Increase in short term loan arrangement with Elliott and posting of a Circular, Notice of General Meeting and Notice of Annual General Meeting Increase in the short term loan arrangement with Elliott and posting of the Circular and Notice of General Meeting Avocet Mining PLC ( Avocet or the Company ) announces that further to the Company s announcement of 24 April 2015, Manchester Securities Corp. ( the Elliott Lender ), an affiliate of the Company s largest shareholder, Elliott Management Corporation ( Elliott ), which is interested in approximately 27.69% of the Company s issued share capital (comprising a direct interest in ordinary shares amounting to approximately 13.51% of the total voting rights in the Company and a purely economic interest, without voting rights, in approximately 14.18% of the total number of ordinary shares with voting rights), has agreed, subject to certain conditions precedent, to increase the amount available pursuant to the US$2.1 million loan announced on 24 April 2015 ( the Third Elliott Loan Facility ) up to, in aggregate, US$2.4 million. The increase is to provide additional working capital to the Company in respect of finalising the security to be provided to the Elliott Lender pursuant to the Third Elliott Loan Facility. In addition, as detailed below, the Company has now agreed the security to be provided to the Elliott Lender in respect of the Third Elliott Loan Facility ( the Elliott Security ). The provision of the Elliott Security is a related party transaction, as defined in Chapter 11 of the Listing Rules, by virtue of Elliott s interest in approximately 13.51% of the Company s ordinary shares, and accordingly, the grant of the Elliott Security requires the approval of the Company s shareholders, other than Elliott, at a general meeting. Accordingly, the Company will today post a circular to shareholders ( the Circular ) convening a general meeting of the Company to be held at 4.00 p.m. on 19 June 2015 ( General Meeting ), seeking approval for, inter alia, the grant of the Elliott Security. Posting of Notice of Annual General Meeting The Company also announces that the Notice of Annual General Meeting 2015 ( AGM ) and related forms of proxy will today be posted to those shareholders who have elected to receive it in hard copy. Availability of Circular and Notices of Shareholder Meetings In compliance with LR9.6.1, a copy of both the Notice of AGM and the Circular and Notice of General Meeting will shortly be available for inspection at the Financial Conduct Authority s National Storage Mechanism website http://www.hemscott.com/nsm.do and will also be available on the Company s website at www.avocetmining.com. 1
The expected timetable of events relating to the Shareholder Meetings is as follows: Annual General Meeting General Meeting Latest time and date for receipt 3.30 p.m. on 17 June 2015 4.00 p.m. on 17 June 2015 of a Form of Proxy Latest time and date for receipt 3.30 p.m. on 17 June 2015 4.00 p.m. on 17 June 2015 of a CREST proxy instruction Time of meeting 3.30 p.m. on 19 June 2015 4.00 p.m. on 19 June 2015 or if later, immediately following the AGM on the same day Background to the Third Elliott Loan Facility The Third Elliott Loan Facility is required to provide funding for Avocet s corporate activities through to September 2015 in the absence of alternative sources of financing. As Shareholders are aware, the Company s Inata mine in Burkina Faso has, as a result of the weak gold market and Inata s disappointing operational performance in the last three years, been unable to generate material additional cash flows for the Company over and above its obligations pursuant to the Ecobank loan facility. As a result, the Company initiated a business review in December 2013 to consider options for maximising the value of its assets for the benefit of shareholders, including its Inata mine and the adjacent Souma deposit in Burkina Faso, and its Tri-K development project in Guinea. This was with a view to repaying the first loan of US$15.0 million provided by the Elliott Lender in March 2013, which is now repayable on demand. During this period the Company has, other than the 0.7 million placing in August 2014, not been able to raise sufficient equity to provide funding for its corporate purposes. In the absence of funding from Inata or the capital markets, loans from the Elliott Lender have therefore been an appropriate source of funding for the Company while it has been seeking to conclude its business review and to progress its Tri-K project towards development. The Board is of the view that the development of a heap leach mine at Tri-K should add value for shareholders. It also believes that positive announcements on financing for Tri-K will be a trigger event in making financing more readily available for the Company, both for construction of a mine and for corporate purposes. The Company announced on 21 January 2015 that it had entered into a further short term loan with the Elliott Lender for US$1.5 million, which is repayable on demand and was expected to meet the Company s corporate requirements for approximately three months. As those funds have now been fully utilised, the Company entered into the Third Elliott Loan Facility and drew down the initial facility of US$1.5 million on 24 April 2015 ( Initial Facility ). Following the draw down of the initial facility, the Company now has loans with a principal value outstanding to the Elliott Lender amounting to, in aggregate, US$18.0 million, all of which are repayable on demand. 2
The Elliott Lender has requested certain security against performance of the Company s obligations pursuant to the Third Elliott Loan Facility. Under the terms of the Third Elliott Loan Facility, therefore, the passing of the resolutions at the General Meeting and the finalisation of the Elliott Security are conditions precedent for the availability of each of the Second Facility and the Third Facility. Further information on the Third Elliott Loan Facility As announced on 24 April 2015, the Company entered into a further loan with Elliott (the Third Elliott Loan Facility) for up to, in aggregate, US$2.1 million. The Company today announces that the Elliott Lender has agreed, conditional upon the passing of the resolutions at the General Meeting, that the Third Elliott Loan Facility will be amended such that the amount available pursuant to the Third Elliott Loan Facility will be increased up to, in aggregate, US$2.4 million, with the amount available pursuant to the Second Facility to be increased from US$1.5 million to up to US$1.8 million. The increase to the Third Elliott Loan Facility is to provide additional working capital to the Company in respect of finalising the Elliott Security in respect of any notary, registration or other costs and associated expenses to be incurred following the passing of the resolutions. The Third Elliott Loan Facility for up to, in aggregate, US$2.4 million, comprises three separate facilities, being: an initial facility of US$1.5 million which was drawn down on 24 April 2015 ( the Initial Facility ); a second facility, subject to passing of the resolutions and finalisation of the Elliott Security, of up to US$1.8 million to provide additional working capital of up to US$0.3 million to the Company in respect of finalising the Elliott Security and used to replace the Initial Facility ( the Second Facility ). In the event that the additional costs of finalising the Elliott Security are less than US$0.3 million, the amount to be drawn down pursuant to the Second Facility will be reduced by such amount; and a third facility of, in aggregate, US$0.6 million comprising three tranches of US$0.2 million each which, following approval of the Resolutions and finalisation of the Elliott Security may be drawn down on or about the first business day of each of July, August and September 2015, at the sole discretion of the Elliott Lender at the time of each respective draw down request ( the Third Facility ). Accordingly, the Third Elliott Loan Facility, on the basis the Company is able to draw it down in full, is expected to provide funding for the Company s corporate activities through to the end of September 2015 and is intended to allow the Company to continue its business review, while exploring longer term funding options, including enabling the Company to complete its plans for financing and developing the Tri-K project. The Initial Facility, which was drawn down on 24 April 2015, is unsecured while the Second Facility and Third Facility will, subject to independent shareholder approval at the General 3
Meeting, be secured as described below. All amounts drawn under the Third Elliott Loan Facility are repayable on demand and will incur interest at a rate of 12%. Following the draw down of the Initial Facility, the Company now has loans with a principal value outstanding to Elliott amounting to, in aggregate, US$18.0 million, all of which are repayable on demand. Following approval of the resolutions at the General Meeting and finalisation of the Elliott Security, the unsecured Initial Facility will immediately be repaid and replaced by the secured Second Facility. The Third Facility is an uncommitted facility providing for three draw downs, each of US$0.2 million, on or about the first business day of each of July, August and September 2015, at the sole discretion of the Elliott Lender at the time of each respective draw down request. In the event the resolutions are not approved, the Company will not be able to draw down the Second Facility or Third Facility and the Initial Facility will remain in place. Subject to the above, assuming the Third Elliott Loan Facility is drawn down in full, the Company would at that time have loans with a principal value outstanding to Elliott amounting to, in aggregate, US$18.9 million, all of which would be repayable on demand. The Company currently anticipates that the US$1.5 million drawn down under the Initial Facility on 24 April 2105 will provide the Company with sufficient funds for its corporate activities through to the end of June 2015. Accordingly, Shareholders should note that in the event the Resolutions are not approved at the General Meeting on 19 June 2015 or in the event that the Elliott Security is not finalised, while the Initial Facility, which is repayable on demand, will remain in place, the Second Facility and the further US$0.6 million available pursuant to the Third Facility will not be capable of being drawn down. In addition, should the Elliott Lender not agree to the draw down of one or more of the tranches available pursuant to the Third Facility, the Company would not receive the required funds. Accordingly, if any of the events described in the preceding paragraph were to occur, the Company would need immediately to seek to secure alternative sources of funds to enable it to fund its corporate activities in the period immediately following the General Meeting. The Directors are unable to provide any assurance that any alternative financing or re-financing could immediately be secured or, that if it were secured, it would be on terms as favourable to the Company or would not result in a substantial dilution of Shareholders interests. If no funds were immediately available, it is highly likely that the Company would cease to be able to trade, in which circumstances it is unlikely that there would be any value attributable to Shareholders. Even if financing were immediately available and the Company were able to continue trading, the Directors believe that the circumstances of such financing could result in a material adverse effect on the share price of the Company. The Elliott Security In addition to the guarantees described below, the Second Facility and Third Facility will be secured, following passing of the resolutions, by: 4
a share charge in favour of the Elliott Lender granted by the Company over shares held by the Company in the share capital of Wega Mining AS ( Wega Norway ), a whollyowned subsidiary of the Company in Norway which holds the Group s interests in Resolute (West Africa) Ltd. ( Resolute ) and Wega Mining Guinée SA ( Wega Mining ); a share charge in favour of the Elliott Lender granted by Wega Norway over shares held by Wega Norway in the share capital of Resolute, the Group s wholly owned Jersey subsidiary that holds Avocet s interests in Société des Mines de Bélahouro SA ( SMB ) and Goldbelt Resources West Africa SARL ( GRWA ); a share charge in favour of the Elliott Lender granted by Resolute over shares held by Resolute in GRWA, the Group s wholly owned Burkina Faso subsidiary that currently holds eight exploration licences in the Bélahouro district surrounding the Inata mining licence area; a share charge in favour of the Elliott Lender granted by Resolute over shares held by Resolute in SMB, the company that holds the Inata mining licence in Burkina Faso and in which the Company has a 90% interest; security in favour of the Elliott Lender over intercompany receivables owed by SMB to the Company; security in favour of the Elliott Lender over intercompany receivables owed by SMB to Wega Norway; security in favour of the Elliott Lender over intercompany receivables owed by SMB to GRWA; security in favour of the Elliott Lender over the exploration licences of GRWA; and security in favour of the Elliott Lender over certain assets of SMB not currently encumbered in favour of Ecobank or subject to the restrictions on the grant of security contained in the Ecobank Loan Facility. Following passing of the resolutions, the Company, Wega Norway, Resolute, SMB and GRWA will be obliged to grant the above security and the guarantees described below. The security arrangements will be subject to board approval by each of the relevant entities. In the case of SMB, the SMB board includes representatives of the Government of Burkina Faso. The Elliott Lender has the right, in its absolute discretion, to waive any of the security required. All amounts outstanding under the Second Facility and/or the Third Facility will be supported by a guarantee and indemnity from Wega Norway, Resolute, SMB and GRWA. Any such indemnities granted by any member of the Group will be limited in the manner set out in Clause 13.4 of the Facility Agreement (which provides that indemnities shall be limited to the extent required to comply with paragraph 10.2.4 of the Listing Rules of the FCA). The guarantee and indemnity granted by Wega Norway will also be limited in a similar manner to that included in Clause 15.10 of the First Elliott Loan Facility (which provides that the 5
guarantee and indemnity shall be limited if required by the provisions in Chapter 8 III of the Norwegian Companies Act 1997). Financing for the remainder of 2015 Assuming the resolutions are approved at the General Meeting and that the Third Elliott Loan Facility is drawn in full as it becomes available, the Directors believe that the Company will have sufficient funds available to it for its corporate activities until the end of September 2015. During this time the Company expects to complete its plans for financing and developing the Tri-K project in Guinea and that the programme of exploration drilling and metallurgical test work at Souma in Burkina Faso, which commenced in April 2015, will be completed. The Board believes that the activities at Tri-K and Souma should generate value for the Group during the period up to the end of September 2015 that will help underline the significant value to be realised from the Group s portfolio of assets. It also believes that undertaking the value-generative initiatives at Tri-K and Souma should assist the Group in its discussions regarding future financing, both for development of its projects and for corporate purposes including repaying the Elliott Loans, which are repayable on demand. With this in mind, the Company will continue to explore the options available to secure longer-term funding for the remainder of 2015 and beyond. However, as with any company, the ability of the Group to secure new financing in the future is dependent on a number of factors, including general economic, political and capital market conditions, and credit availability and accordingly there can be no certainty that the Company will be able to raise the necessary funds for its corporate activities or for the development of its projects. Proposed amendment to the Company s articles of association and consideration of Section 656 of the Companies Act The Circular also includes details relating to the proposed amendment of the Company s articles of association, to be approved at the General Meeting, to enable the Company to secure further debt funding and ensure a sufficient level of permitted borrowings going forward to satisfy the Group s current and future requirements, which includes the ability to draw down the Second Facility and the Third Facility. In the event that shareholders do not approve the amendment to the Company s articles, the Company would be prevented from obtaining future debt funding that might be critical to the Company and the Directors would regard that as an indication that shareholders were unwilling to support a further increase in the Company s debt and, as a consequence, they would not proceed to draw down the Second Facility or Third Facility. In such circumstances, the Directors would be obliged to seek alternative sources of funding for the Company as described above, but without recourse to further debt. In addition, the Circular also includes information relating to the consideration of section 656 of the Companies Act, following publication of the Group s financial results for the year ended 31 December 2014 which showed that the Company s net assets are now less than half of its called up share capital, and what steps should be taken by the Company, if any, to deal with the situation. 6
Further details of these matters are set out in the Circular. FOR FURTHER INFORMATION PLEASE CONTACT Avocet Mining PLC Bell Pottinger J.P. Morgan Cazenove Strand Hanson Limited Financial PR Consultants Corporate Broker Sponsor David Cather, CEO Mike Norris, FD Daniel Thöle Michael Wentworth- Stanley Richard Tulloch Andrew Emmott +44 203 709 2570 +44 20 2772 2500 +44 20 7742 4000 +44 20 7409 3494 NOTES TO EDITORS Avocet Mining PLC ( Avocet or the Company ) is an unhedged gold mining and exploration company listed on the London Stock Exchange (ticker: AVM.L) and the Oslo Børs (ticker: AVM.OL). The Company's principal activities are gold mining and exploration in West Africa. In Burkina Faso the Company owns 90% of the Inata Gold Mine. The Inata Gold Mine poured its first gold in December 2009 and produced 86,037 ounces of gold in 2014. Other assets in Burkina Faso include eight exploration permits surrounding the Inata Gold Mine in the broader Bélahouro region. The most advanced of these projects is Souma, some 20 kilometres from the Inata Gold Mine. In Guinea, Avocet owns 100% of the Tri-K Project in the north east of the country. Drilling to date has outlined a Mineral Resource of 3.0 million ounces, and in October 2013 the Company announced a maiden Ore Reserve on the oxide portion of the orebody, which is suitable for heap leaching, of 0.5 million ounces. As an alternative, the potential exists to exploit the entire 3.0 million ounce Tri-K orebody via the CIL processing method. The Company announced on 2 April 2015 that an exploitation permit had been awarded for Tri-K. 7