662) (149,385)
------------------------------------------ -------- --------- -------- ---------
Analysed as:
Loss before tax and exceptional
items (9,156) (33,813) (3,024) (45,993)
Exceptional items (2,589) (93,165) (7,638) (103,392)
------------------------------------------ -------- --------- -------- ---------
Taxation - (3,484) - (3,484)
------------------------------------------ -------- --------- -------- ---------
Loss for the year (11,745) (130,462) (10,662) (152,869)
------------------------------------------ -------- --------- -------- ---------
Attributable to:
Equity shareholders of parent company (11,745) (120,076) (8,028) (142,483)
Non-controlling interest - (10,386) - (10,386)
------------------------------------------ -------- --------- -------- ---------
Loss for the year (11,745) (130,462) (10,662) (152,869)
------------------------------------------ -------- --------- -------- ---------
EBITDA(3) (6,394) (1,043) (3,026) (10,463)
------------------------------------------ -------- --------- -------- ---------
(1) Expensed exploration and other cost of sales represents
costs not directly related to production, including exploration
expenditure not capitalised and intercompany charges.
(2) Includes amounts in respect of the amortisation of closure provision at Inata.
(3) EBITDA represents earnings before exceptional items, finance
items, tax, depreciation and amortisation.
Burkina
UK Faso Guinea Total
At 31 December 2013 US$000 US$000 US$000 US$000
-------------------------------- -------- --------- ------- ---------
STATEMENT OF FINANCIAL POSITION
Non-current assets 74 129,963 25,274 155,311
Inventories - 58,842 77 58,919
Trade and other receivables 402 17,292 278 17,972
Cash and cash equivalents 3,927 11,187 87 15,201
-------------------------------- -------- --------- ------- ---------
Total assets 4,403 217,284 25,716 247,403
-------------------------------- -------- --------- ------- ---------
Current liabilities (18,187) (43,404) (522) (62,113)
Non-current liabilities (164) (58,500) - (58,664)
-------------------------------- -------- --------- ------- ---------
Total liabilities (18,351) (101,904) (522) (120,777)
-------------------------------- -------- --------- ------- ---------
Net (liabilities)/assets (13,948) 115,380 25,194 126,626
-------------------------------- -------- --------- ------- ---------
Burkina
UK Faso Guinea Total
For the year ended 31 December 2013 US$000 US$000 US$000 US$000
-------------------------------------------- -------- --------- -------- ---------
CASH FLOW STATEMENT
Loss for the year (11,745) (130,462) (10,662) (152,869)
Adjustments for non-cash and non-operating
items(1) 6,356 67,177 7,809 81,342
Movements in working capital (1,315) (3,867) 3,364 (1,818)
-------------------------------------------- -------- --------- -------- ---------
Net cash used in operations (6,704) (67,152) 511 (73,345)
Net interest received/(paid) 2 (1,847) - (1,845)
Tax paid - (3,521) - (3,521)
Purchase of property, plant and equipment - (15,498) (169) (15,667)
Deferred exploration expenditure - (5,595) (8,883) (14,478)
Loans repaid - (6,805) - (6,805)
Proceeds from debt 15,000 62,805 - 77,805
Financing costs (1,444) - - (1,444)
Other cash movements(2) (10,316) 1,642 8,287 (387)
-------------------------------------------- -------- --------- -------- ---------
Total decrease in cash and cash equivalents (3,462) (35,971) (254) (39,687)
-------------------------------------------- -------- --------- -------- ---------
(1) Includes impairments, depreciation and amortisation, share
based payments, movement in provisions, taxation in the income
statement and non-operating items in the income statement.
(2) Other cash movements include cash flows from financing activities, and exchange losses.
5. EXCEPTIONAL ITEMS
31 December 31 December
2014 2013
US$000 US$000
-------------------------------------------------- ----------- -----------
Impairment of Burkina Faso assets (105,547) (30,500)
Impairment of Guinea exploration asset (6,071) (7,322)
Impairment of available for sale financial assets (74) (2,238)
Impairment of Mali exploration asset - (316)
Impairment of corporate fixed assets - (351)
Restructure of forward contracts - (20,225)
Loss on recognition of forward contracts - (96,632)
Change in fair value of forward contracts - 54,192
Exceptional loss (111,692) (103,392)
-------------------------------------------------- ----------- -----------
Net impairments of Burkina Faso assets
The Group recognised a net impairment of non-current assets of
US$105.5 million (2013: US$30.5 million) in respect of the Inata
cash generating unit, and Bélahouro exploration licences, driven by
a reduction in the forecasted gold price and changes in the life of
mine plan, together with lower expected cash recoveries from VAT
and inventory balances. Further details are provided in note 7.
Impairment of Guinea exploration asset
The Group also recognised an impairment of US$6.1 million (2013:
US$7.3 million) in the capitalised exploration costs (intangible
assets) in relation to the Tri-K project in Guinea. Further details
are provided in note 7.
Impairment of available for sale financial assets
At 31 December 2013 management concluded that the decline in the
share price of Golden Peaks Resources Limited reflected a permanent
diminution in the value of that asset. Management considered the
fall to be indicative of the investment's ability to provide a
future return and was therefore not considered a short term
fluctuation in the market value. The cumulative loss that had been
recognised directly in other comprehensive income was reclassified
from equity and recognised in profit or loss as a cumulative
impairment of US$2.2 million. During 2014, the remaining value of
the assets was impaired to nil.
Impairment of Mali exploration asset
During 2013, the Company decided to discontinue operations at
the N'tjila permit located in the Republic of Mali. As a result the
US$0.3 million capitalised costs in relation to the permit was
impaired and recognised as an exceptional item.
Impairment of corporate fixed assets
The Group's accounting policy requires assets to be assessed for
impairment in their smallest possible cash generating unit ('CGU').
The UK corporate assets are reviewed in the context of the entire
Group, on the basis that this is the smallest CGU to which these
assets can be allocated. At 31 December 2013, both the Guinea and
Inata CGUs were being held at values equal to their fair value as a
result of impairments and as a consequence no excess fair value
existed to support the carrying value of corporate assets, which
were therefore fully impaired in 2013.
Restructure and recognition of forward contracts
On 25 March 2013, the Group announced the restructure of the
forward contracts held with Macquarie Bank Limited for delivery of
gold bullion. The restructure consisted of eliminating 29,020
ounces under those contracts at a cost of US$20.2 million, and
shortening the delivery profile of the remaining ounces by 18
months so that all ounces would be delivered by December 2016.
The recognition of the liability was in accordance with IAS 39
financial instruments, and reflected the fact that the buy back
demonstrated a practice of cash-settling forward contracts. Under
IAS 39, this meant that the own-use exemption previously applied
was no longer appropriate. The fair valuate liability of the
forward contracts was recognised at 31 March 2013 at US$96.6
million. Between 31 March and 15 November 2013, when all remaining
forward contracts were bought back, the fair value liability of the
contracts fell by US$54.2 million to a liability of US$42.4 million
due to the falling gold prices and the delivery of 32,250 ounces
into the forward contracts. As a consequence, a US$54.2 million
gain was recognised reflecting the reduction in fair value
liability.
6. EBITDA
Earnings before interest, tax, depreciation and amortisation
(EBITDA) represents profit before depreciation/amortisation,
interest and taxes, as well as excluding any exceptional items and
profit or loss from discontinued operations and changes in fair
value of forward contracts.
Reconciliation of loss before taxation to EBITDA
31 December 31 December
2014 2013
US$000 US$000
------------------------------- ----------- -----------
Loss before taxation (140,135) (149,385)
Exceptional Items (see note 5) 111,692 103,392
Depreciation 23,614 29,418
Exchange (gains)/losses (5,856) 109
Net finance income (2) (17)
Net finance expense 8,456 6,020
------------------------------- ----------- -----------
EBITDA (2,231) (10,463)
------------------------------- ----------- -----------
Reconciliation of EBITDA to net cash generated by/(used in)
operating activities
31 December 31 December
2014 2013
US$000 US$000
----------------------------------------------------- ----------- -----------
EBITDA (2,231) (10,463)
Working capital 15,869 (1,818)
Net interest paid (5,981) (1,845)
Income tax paid (906) (3,521)
Hedge restructure - (20,225)
Loss on recognition of forward contracts - (96,632)
Change in fair value of forward contracts - 54,192
Provisions and other non-cash costs (1,543) 1,601
----------------------------------------------------- ----------- -----------
Net cash generated by/(used in) operating activities 5,208 (78,711)
----------------------------------------------------- ----------- -----------
7. IMPAIRMENT OF ASSETS
Net impairment of Burkina Faso assets
In accordance with IAS 36 Impairment of Assets, at each
reporting date the Company assesses whether there are any
indicators of impairment of non-current assets. When circumstances
or events indicate that non-current assets may be impaired, these
assets are reviewed in detail to determine whether their carrying
value is higher than their recoverable value, and, where this is
the result, an impairment is recognised. Recoverable value is the
higher of value in use (VIU) and fair value less costs to sell. VIU
is estimated by calculating the present value of the future cash
flows expected to be derived from the asset cash generating unit
(CGU). Fair value less costs to sell is based on the most reliable
information available, including market statistics and recent
transactions. The Inata mine has been identified as the CGU. This
includes all tangible non-current assets, intangible exploration
assets, and net current assets excluding cash.
At 31 December 2014 the Company concluded that the reduction in
the market forecasted gold price and the decrease in the expected
gold recovered from the change in Inata's life of mine plan were
indicators of impairment. An assessment was carried out of the fair
value of Inata's CGU, using the discounted cash flows of the mine's
latest estimated life of mine plan to calculate their VIU. As a
result of this review, a pre-tax impairment loss of US$105.5
million (2013: US$30.5 million) was recorded in 2014, being an
impairment of mining property and plant of US$83.9 million (2013:
US$3.9 million), spares parts inventory of US$15.9 million (2013:
US$nil), and VAT recoverable of US$5.7 million (2013: US$nil). The
2013 impairment also included an impairment of US$26.6 million in
respect of capitalised exploration costs.
When calculating the VIU, certain assumptions and estimates were
made. Changes in these assumptions can have a significant effect on
the recoverable amount and therefore the value of the impairment
recognised. Should there be a change in the assumptions which
indicated the impairment, this could lead to a revision of recorded
impairment losses in future periods. The key assumptions are
outlined in the following table.
Assumption Judgements Sensitivity
---------------- ----------------------------------- ----------------------------------
Timing of cash Cash flows were forecast over An extension or shortening
flows the expected life of the mine. of the mine life would result
The life of mine plan in December in a corresponding increase
2014 forecasted mining activities or decrease
to occur until April 2017, in impairment, the extent
with a further four months of which it was not possible
during which stockpiles would to quantify.
be processed and rehabilitation
costs would be incurred.
---------------- ----------------------------------- ----------------------------------
Production costs Production costs were forecast An increase in production
based on detailed assumptions, costs excluding royalties
including staff costs, consumption of 10% would increase the
of fuel and reagents, maintenance, pre-tax impairment attributable
and administration and support by US$17.9 million(1) .
costs.
---------------- ----------------------------------- ----------------------------------
Gold price Management have used a gold A decrease of 10% in the gold
price of US$1,200 per ounce, price assumption would increase
in line with market consensus the pre-tax impairment recognised
estimates and management's in the year by US$21.9 million(1)
own view of gold prices over .
the period of the Life of
Mine.
---------------- ----------------------------------- ----------------------------------
Discount rate A discount rate of 20% (pre-tax) An increase in the discount
was used in the VIU estimation, rate of five percentage points
based on estimations of Avocet's would decrease the pre-tax
own cost of capital, adjusted impairment recognised in the
for specific risk factors year by US$0.7million(1) .
related to the Inata LoMP
(liquidity risk, production
risk, etc).
---------------- ----------------------------------- ----------------------------------
Gold production The life of mine plan was A 10% decrease in ounces produced,
based on gold production of compared with the life of
0.25 million ounces for the mine gold production, would
Inata Mine. increase the pre-tax impairment
recognised in the year by
US$21.9 million(1) .
---------------- ----------------------------------- ----------------------------------
(1) Sensitivities provided are on a 100% basis, pre-tax. 10% of
the post-tax impairment would be attributed to the non-controlling
interest.
Impairment of Inata at prior reporting dates
The Inata mine has undergone a number of impairments in recent
years, which have been summarised below.
At 31 December 2012 the Company concluded that the reduction in
Inata's Ore Reserve and subsequent revision to the life of mine
represented an indication of impairment. A review was therefore
carried out of the carrying value of Inata's assets, using the
discounted cash flows of Inata's latest estimated life of mine plan
to calculate their VIU. As a result of this review, a pre-tax
impairment loss of US$135.3 million was recorded in 2012, being an
impairment of intangible exploration costs of US$6.4 million, and
mine development costs of US$128.9 million.
In accordance with IAS 36, the Company is required to assess at
the end of each reporting period whether there is any indication
that a previous impairment loss may no longer exist or may have
decreased, as well as a requirement to review any indication of
additional impairment. As a result of the Group's quarterly
reporting during 2013, such reviews were carried out on a quarterly
basis and during 2013 resulted in a reversal of impairment and
subsequent impairments as described below. The impairment in the
accounts for 2013 was recognised on a net basis and was in line
with the impairment charge that would have been recognised if
reviewed on an annual basis.
At 31 March 2013 the recognition of the forward contract
liability at fair value during March 2013 was excluded from both
the carrying amount of the CGU and the cash flows of the VIU
calculation. The Company concluded that the requirements of an
indication of a reversal of impairment were identified in relation
to the Inata mining assets. An assessment was therefore carried out
of the fair value of Inata's CGU, using the discounted cash flows
of Inata's latest estimated life of mine plan to calculate the VIU.
As a result of the review, a pre-tax partial reversal of impairment
losses of US$72.2 million was recorded in 31 March 2013 and
allocated to mine development costs
At 30 June 2013 the Company concluded that the fall in the gold
spot price and market forecasts was considered to be an indicator
for impairment. An assessment was carried out of the fair value of
Inata's assets, using the discounted cash flows of Inata's latest
estimated life of mine plan to calculate their VIU. As a result of
this review, a pre-tax impairment loss of US$73.3 million was
recorded at 30 June 2013, being an impairment of mine development
costs.
At 30 June 2014, the Company reviewed its latest life of mine
plan forecast (details of which were announced on 12 June 2014),
and concluded that the reduction in gold production (and therefore
cash generation) compared to previous forecasts represented an
indicator of impairment. An assessment was carried out of the fair
value of Inata's CGU, using the discounted cash flows of the mine's
latest estimated life of mine plan to calculate their VIU. As a
result of this review, a pre-tax impairment loss of US$25.8 million
was recorded in the accounts at 30 June 2014, which was applied
against the carrying value of mine development costs at Inata.
31 December 2014 31 December 2013 31 December 2012
US$000 US$000 US$000
--------------------------------------------- ---------------- ---------------- ----------------
Impairment at 31 December 2012 - - (135,300)
Impairment partial reversal at 31 March 2013 - 72,200 -
Impairment at 30 June 2013 - (73,300) -
Impairment at 31 December 2013 - (29,400) -
Impairment at 30 June 2014 (25,780) - -
Impairment at 31 December 2014 (79,767) - -
Net impairment (105,547) (30,500) (135,300)
--------------------------------------------- ---------------- ---------------- ----------------
Impairment of Guinea exploration asset
During the year, cost and production estimates for the Tri-K
project in Guinea were revisited, with a view to optimising the
project. The gold price assumption was also reduced to US$1,200 per
ounce. Based on these revised estimates, an impairment assessment
indicated that an impairment of the carrying value of the project
was required, based on a fair value estimate of US$18.8 million for
the Guinea exploration CGU. As a result, an impairment of US$6.1
million was recorded at 31 December 2014 (2013: US$7.3
million).
8. LOSS FOR THE PERIOD BEFORE TAX
31 December 31 December
2014 2013
US$000 US$000
----------------------------------------------------------- ----------- -----------
Loss for the period has been arrived at after charging:
Depreciation of property, plant and equipment 23,257 28,872
Depreciation of property, plant and equipment held
under finance lease 357 546
Operating lease charges 1,262 6,539
Audit services:
* fees payable to the Company's auditor for the audit
of the Company and Group accounts 210 205
Fees payable to the Company's auditor for other services:
* interim review services - 44
* tax services 18 14
* accounting advice - 17
----------------------------------------------------------- ----------- -----------
9. LOSS BEFORE TAXATION AND EXCEPTIONAL ITEMS
Loss before taxation and exceptional items is calculated as
follows:
31 December 31 December
2014 2013
US$000 US$000
-------------------------------------------------- ----------- -----------
Loss from operations (137,537) (80,608)
Impairment of Burkina Faso assets 105,547 30,500
Impairment of Guinea exploration asset 6,071 7,322
Impairment of Mali exploration asset - 316
Impairment of corporate fixed assets - 351
Impairment of available for sale financial assets 74 2,238
Exchange gains/(losses) 5,856 (109)
Net finance expense (8,454) (6,003)
Loss before taxation and exceptional items (28,443) (45,993)
-------------------------------------------------- ----------- -----------
10. REMUNERATION OF KEY MANAGEMENT PERSONNEL
In accordance with IAS 24 - Related party transactions, key
management personnel, including all Executive and Non-executive
Directors, are those persons having authority and responsibility
for planning, directing and controlling the activities of the
Group. The Company uses the same definition as for Persons
Discharging Managerial Responsibility ('PDMRs'), an up-to-date list
of whom can be found on the Company's website
(wwww.avocetmining.com).
31 December 31 December
2014 2013
US$000 US$000
----------------------------------------------- ----------- -----------
Wages and salaries 1,572 3,097
Social security costs 182 242
Bonus 64 625
Redundancy payments - 230
Share based payments - 107
Pension costs - defined contribution plans 109 129
----------------------------------------------- ----------- -----------
Total remuneration of key management personnel 1,927 4,430
----------------------------------------------- ----------- -----------
11. TOTAL EMPLOYEE REMUNERATION (INCLUDING KEY MANAGEMENT PERSONNEL)
31 December 31 December
2014 2013
US$000 US$000
------------------------------------------------------ ----------- -----------
Wages and salaries 23,647 31,326
Social security costs 2,130 1,983
Bonus 348 1,055
Redundancy payments 388 884
Share based payments 856 1,273
Pension costs - defined contribution plans 634 183
------------------------------------------------------ ----------- -----------
Total employee remuneration 28,003 36,704
------------------------------------------------------ ----------- -----------
The average number of employees during the period was
made up as follows:
Directors 6 8
Management and administration 59 88
Mining, processing and exploration staff 750 861
------------------------------------------------------ ----------- -----------
815 957
------------------------------------------------------ ----------- -----------
12. FINANCE INCOME AND EXPENSE
31 December 31 December
2014 2013
US$000 US$000
--------------------------- ----------- -----------
Finance income
Bank interest received 2 17
--------------------------- ----------- -----------
Finance expense
Interest on loans 6,655 1,983
Interest on finance leases 225 273
Other finance costs 1,576 3,764
--------------------------- ----------- -----------
8,456 6,020
Net finance expense 8,454 6,003
--------------------------- ----------- -----------
Bank interest received represents interest earned on the Group's
cash at bank.
The interest on loans of US$6.7 million consists of US$5.0
million in respect of the Inata facility with Ecobank Burkina and
US$1.7 million in respect to the Elliott loan. The interest on
finance leases relates to the fuel storage facility located on the
Inata site. Other finance costs reflect costs incurred in respect
of the Group's financing activities during the year.
13. TAXATION
31 December 31 December
2014 2013
US$000 US$000
------------------------------------ ----------- -----------
Current tax:
Current tax on loss for the year - -
Current tax relating to prior years 5,039 3,521
Current tax charge 5,039 3,521
------------------------------------ ----------- -----------
In 2012, SMB (the subsidiary in Burkina Faso which operates the
Inata mine) underwent a tax audit in respect of the years 2009,
2010, and 2011. The initial assessment of this tax audit, which was
undertaken by the tax department of the Burkina Faso government,
was that a total of US$25.5 million was due in taxes and penalties.
A review of the assumptions underlying this conclusion led Avocet,
along with its tax advisers, to believe that this assessment was
factually inaccurate and based on incorrect application and
interpretation of the Burkina Faso tax code. Avocet felt confident
that, with the exception of some minor items which were settled
without delay, the full amount would be revised on review and
discussion with the Burkina Faso Director General of Taxes. The
possibility of such a liability coming to pass was therefore judged
to be sufficiently remote that no provision was deemed necessary,
nor was disclosure required in the financial statements at 31
December 2012.
Following discussions with senior government representatives
during 2013, the Company believed that the final amount to be
settled would be US$3.5 million and paid this amount in December
2013 in what it believed to be full and final settlement.
Subsequently, however, a revised assessment of US$8.5 million was
received by the Company. The Company continues to believe further
payment is not valid, but nonetheless paid US$0.9 million in the
year and has accrued the remaining US$4.1 million within current
tax relating to prior years.
31 December 31 December
2014 2013
US$000 US$000
------------------------------------------------------- ----------- -----------
Deferred tax:
Deferred tax provision in respect of withholding taxes
on intra-group balances 4,614 -
Origination and reversal of temporary differences in
respect of mining property and plant in Burkina Faso - (37)
Deferred tax charge/(credit) 4,614 (37)
------------------------------------------------------- ----------- -----------
Total tax charge for the year 9,653 3,484
------------------------------------------------------- ----------- -----------
The deferred tax liability of US$4.6 million relates to
withholding tax (WHT) and interest tax (IRVM) that would be due in
Burkina Faso on settlement of intragroup management fees and loan
interest invoices. Restrictions on payments to Group companies as a
result of Avocet's loan arrangements with Macquarie Bank Limited,
together with limited cash availability, have meant that a number
of these invoices remain unpaid. As it is the intention to settle
these amounts in full, deferred tax has been accrued in respect of
the WHT and IRVM.
Factors affecting the tax charge for the year:
31 December 31 December
2014 2013
US$000 US$000
------------------------------------------------------------- ----------- -----------
Loss for the period before tax (140,135) (149,385)
Loss for the period multiplied by the UK standard rate
of corporation tax 21.5% (2013: 23.25%) (30,129) (34,732)
Effects of:
Disallowable expenses 24,198 28,176
Taxable income not recognised under IFRS - 4,767
Gains not taxable (1,259) -
Tax provision in respect of withholding taxes on intra-group
balances 4,614 -
Adjustment in respect of prior periods 12 3,521
Change in expected recovery of deferred tax asset - (37)
Carry forward of tax losses 12,217 1,789
------------------------------------------------------------- ----------- -----------
Tax charge for the period 9,653 3,484
------------------------------------------------------------- ----------- -----------
The Group contains entities with tax losses and deductible
temporary differences for which no deferred tax asset is
recognised. The total unrecognised losses and deductible temporary
differences amount to approximately US$144 million. A deferred tax
asset has not been recognised because the entities in which the
losses and allowances have been generated either do not have
forecast taxable profits in the foreseeable future, or the losses
have restrictions whereby their utilisation is considered to be
unlikely.
14. EARNINGS PER SHARE
Earnings per share are analysed in the table below, which also
shows earnings per share after adjusting for exceptional items.
31 December 31 December
2014 2013
Shares Shares
-------------------------------------------------------- ------------ ------------
Weighted average number of shares in issue for the
year
* number of shares with voting rights 202,893,879 199,104,701
* effect of share options in issue - 17,782
-------------------------------------------------------- ------------ ------------
Total used in calculation of diluted earnings per share 202,893,879 199,122,483
-------------------------------------------------------- ------------ ------------
Potential ordinary shares are treated as dilutive, when, and
only when, their conversion to ordinary shares would decrease
earnings per share or increase loss per share from continuing
operations. As potential ordinary shares for 2014 and 2013 would
decrease the loss per share, they are therefore not included in
diluted earnings per share. Note 27 outlines share options in
issue, none of which were exercisable at the period end.
31 December 31 December
2014 2013
US$000 US$000
------------------------------------------------------- ----------- -----------
Earnings per share
Loss for the year (149,788) (152,869)
Adjustments:
Adjusted for non-controlling interest 13,668 10,386
------------------------------------------------------- ----------- -----------
Loss for the year attributable to equity shareholders
of the parent (136,120) (142,483)
------------------------------------------------------- ----------- -----------
Loss per share
* basic (cents per share) (67.09) (71.56)
* diluted (cents per share) (67.09) (71.56)
Earnings per share before exceptional items
Loss for the year attributable to equity shareholders
of the parent (136,120) (142,483)
Adjustments:
Add back exceptional items 111,692 103,392
Less tax benefit from exceptional items - -
Add back non-controlling interest of exceptional items 10,447 (6,393)
Loss for the year attributable to equity shareholders
of the parent before exceptional items (13,981) (45,484)
------------------------------------------------------- ----------- -----------
Earnings per share before exceptional items
* basic (cents per share) (6.89) (22.84)
* diluted (cents per share) (6.89) (22.84)
------------------------------------------------------- ----------- -----------
15. INTANGIBLE ASSETS
31 December 31 December
2014 2013
Note US$000 US$000
--------------------------------------------- ---- ----------- -----------
At 1 January 23,249 49,442
Additions 28 14,459
Capitalised depreciation 16 - 1,078
Transferred to property, plant and equipment 16 - (7,486)
Impairment of exploration assets 5 (6,071) (34,244)
At 31 December 17,206 23,249
--------------------------------------------- ---- ----------- -----------
Year end balances are analysed as follows:
31 December 31 December
2014 2013
US$000 US$000
------------- ----------- -----------
Burkina Faso - -
Guinea 17,206 23,249
Total 17,206 23,249
------------- ----------- -----------
As set out in note 7, an impairment review determined a fair
value of US$18.8 million for the Guinea exploration CGU (which
includes US$1.8 million of other net assets) resulting in a US$6.1
million impairment to intangible assets. Under the Guinea Mining
Code, work must commence on the project within 12 months of the
date of grant of the permit.
Capitalised depreciation represents the depreciation of items of
property, plant, and equipment which are used exclusively in the
Group's exploration activities. The consumption of these assets was
capitalised as an intangible asset in 2013, in accordance with
accounting standards/industry practice. No depreciation was
capitalised in 2014.
The intangible asset in Burkina Faso, which represents
capitalised exploration costs in the Bélahouro area, were in
December 2013 included as part of the Inata cash generating unit,
on the basis that it was deemed unlikely to become a separate cash
generating unit in the future. The full amount was impaired as it
would have been fully written down upon transfer of the asset to
property, plant and equipment as part of the Inata asset impairment
in 2013.
16. PROPERTY, PLANT AND EQUIPMENT
Mining property and
plant
--------------------------------------------
Exploration
Mine Vehicles, property
development Plant fixtures, and Office
costs and machinery and equipment plant equipment
------------ -------------- -------------- ----------- ----------
Burkina Burkina Burkina
Faso Faso Faso Guinea UK Total
Year ended 31 December 2014 Note US$000 US$000 US$000 US$000 US$000 US$000
------------------------------- ---- ------------ -------------- -------------- ----------- ---------- --------
Cost
At 1 January 2014 106,251 87,833 64,095 3,095 770 262,044
Additions 1,656 8,275 1,682 - - 11,613
Assets scrapped - - (1,304) - - (1,304)
Reclassification to inventory
as spares - - (2,578) - - (2,578)
Impairment 7 (31,793) (51,073) (1,082) - - (83,948)
------------------------------- ---- ------------ -------------- -------------- ----------- ---------- --------
At 31 December 2014 76,114 45,035 60,813 3,095 770 185,827
------------------------------- ---- ------------ -------------- -------------- ----------- ---------- --------
Depreciation
At 1 January 2014 64,886 32,100 31,230 1,070 770 130,056
Charge for the year 11,228 4,063 8,115 208 - 23,614
Accumulated depreciation
relating
to scrapped assets - - (593) - - (593)
------------------------------- ---- ------------ -------------- -------------- ----------- ---------- --------
At 31 December 2014 76,114 36,163 38,752 1,278 770 153,077
------------------------------- ---- ------------ -------------- -------------- ----------- ---------- --------
Net Book Value at 31 December
2014 - 8,872 22,061 1,817 - 32,750
------------------------------- ---- ------------ -------------- -------------- ----------- ---------- --------
Net Book Value at 31 December
2013 41,365 55,733 32,865 2,025 - 131,988
------------------------------- ---- ------------ -------------- -------------- ----------- ---------- --------
Included within property, plant and equipment are assets held
under finance leases with a net book value of US$2.4 million (2013:
US$2.8 million) and assets in the course of construction with a
value of US$8.2 million (2013: US$6.6 million), principally being
the construction of the second tailings management facility. Assets
in the course of construction are not depreciated until they are
completed and brought into use.
Mining property and
plant
--------------------------------------------
Exploration
Mine Vehicles, property
development Plant fixtures, and Office
costs and machinery and equipment plant equipment
------------ -------------- -------------- ----------- ----------
Burkina Burkina Burkina
Faso Faso Faso Guinea UK Total
Year ended 31 December 2013 Note US$000 US$000 US$000 US$000 US$000 US$000
-------------------------------- ---- ------------ -------------- -------------- ----------- ---------- -------
Cost
At 1 January 2013 96,789 87,589 57,884 2,926 1,121 246,309
Additions 5,324 2,041 6,211 169 - 13,745
Additions to mine closure 546 - - - - 546
Assets scrapped - (1,797) - - - (1,797)
Transfer from intangible
exploration
assets 15 7,486 - - - - 7,486
Impairment 7 (3,894) - - - (351) (4,245)
-------------------------------- ---- ------------ -------------- -------------- ----------- ---------- -------
At 31 December 2013 106,251 87,833 64,095 3,095 770 262,044
-------------------------------- ---- ------------ -------------- -------------- ----------- ---------- -------
Depreciation
At 1 January 2013 56,958 23,624 18,744 755 575 100,656
Charge for the year 7,928 9,572 11,723 - 195 29,418
Charge for the year -
capitalised 15 - - 763 315 - 1,078
Accumulated depreciation
relating
to scrapped assets - (1,096) - - - (1,096)
-------------------------------- ---- ------------ -------------- -------------- ----------- ---------- -------
At 31 December 2013 64,886 32,100 31,230 1,070 770 130,056
-------------------------------- ---- ------------ -------------- -------------- ----------- ---------- -------
Net Book Value at 31 December
2013 41,365 55,733 32,865 2,025 - 131,988
-------------------------------- ---- ------------ -------------- -------------- ----------- ---------- -------
Net Book Value at 31 December
2012 39,831 63,965 39,140 2,171 546 145,653
-------------------------------- ---- ------------ -------------- -------------- ----------- ---------- -------
17. OTHER FINANCIAL ASSETS
31 December 31 December
2014 2013
US$000 US$000
---------------------- ----------- -----------
At 1 January 74 599
Impairment (74) -
Fair value adjustment - (525)
---------------------- ----------- -----------
At 31 December - 74
---------------------- ----------- -----------
The Other Financial Asset held during the year relates to shares
in Golden Peaks Resources Limited, a company listed on the Toronto
Stock Exchange. The shares were acquired as consideration for the
disposal of two of the Group's assets in South East Asia.
At 31 December 2013 management concluded that the reduction in
the share price of these shares reflected an impairment of the
asset. Management consider the fall to be indicative of the
investment's ability to provide a future return and was not
considered a short term fluctuation in the market value. During
2013, the cumulative loss that had been recognised directly in
other comprehensive income (US$1.7 million) was reclassified from
equity and recognised in the income statement as a cumulative
impairment of US$2.2 million. During 2014, the remaining value of
the assets was impaired to nil.
18. INVENTORIES
31 December 31 December
2014 2013
US$000 US$000
------------------ ----------- -----------
Consumables 13,858 30,881
Work in progress 24,694 24,018
Finished goods 2,452 4,020
------------------ ----------- -----------
Total inventories 41,004 58,919
------------------ ----------- -----------
Consumables represent stocks of mining supplies, reagents,
lubricants and spare parts held on site. As a result of Inata's
shorter life of mine, the value of spares and consumables held at
Inata has been impaired by US$15.9 million in the year.
Work in progress reflects the cost of gold contained in
stockpiles and in circuit. Finished goods represent gold that has
been poured but has not yet been sold, whether in transit or
undergoing refinement.
19. TRADE AND OTHER RECEIVABLES
31 December 31 December
2014 2013
US$000 US$000
---------------------------------- ----------- -----------
Payments in advance to suppliers 2,296 3,533
VAT recoverable 4,682 13,148
Prepayments 1,524 1,291
---------------------------------- ----------- -----------
Total trade and other receivables 8,502 17,972
---------------------------------- ----------- -----------
The reduction in VAT recoverable largely reflects claims that
have been received in Burkina Faso or written off where no longer
considered recoverable. A total of US$5.7 million of unrecovered
VAT has been written off on the basis of being outstanding for more
than 12 months by 31 December 2014.
20. CASH AND CASH EQUIVALENTS
31 December 31 December
2014 2013
US$000 US$000
-------------------------- ----------- -----------
Cash at bank and in hand 4,816 15,201
-------------------------- ----------- -----------
Cash and cash equivalents 4,816 15,201
-------------------------- ----------- -----------
Included within cash at 31 December 2014 was US$4.2 million of
restricted cash (31 December 2013: US$5.6 million), representing a
US$2.3 million debt service reserve account held in relation to the
Ecobank loan (2013: US$2.7 million), and US$1.9 million (2013:
US$1.4 million) relating to amounts held on restricted deposit in
Burkina Faso for the purposes of environmental rehabilitation work,
as required by the terms of the Inata mining licence. US$1.5
million held in escrow in relation to the Burkina Faso tax dispute
at 31 December 2013 was released during the year.
21. TRADE AND OTHER PAYABLES
31 December 31 December
2014 2013
US$000 US$000
-------------------------------- ----------- -----------
Trade payables 38,975 31,227
Corporation tax 3,735 -
Social security and other taxes 102 140
Accrued expenses 2,939 3,567
-------------------------------- ----------- -----------
Total trade and other payables 45,751 34,934
-------------------------------- ----------- -----------
The Corporation tax liability consists of a provision in respect
of a tax assessment for the years 2009, 2010 and 2011, as set out
in note 13.
22. OTHER FINANCIAL LIABILITIES
31 December 31 December
2014 2013
Current financial liabilities US$000 US$000
------------------------------------- ----------- -----------
Interest bearing debt 31,679 26,065
Finance lease liabilities 715 860
Warrants on the Company's own equity 254 254
------------------------------------- ----------- -----------
Total current financial liabilities 32,648 27,179
------------------------------------- ----------- -----------
31 December 31 December
2014 2013
Non-current financial liabilities US$000 US$000
---------------------------------------- ----------- -----------
Interest bearing debt 34,524 50,410
Finance lease liabilities 1,378 2,005
---------------------------------------- ----------- -----------
Total non-current financial liabilities 35,902 52,415
---------------------------------------- ----------- -----------
Total financial liabilities 68,550 79,594
---------------------------------------- ----------- -----------
Interest bearing debt
On 31 December 2014, the Group had interest bearing debt of
US$66.2 million (31 December 2013: US$76.5 million).
Elliott loan
The Elliott loan of US$16.7 million (31 December 2013: US$15.7
million) was repayable on 31 December 2013. The loan has not been
repaid and is considered due at the time these accounts were
completed. The settlement of the loan is discussed in note 1. The
loan is recognised as a current liability held at amortised cost
and includes the US$15.0 million loan principal and accrued
interest of US$1.7 million (2013: US$0.7 million). The weighted
average interest on the loan during the year was 11.2%.
Ecobank Inata loan
At 31 December 2014, a loan balance of US$44.5 million was due
in respect of a medium term loan facility with Ecobank Burkina Faso
("Ecobank"), which was drawn down in October 2013. The loan amount
was provided and held in Francs de la Communauté Financière
d'Afrique ("FCFA"), which is the legal currency of Burkina Faso.
The Ecobank loan was provided to the Company's 90% subsidiary,
Société des Mines de Bélahouro SA ('SMB'), which owns the Inata
mine.
The Ecobank facility has a five year term and bears an interest
rate of 8% per annum. Ecobank has the right to secure the balance
against certain of the assets of SMB. Monthly debt service payments
of 0.6 billion FCFA (currently equal to US$1.1 million) comprising
interest and principal will continue for the 60 month duration of
the loan. The facility requires that an amount equal to two months'
payments, 1.3 billion FCFA (US$2.3 million), be held as a debt
service reserve account. Subject to the debt service reserve
account requirement, there are no restrictions on SMB's use of loan
proceeds or cash flow generated, including the transfer of funds
from SMB to Avocet for corporate purposes. The Ecobank loan
facility has no hedge requirement.
During 2014, payments totalling US$15.3 million were made in
respect of this loan, which was made up of US$10.1 million in loan
repayments, US$4.4 million of interest, and US$0.8 million in VAT
charged on interest. The weighted average interest on the loan
during the year was 8.0%.
The facility is recognised at amortised cost and the amounts due
within twelve months are included as current US$10.0 million (2013:
US$ 10.4 million) with the remaining balance of US$34.5 million
(2013: US$ 50.4 million) included as non-current.
Ecobank VAT advance
Included within current interest bearing debt is a balance of
US$5.0 million (US$5.7 million of net cash advances less US$0.7m
foreign exchange movements) due to Ecobank as short-term loans
secured on VAT recoverable amounts. Under an agreement with
Ecobank, SMB is able to draw down a cash advance of up to 80% of
any VAT rebates confirmed as payable by the Burkina Faso tax
department. On receipt of the rebate, the advance is repayable.
Macquarie Bank Ltd Inata project finance facility
The Company acquired, through its takeover of Wega Mining in
2009, a US$65.0 million project finance facility with Macquarie
Bank Limited. Interest on the loan was calculated at market rates
(LIBOR) plus a margin. The weighted average interest on the loan
during 2013 year was 6.6%. The final US$5.0 million repayment was
made on 30 September 2013.
The facility was secured primarily on the Inata gold mine and
various assets within the Wega Mining group of companies.
Included in the project facility agreement were a number of
covenants, including a minimum Reserve tail covenant (requiring the
number of ounces of Ore Reserves forecast to be extracted after all
loan and hedge liabilities are satisfied to be at least 25% of the
total Ore Reserve for the LoM), as well as various financial
covenants comparing quarterly production and costs against agreed
LoM plans, and ratios comparing the Net Present Value ('NPV') of
LoM cash flows to loan balances. All covenants were removed during
2013 on repayment of the remaining loan balance of US$5.0 million
and the final settlement of the hedge obligation.
Warrant on company equity
A warrant on Avocet Mining PLC's equity was issued to Elliott as
part of the loan facility transaction. The warrant has been treated
as a financial instrument rather than a share based payment on the
basis that the warrant was issued as part of the loan and not as a
result of services provided. Furthermore, the warrant has been
considered a liability rather than equity as the exercise price is
quoted in GBP, and therefore the cash payment from Elliott will not
be fixed when accounting in the Company's functional currency
USD.
The warrant relates to 4,000,000 of ordinary shares with a
strike price of GBP 0.40 and expires three years from issuance on
28 May 2013. The warrant was valued using a Black-Scholes model
based on the 31 December 2013 closing share price of GBP
0.0953.
Finance lease liability
In 2009, SMB entered into an agreement with Total Burkina SA for
the provision of fuel and lubricants to the Inata gold mine.
Included in this agreement were terms relating to the construction
of a fuel storage facility located on the Inata site. The
construction and commissioning of the facility was completed during
2011. Under the terms of the agreement, the cost of the
construction work was borne by Total Burkina SA, prior to being
recovered from SMB over the subsequent seven years. Management has
assessed that the terms of this part of the agreement represent a
finance lease under IAS 17 and it has therefore recognised the
liability on the balance sheet and capitalised the cost of the fuel
storage facility in Mining property and plant.
31 December 31 December
2014 2013
Gross finance lease liabilities - minimum lease payments US$000 US$000
--------------------------------------------------------- ----------- -----------
No later than 1 year 754 907
Later than 1 year and no later than 5 years 1,758 2,666
Later than 5 years - -
--------------------------------------------------------- ----------- -----------
2,512 3,573
Future finance charges on finance leases (419) (707)
--------------------------------------------------------- ----------- -----------
Present value of lease liabilities 2,093 2,866
--------------------------------------------------------- ----------- -----------
31 December 31 December
2014 2013
Present value of lease liabilities US$000 US$000
-------------------------------------------- ----------- -----------
No later than 1 year 715 860
Later than 1 year and no later than 5 years 1,378 2,006
Later than 5 years - -
-------------------------------------------- ----------- -----------
2,093 2,866
-------------------------------------------- ----------- -----------
23. DEFERRED TAX
31 December 31 December
2014 2013
US$000 US$000
----------------------------------------- ----------- -----------
Liabilities
At 1 January - 37
Deferred tax charge/(credit) in the year 4,614 (37)
----------------------------------------- ----------- -----------
At 31 December 4,614 -
----------------------------------------- ----------- -----------
During 2014 the Group recorded deferred tax liabilities of
US$4.6 million in relation to the withholding tax (WHT) and
interest tax (IRVM) that would be due on settlement of intragroup
management fees and loan interest invoices, as set out in note
13.
24. OTHER LIABILITIES
Post retirement
Mine closure benefits Total
US$000 US$000 US$000
------------------------------------- ------------ --------------- -------
At 1 January 2014 6,085 164 6,249
New amounts provided during the year 244 - 244
At 31 December 2014 6,329 164 6,493
------------------------------------- ------------ --------------- -------
Mine closure provisions represent management's best estimate of
the cost of mine closure at its operation in Burkina Faso. In
accordance with the Group accounting policy, the amounts and timing
of cash flows are reviewed annually and reflect any changes to life
of mine plans.
The provision for post retirement benefits represents
management's best estimate of costs following the closure of a US
subsidiary no longer owned by the Group. The above amount
represents a full provision for the liability, based on the most
recent actuarial valuation at 1 January 2015. The main assumptions
used by the actuary were as follows:
31 December 31 December
2014 2013
----------------------------------------- ----------- -----------
Rate of increase for pensions in payment 0.0% 0.0%
Discount rate 6.0% 6.1%
Inflation 3.0% 3.0%
----------------------------------------- ----------- -----------
The assets in the scheme and the expected long-term rate of
return were:
US$000 US$000
------------------------------------ ------ ------
Cash 328 234
Present value of scheme liabilities (380) (398)
Deficit in scheme (52) (164)
------------------------------------ ------ ------
Rate of return 0.0% 0.0%
------------------------------------ ------ ------
25. FINANCIAL INSTRUMENTS
Categories of financial instrument:
31 December 2014 31 December 2013
------------------------------------ ------------------------------------
Measured Measured Measured
Measured at amortised at at amortised
at fair value cost fair value cost
----------------- ----------------- ----------------- -----------------
Available Available
for sale Loans and for sale Loans and
asset and receivables asset and receivables
warrants including warrants including
on the Company's cash and on the Company's cash and
own equity cash equivalents own equity cash equivalents
Categories US$000 US$000 US$000 US$000
------------------------------------- ----------------- ----------------- ----------------- -----------------
Financial assets
Cash and cash equivalents - 4,816 - 15,201
Other financial assets - - 74 -
------------------------------------- ----------------- ----------------- ----------------- -----------------
Total Financial Assets - 4,816 74 15,201
------------------------------------- ----------------- ----------------- ----------------- -----------------
Financial liabilities
Trade and other payables - 45,751 - 34,934
Interest bearing borrowings - 66,203 - 76,475
Finance lease liabilities - 2,093 - 2,865
Warrants on the Company's own equity 254 - 254 -
------------------------------------- ----------------- ----------------- ----------------- -----------------
Total Financial Liabilities 254 114,047 254 114,274
------------------------------------- ----------------- ----------------- ----------------- -----------------
31 December 31 December
2014 2013
US$000 US$000
Results from financial assets and liabilities
Other financial assets - fair value through other comprehensive
income - (525)
Other financial assets - impairment (74) -
Loss on recognition of warrants - (254)
Restructure of hedge - (20,225)
Loss on recognition of forward contracts - (96,632)
Change in fair value of forward contracts - 54,192
The fair value movement in other financial assets in 2013 and
impairment in 2014 relate to the Company's shares in Golden Peak,
an exploration company that management deemed in the year to be
unlikely to return to profitability.
At 31 December 2012 the Company held forward gold contracts with
Macquarie Bank Limited, which represented a mark-to-market
liability of US$132.8 million based on a gold price of US$1,658 per
ounce at that date. However, the forward contracts were considered
to be outside of the scope of IAS 39, on the basis that they were
for own use and gold produced would continue to be physically
delivered to meet the contractual requirement in future periods.
Therefore no value was reflected in the consolidated financial
statements at 31 December 2012, as allowed by the exemption
conferred by IAS 39.5.
In March 2013 the Group announced the restructure of the
Macquarie forward contracts for delivery of gold bullion. The
restructure consisted of eliminating 29,020 ounces under the
forward contracts at a cost of US$20.2 million and shortening the
delivery profile of the remaining ounces by 18 months so that all
ounces would be delivered by December 2016.
The fair value of the forward contracts was recognised at
US$96.6 million. The recognition of the liability was in accordance
with IAS 39 financial instruments, and reflected the fact that the
buy back demonstrated a practice of cash-settling forward
contracts. Under IAS 39 the own use exemption previously applied
was no longer appropriate.
The remaining forward contracts were settled during November
2013. The fall in liability between March and November resulted in
the recognition of a US$54.2 million gain, representing the
reduction in fair value of the forward contracts during the
period.
Credit risk
Credit risk refers to the risk that a counterparty will default
on its contractual obligations resulting in financial loss to the
Group. In order to minimise this risk the Group endeavours only to
deal with companies which are demonstrably creditworthy and this,
together with the aggregate financial exposure, is continuously
monitored. The maximum exposure to credit risk is the value of the
outstanding amounts as follows:
31 December 31 December
2014 2013
US$000 US$000
------------------------------------ ----------- -----------
Cash and cash equivalents 4,816 15,201
Available for sale financial assets - 74
------------------------------------ ----------- -----------
4,816 15,275
------------------------------------ ----------- -----------
Credit risk on cash and cash equivalents is considered to be
acceptable as the counterparties are either substantial banks with
high credit ratings or with whom the group has offsetting debt
arrangements. The maximum exposure is the amount of the
deposit.
Liquidity risk
The Group constantly monitors the cash outflows from day to day
business and monitors longer term liabilities to ensure that
liquidity is maintained. As disclosed in the going concern
statement in note 1, the Group faces an ongoing requirement to
manage the funds it is able to generate at its operating mine,
Inata, as well as to raise new financing to fund corporate and
development activities. This is an area which receives considerable
focus from the Board and management on a daily basis, as cash
balances have remained critically low for some period, and balances
are due to key suppliers.
At the balance sheet date the Group's financial liabilities were
as follows:
31 December 31 December
2014 2013
US$000 US$000
------------------------------------------------------- ----------- -----------
Trade payables 38,975 31,227
Other short-term financial liabilities 32,433 26,933
------------------------------------------------------- ----------- -----------
Current financial liabilities (due less than one year) 71,408 57,520
Non-current financial liabilities (due greater than
one year) 36,282 53,076
------------------------------------------------------- ----------- -----------
107,690 110,596
------------------------------------------------------- ----------- -----------
The above amounts reflect contractual undiscounted cash flows,
which may differ to the carrying values of the liabilities at the
reporting date.
Interest rate risk
Weighted
Weighted average
average interest At 31 December interest At 31 December
rate 2014 rate 2013
% US$000 % US$000
-------------------------- ----------------- -------------- --------- --------------
Cash and cash on hand 0.0 4,816 0.0 15,201
Short-term deposits n/a - n/a -
-------------------------- ----------------- -------------- --------- --------------
Cash and cash equivalents 0.0 4,816 0.0 15,201
Interest bearing debt 8.58 (66,203) 8.58 (76,475)
-------------------------- ----------------- -------------- --------- --------------
Net (debt)/cash (61,387) (61,274)
-------------------------- ----------------- -------------- --------- --------------
Interest rate risk arises from the Group's long-term variable
rate borrowings which expose the Group to cash flow interest rate
risk.
An increase in interest rates of 100 basis points in the period
would have resulted in additional interest costs of US$0.7 million
in the year (31 December 2013: US$0.2 million).
Foreign currency risk
The Group's cash balances at 31 December 2014 and 31 December
2013 consisted of the following currency holdings:
At 31 December At 31 December
2014 2013
US$000 US$000
------------------------------------------------------- -------------- --------------
Sterling 16 163
US dollars 516 3,770
Francs de la Communauté Financière d'Afrique
(FCFA) 4,284 11,268
------------------------------------------------------- -------------- --------------
4,816 15,201
------------------------------------------------------- -------------- --------------
The Group's loan balances at 31 December 2014 and 31 December
2013 consisted of the following currency holdings:
At 31 December At 31 December
2014 2013
US$000 US$000
------------------------------------------------------- -------------- --------------
US dollars 16,667 15,755
Francs de la Communauté Financière d'Afrique
(FCFA) 49,536 60,720
------------------------------------------------------- -------------- --------------
66,203 76,475
------------------------------------------------------- -------------- --------------
The Group may be exposed to transaction foreign exchange risk
due to its transactions not being matched in the same currency. The
Group currently has no currency hedging in place.
In Burkina Faso, local currency payments account for
approximately 75% of total production costs. The Burkina Faso FCFA,
which has a fixed exchange rate to the euro, weakened by 13%
against the US dollar in the year. It is estimated that without
this weakening, profit would have been US$8.0 million lower.
There is no material difference between the fair values and the
book values of these financial instruments.
Measurement of fair value
The Company measures the fair value of its financial assets and
liabilities in the statement of financial position in accordance
with the fair value hierarchy. This hierarchy groups financial
assets and liabilities into three levels based on the significance
of inputs used in measuring the fair value of the financial assets
and liabilities. The fair value hierarchy has the following
levels:
Level 1: quoted prices (unadjusted) in active markets for
identical assets or liabilities;
Level 2: inputs other than quoted prices included within Level 1
that are observable for the asset or liability, either directly
(i.e. as prices) or indirectly (i.e. derived from prices); and
Level 3: inputs for the asset or liability that are not based on
observable market data (unobservable inputs).
Available for sale financial assets were valued in line with
Level 1, based on quoted market prices of the shares.
26. CAPITAL MANAGEMENT
The Group's capital management objectives are to ensure the
Group's ability to continue as a going concern, and to provide an
adequate return to shareholders.
The Group manages the capital structure through a process of
constant review and makes adjustments to it in the light of changes
in economic conditions and the risk characteristics of the
underlying assets. In order to maintain or adjust the capital
structure, the Group may issue new shares, adjust dividends paid to
shareholders, return capital to shareholders, or seek additional
debt finance. Further detail is provided in the going concern
section of note 1.
27. SHARE BASED PAYMENTS
Performance Share Plan ('PSP') shares
Details of the number of PSP shares that were outstanding during
the year are as follows:
31 December 2014 31 December 2013
------------------------- -------------------
Weighted
average
Weighted award
average award value
Number value (GBP) Number (GBP)
------------------------------------------- --------- -------------- --------- --------
Outstanding at the beginning of the period 1,850,000 0.42 720,000 1.28
Granted during the period - - 1,455,000 0.07
Exercised during the period - - - -
Cancelled or expired during the period (590,000) 1.18 (325,000) 0.75
Outstanding at the period end 1,260,000 0.07 1,850,000 0.42
Exercisable at the period end - - - -
------------------------------------------- --------- -------------- --------- --------
The fair value of these PSP shares has been determined using a
third party Monte Carlo simulation model, which takes into account
the relative Total Shareholder Return ('TSR') projected by the
Company compared with its comparator group, to arrive at an assumed
payout based on its final share price and ranking. The payout is
then discounted at a risk free rate back to the date of award.
Share
price Risk Fair
Number Reference Reference at award Volatility free value
Date of award Expiry date of shares period begins period ends (GBP) rate rate (GBP)
-------------- ------------ ---------- -------------- ------------ --------- ---------- ----- ------
26 Mar 2013 26 Mar 2016 1,260,000 01 Jan 2013 31 Dec 2015 0.20 47.5% 0.30% 0.07
Total 1,260,000 47.5% 0.30% 0.07
---------------------------- ---------- -------------- ------------ --------- ---------- ----- ------
Share options
Details of the number of share options and the weighted average
exercise price ('WAEP') outstanding during the year are as
follows:
31 December 2014 31 December 2013
------------------- -------------------
WAEP WAEP
Number (GBP) Number (GBP)
------------------------------------------- ----------- ------ ----------- ------
Outstanding at the beginning of the period 9,150,524 0.69 6,669,514 1.26
Granted during the period - - 5,825,000 0.22
Exercised during the period - - - -
Cancelled or expired during the period (3,775,120) 0.71 (3,343,990) 1.00
------------------------------------------- ----------- ------ ----------- ------
Outstanding at the period end 5,375,404 0.68 9,150,524 0.69
Exercisable at the period end - - - -
------------------------------------------- ----------- ------ ----------- ------
Options granted between 2005 and 2010 were subject to market
performance conditions. The fair value of these options has been
arrived at using a third party Monte Carlo simulation model, taking
into consideration the market performance criteria. Options granted
between 1 January 2011 and 1 August 2012 have no market performance
criteria and have been valued using the Black Scholes model.
Options granted since 13 December 2012 are valued using a Monte
Carlo simulation model. The assumptions inherent in the use of
these models are as follows:
Vesting Expected Risk Exercise Volatility Fair
period Date life free price of share value Number
Date of grant (years) of vesting (years) rate (GBP) price (GBP) outstanding
-------------- -------- ----------- -------- ----- -------- ---------- ------ ------------
09/07/2008 3 09/07/2011 5 4.94% 1.54 45.08% 0.59 330,488
17/05/2009 3 17/05/2012 5 1.91% 0.75 49.97% 0.28 4,917
25/06/2009 3 25/06/2012 5 2.13% 0.81 50.16% 0.30 700,000
18/03/2010 3 18/03/2013 4 2.42% 1.05 55.86% 0.47 625,000
23/05/2011 0.75 21/02/2012 2.75 1.46% 2.19 53.98% 0.57 53,333
23/05/2011 1.75 21/02/2013 3.75 1.88% 2.19 53.98% 0.69 53,333
23/05/2011 2.75 21/02/2014 4.75 2.25% 2.19 53.98% 0.79 53,333
12/03/2012 3 12/03/2015 5 1.02% 2.30 45.80% 0.76 265,000
01/08/2012 3 01/08/2015 5 0.59% 0.75 56.47% 0.25 250,000
13/12/2012 3 13/12/2015 3 0.40% 0.67 46.60% 0.15 260,000
08/03/2013 2.82 08/03/2013 2.82 0.38% 0.23 46.63% 0.02 400,000
08/03/2013 3 08/03/2013 3 0.41% 0.23 47.22% 0.03 990,000
26/03/2013 2.77 26/03/2013 3 0.27% 0.20 46.64% 0.02 130,000
26/03/2013 3 26/03/2013 3 0.29% 0.20 47.47% 0.02 1,260,000
5,375,404
-------------- -------- ----------- -------- ----- -------- ---------- ------ ------------
Exercise prices are determined using the closing share price on
the day prior to the option grant.
Expected volatility was determined by calculating the historical
volatility of the Company's share price over the previous five
years. The expected life used in the model has been adjusted, based
on management's best estimate, for the effects of
non-transferability, exercise restrictions and behavioural
considerations.
The Group recognised total expenses of US$ 0.9 million related
to share based payment transactions during the year (US$1.3 million
in the year ended 31 December 2013).
28. CONSOLIDATED CASH FLOW STATEMENT
In arriving at net cash flow from operating activities, the
following non-operating items in the income statement have been
adjusted for:
Other non-operating items in the income statement
31 December 31 December
2014 2013
US$000 US$000
-------------------------------------------------- ----------- -----------
Exchange (gains)/losses in operating activities (4,151) 325
Exchange (gains)/losses in finance items (5,856) 109
Finance income (2) (17)
Finance expense 8,456 6,021
Movement in provisions and other non-cash items 1,752 -
Other non-operating items in the income statement 199 6,438
-------------------------------------------------- ----------- -----------
29. SHARE CAPITAL
31 December 2014 31 December 2013
------------------- -------------------
Number US$000 Number US$000
------------------------------------ ----------- ------ ----------- ------
Authorised:
Ordinary share of 5p 800,000,000 69,732 800,000,000 69,732
Allotted, called up and fully paid:
Opening balance 199,546,710 16,247 199,546,710 16,247
Issued during the year 9,950,000 825 - -
------------------------------------ ----------- ------ ----------- ------
Closing balance 209,496,710 17,072 199,546,710 16,247
------------------------------------ ----------- ------ ----------- ------
On 14 August 2014, the Company issued 9,950,000 new ordinary
shares to existing investors, at a price of 7.13 pence per share (a
discount of 5% to the closing price of 7.51 pence on the previous
day, the date on which the terms where agreed). Elliott, Avocet's
largest shareholder, subscribed for 2,550,000 of these shares,
while Prelas AS, Avocet's second-largest shareholder, subscribed
for 4,950,000, while two other Norwegian private investors J Roger
and A Vohra subscribed for 2,000,000 and 450,000 shares
respectively. No new shares were issued in 2013.
30. OTHER RESERVES
Investment in own and Revaluation of other
Merger reserve treasury shares financial assets Foreign exchange Total
US$000 US$000 US$000 US$000 US$000
-------------------- -------------- ------------------------- -------------------------- ---------------- -------
At 31 December 2012 19,901 (1,909) (1,714) (161) 16,117
Movement in year - 64 1,714 - 1,778
At 31 December 2013 19,901 (1,845) - (161) 17,895
Movement in year - - - - -
-------------------- -------------- ------------------------- -------------------------- ---------------- -------
At 31 December 2014 19,901 (1,845) - (161) 17,895
-------------------- -------------- ------------------------- -------------------------- ---------------- -------
In 2014, the Company allotted no new shares to the EBT. No
shares were released from the EBT in the year.
At 31 December 2014, the Company held 336,201 own shares (of
which 334,300 were held in the EBT and 1,901 were held in the Share
Incentive Plan).
At 31 December 2014, the Company held 442,009 treasury shares.
During 2014, no shares were issued by the Company from treasury
shares.
31. CONTINGENT LIABILITIES
There are no Contingent liabilities at 31 December 2014 (2013:
US$ 4.7 million).
PT Lebong Tandai
In April 2011, Avocet was informed that a law suit had been
filed against it in the District Court of South Jakarta, Indonesia
by PT Lebong Tandai ('PT LT'), Avocet's former partner in a joint
venture in Indonesia (the 'First PT LT Case'). The law suit relates
to a challenge as to the legality of the sale of Avocet's South
East Asian assets. PT LT asserts that it was entitled to acquire
all of these assets pursuant to an agreement allegedly entered into
between PT LT and Avocet in April 2010. In its law suit, PT LT has
claimed damages totalling US$1.95 billion, comprising US$450
million loss in respect of an alleged on-sale by PT LT of part of
the assets, US$500 million loss in respect of financing
arrangements allegedly entered into by PT LT, and US$1 billion for
loss of reputation. In November 2011, Avocet challenged the
jurisdiction of the District Court to hear the law suit on the
basis that PT LT and Avocet were obligated under the terms of their
joint venture to settle any dispute through arbitration. In
addition, Avocet challenged the court's jurisdiction on the grounds
that Avocet is not subject to the Indonesian courts as it has no
presence in Indonesia. In December 2011 the District Court found in
Avocet's favour and dismissed the case. In January 2013, it was
confirmed to Avocet that PT LT had lodged an appeal to the
Indonesian High Court against the District Court's decision. In
September 2013 the High Court released its decision on the appeal
brought by PTLT and decided in Avocet's favour that the District
Court's original decision was correct and that the District Court
did not have jurisdiction to hear the matter. During October 2013,
Avocet was informed that PT LT had appealed the High Court's
decision to the Supreme Court of Indonesia. In May 2014, the
Supreme Court ruled in Avocet's favour that the High Court's
decision was correct and that the District Court did not have
jurisdiction to hear the matter. The Company is unaware of whether
PT LT has sought, or will seek, a judicial review of the Supreme
Court's decision.
On 2 May 2012, Avocet was informed that PT LT had filed a second
law suit against it, as well as against J&Partners Asia
Limited, PT. J Resources Asia Pasifik Tbk and PT J Resources
Nusantara - all being subsidiaries or affiliates of J&Partners
L.P. ('J&Partners') which was the buyer of Avocet's South East
Asian assets - in the District Court of South Jakarta, Indonesia
(the 'Second PT LT Case'). The Second PT LT Case is based on almost
identical grounds to the First PT LT Case with the addition of the
further defendants and claims against them. In the Second PT LT
Case, PT LT is seeking a declaration that the assignment of
Avocet's shares in the joint venture with PT LT to any third party
other than PT LT is null and void, and that PT LT has the right to
acquire the shares in the joint venture with Avocet. PT LT also
seeks an order that all of the defendants (Avocet and
J&Partners) must surrender/assign the shares in the joint
venture to PT LT and that PT. J Resources Asia Pasifik Tbk or any
other entity must not sell, assign or make any legal undertakings
in respect of the shares in the joint venture and/or all the assets
of Avocet in Indonesia. Finally PT LT seeks damages for material
and immaterial injury of US$1.1 billion and US$1 billion
respectively. In September 2012, Avocet disputed the jurisdiction
of the Indonesian court over the Second PT LT Case for the same
reasons that it disputed the jurisdiction of the Indonesian court
in relation to the First PT LT Case, namely that PT LT and Avocet
were obligated under the terms of their joint venture to settle any
dispute through arbitration. In addition, Avocet challenged the
court's jurisdiction on the grounds that Avocet is not subject to
the Indonesian courts as it has no presence in Indonesia, and also
on the ground that the substance of the Second PT LT Case is the
same as the First PT LT Case, over which the Indonesian court
had
already found that it did not have jurisdiction. The District
Court subsequently found in favour of Avocet and the other
defendants and dismissed the case. In February 2013, PT LT appealed
the District Court's decision on jurisdiction to the High Court. In
January 2014 the High Court released its decision in favour of
Avocet and the other defendants. During February 2014, Avocet was
informed that PT LT had appealed the High Court's decision to the
Supreme Court of Indonesia.
The Company understands that PT LT has filed a third law suit
against J&Partners or its affiliates which makes similar
arguments as the Second PT LT Case (the 'Third PT LT Case'). The
Company understands that the South Jakarta District Court has
dismissed the Third PT LT Case and that PTLT has appealed to the
Indonesian High Court against the District Court's decision.
The Board remains confident that all the actions taken in
respect of the transaction have been in accordance with prevailing
rules and regulations and there are no grounds for any such legal
action by PT LT. As any financial settlement with PT LT is
considered to be remote, this matter does not constitute a
contingent liability, however the matter is disclosed in these
financial statements to replicate statements already made by the
Company.
The buyer, J&Partners, has notified Avocet that in the event
PT LT were successful in actions against J&Partners,
J&Partners would make a claim for damages against Avocet. The
basis for the claim would be that Avocet had breached a warranty in
the sales agreement, which is governed by English law, in which it
stated that it was selling the assets free of encumbrance. Avocet
strongly disagrees that there was any such breach and initiated
arbitration in the English courts to have any such claim
dismissed.
The arbitration hearing took place in London in January 2015.
The arbitrator's decision is not expected for several months.
Should the arbitration in the English courts be decided in Avocet's
favour, it would be entitled to seek recovery of a proportion of
its costs from J&Partners. Should the arbitration be decided in
J&Partners' favour, J&Partners would be entitled to seek
recovery of a proportion of its costs from Avocet. No amount has
been provided for an adverse cost recovery award.
32. CAPITAL COMMITMENTS
At 31 December 2014 the Group had entered into contractual
commitments for the acquisition of property, plant and equipment of
US$1.0 million (31 December 2013: US$5.4), primarily related to the
construction of the second tailings management facility.
33. EVENTS AFTER THE REPORTING PERIOD
There were no material events after the reporting period.
34. RELATED PARTY TRANSACTIONS
The table below sets out charges during the year and balances at
31 December 2014 between the Company and Group companies that were
not wholly-owned, in respect of management fees, and interest on
loans:
Avocet Mining PLC Wega Mining AS
--------------------------------------------- ---------------------------------------------
Balance at 31 December Balance at 31 December
Year ended 31 December Charged in the year 2014 Charged in the year 2014
2014 US$000 US$000 US$000 US$000
------------------------ ------------------- ------------------------ ------------------- ------------------------
Société des
Mines de Bélahouro
SA (90%) 6,647 138,328 662 58,080
------------------------ ------------------- ------------------------ ------------------- ------------------------
During 2014, Wega Mining AS capitalised a total of US$51.3
million of debt owed by SMB in order to comply with Burkina Faso
capital ratio requirements.
Avocet Mining PLC Wega Mining AS
--------------------------------------------- --------------------------------------------
Balance at 31 December Balance at 31 December
Year ended 31 December Charged in the year 2013 Credit in the year 2013
2013 US$000 US$000 US$000 US$000
------------------------- ------------------- ------------------------ ------------------ ------------------------
Société des
Mines de Bélahouro
SA (90%) 7,471 136,041 (27) 108,709
------------------------- ------------------- ------------------------ ------------------ ------------------------
Information on remuneration of Key Management Personnel is set
out in note 10.
Dividends received by Directors during the year in respect of
shares held in the Company amounted to US$nil (31 December 2013:
US$nil).
35. ALL-IN SUSTAINING COSTS
The All-in sustaining cost ('AISC') has been reported in line
with the guidance issued by the World Gold Council during 2013. The
Company will continue to disclose cash costs in order to provide
comparability to prior periods.
The AISCs below are based on the Avocet Group and include share
based payments and general and corporate administrative costs.
Q1 2014 Q2 2014 Q3 2014 Q4 2014 2014 2013
(Unaudited) (Unaudited) (Unaudited) (Unaudited) (Audited) (Audited)
-------------------------------- ------------- ------------- ------------- ------------- ----------- -----------
US$000 US$000 US$000 US$000 US$000 US$000
Gold produced (oz) 23,148 21,650 21,736 19,503 86,037 118,443
Total cash production cost
(US$000) 27,288 28,511 25,724 20,512 102,035 142,458
-------------------------------- ------------- ------------- ------------- ------------- ----------- -----------
Total cash production cost
(US$/oz) 1,179 1,317 1,183 1,052 1,186 1,203
-------------------------------- ------------- ------------- ------------- ------------- ----------- -----------
Other costs of sales (US$000) 656 1,313 233 224 2,426 6,106
Foreign exchange (US$000) (75) 573 (6,576) 1,927 (4,151) 1,895
Sustaining capital expenditure
(US$000) 2,457 780 534 909 4,680 13,489
Share based payments (US$000) 377 377 377 (275) 856 1,275
Administrative expenses
(US$000) 1,069 1,423 1,448 1,777 5,717 8,218
All-in Sustaining Costs
(US$000) 31,772 32,977 21,740 25,074 111,563 173,441
-------------------------------- ------------- ------------- ------------- ------------- ----------- -----------
All-in Sustaining Costs
(US$/oz) 1,373 1,523 1,000 1,286 1,297 1,464
-------------------------------- ------------- ------------- ------------- ------------- ----------- -----------
36. GROUP STRUCTURE
All subsidiaries within the Avocet Group are 100% owned, with
the exception of Société des Mines de Bélahouro SA (SMB), a Burkina
Faso incorporated entity, which is 90% owned. In accordance with
the Mining Code of Burkina Faso, the remaining 10% is owned by the
Burkinabe Government, who are represented on the Board of SMB. It
is not considered that the Governmental ownership represents a
restriction on the activities of the company, nor on the free flow
of its funds. All material contracts and financial arrangements are
referred to the Board of SMB for approval.
The interest of the Government in SMB is shown in the financial
statements under Non-controlling Interest in the income statement
and statement of financial condition, as there are no other
Non-controlling interests in the Group.
37. UNAUDITED QUARTERLY INCOME STATEMENT FOR CONTINUING OPERATIONS
The following table presents an analysis of the 2014 results by
quarter. This analysis has not been audited and does not form part
of the statutory financial statements.
Q1 2014 Q2 2014 Q4 2014 2014 2013
Q3 2014
(Unaudited) (Unaudited) (Unaudited) (Unaudited) (Audited) (Audited)
US$000 US$000 US$000 US$000 US$000 US$000
--------------------------------- ------------- ------------- ------------ ------------- ----------- -----------
Revenue 31,473 27,880 27,559 23,532 110,444 149,261
Cost of sales (36,370) (36,071) (26,947) (30,328) (129,716) (179,649)
Cash production costs:
* mining (10,745) (10,996) (8,589) (5,966) (36,296) (64,833)
* processing (9,313) (10,339) (10,029) (8,403) (38,084) (44,111)
* overheads (5,150) (5,245) (5,197) (4,526) (20,118) (22,175)
* royalties (2,080) (1,931) (1,909) (1,617) (7,537) (11,339)
--------------------------------- ------------- ------------- ------------ ------------- ----------- -----------
(27,288) (28,511) (25,724) (20,512) (102,035) (142,458)
Changes in inventory (1,450) 2,172 (418) (1,199) (895) 4,935
Expensed exploration and other
cost
of sales (1,382) (2,569) 4,576 (3,797) (3,172) (12,708)
Depreciation and amortisation (6,250) (7,163) (5,381) (4,820) (23,614) (29,418)
--------------------------------- ------------- ------------- ------------ ------------- ----------- -----------
Gross (loss)/profit (4,897) (8,191) 612 (6,796) (19,272) (30,388)
--------------------------------- ------------- ------------- ------------ ------------- ----------- -----------
Administrative expenses (1,069) (1,423) (1,448) (1,777) (5,717) (8,218)
Share based payments (377) (377) (377) 275 (856) (1,275)
Net impairment of assets - (25,780) - (85,912) (111,692) (40,727)
Loss from operations (6,343) (35,771) (1,213) (94,210) (137,537) (80,608)
--------------------------------- ------------- ------------- ------------ ------------- ----------- -----------
Loss on recognition of forward
contracts - - - - (96,632)
Restructure of forward contracts - - - - - (20,225)
Change in fair value of forward
contracts - - - - - 54,192
Finance items
Exchange (losses)/gains (2) 9 (23) 5,872 5,856 (109)
Finance expense (1,867) (2,030) (1,955) (2,604) (8,456) (6,020)
Finance income - 2 - - 2 17
--------------------------------- ------------- ------------- ------------ ------------- ----------- -----------
Loss before taxation (8,212) (37,790) (3,191) (90,942) (140,135) (149,385)
--------------------------------- ------------- ------------- ------------ ------------- ----------- -----------
Analysed as:
Loss before taxation and
exceptional
items (8,212) (12,010) (3,191) (5,030) (28,443) (45,993)
Exceptional items - (25,780) - (85,912) (111,692) (103,392)
--------------------------------- ------------- ------------- ------------ ------------- ----------- -----------
Taxation (12) (9,576) - (65) (9,653) (3,484)
Loss for the period (8,224) (47,366) (3,191) (91,007) (149,788) (152,869)
--------------------------------- ------------- ------------- ------------ ------------- ----------- -----------
Attributable to:
Equity shareholders of the parent
company (7,446) (45,312) (3,125) (80,237) (136,120) (142,483)
Non-controlling interest (778) (2,054) (66) (10,770) (13,668) (10,386)
--------------------------------- ------------- ------------- ------------ ------------- ----------- -----------
(8,224) (47,366) (3,191) (91,007) (149,788) (152,869)
--------------------------------- ------------- ------------- ------------ ------------- ----------- -----------
EBITDA (470) (2,451) 4,168 (3,478) (2,231) (10,463)
--------------------------------- ------------- ------------- ------------ ------------- ----------- -----------
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR EASLPALNSEEF
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