Gold miner hammered by its crippling debt pile
THE future of a London-listed gold mining company, which had one of its precious metals shipments seized last year over an employee pay row, is hanging in the balance.
Avocet Mining, which owes £22.9m to activist investor Elliott Management, sank 36.7pc, or 4.38p, to 7.57p as it warned it could be wound up in order to pay off its heavy debt pile.
If it does get broken up and its assets sold, the company added, shareholders would likely be left with nothing since all money would go to paying back the loans.
The largest shareholder is also Elliott Management, with 13.5pc, but a number of individuals own chunks of shares.
Cracks began appearing at Avocet towards the end of last year, when it was forced to close its major mine in Burkina Faso for several weeks after bailiffs acting on behalf of fired workers seized a shipment of its gold. The workers were claiming around £2.5m in unpaid benefits.
Though the seizure was later lifted, Avocet has been struggling to turn its business around.
It sold the Burkina Faso subsidiaries in February, and a month later flogged its Norwegian business Wega Mining. Now it is left only with a 30pc stake in the Guinea-based gold project Tri-K.
Avocet says it has enough cash to keep going for 12 months – as long as Elliott doesn’t ask for repayment of the debt, some of which has been due since 2013.
Elliott has previously waged a battle to reshape Dulux paint maker Akzo Nobel and now owns bookseller Waterstones through its private equity division. It will be looking to squeeze as much cash out of Avocet as possible. Housebuilders were put on the back foot by the Prime Minister’s plans to levy a new tax on foreign homebuyers. Theresa May announced over the weekend at the Conservative Party conference that property buyers who don’t pay tax in the UK could face a surcharge of between 1pc and 3pc.
Since most foreign property buyers purchase homes in London – where up to 50pc of buyers are not UK taxpayers, according to UBS – builders which focus on the capital suffered most. FTSE 100-listed Berkeley Group slumped by 3.4pc, or 124p, to 3555p.
Persimmon, which has eight developments in the London area, fell by 2pc, or 47p, to 2318p.
Taylor Wimpey, which also has eight apartment block developments in central London, dropped by 2pc, or 3.4p, to 168.4p.
Gregor Kuglitsch, an analyst at UBS, said: ‘From the perspective of the homebuilders, we think an additional tax would likely have to be absorbed through price reduction.’ May said the extra stamp duty, cash from which would be used to tackle homelessness, should help push house prices down for UK buyers.
The going rate for a flat in Battersea Reach, one of Berkeley Group’s recent London developments, ranges from £690,000 to £1.25m.
The FTSE 100 ended the day down 0.2pc, or 14.53 points, at 7495.67, pushed down by the major housebuilders and airlines and Royal Mail’s shock warning.
Easyjet dipped 7pc, or 92p, to 1222p, and British Airways owner IAG by 2.6pc, or 17p, to 643.2p, after smaller competitor Ryanair warned its financial performance would be less impressive than expected due to rising fuel costs and persistent strike action.
Rentokil Initial gave the FTSE some support, after it revealed it was buying Mitie’s pest control division for £40m. The firm, the UK’s largest pest control business, crept up 3.6pc, or 11.3p, to 329.7p.
Outsourcer Mitie, on the other hand, edged down by 1.2pc or 1.7p to 145p, even though it said the sale would free up funds for investment in its core branches.