In this market, bad news can be a killer. Avocet Mining, our previously outperforming buy tip, released not one but three pieces of bad news late last month. And as a result, its share price has quickly plunged to depths not seen since the crash of 2008 – despite higher gold production and a doubling of the gold price.
Tricky geology and several operational issues – mainly a higher waste-to-ore ratio, lower grades and lower gold recoveries after ore processing – at the company’s Inata gold mine in Burkina Faso have led the company to reduce its gold output target this year, from 160,000 ounces to between 135,000 and 140,000 ounces. Worse, cash operating costs are expected to increase by $200 an ounce to between $1,000 and $1,050 an ounce. Finally, the resulting hit to cash flow means Avocet will have to delay its expansion plans, meaning a real uplift in production is now unlikely to happen until late 2014 or 2015.
