Avocet Rules Out Large Share Sale to Buy Back Gold Hedge

Avocet Mining Plc, a miner of gold in Burkina Faso, said it’s ruled out a large equity raising to pay off its entire hedged gold production.

“What we’re not talking about is a large equity raise,” Finance Director Mike Norris said today by telephone from London. “What we’re not talking about is buying back the whole of the hedge. That’s probably over $100 million.”

Avocet said last month that it is seeking to restructure its finances after cutting gold reserves at its Inata mine in Burkina Faso by half. At the time the company said it aimed to reduce its hedge book “substantially” and was exploring all options including raising equity.

The company has been dogged by operational challenges at the Inata mine. The stock tumbled 62 percent last year after Avocet cut its output target and has slumped 66 percent so far this year. The company lowered its 2013 production guidance to 135,000 ounces of gold last month.

Avocet, which inherited its hedge book through the 2009 acquisition of Wega Mining ASA, spent about $40 million restructuring in 2011 to 8,250 ounces of hedged output per quarter. Gold producers can sell future output at fixed prices to lock in profit or secure loans, and can reduce hedges by buying back contracts.

“The market lept to the conclusion that we were going to do a substantial buyback of the hedge by way of a rights issue,” Chief Executive Officer David Cather said in an interview. “That is not the direction of the negotiations we’re having. A major rights issue is not something that is finding favor at the moment.”

Avocet fell 7.8 percent to 23.5 pence by the close in London.

Before it's here, it's on the Bloomberg Terminal.