Avocet Mining Buys West Africa Specialist Wega Gold To Take Production Up Towards 300,000 Ounces Of Gold Per Year
By Alastair Ford
minesite.com
“I don’t remember a bank holiday”, says Jonathan Henry, chief executive of Avocet Mining. That’s because while the rest of us were munching on chocolate eggs, Jonathan was busy nailing down the last facets of a deal that will see Avocet’s aspiration to becoming a mid-tier gold producer fulfilled. Thus it was that on Monday night, when the rest of us had sunk back into armchairs, duly contemplating our indigestion, he crossed the last “t” and dotted the last “i”, and issued out to market the news that Avocet is to acquire Oslo-listed Wega Gold for US$78.4 million, the consideration to be paid in Avocet shares. Avocet will also assume Wega’s outstanding debts.
No question then that the news would be in analysts inboxes first thing Tuesday morning, and having digested said news early the relevant analysts were duly summoned for a briefing at 11am. Jonathan spoke to the press some time later, in a series of telephone interviews conducted from somewhere inside of the dark heart of Cazenove.
One ramification of all this is that the image of planet earth that’s pictured on the home page of Avocet’s website is going to have to start rotating, because from the perspective currently pictured, only two out of the company’s three key assets are visible. The two are of course Penjom and North Lanut, in Malaysia and Indonesia respectively, working gold mines that were responsible for production of just under 160,000 ounces of gold in the year to 31st March 2008, and just under 56,000 ounces in the six months to 30th September 2008. Now a third mine looks like coming into the Avocet portfolio, and in spite of what the market was anticipating prior to the announcement, it’s not in Indonesia or Malaysia. It’s not in Norway, either. No, in a move that undermines all previous conceptions of the type of company that Avocet is, or wants to be, the company’s latest acquisition hinges around a very near-term production asset in Burkina Faso called Inata, and a portfolio of development properties in the wider West Africa region. According to one flash note that followed the announcement of Wega acquisition, one of the advantages of the deal is its “hot geography”. The Avocet globe is going to have to rotate roughly 180 degrees.
Surprisingly, though, for a deal which should catapult Avocet firmly into the ranks of the mid-tier producers, the market seemed to take the deal in its stride. By the close of play on Tuesday, Avocet’s shares had risen by a mere 1.25p, or just under two per cent. The 71.25p at which the shares closed was just 0.25p above the level at which the shares element of the deal was struck, which in turn suggests that the market was largely sanguine about the price paid. Of course there is still some risk that this transaction might not go through, though with a recommendation from the Wega board and the support of significant shareholders that looks unlikely. Wega had suffered a cash shortfall, and had been under pressure from its bankers at Macquarrie to pull rabbits out of hats fast. “They had debt and no cash”, says Jonathan Henry, “and we had cash and no debt”. To be precise, Avocet had US$70 million at the last set of accounts, and if the deal goes through there should be between US$10 million and US$20 million of that left, which leaves some margin for error.
The plan is that Wega’s flagship Inata gold mine will come into production by September, which is only a couple of months behind the original Wega schedule. By year two the project should have ramped up to production of 165,000 ounces, though over the currently modeled seven year mine life the average annual production will actually be lower than that at 120,000 ounces. That’s not the end of the story, though. Jonathan Henry is confident that “there’s a substantial amount of upside at Inata”, and that the mooted seven year life is just the beginning. To be fair, Penjom has already way outstripped its original mine life, and is still going, so Jonathan does know about mines that go beyond their original models. The long-term aim is to get up to around 300,000 ounces for the whole company, and stay there, producing at US$500 an ounce or less. But the resource base and the production numbers won’t be the real issue. Integrating a Burkinabe asset into the hitherto Asian-focused Avocet will be. Let’s hope the Burkinabes are more amenable that the Tajiks were. On recent form, given that Burkina Faso is “hot geography”, they ought to be. |
