Avocet eyes equity raise on likely reserves downgrade

LONDON (Reuters) - West Africa-focused gold company Avocet Mining said it was considering raising new equity to buy back part of its hedge book as a result of a likely downgrade to reserves at its sole operating mine. The miner, whose shares have been battered after it slashed its output target and advised that it was unlikely to proceed with an expansion plan, said on Thursday that tests showed its Inata project in Burkina Faso might hold less economically extractable gold than it previously thought. Avocet said that it believed that as a result of the likely downgrade, expected to be confirmed when a re-estimation of its reserves is completed in March, it will seek to reduce its exposure to a hedge book it has with Macquarie Bank. "Avocet is exploring all options to fund the proposed hedge book reduction including raising equity," the company said in a statement. Buying back part of its hedge book would help maximise the company's exposure to the cash flow that Inata does generate, the company said, giving it additional funds for expansion. Gold reserves are expected to be cut by at least 35 percent to between 0.9 million and 1.2 million ounces, the company said, flagging that there will likely be a significant non-cash impairment as a result. The reserve downgrade has arisen because the orebody is more complex than the company previously thought. Avocet also said that production in 2013 will likely be similar to the 135,000 ounces it produced last year, adding that output after that out to 2020 will be around 100,000 ounces per year.