Avocet Mining is capitalising from years of shrewd operations
The price of gold may be taking a time out as US manufacturing data pushes inflation fears aside, but Avocet Mining certainly is not. Fully appreciating that the current climate of tight credit will one day shift, the gold miner has moved swiftly in purchasing asset rich Wega Mining.
Wega’s lack of funding to develop their flagship Inata Gold Project in Burkina Faso opens the door to a purchase which will double Avocet’s production almost immediately. Encouragingly, Inata currently carries expected average annual gold production of greater than 120,000 ounces over a mine life of 7 years and reserves of 0.94 million ounces (0.85 million attributable ounces).
Avocet is capitalising from years of shrewd operations and the equity swap deal values Wega at US$78.4 million. Although the company has US$70 million tucked away in the bank and zero debt, we are encouraged by the pursuit of assets at depressed prices through all share purchases.
In its current form Avocet shows great promise. The miner’s North Lanut mine in Indonesia recently posted a quarter on quarter jump in production whilst successfully curtailing costs. In addition, the group is also aiming to further bolster reserves at Malaysia based Penjom mine.
Furthermore, waiting in the wings, Avocet’s 60 percent owned Indonesian based Doup project has recently provided a huge fillip to future earnings with the announcement of a million ounce resource.
So what does Wega bring to Avocet’s portfolio?
For one, entry into West Africa, the world's second fastest growing gold district behind China. As well as Inata which is due to come online during the next quarter (reaching full tilt in 2011) Wega has an additional 29 exploration licences in Burkina Faso, Guinea and Mali with Resources of over 0.6 million ounces.
Furthermore, Wega will also bring just under 60 percent of Merit Mining Corp, a Canadian focussed exploration and mining company. And what’s more, Avocet will own 36 percent of Metallica Mining, a private Norwegian base metals company.
Inata though is the jewel in the crown. Currently Wega are producing at a cash cost of US$525 per ounce and Avocet will be keen to utilise their operational expertise to reduce this number. The company estimates that up to US$40 million will be required to complete the Inata project over and above Wega's existing cash resources and this poses little problem to the well heeled producer.
Once the deal is completed, shareholders will be looking at a vastly different picture. The new group will have 3 operating mines with Proven and Probable Reserves of 1.6 million ounces of gold (1.4 million attributable ounces) an increase of 146 per cent.
Whilst the inclusion of Inata is set to propel annual production to 280,000 ounces of gold by 2011, ongoing exploration activity suggests earnings are very well protected long into the future. Indeed developments the Bakan and Doup projects in Indonesia and Koulekoun in Guinea provide us with utmost confidence in the group’s sustained performance.
The purchase of Wega propels Avocet to the mid tier stage and with consolidation activity in the sector set to continue, we can not rule out the hunter becoming the hunted.
Wega’s lack of funding to develop their flagship Inata Gold Project in Burkina Faso opens the door to a purchase which will double Avocet’s production almost immediately. Encouragingly, Inata currently carries expected average annual gold production of greater than 120,000 ounces over a mine life of 7 years and reserves of 0.94 million ounces (0.85 million attributable ounces).
Avocet is capitalising from years of shrewd operations and the equity swap deal values Wega at US$78.4 million. Although the company has US$70 million tucked away in the bank and zero debt, we are encouraged by the pursuit of assets at depressed prices through all share purchases.
In its current form Avocet shows great promise. The miner’s North Lanut mine in Indonesia recently posted a quarter on quarter jump in production whilst successfully curtailing costs. In addition, the group is also aiming to further bolster reserves at Malaysia based Penjom mine.
Furthermore, waiting in the wings, Avocet’s 60 percent owned Indonesian based Doup project has recently provided a huge fillip to future earnings with the announcement of a million ounce resource.
So what does Wega bring to Avocet’s portfolio?
For one, entry into West Africa, the world's second fastest growing gold district behind China. As well as Inata which is due to come online during the next quarter (reaching full tilt in 2011) Wega has an additional 29 exploration licences in Burkina Faso, Guinea and Mali with Resources of over 0.6 million ounces.
Furthermore, Wega will also bring just under 60 percent of Merit Mining Corp, a Canadian focussed exploration and mining company. And what’s more, Avocet will own 36 percent of Metallica Mining, a private Norwegian base metals company.
Inata though is the jewel in the crown. Currently Wega are producing at a cash cost of US$525 per ounce and Avocet will be keen to utilise their operational expertise to reduce this number. The company estimates that up to US$40 million will be required to complete the Inata project over and above Wega's existing cash resources and this poses little problem to the well heeled producer.
Once the deal is completed, shareholders will be looking at a vastly different picture. The new group will have 3 operating mines with Proven and Probable Reserves of 1.6 million ounces of gold (1.4 million attributable ounces) an increase of 146 per cent.
Whilst the inclusion of Inata is set to propel annual production to 280,000 ounces of gold by 2011, ongoing exploration activity suggests earnings are very well protected long into the future. Indeed developments the Bakan and Doup projects in Indonesia and Koulekoun in Guinea provide us with utmost confidence in the group’s sustained performance.
The purchase of Wega propels Avocet to the mid tier stage and with consolidation activity in the sector set to continue, we can not rule out the hunter becoming the hunted.
