UPDATE 1-Avocet to buy out of hedge, expects $3 mln a month boost
LONDON Oct 31 (Reuters) - Africa-focused Avocet Mining said on Thursday it was set to buy back all its forward sold production, a hedge which has caused problems for the company since it cut a reserves estimate at its gold mine in Burkina Faso earlier this year.
Avocet, which inherited the hedging agreement with Macquarie from a takeover deal in 2009, said it had secured a $63 million loan from Ecobank Burkina Faso which would allow it to pay off the hedge shortly.
Mining companies use hedges for financing or to shield them from price fluctuations.
Buying out of the hedge will boost monthly cash flow by an estimated $3 million per month if gold prices remain around current levels, Avocet Chief Executive David Cather told Reuters.
"This has been one of our key objectives this year," Cather said. "This will give us greater operational flexibility and working capital injection to do things at the mine which we need to do."
The company owes $15 million to key shareholder, Elliott Management, money which it borrowed to renegotiate the hedge with Macquarie earlier this year. The money is due by the end of 2013 and Cather said negotiations about paying it back or extending the agreement were ongoing.
Avocet stock remains at levels 77 percent lower than at the end of last year, but it has recovered slightly and it closed on Wednesday at 15.49 pence, compared to an all-time low of 6.50 hit in June. The shares were up 5 percent in early trade on Thursday.
The company produced 30,987 ounces in the third quarter, down from 31,245 ounces in the previous quarter. It reported a $14.5 million loss compared to a $323,000 loss in the same period last year.
Avocet expects to produce 125,000-130,000 ounces of gold in 2013.
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