JOHANNESBURG (miningweekly.com) – Aim-listed Avocet Mining has adjusted its expected full-year gold output downwards to between 75 000 oz and 80 000 oz of gold, while it mulls options of repaying loans due to an affiliate of its largest shareholder Elliott Associates.

The weak gold market and the “disappointing operational performance” over the last three years of Avocet’s only operating mine, Burkino Faso-based Inata, had resulted in the company being unable to raise sufficient equity to provide funding for corporate purposes or to repay its loans.

One loan, initially due in December 2013 and secured against the company’s Tri-K exploration asset, in Guinea, had $17.7-million including accrued interest outstanding by August.

The company also had an unsecured demand loan of $1.5-million, taken out in January 2015, as well as a secured demand loan of $2.4-million, of which $2-million had been drawn down on August 24, 2015.

The remaining $400 000 of the loan, which was secured against various group assets in Burkina Faso, would be drawn at Elliott's discretion.

Avocet subsidiary and owner of Inata Société des Mines de Bélahouro had debt of $38.4-million with Ecobank and trade creditors totalling $36.1-million.

“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 company noted in a half-year update on Monday.

The group’s financial position had resulted in the implementation of a business review at the start of 2014 to consider various options for maximising the value of its assets, namely Inata, the Souma deposit, also in Burkino Faso, and Tri-K project, in Guinea, for the benefit of shareholders.

Avocet’s current corporate activity funds would last until October.

“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 or its Souma exploration project,” Avocet explained.

Despite this, Avocet believed it could secure further funding for the next year owing to encouraging prospects for the two emerging operations, the early-stage discussions and the parties involved in the talks over the company’s two prospects set to determine Avocet’s “growth story”.

The group was currently optimising the design and economics of the Tri-K project, for which an exploitation permit was granted in March, to make it more attractive to financiers to fund the start of construction in early 2016.

“The company has received encouragement from the Guinean government, which is keen for Avocet to establish the first new gold mine in a number of years. The new mining code and the nationwide review of licences have been successfully completed while the Ebola outbreak in Guinea appears to have moderated,” the company said.

At Souma, Avocet had completed its infill drilling programme, with early indications of further areas of mineralisation in the region.

The completion of the testwork, which was currently being finalised, was expected to shed light on the extent to which Souma could provide satellite ore feed to Inata or whether the operation would be best suited as a low-cost standalone heap leach operation.

Meanwhile, Avocet moved to optimise cash flow by improving recoveries and reducing costs as the Inata mine continued to struggle operationally.

Despite an aggressive initiative to cut expenses, including resizing the expatriate and local workforce, amending mining plans and eliminating nonessential spend on support functions, the lower gold price, which dropped from a high of over $1 300/oz in February to below $1 100 in July, had offset some of the gains made by the company.

The company achieved a cash cost of $1 021/oz for the six months to June, 18% lower than that achieved in the first half of last year, owing to the cost reduction initiatives and the weakening of the local currency against the US dollar.

During the six months to June, Avocet produced 39 859 oz of gold – an 11% drop on the prior corresponding period, which was a “reflection” of the complex orebody and the knock-on effects of a strike at Inata in December 2014.

“The effects of the strike, combined with an increasingly complex orebody, have made gold production very challenging at Inata,” Avocet CEO David Cather said of the mine that had suffered a $30.6-million impairment for the first half of 2015.

Avocet sold 39 740 oz of gold during the period under review, a decrease on the 46 105 oz of gold sold in the prior corresponding period.

This translated into revenue of $47.8-million in the first half of 2015, a 20% fall on the first half of 2014, owing to the drop in the average realised gold price from $1 287/oz to $1 203/oz.

Avocet reported a loss before tax of $37.7-million for the six months to June, a contraction on the $46-million in the first half of 2014, while the loss for the period narrowed from $55-million to $33-million.

The loss before interest, taxes, depreciation and amortisation remained stable at $2.9-million.

The net cash generated by operating activities, after interest and tax, was $6.7-million, a rise on the $800 000 achieved in the six months to June 2014.

The loss at the gross margin level reduced from $13.1-million in the first half of 2014 to $6.6-million in the comparative period in 2015.

“The mining sector, as a whole, is undergoing a difficult time at present, with uncertain commodity prices and cautiousness from capital markets, which means there can be no guarantee that the company will be able to secure the funding it requires for its development projects,” the company said.

With the focus on cash conservation, Avocet reduced its capital expenditure from $6.9-million in the six months to June 2014 to $2.7-million for the half-year under review.