The apocalypse at Avocet Mining entered a new phase last week when the company dramatically cut its reserves from upwards of 1.8 million ounces to closer to one million.
A reserve downgrade had been expected, but its severity took most analysts by surprise, not least the number-crunchers at RFC Ambrian who had tipped Avocet as their top performing stock in their review of the junior and mid-tier gold space released in August last year.
In those halcyon days, Avocet was trading at 91p, and RFC Ambrian set a target of 134p, arguing that there was a "turnaround around the corner". Admittedly that was some way lower than the 277p target RFC Ambrian had set a year earlier, but then the entire gold operation at Inata hadn't gone belly up at that stage. It did that in June 2012, when problems with grades, scheduling, processing and recoveries all combined to cut the share price in half, to 75p.
And on the latest news though the shares have halved again, from 51p to 24.5p. Dismal for existing Avocet shareholders, but is it now a recovery play? Is the "turnaround" really "around the corner" this time? Not yet, because with lower production on the cards the company finds its hedging arrangements suddenly over-burdensome, and needs to raise equity to buy out its positions.
Even so, at around 100,000 ounces per year Avocet still has significant gold production, and if it can get costs down, the shares will eventually bounce. The crux will be the gold price, which many pundits think is likely to fall further. If it does, companies like Avocet will struggle to survive – and it was on that sentiment that gold companies on the Australian market underperformed the mining sector last week, as we reported on in our Australian That Was The Week That Was.
On the other hand, recent reports out of China say that China's gold demand is likely to beat supply by 2015, and Minesite's own estimation is that the gold price will go through US$2,000 within the next 12 months on global political uncertainty and a growing lack of faith in fiat currency. If so, it will allow companies like Avocet a last period of grace to get their house in order.
But high gold won't last forever, which is why a swathe of fund managers have said in recent months that gold producers, and especially the juniors, need to shape up or die. A near-death experience at US$1,600 gold would be fatal at US$1,000.
Whatever happens, you can follow all the twists and turns here on Minesite.
| 93rd Minesite Forum - Wednesday 20th March 2013 |
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Wednesday 20th March 2013
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We highlight only a few of our new jobs each week here. If you want to know more about advertising your mining jobs, contact us at www.jobs4mining.com If you are thinking of a career move in the mining sector, then you will find some interesting and technically challenging opportunities.
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