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Avocet Mining PLC (AVM)

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Friday 24 December, 2010

Avocet Mining PLC

Conditional Sale of South Eas

RNS Number : 5695Y
Avocet Mining PLC
24 December 2010
 



AVOCET MINING ANNOUNCES CONDITIONAL SALE OF SOUTH EAST ASIAN ASSETS FOR US$200 MILLION CASH

Avocet Mining PLC ("Avocet" or "the Company") announces that it has signed a binding agreement for the conditional sale of its South East Asian assets to J&Partners, L.P., a private Cayman Islands company, for a cash consideration of US$200 million.  The South East Asian assets, details of which are provided below, include: the Penjom mine in Malaysia; the North Lanut mine and Bakan project in North Sulawesi, Indonesia; and a number of exploration properties in Indonesia. 

 

J&Partners, L.P. ("J&Partners") is a mining fund established by Mr Jimmy Budiarto, a member of the Indonesian family that in November 2009 sold its interest in Indonesia's second largest mining contractor, PT Bukit Makmur Mandiri Utama (BUMA). The principals in J&Partners are Mr Jimmy Budiarto and Mr Chris Hui, former Head of Investment Banking for Barclays Capital in China and Hong Kong.

 

Completion is conditional on government agency approvals and other conditions precedent, with the result that completion is not guaranteed.  The transaction with J&Partners is also subject to certain rights of first refusal ("ROFR") held by minority interest parties, the exercise and outcome of which cannot easily be predicted. In particular, PT Lebong Tandai ("PTLT") owns a 20 per cent interest in PT Avocet Bolaang Mongondow ("PT ABM") and holds a ROFR over the Company's 80 per cent interest in PT ABM. PT ABM holds the Contract of Work for the North Lanut mine and Bakan project. Further details of the transaction with J&Partners and of PT Lebong Tandai's ROFR are provided below. 

 

The transaction with J&Partners is the result of a strategic review of the Company's business in South East Asia aimed at maximising the value of the assets for Avocet's shareholders.  Its completion would leave Avocet as a West African gold producer with a clear strategy of growth in that region, holding no further assets in South East Asia.  Decisions about the use of proceeds will be taken following completion of the transaction, which is expected to occur in Q2 2011.

 

Avocet Mining will host a conference call on Friday 24 December 2010 at 09:00am (London, UK time) to discuss the conditional sale of its South East Asian assets. Participants may join the call by dialling one of the following three numbers, approximately 10 minutes before the start of the call.

 

From UK (toll free):             0808 238 7396

From Norway (toll free):     800 187 79

From rest of world:           + 44 20 3364 5947

Participant pass code:     936500#

 

Commenting on the agreement, Avocet's Chief Executive Officer, Brett Richards stated:

 

"This agreement represents progress on one of the Company's strategic objectives for 2010, and is aimed at allowing us to focus on building a bigger business in West Africa, while capturing real value for our shareholders from the assets in South East Asia.  We believe J&Partners has the ability to realise the potential of these assets and will best serve the interests of the employees and communities vested in these assets.  As well as completing this transaction in South East Asia, our strategic objectives in West Africa include plant enhancements at Inata to underpin increased life of mine production, and an aggressive exploration campaign in both Burkina Faso and Guinea." 

 

Details of the transaction with J&Partners and PT Lebong Tandai's ROFR

 

The binding agreement has been reached after a four month period of technical due diligence carried out on behalf of J&Partners by UK and Australian mining consultants, as well as financial and legal due diligence.  As part of this transaction J&Partners has paid an initial consideration of US$10 million into an escrow account. A second tranche of US$100 million is due to be paid into escrow at the end of February and the remaining consideration is payable upon completion. Total consideration is US$200 million on a cash free and debt free basis.  After adjustments for working capital and cash at completion, actual proceeds may be greater than or less than US$200 million. 

 

In the event that PTLT elected to exercise its ROFR, PTLT would be required to complete the acquisition of Avocet's interest in PT ABM for US$120 million in cash by 21 March 2011, in order to match the cash amount agreed with J&Partners.  In this instance, the transaction with J&Partners would lapse and Avocet would retain Penjom and the other exploration assets, together with US$120 million proceeds from the sale of PT ABM. 

 

The Company expects that certain employees would receive a bonus in respect of this transaction, conditional on its completion and dependent on the proceeds received.

 

Completion of the transaction with J&Partners for the sale of the South East Asian assets as a whole would generate a pre-tax profit of approximately US$100 million.

 

Standard Chartered Bank has acted as financial adviser to Avocet on this transaction.  J&Partners were advised by Macquarie Capital (Singapore) Pte. Limited.

 

The counsels acting for Avocet were Field Fisher Waterhouse LLP and Hadiputranto Hadinoto & Partners while O'Melveny & Myers LLP and Susanto & Partners acted for J&Partners.

 

Details of the South East Asian assets

 

The principal assets contained within the agreement are as follows:

·    100 per cent interest in the Penjom mine in Malaysia;

·    80 per cent interest in PT ABM, which holds the Contract of Work for the North Lanut mine and the Bakan exploration project;

·    51 per cent interest in the Izin Usaha Pertambangan ("IUP" or exploration licence company) for the Seruyung exploration property;

·    60 per cent interest in the IUP for the Doup exploration property;

·    75 per cent interest in PT Gorontalo Sejahtera Mining, including the Pani prospect.

·    100 per cent interest in PT Avocet Mining Services.

·    100 per cent interest in Avocet Mining (Malaysia) OHQ Sdn. Bhd.

 

Together these assets have approximately 1,000 employees.

 

Financial and production figures extracted from the third quarter report announced by Avocet on 5 November 2010 in respect of the South East Asian assets are shown below.  Further details are disclosed in the Company's segmental analysis in its annual and quarterly reports, including income statement and balance sheet information for the Malaysia and Indonesia geographic segments.

 

Penjom - Malaysia

 


Quarter ended

30 Sep 2010

Unaudited

Quarter ended

 30 Jun 2010

Unaudited

Nine months ended

30 Sep 2010

Unaudited

Nine months ended

30 Sep 2009

Unaudited

Production statistics





Ore mined (tonnes)

127,000

51,000

283,000

886,000

Waste mined (tonnes)

3,871,000

4,115,000

11,721,000

13,118,000

Ore and waste mined (tonnes)

3,998,000

4,166,000

12,004,000

14,004,000

Ore processed (tonnes)

193,000

187,000

565,000

545,000

Average ore head grade (g/t Au)

2.86

2.21

2.62

3.33

Process recovery rate

85%

79%

82%

82%

Gold produced (ounces)

15,020

10,461

39,150

48,142

Cash costs (US$/oz)





- mining

517

682

549

398

- processing

201

293

231

171

- royalties and overheads

123

144

127

104

Total cash cost (US$/oz)

841

1,119

907

673

 

Gold production at Penjom increased significantly in the third quarter, after intensive waste stripping in the first six months of the year, and as higher grade ores were accessed, notably at the Jalis zone. Ore mined therefore improved in both tonnages and in grade, and mill feed also improved as increased quantities of higher grade ore was able to be sourced directly from the pit, rather than drawing on the lower grade stockpiles as in previous periods. Higher production resulted in a drop of 25 per cent in the cash costs per ounce reported compared with the second quarter of the year.

 

North Lanut - Indonesia

 


Quarter ended

30 Sep 2010

Unaudited

Quarter ended

 30 Jun 2010

Unaudited

Nine months ended

30 Sep 2010

Unaudited

Nine months ended

30 Sep 2009

Unaudited

Production statistics





Ore mined (tonnes)

305,000

295,000

1,015,000

1,034,000

Waste mined (tonnes)

380,000

428,000

1,200,000

1,710,000

Ore and waste mined (tonnes)

685,000

723,000

2,215,000

2,744,000

Ore processed (tonnes)

368,000

267,000

900,000

916,000

Average ore head grade (g/t Au)

1.92

1.70

1.86

1.81

Process recovery rate

54%

77%

65%

67%

Gold produced (ounces)

12,311

11,184

34,865

35,529

Cash costs (US$/oz)





- mining

329

343

334

270

- processing

177

172

168

120

- royalties and overheads

151

163

155

109

Total cash cost (US$/oz)

657

678

657

499

 

Gold production at North Lanut rose 10 per cent compared with the previous quarter, due to increased leach pad availability allowing for higher ore tonnages to be processed. Grades were also improved as mining accessed higher grade areas at depth in the Rasik pits.  The initial low process recovery rate of 54 per cent reflects the fact that high ore tonnes were placed on the leach pad towards the end of the quarter, from which only a small proportion of gold had leached out by the end of September. The gold from this ore will continue to be recovered in the fourth quarter.  Higher gold production meant that cash cost per ounce was slightly below the previous quarter.

 

North Lanut's excellent safety record continues, with the operation having worked over 15 million lost time injury free hours.

 

South East Asian Exploration

 

During the third quarter of 2010 exploration in South East Asia focused on advancing the Doup and Seruyung projects, with drilling commencing in August and September, respectively.  Diamond drilling at Doup is focussed on infill drilling on the Panang zone where the metallurgy is simpler. The aim of this programme is to evaluate the continuity of higher-grade gold zones and facilitate an estimate of Measured and Indicated Mineral Resources. This will enable the estimation of Mineral Reserves and the first economic evaluation of the project.

 

At Seruyung, the Company has mobilised two diamond drill rigs to commence the first phase infill drilling programme of the Main Silica Cap zone, which forms the core of the project. This will allow the estimation of Inferred Mineral Resources and facilitate an understanding of the scope and scale of the project.

 

For further information please contact:

Avocet Mining PLC
Buchanan Communications
Ambrian Partners Limited
J.P. Morgan Cazenove
Arctic Securities
 
Financial PR Consultants
NOMAD and Joint Broker
Lead Broker
Financial Adviser
Brett Richards, CEO
Mike Norris, FD
Hans-Arne L'orange, EVP Business Development & Investor Relations
Bobby Morse
Katharine Sutton
Richard Brown
 
Michael Wentworth-Stanley
Niklas Kloepfer
Arne Wenger
 
+44 20 7766 7676
+44 20 7466 5000
+44 7872 604783
+44 20 7634 4700
+44 20 7588 2828
+47 2101 3100
www.avocet.co.uk
www.buchanan.uk.com
www.ambrian.com
www.jpmorgancazenove.com
www.arcticsec.no

 

Notes to Editors

 

Avocet Mining PLC ("Avocet" or "the Company") is a gold mining company listed on the AIM market of 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 Burkina Faso (as 90 per cent owner of the Inata gold mine), Malaysia (as 100 per cent owner of the Penjom gold mine, the country's largest gold producer) and Indonesia (as 80 per cent owner of the North Lanut gold mine and Bakan project in North Sulawesi).

 

Background to operations

 

The Inata deposit presently comprises a Mineral Resource of 1.84 million ounces and a Mineral Reserve of 1.08 million ounces. Inata poured its first gold in December 2009 and has now reached a production rate in excess of 12,000 ounces per month. Other assets in West Africa include exploration permits in Burkina Faso (the most advanced being the Souma trend at Bélahouro with a Mineral Resource of 561,100 ounces), Mali and Guinea (the most advanced being the Tri-K gold exploration project with a Mineral Resource of 666,500 ounces).

 

Penjom is Malaysia's largest gold mine and was developed by Avocet in an area of historic alluvial mining. The mine is located in Pahang State, approximately 120 km north of the country's capital, Kuala Lumpur.

 

North Lanut in North Sulawesi, Indonesia, was developed by Avocet from the exploration stage and has produced over 300,000 ounces since it was commissioned in 2004. North Lanut is located within a Contract of Work, which includes exploration and mining rights over approximately 50,000 hectares in an area highly prospective for gold. Avocet holds an 80 per cent interest and an Indonesian company, PT Lebong Tandai, owns the remaining 20 per cent.


This information is provided by RNS
The company news service from the London Stock Exchange
 
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