Avesoro Resources Inc. Financial Results and Operational Update for the Three and Six Months Ended June 30, 2019

 

TSX: ASO
AIM: ASO

TORONTO, Aug. 8, 2019 /CNW/ - Avesoro Resources Inc. ("Avesoro" or the "Company"), the TSX and AIM listed West African gold producer announces the release of its unaudited Financial Statements ("FS") and Management's Discussion and Analysis ("MD&A") for the quarter (the "Quarter" or "Q2") and six months ("H1") ended June 30, 2019.

Serhan Umurhan, Chief Executive Officer of Avesoro, commented: "Following the operational transition to contractor mining at both New Liberty and Youga during the second quarter of this year, we expect to benefit from various operational and cost improvements, including increased material movement at both mines during the second half of 2019.

Whilst some aspects of the transition were challenging for the operations in the Quarter and have as a consequence adversely affected our financial performance, I am confident that the decision will ultimately drive a stronger production performance in H2 2019.

However, as a result of heavy rain in recent days at New Liberty ore mining has temporarily ceased  and we anticipate that it will be ten days before the pit has been adequately dewatered to enable ore mining to recommence. We are currently assessing the impact of the stoppage on the business and our capacity to recover lost ore production later in the year to maintain our production guidance of 180,000 to 200,000 ounces of gold for 2019.

We now look forward to a solid second half of the year, in which we will focus on a stronger operational performance across the business and the continued progression of our transition to underground mining at the New Liberty Gold Mine."

Financial & Operational Highlights:

H1 2019

• Gold production of 79,436 ounces from the New Liberty Gold Mine in Liberia ("New Liberty") and Youga Gold Mine in Burkina Faso ("Youga");
• Company revenues of US$107.9 million from gold sales of 82,277 ounces at an average realised gold price of US$1,308 per ounce;
• Consolidated operating cash costs¹ of US$1,006 per ounce sold in H1;
• Consolidated all in sustaining costs¹ ("AISC") of US$1,291 per ounce sold in H1;
• Company EBITDA margin of 11% with EBITDA¹ of US$11.6 million;
• Net operating cash flows of US$10.1 million;
• Cash of US$4.4 million and gross debt of US$138.3 million at June 30, 2019; and
• The Company expects unit costs to trend downwards in line with the scheduled increase in the production profile in H2 2019.

Q2 2019

• Gold production of 34,338 ounces in the Quarter, a decrease of 24% on the previous quarter, as a result of processing low grade mill feed at Youga and operational stoppages associated with the transition to contractor mining operations at both the New Liberty and Youga gold mines;
• Company revenues of US$48 million from gold sales of 36,467 ounces at an average realised gold price of US$1,313 per ounce;
• Consolidated operating cash costs¹ of US$1,125 per ounce sold in Q2;
• Consolidated AISC¹ of US$1,469 per ounce sold in Q2;
• Company EBITDA margin of 4%, with EBITDA¹ of US$2.1 million in the Quarter; and
• Net operating cash flows of US$5.0 million in the Quarter.

Notes: 
¹ See "Non-GAAP Financial Measures";

Table 1: Consolidated Financial Highlights

 

Table 2: Key Operations Financial Highlights

 

Outlook

Following the operational transition to contractor mining during the second quarter of 2019, the Company expects to see an increase in material movement at both New Liberty and Youga throughout the second half of 2019, which is in turn expected to translate into increased gold production and a reduction in unit operational costs.

However, heavy rainfall in recent days has resulted in flooding of the main pit and ore mining has temporarily ceased at New Liberty. It is anticipated that it will be ten days before ore mining can recommence. The mining equipment continues to operate on waste stripping and the impact of the ore production stoppage is currently being assessed and in particular, whether the reduction in ore production can be caught up later in the year to maintain production guidance of 180,000 to 200,000 ounces of gold for 2019.

The Company is assessing the impact this will have on the Company's cash flow and the Special Committee will consider this alongside the other initiatives it is pursuing to address the cash shortfall previously announced.

Higher levels of waste stripping will continue at New Liberty for the remainder of the year in order to complete the final open pit pushback and prepare the pit for the development of underground operations.  Following the completion of the New Liberty underground Pre-Feasibility Study in March 2019, the Company continues to progress with the technical studies and detailed designs required for the transition to underground mining at the New Liberty Gold Mine, with underground development expected to commence in H1 2020.

Covenant Breach

In July 2019, Avesoro Holdings Limited ("AHL") which is the Company's ultimate parent company and controlled by Mr. Murathan Doruk Günal ("MDG"), the eldest son of the Company's Chairman, reported that it had breached two undertakings contained in the parent company guarantee that AHL has provided to the Company's Lenders Nedbank Limited and FirstRand Bank Limited (collectively the "Lenders") in respect of the Company's bank borrowings as follows:

1. Late submission of the audited accounts of AHL to the Lenders;
2. AHL's total equity financial covenant at 31 December 2018 was lower than the required level following an impairment in the carrying value of an asset held by a privately held subsidiary of AHL that is not within the Avesoro Resources Inc. group and accounting losses as a result of non-cash depreciation charges.

The two technical breaches represent events of default by the Company under the cross default provisions of the loan documents and allow the Lenders to accelerate repayment of the bank borrowings before their final maturity date.

AHL and the Company have requested a waiver of the events of default from the Lenders and are currently in discussions with them. The Company is confident that a waiver or suitable alternative remedy can be agreed with the Lenders. However, in the event that these efforts were unsuccessful the AHL parent company guarantee and personal guarantee provided by the Company's Chairman remain in force.

Analyst and Investor Call

The company will be hosting a conference call and webcast for investors and analysts on Thursday, August 8, 2019 at 08:00 EST / 13:00 BST

The access details for the conference call are as follows:

 

Password:  65210796#

Webcast URL: https://event.on24.com/wcc/r/2064600/69FF566845B8CCF47F426BD1D0A31637 

The FS are appended to this announcement. The FS and the accompanying MD&A are available to review at the Company's website, www.avesoro.com and on www.sedar.com.

Non-GAAP Financial Measures

The Company has included certain non-GAAP financial measures in this press release, including operating cash costs, all-in sustaining costs ("AISC") per ounce of gold sold and EBITDA. These non-GAAP financial measures do not have any standardised meaning. Accordingly, these financial measures are intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with International Financial Reporting Standards ("IFRS").

Operating cash costs and AISC are a common financial performance measure in the mining industry but have no standard definition under IFRS. Operating cash costs are reflective of the cost of production.

AISC include operating cash costs, net-smelter royalty, corporate costs, sustaining capital expenditure, sustaining exploration expenditure and capitalised stripping costs. The Company reports cash costs on an ounces of gold sold basis.

The Company calculates EBITDA as net profit or loss for the period excluding finance costs, income tax expense and depreciation. EBITDA does not have a standardised meaning prescribed by IFRS and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS.  EBITDA excludes the impact of cash costs of financing activities and taxes and the effects of changes in working capital balances and therefore is not necessarily indicative of operating profit or cash flow from operations as determined under IFRS.  Other companies may calculate EBITDA differently.

Other companies may calculate these measures differently and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS.

Market Abuse Regulation (MAR) Disclosure

Certain information contained in this announcement would have been deemed inside information for the purposes of Article 7 of Regulation (EU) No 596/2014 until the release of this announcement.

About Avesoro Resources Inc.

Avesoro Resources is a West Africa focused gold producer and development company that operates two gold mines across West Africa and is listed on the Toronto Stock Exchange ("TSX") and the AIM market operated by the London Stock Exchange ("AIM"). The Company's assets include the New Liberty Gold Mine in Liberia ("New Liberty") and the Youga Gold Mine in Burkina Faso ("Youga").

New Liberty has an estimated Proven and Probable Mineral Reserve of 17Mt with 1,365,000 ounces of gold grading 2.49g/t and an estimated Measured and Indicated Mineral Resource of 20.47Mt with 1,748,200 ounces of gold grading 2.66g/t and an estimated Inferred Mineral Resource of 3.0Mt with 271,000 ounces of gold grading 2.8g/t. A supporting Technical Report summarising the PFS, prepared in accordance with CIM guidelines, is set out in an NI 43-101 compliant Technical Report dated January 31, 2019 and entitled "NI 43-101 Pre-Feasibility Report, Mineral Resource and Mineral Reserve Update for the New Liberty Gold Mine, Liberia" and is available on SEDAR at www.sedar.com. 

Youga has an estimated Proven and Probable Mineral Reserve of 14.7Mt with 814,900 ounces of gold grading 1.72g/t and a combined estimated Measured and Indicated Mineral Resource of 22.16Mt with 1,189,100 ounces of gold grading 1.67g/t and an Inferred Mineral Resource of 7.6Mt with 377,000 ounces of gold grading 1.5g/t. A Technical Report dated 20 June 2019 prepared in accordance with the requirements of National Instrument 43-101 and entitled " NI 43-101 Technical Report Mineral Resource and Mineral Reserve Update for the Youga Gold Mine, Burkina Faso" is available on SEDAR at www.sedar.com and on the Company's corporate website www.avesoro.com. 

For more information, please visit www.avesoro.com

Qualified Persons

The Company's Qualified Person is Mark J. Pryor, who holds a BSc (Hons) in Geology & Mineralogy from Aberdeen University, United Kingdom and is a Fellow of the Geological Society of London, a Fellow of the Society of Economic Geologists and a registered Professional Natural Scientist (Pr. Sci.Nat) of the South African Council for Natural Scientific Professions. Mark Pryor is an independent technical consultant with over 25 years of global experience in exploration, mining and mine development and is a "Qualified Person" as defined in National Instrument 43 -101 "Standards of Disclosure for Mineral Projects" of the Canadian Securities Administrators and has reviewed and approved this press release. Mr. Pryor has verified the underlying technical data disclosed in this press release.

Forward Looking Statements

Certain information contained in this press release constitutes forward looking information or forward-looking statements within the meaning of applicable securities laws. This information or statements may relate to future events, facts, or circumstances or the Company's future financial or operating performance or other future events or circumstances. All information other than historical fact is forward looking information and involves known and unknown risks, uncertainties and other factors which may cause the actual results or performance to be materially different from any future results, performance, events or circumstances expressed or implied by such forward-looking statements or information. Such statements can be identified by the use of words such as "anticipate", "plan", "continue", "estimate", "expect", "may", "will", "would", "project", "should", "believe", "target", "predict" and "potential". No assurance can be given that this information will prove to be correct and such forward looking information included in this press release should not be unduly relied upon. Forward looking information and statements speak only as of the date of this press release.

Forward looking statements or information in this press release include the Company meeting its annual production and cost guidance for 2019 of 180,000 - 200,000 ounces of gold, at an operating cash cost of US$889 to US$960 per ounce sold and an AISC of US$1,152 to US$1,248 per ounce sold, statements regarding the Company's expectation for unit costs to trend downwards in line with the scheduled increase in the production profile in H2 2019, and statements regarding underground development at the New Liberty Gold Mine expected to commence in H1 2020.

In making the forward looking information or statements contained in this press release, assumptions have been made regarding, among other things: general business, economic and mining industry conditions; interest rates and foreign exchange rates; the continuing accuracy of Mineral Resource and Reserve estimates; geological and metallurgical conditions (including with respect to the size, grade and recoverability of Mineral Resources and Reserves) and cost estimates on which the Mineral Resource and Reserve estimates are based; the supply and demand for commodities and precious and base metals and the level and volatility of the prices of gold; market competition; the ability of the Company to raise sufficient funds from capital markets and/or debt to meet its future obligations and planned activities and that unforeseen events do not impact the ability of the Company to use existing funds to fund future plans and projects as currently contemplated; the stability and predictability of the political environments and legal and regulatory frameworks including with respect to, among other things, the ability of the Company to obtain, maintain, renew and/or extend required permits, licences, authorizations and/or approvals from the appropriate regulatory authorities; that contractual counterparties perform as agreed; and the ability of the Company to continue to obtain and retain qualified staff (including employees and contractors) and equipment in a timely and cost-efficient manner to meet its demand.

Actual results could differ materially from those anticipated in the forward-looking information or statements contained in this press release as a result of risks and uncertainties (both foreseen and unforeseen) and should not be read as guarantees of future performance or results and will not necessarily be accurate indicators of whether or not such results will be achieved. These risks and uncertainties include the risks normally incidental to exploration and development of mineral projects and the conduct of mining operations (including exploration failure, cost overruns or increases, and operational difficulties resulting from plant or equipment failure, among others); the inability of the Company to obtain required financing when needed and/or on acceptable terms or at all; risks related to operating in West Africa, including potentially more limited infrastructure and/or less developed legal and regulatory regimes; health risks associated with the mining workforce in West Africa; risks related to the Company's title to its mineral properties; the risk of adverse changes in commodity prices; the risk that the Company's exploration for and development of mineral deposits may not be successful; the inability of the Company to obtain, maintain, renew and/or extend required licences, permits, authorizations and/or approvals from the appropriate regulatory authorities and other risks relating to the legal and regulatory frameworks in jurisdictions where the Company operates, including adverse or arbitrary changes in applicable laws or regulations or in their enforcement; competitive conditions in the mineral exploration and mining industry; risks related to obtaining insurance or adequate levels of insurance for the Company's operations; that Mineral Resource and Reserve estimates are only estimates and actual metal produced may be less than estimated in a Mineral Resource or Reserve estimate; the risk that the Company will be unable to delineate additional Mineral Resources; risks related to environmental regulations and cost of compliance, as well as costs associated with possible breaches of such regulations; uncertainties in the interpretation of results from drilling; risks related to the tax residency of the Company; the possibility that future exploration, development or mining results will not be consistent with expectations; the risk of delays in construction resulting from, among others, the failure to obtain materials in a timely manner or on a delayed schedule; inflation pressures which may increase the cost of production or of consumables beyond what is estimated in studies and forecasts; changes in exchange and interest rates; risks related to the activities of artisanal miners, whose activities could delay or hinder exploration or mining operations; the risk that third parties to contracts may not perform as contracted or may breach their agreements; the risk that plant, equipment or labour may not be available at a reasonable cost or at all, or cease to be available or resign, or in the case of labour, may undertake strike or other labour actions; the inability to attract and retain key management and personnel; and the risk of political uncertainty, terrorism, civil strife, or war in the jurisdictions in which the Company operates, or in neighbouring jurisdictions which could impact on the Company's exploration, development and operating activities.

Although the forward-looking statements contained in this press release are based upon what management believes are reasonable assumptions, the Company cannot provide assurance that actual results or performance will be consistent with these forward-looking statements. The forward looking information and statements included in this press release are expressly qualified by this cautionary statement and are made only as of the date of this press release. The Company does not undertake any obligation to publicly update or revise any forward looking information except as required by applicable securities laws.

Condensed Interim Consolidated Financial Statements (Unaudited)

Avesoro Resources Inc.

For the Three and Six Months Ended June 30, 2019 and 2018
(stated in thousands of US dollars)

 

 

The accompanying notes are an integral part of these condensed interim consolidated financial statements.  

 

The accompanying notes are an integral part of these condensed interim consolidated financial statements.                                      

 

The accompanying notes are an integral part of these condensed interim consolidated financial statements.

 

The accompanying notes are an integral part of these condensed interim consolidated financial statements.

Avesoro Resources Inc.
Notes to Condensed Interim Consolidated Financial Statements (Unaudited)
For the three and six months ended June 30, 2019 and 2018
(in thousands of US dollars unless otherwise stated)

1 Nature of operations and basis of preparation

Avesoro Resources Inc. ("Avesoro" or the "Company"), was incorporated under the Canada Business Corporations Act on February 1, 2011. The focus of Avesoro's business is the exploration, development and operation of gold assets in West Africa, specifically the New Liberty Gold Mine in Liberia and the Youga Gold Mine in Burkina Faso. 

The Company's parent company is Avesoro Jersey Limited ("AJL"), a company incorporated in Jersey and Mr. Murathan Doruk Gűnal is the ultimate beneficial owner.

These condensed interim consolidated financial statements ("interim financial statements") have been prepared in accordance with International Accounting Standard ("IAS") 34, "Interim Financial Reporting".  They do not include all disclosures that would otherwise be required in a complete set of financial statements.  They follow accounting policies and methods of their application consistent with the audited consolidated financial statements for the year ended December 31, 2018 except for the adoption of new accounting policies as discussed below.  Accordingly, they should be read in conjunction with the Company's audited consolidated financial statements for the year ended December 31, 2018.

These interim financial statements were authorised by the Board of Directors on August 7, 2019.

New accounting policies

The Company has initially adopted IFRS 16 from January 1, 2019. IFRS 16 introduced a single, on-balance sheet accounting model for lessees. As a result, the Company as a lessee, has recognised right-of-use assets representing its rights to use the underlying assets and lease liabilities representing its obligation to make lease payments. Lessor accounting remains the same. Accordingly, the comparative information presented for 2018 has not been restated. On transition to IFRS 16, the Company elected to apply the practical expedient to grandfather the assessment of which transactions are leases. It applied IFRS 16 only to contracts that were previously assessed as leases. Contracts that were not identified as lease under IAS 17 and IFRC 4 were not reassessed. Therefore, the definition of lease under IFRS 16 has been applied to contracts entered into or changed on or after January 1, 2019 and no new leases were identified.

The Company leases drill rigs and the fuel storage facility at New Liberty, which were previously classified as finance leases under IAS 17. For the finance leases, the carrying amount of the right-of-use asset and lease liability at January 1, 2019 were determined as the carrying amount of the lease asset and lease liability under IAS 17 immediately before date of use. Management is currently looking at the transition to contractor mining and impact of IFRS 16 and this will come into effect in Q3 2019.

A number of other new standards are effective from January 1, 2019 but these do not have a material effect on the Company's financial statements.

Going concern

Following a cost review, the Company implemented an initiative to transition both Youga and New Liberty Gold mines to contractor mining with the objective of further reducing the mining cost and increasing mining volumes. This transition resulted in disruption to mining activities and gold production at New Liberty in April and May 2019 and at Youga the open pit mining fleet operators refusing to work leading to a temporary suspension of mining and process plant operations in June 2019.

As a result of the aforementioned issues and ongoing mill feed grade being lower than planned at Youga the group production guidance for 2019 was reduced from 210,000 – 230,000 ounces to 180,000 – 200,000 ounces on June 10, 2019 and the revised cash forecast currently shows a funding shortfall of $10-$15 million later in 2019.  The funding gap includes US$12.9 million of debt provided by Mapa İnşaat ve Ticaret A.Ş. ("Mapa"), a related party and a company controlled by Mr. Mehmet Nazif Gűnal, Non-Executive Chairman of the Company, falling due for repayment in 2019. The Company is holding constructive discussions Mapa about deferral of these debt repayments.

In July 2019, Avesoro Holdings Limited ("AHL") which is the Company's ultimate parent company and controlled by Mr. Murathan Doruk Günal ("MDG"), the eldest son of the Company's Chairman, reported that it had breached two undertakings contained in the parent company guarantee that AHL has provided to the Company's Lenders Nedbank Limited and FirstRand Bank Limited (collectively the "Lenders") in respect of the Company's bank borrowings as follows:

1. Late submission of the audited accounts of AHL to the Lenders; and
2. AHL's total equity financial covenant at December 31, 2018 was lower than the required level following an impairment in the carrying value of an asset held by a privately held subsidiary of AHL that is not within the Avesoro Resources Inc. group and accounting losses as a result of non-cash depreciation charges.

The two technical breaches represent events of default by the Company under the cross default provisions of the loan documents and allow the Lenders to accelerate repayment of the bank borrowings before their final maturity date.

AHL and the Company have requested a waiver of the events of default from the Lenders and are currently in discussions with them. The Company is confident that a waiver or suitable alternative remedy can be agreed with the Lenders. However, in the event that these efforts were unsuccessful, the AHL parent company guarantee and personal guarantee provided by the Company's Chairman remain in force.

The Company has received confirmation that Mr. Murathan Doruk Günal intends to support the Group for at least one year from the date of this interim financial statements.  On this basis, the Directors and Management continue to adopt the going concern basis of accounting in preparing the interim financial statements.

2 Segment information

The Company is engaged in the exploration, development and operation of gold projects in the West African countries of Liberia and Burkina Faso. Information presented to the Chief Executive Officer for the purposes of resource allocation and assessment of segment performance is focused on the geographical location of mining operations.  The reportable segments under IFRS 8 are as follows:

• New Liberty operations;
• Burkina operations which include the Youga Gold Mine and the Balogo satellite deposit;
• Exploration; and
• Corporate.

Following is an analysis of the Group's results, assets and liabilities by reportable segment for the three months ended June 30, 2019:

 

Following is an analysis of the Group's results, assets and liabilities by reportable segment for the six months ended June 30, 2019:

 

Following is an analysis of the Group's results, assets and liabilities by reportable segment for the three months ended June 30, 2018:

 

Following is an analysis of the Group's results, assets and liabilities by reportable segment for the six months ended June 30, 2018:

 

3 Administrative and other expenses

 

4 Income taxes

 

5 (Loss)/Earnings per share ("EPS")

 

6 Trade and other receivables

 

Other receivables as at June 30, 2019 include VAT receivable from the Burkina Faso Government of $6.0 million (December 31, 2018: $3.1 million) and a financial asset with respect to factored VAT receivable from the Burkina Faso Government of $nil (December 31, 2018: $6.4 million).

7 Inventories

 

Ore stockpiles as at June 30, 2019 are stated at their net realisable values after cumulative write-down at New Liberty of $1.8 million (December 31, 2018: $1.6 million) and a provision for obsolescence of consumables at Youga of $0.6 million (December 31, 2018: $0.7 million). 

8 Intangible assets - Exploration and evaluation assets

 

Intangible assets as at June 30, 2019 are in respect of capitalised exploration and evaluation assets at Ndablama and Ouaré, located 44 kilometres east of the Youga processing plant. Ouare is the subject of an infill drilling campaign to upgrade the confidence level and classification of the existing mineral resources.  Resource modelling and pit design shows that this satellite deposit will add further mine life to Youga.

Exploration and evaluation costs charged to profit and loss arose from the following licence areas:

 

9 Property, plant and equipment

 

10 Borrowings

 

(a)  Bank loans

On December 17, 2013 the Company entered into an agreement for an $88 million project finance loan facility with Nedbank Limited and FirstRand Bank Limited (collectively the "Lenders"), (the "Senior Facility"), and also entered into a subordinated loan facility agreement for $12 million with RMB Resources (the "Subordinated Facility").  On December 9, 2015 the Company entered into an agreement for an additional $10 million Tranche B Senior Facility (together with the Senior Facility and the Subordinated Facility the "Loan Facilities") provided by the Lenders.  These Loan Facilities, which have been fully drawn, financed the development of the Company's New Liberty Gold Mine.  $38.4 million of the Senior Facility principal has been repaid to date.

(b) Working Capital Facility with AJL

 

Gross proceeds of new tranches during the period ended June 30, 2019 was $10.3 million (year ended December 31, 2018: $21.9 million) of which $0.2 million (year ended December 31, 2018: $3.9 million) has been credited to capital contribution. Gross repayments during the period ended June 30, 2019 amounted to $nil (year ended December 31, 2018: $13.7 million) of which $nil (year ended December 31, 2018: $2.9 million) has been charged to capital contribution.

(c)  Related party loans payable to Mapa İnşaat ve Ticaret A.Ş. ("Mapa")

 

Gross proceeds of new loans during the period ended June 30, 2019 was $nil (year ended December 31, 2018: $10.3 million) of which $nil (year ended December 31, 2018: $0.4 million) has been credited to capital contribution.  Principal repayments during the period ended June 30, 2019 amounted to $nil (year ended December 31, 2018: $4.8 million) and interest repayments during the period ended June 30, 2019 amounted to $0.4 million (year ended December 31, 2018: $1.7 million). 

11 Lease liability

Lease liability as at June 30, 2019 relates to drill rigs and the fuel storage facility at New Liberty.  Lease liability is measured at the present value of the leased payments.  Lease payments are apportioned between the finance charges and reduction of lease liability using the incremental borrowing rate implicit in the lease to achieve a constant rate of interest on the remaining balance of the liability.

 

12 Equity

(a) Authorised

Unlimited number of common shares without par value.

(b) Issued

 

(c) Stock options

Information relating to stock options outstanding at June 30, 2019 is as follows:

 

13 Non-controlling interest

The composition of the non-controlling interests held by the Government of Burkina Faso is as follows:

 

14 Related party transactions

(a) Borrowings

The Company's related party loans payable to Mapa, Working Capital Facility with AJL and loan payable to AJL are disclosed in Note 10.

(b) Royalty payable to AJL

Pursuant to the share purchase agreement between the Company and AJL on the acquisition of the Youga Gold Mine in December 2017, the Company accrued a royalty payable to AJL of $1.4 million for the six months ended June 30, 2019 in respect of a net smelter return on the Youga Gold Mine.

(c) Provision/(purchases) of goods and services

The Company also provided/(purchased) the following services from related parties:

 

Included in trade and other receivables is a receivable from related parties of $3.6 million as at June 30, 2019 (December 31, 2018: $3.4 million). 

Included in trade and other payables is $4.5 million payable to related parties as at June 30, 2019 (December 31, 2018: $3.3 million).

15 Subsequent events

On July 15, 2019, the Company's subsidiaries, Burkina Mining Company SA ("BMC") and Netiana Mining Company SA ("NMC"), entered into an open pit mining contract (the "Contract") with Orkun Group Sarl ("Orkun") at the Youga Gold Mine ("Youga") in Burkina Faso.

The mining programme under the Contract is based on the excavation of between 800,000 to 900,000 bank cubic metres ("BCM") of material per month, including a minimum of 120,000 tonnes of ore delivered to the ROM pad per month. Over the life of mine, the Contract is based on the excavation of a minimum of 42 million BCM ("Minimum TMM") of material over the life of mine which can be increased, at the Company's option, to 60 million BCM on the same terms.

The Contract price of excavation during the Minimum TMM period is US$4.26 per BCM (approximately US$1.60 per tonne) reducing to US$3.75 per BCM thereafter (approximately US$1.41 per tonne) for the remainder of the Contract.

Orkun will pay an earn-in fee of US$0.51 per BCM to acquire BMC's existing heavy mining equipment ("HME") fleet. The earn-in fee will be offset against the amounts invoiced by Orkun. Upon completion of the Minimum TMM, ownership of BMC's HME fleet will transfer to Orkun. However, Orkun assumes full responsibility for the on-going upkeep and maintenance of the HME from commencement of the Contract.

Orkun has also committed to supplement the existing HME fleet with US$5 million of additional equipment at its own cost.  The first batch of this additional HME is due to arrive at Youga in Q3 2019.

BMC and NMC retain responsibility for mining geology, planning and certain other costs which are included in the total cost of mining reported by the Company.

In July 2019, AHL reported that it had breached two undertakings contained in the parent company guarantee that AHL has provided to the Company's Lenders in respect of the Company's bank borrowings as follows:

1. Late submission of the audited accounts of AHL to the Lenders; and
2. AHL's total equity financial covenant at December 31, 2018 was lower than the required level following an impairment in the carrying value of an asset held by a privately held subsidiary of AHL that is not within the Avesoro Resources Inc. group and accounting losses as a result of non-cash depreciation charges.

The two technical breaches represent events of default by the Company under the cross default provisions of the loan documents and allow the Lenders to accelerate repayment of the bank borrowings before their final maturity date.

AHL and the Company have requested a waiver of the events of default from the Lenders and are currently in discussions with them. The Company is confident that a waiver or suitable alternative remedy can be agreed with the Lenders. However, in the event that these efforts were unsuccessful, the AHL parent company guarantee and personal guarantee provided by the Company's Chairman remain in force.

SOURCE Avesoro Resources Inc.

View original content: http://www.newswire.ca/en/releases/archive/August2019/08/c1690.html