The extent of operational problems at Avocet Mining's (AVM) gold operations in West Africa are laid out in its latest production figures (25 Jan). The £127 million cap saw annual gold production from its Inata mine in Burkina Faso slump by 19% in 2012, against the previous year, representing one of its worst years as a listed company.


The market reacted negatively with shares down 4% to 62.25p in early trading on Friday. A year ago they were trading at 230p.


Quarterly gold production is getting worse. The three months to 31 December 2012 saw a mere 30,909 ounces, nearly 20% less than the first quarter of 2012.


Avocet has struggled with equipment problems, failure to move enough waste which restricted access to higher grade material, and lower recovery rates because of geologically-complicated ore.


It has attractive growth prospects in Guinea but these have been put on hold pending efforts to improve Inata. Avocet would like to sell the Guinea assets but there has been no word to date on any interested parties, because the country is deemed high risk while the government tries to amend the mining code.


Analysts see the company as a takeover target with Endeavour Mining (EDV:TSX) the logical bidder due to its growing portfolio of gold mines in West Africa. Yet any predator will probably want to see the problems at Inata fixed before making a move on Avocet.


Stockbroker Westhouse believes the shares have 'limited upside' until the production challenges are resolved. Investment bank Liberum says Avocet will 'remain on the sidelines under observation' until they publish a revised strategy.

Issue Date: 25 Jan 2013