Avocet finally sells off troubled mine but lingering debts mean dark days may not be over for investors (AVM)

Troubled resources firm Avocet Mining (LSE:AVM) has sold off all its assets in the African country of Burkina Faso for $5m after weeks of delays due to disagreements among creditors and deteriorating security at its Inata gold mine.

Avocet first agreed the sale of the assets, which operate under a subsidiary firm called Resolute, to the Ghana-based Balaji Group of companies last December. The sale was expected to complete last month in two $2.5m instalments, but was delayed on three occasions, most recently until 8 February, as Balaji attempted to settle a dispute with a creditor of Resolute.

Balaji bought Resolute after a disagreement among Avocet’s creditors could not be resolved. The purchase comes without the prior restructuring of around $70m worth of overdue debt owed to third party creditors, finance providers, personnel and government. After restructuring this debt, Balaji plans to invest around $26m in bringing the Inata gold mine back into production.

Once valued at almost £500m, gold miner Avocet has deteriorated since 2016 as it has struggled to keep its Inata mine in operation following a row with former workers, who seized a shipment of gold. This led to strike action and a halt in Inata’s operations which hit Avocet’s production and forced it to rely on short-term financing. Despite this support, the mine still suffered from a shortage of critical supplies such as chemicals and explosives and in September, unknown attackers killed two paramilitary police officers travelling to the mine, raising security concerns.
Last April, Avocet’s chief executive was replaced by Boudewijn Wentink, who was previously a director with New World Resources, but the company has still failed to make a recovery under its new leadership. In May, it was forced to suspend it’s shares because Avocet’s accountants needed more time to complete an audit and in October it reported a 49pc drop in first-half revenue as gold output dropped sharply.

Avocet, which is currently attempting an eleventh hour restructuring process, said the only option other than selling its assets to Balaji, was to go into liquidation. Discussions are ongoing with Avocet’s sole creditor, Manchester Securities, regarding the restructuring of its $28.7m worth of overdue loans.

As the sale involves the disposal of Avocet’s sole trading subsidiary, the firm has warned that the remainder of the group could now be broken up further and eventually wound down. If this occurs, the firm said its shareholders, which include activist investor Elliott Associates, could receive very minimal returns due to the amount of debt it owes.

Disclosure

Author: Daniel Flynn

The author of this piece does not hold shares in the company mentioned.

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