October 1, 2018 / 6:31 AM / a year ago

Gold miner Avocet warns of a company break-up, shares tank

(Reuters) - Shares of Avocet Mining (AVM.L) dropped more than 17 percent on Monday after warning that it could be broken up as the struggling gold miner continues talks with its largest shareholder, Elliott Management, to restructure its debt.

The company, which debuted on the London Stock Exchange in 2007 at 1,200 pence a share, has lost nearly all of its value and was trading at 9.9 pence. The stock was the largest percentage loser on the exchange.

The company said that it has sufficient funds to operate for the next 12 months provided that the capital and interest on Elliott’s loan will not have to be paid in the period.

“A possible outcome of these discussions could be that the Avocet Group is broken up further in an orderly manner and eventually wound up,” Avocet said in its statement.

The company was not immediately available for a comment when Reuters sought further details.

Avocet has relied primarily on loans from Elliott since 2014 due to cash flow shortages resulting from a fall in gold prices and lower production at its Inata mine in Burkina Faso. It sold its assets in Burkina Faso for $5 million to Ghana-based Balaji Group last year.

“It will be necessary to restructure these loans in order to put the company on a sustainable financial footing”, Avocet said, adding that the interest burden of the Elliott loans of more than $200,000 (£153,444.8) per month cannot currently be met out of its own funds.

It owes Elliott affiliate Manchester Securities Corp about $30.5 million as of Sept. 30.

Avocet said that if Elliott requests the repayment of loans, the company would be obliged to seek alternative funding, calling it a “considerable challenge”. However, it added that it does not believe that Elliott currently intends to demand repayment of the loans in the next 12 months.

Avocet is relying on the success of its Tri-K project in Guinea where it completed a feasibility study indicating about 1.1 million ounces of gold.

However, in order to start mining activities, the company must raise more funds which is likely to add to its existing debt.

The company also said on Monday that its loss narrowed to $1.88 mln in the six months ended June 30 from a $5.48 million loss last year. The company did not post any revenue.

Reporting by Sangameswaran S and Arathy S Nair in Bengaluru; Editing by Bernard Orr

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