Often when I look at companies at the lower end of AIM I am left struggling to see why on earth anyone is buying it at the current share price.
A couple of market rules spring to mind today. Firstly: If a company’s management tells you that the equity is worthless you had better believe them.
Avocet Mining (AVM) “is pleased to announce today that its subsidiary Société des Mines de Bélahouro SA that operates the Inata gold mine in Burkina Faso, has entered into a standstill agreement with its major trade and financial creditors”. I’d suggest it not though being too pleased as yet…
An “Update on share suspension, Inata and Tri-K” announcement from Avocet Mining (AVM). “Update” on share suspension? When was the suspension then?...
I explained last week why I thought that shares in Avocet Mining (AVM) were worthless. That was without the knowledge that its Inata gold mine only has a shelf life of three years at the current gold price. The company stated as much on Thursday with the painful admission that cashflow from this period is “unlikely to result in full repayment of creditors”
I wrote a while back about Avocet (AVM), suggesting that the share price fluctuations, which were linked to the fortunes of 1392 ounces of gold seized by workers at its Inata mine in Burkina Faso, ignored the fact that the company was essentially insolvent.
Gold miner Avocet Mining (AVM) has always been a bit of a rollercoaster of an investment since its 1 for 10 share consolidation in June, the shares have doubled, halved and then doubled again as punters have reacted skittishly to news from darkest Africa.
I see that Avocet Mining (AVM) which I warned in May and August this year imploded the other day as it admitted that insolvency could be looming. If, like Xcite (XEL), about which I wrote the other day, it does enter administration, the shares are still a compelling sell. This, I believe is by far the most likely outcome and I stay short. The company's words in the recent statement are explicit:
It is the sort of incident that would have Sir Benjamin Dover fulminating about how you can't trust the natives out in Bongo Bongo land. Workers, who Avocet Mining (AVM) fired in December 2014, have seized 1,400 oz of gold which had been produced at the Inata mine. The incident says a lot about the way Western miners rape and pillage across Africa. I'm with the workers even as Avocet shares crash on worries that it may have a funding issue and that it clearly has breached Stock Exchange rules.
The indiscriminate buying in the market recently has been something to behold and suggests we could soon be due a reality check. The mad monetary policy of central banks everywhere has for some time been forcing institutions into hunting down yield wherever they can find it and this has caused the equity markets and the junk bond markets to soar.
Shares in troubled gold miner Avocet Mining (AVM) more than doubled the other day as its first quarter production update showed an increase of 3,149 oz at a cash cost of $925 per oz, $169 lower than the preceding period.
It is of course not necessarily the best of times to be looking at mining stocks on the bull tack, especially given the way that even one of the greatest investors of all of time, Warren Buffett, has had his worst year since 2009 due to the impact of the resources stocks meltdown.
With gold production being resumed at Inata in Burkino Faso after an illegal strike costing nearly $12 million (£8 million), accident-prone West African play Avocet Mining (AVM) is also evaluating its other prospects, at Souma, 20km from Inata, and the Tri-K project in north-eastern Guinea. Partly because of the strike, the fully-listed company, whose shares have plunged from more than £2 five years ago to a mere 5.6p now, saw gold production from Inata slip from 118,443 oz. to only 86,037 oz. last year, well below a forecast 95,000 oz., at an average cash cost, before financing, of $1,187 an ounce, uncomfortably close to a current gold price of around $1,241.
Loss-making, debt-ridden, with production falling and assets in areas close to the Ebola epidemic, bombed-out West Africa-focused gold play Avocet Mining (AVM) has taken an urgent step to retrieve matters, by commissioning a $7 million (£4.25 million) carbon blinding circuit. Chief Executive Officer David Cather argues this should increase monthly gold production from the AIM-quoted company’s flagship five million-oz.-resource Inata gold mine in Burkina Faso from between 7,000 oz. and 8,000 oz. to 10,000 oz. and increase recoveries from toxic ores from 40 per cent to near 75 per cent.
These really are tough times for Avocet Mining (AVM). A quick read through the Chairman’s Statement in today’s annual report reveals quite how badly things have gone wrong for this company. A disastrous foray into the murky world of financial hedging, operational difficulties, reduced production and the collapse in the gold price have combined to heap misery on this company’s shareholders. It now needs $20million to $30million to see it through the year. But it might not be all bad...
David Cather, the mining engineer and former AngloGold Ashanti luminary who has been chief executive officer of Avocet Mining (AVM) since 2012, is about to finalise his new plan to revive the company, which has been a spectacular AIM mining dog. At its core will be a revised strategy for the West African-focused company’s flagship Inata gold mine in Burkina Faso in the wake of a formidable $46 million (£29 million) loss for 2013, when rising costs and a weak gold price saw production down by 12.5 per cent to 118,443 oz. and revenues off 26 per cent to $149.3 million.
There has been a very good charting reason for the Closet Chartist not to be a big fan of Avocet Mining (AVM), over and above the way that the ongoing fall in precious metals has made a monkey not only of people who are clueless, but also some of the best brains in trading / investing.
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