Avesoro said today an openpit mining contract with Orkun Group Sarl at Youga would see higher mining rates in the second half of the year deliver increased production at reduced costs at a time of potentially higher gold prices. The company recently had to cut annual production guidance for its West Africa operations by 30,000oz because of operational challenges experienced earlier in the year.

TSX and AIM listed Avesoro (ASO) opened up about 8% in London today at 89.8p, capitalising the company at £73 million.

Orkun is expected to move 800,000-900,000 bank cubic metres of material per month at US$3.75-4.26/bcm to deliver at least 120,000 tonnes of ore a month to the Youga ROM pad. It will progressively buy Avesoro's mining fleet, and invest in expansion (this year) to lift production rates. It is also taking over fleet maintenance straight away.

"This contract will enable Avesoro to significantly reduce its future mining costs at Youga," said Avesoro CEO Serhan Umurhan.

"Outsourcing the mining activity will also enable us to reduce our direct employee headcount and overall business complexity thereby reducing G&A costs."

Avesoro wants to do the same at New Liberty in Liberia.

"The recent quarterly results described labour unrest at both mines arising from the plans to move to mining contractors, however, the company is likely to persist given the potential to ease funding pressure," SP Angel said in a note.

Avesoro said higher gold prices and lower capital and operating expenditure commitments under the Youga contract arrangement could help it generate about US$11 million more revenue from second-half  gold sales than projected last month.

"Based on the [higher gold price, production and contract terms] the H2 2019 funding gap would reduce to US$10-15 million from our previous guidance of a shortfall of between US$25-30 million later in 2019. The funding gap includes US$12.9 million of debt provided by a related party lender falling due for repayment in 2019," Avesoro said.

"The company is holding constructive discussions with the related party about deferral of these debt repayments.

"The company continues to review other options to further reduce the H2 2019 funding gap, including potential reductions in capital expenditure requirements that may also be realised at New Liberty if a similar agreement can be reached with the preferred mining contractor for that mine as has been achieved with Orkun at Youga."