Brett Richards: The miner seeking gold with growth

The Business Interview: Avocet Mining has its sights firmly set on adding as many ounces as it can in West Africa, its chief executive tells Nikhil Kumar

Take record low interest rates. Add natural disasters in New Zealand and Japan, and dollops of turmoil in the oil rich Middle East and North Africa. Shake, and garnish with the ever-present threat of spiralling inflation, sovereign debt implosions and more than a dash of uncertainty. The result, commodity market bulls will tell you, is the perfect blend for rising gold prices.

This grim recipe has boosted the yellow metal by almost 40 per cent since the beginning of last year, up from less than $1,100 per troy ounce to comfortably around $1,500 today. But the heady gains have done nothing to dim the enthusiasm of many in the City and on Wall Street.

In fact, though official forecasts from the big banks remain within striking distance of prevailing levels, put your ear to the ground and you can catch whispers of $3,000, $4,000 and even $5,000 an ounce – well above the real terms, inflation adjusted peak of just over $2,400 struck way back in 1980.

The figure finds little favour with Brett Richards, the chief executive of the gold producer Avocet Mining. Earlier in the year, when prices were hovering below $1,400, he said $5,000 gold would call for tanks on the ground in London. "The analogy to seeing that level of social unrest in reflection to the gold price is still true," he says now, pointing out that, while the capital's streets remain free of armoured vehicles, "we have certainly seen a lot of unrest" around the world.

"I put the analogy of tanks running in the streets to some form of consistent military unrest in multiple parts of the world – we're seeing that in North Africa right now, we're seeing it in the Middle East and Syria," he adds.

"Compounding that, we're seeing economic fragility in the US, we're seeing the dollar retract substantially in a short period of time and [that is] counterbalanced by the fact that the US is going to go through an election in about 18 months. So, you have all these dynamic forces pushing at the price of gold."

He reckons gold prices are likely to spend the year in the range of $1,350 to $1,550, not far off HSBC's latest forecast for an average of $1,525 in 2011. "I don't think it's going to make a strong run to $1,800 or $2,000 gold, and I just don't think it's going to go back to $1,100 or $1,200 gold either," he says.

Besides, contrary to the received wisdom that ever-higher gold prices are unquestionably good for producers like Avocet, Mr Richards adds that too strong a rally can bring its owns problems for companies that operate in far flung corners of the globe.

Avocet's own flagship Inata mine is in West Africa's Burkina Faso, and it is also active in nearby Guinea. Until last year, it was also focused on South-east Asia, but, with Mr Richards at the helm, announced an agreement to sell those assets in a $200m deal in December.

Too high a gold price, he explains, can in some cases mean that Governments in Africa and South-east Asia take a "different view of your business when they feel that you're making a substantial margin".

"That's a problem," he says. "They want to change mining codes, they want to change royalty structures, they want to change ownership structures and [in] some extreme cases – and certainly not where we're doing business – there's the threat of nationalisation.

"So, for our business, $1,300 to $1,500 gold price is good and consistently underpinned by [a] reasonable economic background in order to support those figures."

Still, the fact remains that the recent rally in gold prices has boosted mining equities. Avocet, for its part, has benefited from this trend, with its share price booking healthy gains. It is, however, possible to argue that the share price rally would have gone further had it not been for the hedge the company assumed in connection with an acquisition in 2009. It commits Avocet to selling part of what it digs out of the ground for a fixed price of $970 per ounce – far below the spot price.

Mr Richards is candid about the fact that the hedge has proved less than helpful, not merely in light of the rising gold price but also because the company's flagship Inata project has been delivering excellent results. But, while he does not rule anything out, he remains focused on growing production, which would lower the level of output that goes towards servicing that commitment, as opposed to rushing to buy out the hedge.

"The mark-to-market liability [on the hedge] right now is about $180m, so it's a fairly substantial number," he says, noting that if Avocet were to buy it out and then there was a sudden slump in the gold price, it would look like a poor decision.

"I think as a standalone, what do we do with the hedge today, we bite down on our teeth and we continue to deliver into it."

The focus on growth is evident from the string of updates showing progress at both the Inata mine in Burkina Faso, and at exploration projects in Guinea. Only yesterday, for example, Avocet announced an updated mineral resource of 1.1 million ounces at its Koulekoun gold project there, thus growing its resource base in West Africa to an encouraging 3.78 million ounces.

Highlighting the plans, Mr Richards says the fact Avocet, which booked total gold production of 71,708 ounces in the first quarter of the year, had a hedge was already priced into the shares, leaving ample scope for gains as gold prices rise, or as the company's projects deliver results – or both. "I agree [that] philosophically we'd prefer not to have it, but the story is not about our hedge," he adds.

"The story is about our growth – the growth where we're going to take this company to 500,000 or 600,000 ounces in four years' time, and then on to a million ounces after that on the land we have and on the cash we'll have.... Let's just bring as many ounces on as we can, [and] we dilute the effect [of the hedge] and our margins will naturally increase."

Beyond the drill reports

A former professional ice hockey player, Brett Richards' background is in the steel business. He began at Co-Steel in 1985 and left as the senior vice-president of human resources in 2002. He went on to work at Kinross Gold, and then Katanga Mining, before arriving at Avocet two years ago. He took the helm last year, and since then has been busy refocusing the company on West Africa.

When he is not scrutinising drill reports, Mr Richards spends the rest of his time keeping track of his children – he has four – or on the golf course. "I was just at the Masters down in Augusta, and was able to enjoy a couple of just absolutely beautiful days at the most pristine golf course in the world," he says. Though he prefers playing, he adds that watching the Masters tournament is "almost a religious event".

Suggested Topics
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs People

HR Analyst - Banking - Bristol - £350-£400

£350 - £400 per day: Orgtel: HR Analyst - Banking - Bristol - £350 - £400 per ...

HR Manager - HR Generalist / Sole in HR

£30000 - £35000 per annum + benefits: Ashdown Group: HR Manager - HR Generalis...

Business Analyst - Banking - London - £350-£400

£350 - £400 per day: Orgtel: Business Analyst - Banking - People Change - Lond...

HR Manager - Milton Keynes - £50,000 + package

£48000 - £50000 per annum + car allowance + benefits: Ashdown Group: HR Shared...

Day In a Page

Middle East crisis: We know all too much about the cruelty of Isis – but all too little about who they are

We know all too much about the cruelty of Isis – but all too little about who they are

Now Obama has seen the next US reporter to be threatened with beheading, will he blink, asks Robert Fisk
Neanderthals lived alongside humans for centuries, latest study shows

Final resting place of our Neanderthal neighbours revealed

Bones dated to 40,000 years ago show species may have died out in Belgium species co-existed
Scottish independence: The new Scots who hold fate of the UK in their hands

The new Scots who hold fate of the UK in their hands

Scotland’s immigrants are as passionate about the future of their adopted nation as anyone else
Britain's ugliest buildings: Which monstrosities should be nominated for the Dead Prize?

Blight club: Britain's ugliest buildings

Following the architect Cameron Sinclair's introduction of the Dead Prize, an award for ugly buildings, John Rentoul reflects on some of the biggest blots on the UK landscape
eBay's enduring appeal: Online auction site is still the UK's most popular e-commerce retailer

eBay's enduring appeal

The online auction site is still the UK's most popular e-commerce site
Culture Minister Ed Vaizey: ‘lack of ethnic minority and black faces on TV is weird’

'Lack of ethnic minority and black faces on TV is weird'

Culture Minister Ed Vaizey calls for immediate action to address the problem
Artist Olafur Eliasson's latest large-scale works are inspired by the paintings of JMW Turner

Magic circles: Artist Olafur Eliasson

Eliasson's works will go alongside a new exhibition of JMW Turner at Tate Britain. He tells Jay Merrick why the paintings of his hero are ripe for reinvention
Josephine Dickinson: 'A cochlear implant helped me to discover a new world of sound'

Josephine Dickinson: 'How I discovered a new world of sound'

After going deaf as a child, musician and poet Josephine Dickinson made do with a hearing aid for five decades. Then she had a cochlear implant - and everything changed
Greggs Google fail: Was the bakery's response to its logo mishap a stroke of marketing genius?

Greggs gives lesson in crisis management

After a mishap with their logo, high street staple Greggs went viral this week. But, as Simon Usborne discovers, their social media response was anything but half baked
Matthew McConaughey has been singing the praises of bumbags (shame he doesn't know how to wear one)

Matthew McConaughey sings the praises of bumbags

Shame he doesn't know how to wear one. Harriet Walker explains the dos and don'ts of fanny packs
7 best quadcopters and drones

Flying fun: 7 best quadcopters and drones

From state of the art devices with stabilised cameras to mini gadgets that can soar around the home, we take some flying objects for a spin
Joey Barton: ‘I’ve been guilty of getting a bit irate’

Joey Barton: ‘I’ve been guilty of getting a bit irate’

The midfielder returned to the Premier League after two years last weekend. The controversial character had much to discuss after his first game back
Andy Murray: I quit while I’m ahead too often

Andy Murray: I quit while I’m ahead too often

British No 1 knows his consistency as well as his fitness needs working on as he prepares for the US Open after a ‘very, very up and down’ year
Ferguson: In the heartlands of America, a descent into madness

A descent into madness in America's heartlands

David Usborne arrived in Ferguson, Missouri to be greeted by a scene more redolent of Gaza and Afghanistan
BBC’s filming of raid at Sir Cliff’s home ‘may be result of corruption’

BBC faces corruption allegation over its Sir Cliff police raid coverage

Reporter’s relationship with police under scrutiny as DG is summoned by MPs to explain extensive live broadcast of swoop on singer’s home