Source - RNS
RNS Number : 0736M
Avocet Mining PLC
10 October 2016
 

    

10 October 2016

 

 

Joint Venture with Managem over the

Tri-K project in Guinea

 

Overview

Avocet Mining PLC ("Avocet" or "the Company") today announces that it has entered into a conditional Joint Venture agreement regarding its gold project in Guinea, known as Tri-K, with a subsidiary of Managem SA ("Managem"), a Moroccan mining group listed on the Casablanca stock exchange.

Tri-K currently has a measured and indicated gold mineral resource of 2.0 million ounces (41.3Mt at 1.51g/t) and an inferred gold mineral resource of 1.0 million ounces (25.2Mt at 1.26g/t) (0.5 g/t cut off). In 2013, Avocet announced a proven and probable reserve of 0.48 million ounces (7.9 Mt at 1.89g/t) as part of a feasibility study based on a heap leach operation. In March 2015, a mining permit for the Tri-K project was granted by the Guinean government.

Managem has agreed conditionally to acquire an initial minority interest in the Tri-K project which will increase to a majority interest of up to 70%, on completion of an agreed work programme and subject to meeting certain milestones.

Managem has committed conditionally to a total investment of at least US$14.0 million, consisting of an initial cash payment to Avocet of US$4 million, and a commitment to undertake a works programme costing at least US$10 million, in order to deliver, within 24 months, a Bankable Feasibility Study ("BFS") for a Carbon-in-Leach ("CIL") operation at the site, with an Ore Reserve of at least 1 million ounces. If the Ore Reserve defined in the BFS is less than 1 million ounces, Managem's ownership will be limited to 60%. Avocet retains the option to repurchase from Managem its equity and intragroup loans associated with the project and resume full ownership, should the work programme not be completed.

 

David Cather, Chief Executive Officer of Avocet Mining PLC, commented:

"We are pleased to be able to join forces with a group with Managem's track record and capabilities, particularly in Guinea. We have been looking to raise financing for the Tri-K project for some time during a difficult period for the mining sector as a whole as well as for Guinea in particular (including the ebola crisis), and we are therefore delighted to confirm that this project is now able to move forwards.

The Managem proposition is particularly attractive for both parties, as the CIL project it envisages will be considerably larger than the heap leach operation set out in the initial feasibility study. Both parties have worked closely to finalise the terms of the transaction, and have been fully supported by the Guinean government, notably through the recent extension to the deadlines for work to commence at the site.

Completing this transaction will also herald a major milestone in Avocet's turnaround strategy with one of its three primary assets now having a clear development route to production at Tri-K and we look forward to working closely with Managem to achieving this medium term goal by 2020".

 

 

 

Imad Toumi, Chairman and Chief Executive Officer of Managem, commented:

"We are pleased to sign this agreement as we consider Tri-K project to be a high quality and advanced gold opportunity that will strongly contribute to our strategic development objectives in Africa.

Besides, Guinea is a friendly country, and together with Avocet, we have received strong support and encouragement from the Guinean government.

Our ambition is to develop a large-scale gold mining operation in the Mandiana prefecture".

 

Transaction details

The proposed financing will be completed in two stages, as follows:

·      First Closing

In return for an initial cash payment of US$4 million, Avocet will transfer the entity holding its interest in the Tri-K mining and exploration permits into Manacet SA, a Joint Venture (whose equity is to be shared 60%:40% between Avocet and Managem), as well as transferring 40% of the intragroup loans associated with the project (amounting to approximately US$14 million) to Managem.

Avocet will use the US$4.0 million consideration for debt repayment and general working capital purposes. Transaction fees and associated restructuring costs are expected to be approximately US$1.5 million.

·      Second Closing

Managem will, following completion of the First Close, undertake an agreed work programme, expected to be completed within 12 months, which will consist of at least US$10 million of drilling, analysis and documentation work to facilitate an anticipated increase in the Ore Reserves and completion of a Bankable Feasibility Study ("BFS") for a Carbon-in-Leach ("CIL") operation at the site. 

On successful completion of these objectives, Managem's interest in the project will increase to 70% of the equity and loans associated with Tri-K (subject to Ore Reserves increasing to at least 1 million ounces - otherwise the ownership increase will be limited to 60%).

The proposed financing is conditional upon, inter alia, approval by Avocet's shareholders, Managem's competent body and the Guinean government, and that the consent of Manchester Securities Corp. (Avocet's principal lender, which holds security over the group's interests in Tri-K and is an associate of Elliott Management, Avocet's largest shareholder) has not been withdrawn. 

The form of a mining convention ("Mining Convention") has been agreed in principle with the Guinean government and, subject to being signed and ratified by the Guinean parliament, confirms that the Mining Permits and Exploration Licences for the project will be assured.

It is anticipated that First Close will take place by the end of 2016, with Second Close to be completed by the end of 2017.

Once the BFS has been completed, both parties will work together to secure the financing for the construction project which, under the terms of the Mining Convention, must be completed, and production commenced, within 42 months of the date of ratification of the Mining Convention by the Guinean parliament.

Managem will be the operator of the project and will therefore be responsible for all work undertaken during the feasibility study period, the construction period, and during production. Managem will use subsidiaries within the Managem group to provide services to the operation where appropriate, including drilling and metallurgical testwork, EPCM and construction services, and other support and administrative functions, as necessary.

 

Background to Tri-K

Tri-K is a project in northeast Guinea with a total Mineral Resource of 3.0 million ounces.  In 2013, Feasibility Study work completed on the basis of a heap leach development of only the oxide portion of the orebody showed that the project can support a 7 year life of mine, producing an average of 55,000 ounces of gold per year.  A maiden Ore Reserve of 480,000 ounces (7.9 million tonnes grading 1.89 g/t Au) was also announced as part of the feasibility study.  A mining permit was awarded in March 2015.

 

Tri-K Mineral Reserves and Resources as at 31 December 2015


Gross

Attributable


Tonnes

Grade (g/t)

Contained ounces

Tonnes

Grade (g/t)

Contained 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

66,500,000

1.41

3,018,000

66,500,000

1.41

3,018,000

 

Notes:

1.   The table above reports the Mineral Resource above a 0.5 g/t Au cut-off.

2.   Avocet currently owns 100% of the Tri-K permits through its wholly-owned subsidiary, Wega Mining Guinée SA, however under the terms of the Guinean Mining Code is obliged to transfer the Mining Permit to a subsidiary in which the Government holds a 15% free carry interest. This transfer will be completed as a part of the contemplated transaction.

3.   The Ore Reserve relates to the Heap Leach operation described in the 2013 Feasibility Study. The proposed BFS to be completed by Managem will be for a larger CIL operation.

 

Financial information regarding Tri-K

As at 30 June 2016, the latest date to which balance sheet information on the group has been published, Tri-K had gross assets of approximately US$19.1 million.

For the year ended 31 December 2015, the latest financial year for which the group has published an income statement, Tri-K reported a loss after taxation of approximately US$0.9 million (H1 2016: loss after taxation US$0.5 million).

Until the Second Close, Manacet SA will be recognised as a subsidiary of Avocet and its financial results will continue to be consolidated in the group's financial reporting together with a miniority interest with regard to the interests of Managem and the Guinean government in Tri-K.  Following the Second Close, Manacet SA will cease to be recognised as a subsidiary and will be accounted for an associate.  From that point, the group's financial reporting will include only Avocet's share of the profits of Manacet SA.

 

About Avocet Mining PLC

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 74,755 ounces of gold in 2015. Other assets in Burkina Faso include five 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.

The Company also holds an interest in the Tri-K project in Guinea. Today, the Company has announced that it has disposed of 40% of the project to Managem, a Moroccan group listed on the Casablanca stock exchange, which will increase upon completion of a bankable feasibility study for a CIL plant at the site, the incurring expenditures of at least US$10 million, and the enlarging of the ore reserve, to 70% (in the event of an increase of the reserve to 1 million ounce or more) or 60% (if less than 1 million ounces). 

 

About Managem SA

Managem SA ("Managem") is a Moroccan mining company publicly listed on the Casablanca Stock Exchange and majority-held by Société National d'Investissement (SNI), a Moroccan investment holding company.

Managem owns 9 operating base metals and precious metals mines in Morocco and sub-Saharan Africa. In addition, Managem has a successful track-record in gold discoveries and development in Morocco, Niger, Burkina Faso & Guinea.

Beyond conventional mining exploitation, Managem has an integrated business model with services ranging from engineering and technical expertise (through its subsidiary REMINEX) to drilling and shaft sinking works (through its subsidiary TECHSUB). In addition, Managem owns a Research & Development centre providing supporting services to its operations since 1986.

 

The information contained within this announcement is deemed by the Company to constitute inside information as stipulated under the Market Abuse Regulation (EU) No. 596/2014.

 

FOR FURTHER INFORMATION PLEASE CONTACT

Avocet Mining PLC

Bell Pottinger
Financial PR Consultants

Strand Hanson

Sponsor

J.P. Morgan Cazenove
Corporate Broker

David Cather, CEO
Jim Wynn, FD

Daniel Thöle

Andrew Emmott

Richard Tulloch

 

Michael Wentworth-Stanley

+44  20 3709 2570

+44 20 3772 2555

+44 (0) 20 7409 3494

+44 20 7742 4000

 

 

 


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