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What good will it do when you have so much resource but unable to extract them? That must be one of the questions in minds of investors on the London Stock Exchange today as holders of Avocet Mining plc (LSE:AVM) shares dumped their stakes upon knowing that the company’s sole gold mine in West Africa is not about to produce more than what it had in the past year.
Avocet Mining said today, expansion at its 90%-owned Inata Mine in Burkina Faso will not push through for the time being and the gold producer will rather focus on improving recovery rates to boost production of the yellow precious metal.
The statement comes after announcing a week ago that the said mining field increased its mineral resource by 15% equivalent to 530,ooo ounces of gold, for a total resource of 3.985 million ounces.
Less Reserve
One must always remember, however, that resource and reserve are two different things in that the former is highly prospective while the latter is a near representation of the actual economically and technically feasible deposit.
Inata’s mineral reserve, estimated at 1.85 million ounces, is about to be re-written by Avocet to be reduced to a lesser figure, following the metallurgical testing done on several ore bodies, though a revised estimate has not been issued as “engineering work” is still ongoing.
Last June 2012, Avocet already revised its total production guidance to be between 135,000 – 140,000 ounces, some 20,000 ounces short of 2011’s total gold production.
About 305,000 ounces of gold were produced since Inata mine became operational in 2009.
Less Profit
While the engineers figure out how to maximize recovery rates and average grades, Avocet’s financials had to make do with what has been processed at its plant – and the figures don’t look good either.
Nine months since January, and three months before the full year ends, Avocet only generated less than half operating profit at US$24.7 million compared to 2011’s US$58.2 million.
Less Value
The news took a toll at Avocet’s share price as at 1:45 PM GMT, shares were down 13.8% to 65.50 pence. Share price fell 40% on 29th June 2012, from 150.80 pence to only 90.05 pence, when the company released its January to June report, which already made ominous overtures for the current year’s production and profitability.
Avocet has reduced its market value in the past 52 weeks to only about a third of it worth last 1st November 2011, priced at 228 pence a share.
