21 July 2009

Avoca increases its Dioro shareholding to 19.03%

ASX200 gold producer Avoca Resources Limited (Avoca) (ASX:AVO) advises it has increased its shareholding in takeover target Dioro Exploration NL (Dioro) to 19.03%.

Avoca also advises that it has today dispatched a letter to Dioro shareholders, which is set out below.

For further enquiries, please contact:

Avoca Resources: Rohan Williams 08 9226 0625

Purple Communications: Warrick Hazeldine 08 6314 6300 / 0417 944 616

Dear fellow Dioro Shareholder,

Avoca extends Offer period to allow shareholders to consider Dioro’s 21% lower than anticipated reserve announcement and questionable Dioro tactics

Avoca Resources Limited (Avoca) (ASX:AVO) has extended the Offer period under its unconditional takeover offer by one week, so that it is now scheduled to close at 5.00pm (Perth time) on Tuesday 28 July 2009.  This extension is to allow you to consider:

                     Dioro’s lower than anticipated reserve announcement, which shows attributable Frog’s Leg reserves are 21% lower than the figure referred to by KPMG in Dioro’s Target’s Statement released to the ASX on 28 May 2009; and

                      Dioro’s questionable tactics in:

                     calling a trading halt shortly before the scheduled closing date for Avoca’s Offer pending the release of a significant increase in reserves, notwithstanding that the increased reserve figure is 21% lower than that used by KPMG in Dioro’s Target’s Statement;

                     stating that the trading halt would be effective until the receipt of final financial analysis, currently being prepared, and then announcing that the final financial analysis is not anticipated to be available until Friday 24 July 2009 (again leaving Dioro shareholders in a position where they do not have all available information before them to assess Avoca’s unconditional Offer); and

                     releasing a table to ASX on 20 July 2009 showing an incorrectly inflated reserve figure, only to then re-release a corrected announcement with lower reserve figures.

In Avoca’s view, Dioro’s questionable tactics are a dubious attempt by Dioro to discourage acceptances under Avoca’s Offer.

In its report (which has already been the subject of three requests for clarification by ASIC), Dioro’s independent expert, KPMG, used an attributable reserve figure of 489,745 ounces for Frog’s Leg in calculating Dioro’s valuation multiple per reserve ounce^[i]. 

On 20 July 2009, Dioro announced its attributable increase in the Frog’s Leg reserve to 386,857 ounces, some 102,888 ounces LESS than the attributable reserves referred to by KPMG. 

It therefore appears to Avoca that the assumptions used in the KPMG and Coffey reports were flawed, and that those reports must now be updated (again) to correct this 21% decrease in attributable Frog’s Leg reserves, and to reduce their valuation accordingly.

Avoca notes the continuing references by the Dioro board to discussions with third parties since mid April, when the Avoca bid was announced. Notwithstanding the comments made in Dioro’s Fourth Supplementary Target’s Statement, the Dioro Board should now provide Dioro shareholders with a frank and complete report on the status of such discussions and an indication whether any of them are likely to result in a competing preferable offer.

In the absence of a competing offer, the choice for Dioro shareholders is to accept Avoca’s offer or to allow Dioro’s board and management to continue in their attempt to deliver value out of the Dioro assets.  The performance of the Dioro board and management has been poor and they have overseen significant value destruction for Dioro shareholders over the past 12 months, as evidenced by the operational failures which resulted in a substantial fall in the Dioro share price.  In contrast, the Avoca board and management have delivered strong operational performance and company growth, and Avoca’s offer for all the Dioro shares provides a superior alternative for Dioro shareholders to maximise value extraction from the Dioro asset base.

A formal Notice of Variation - Extension of Offer Period accompanies this letter.

Avoca urges all Dioro shareholders not to be fooled by Dioro’s questionable tactics and to accept Avoca’s offer of 1 Avoca share for every 2.4 Avoca shares held.

If you have any questions about the Offer or require assistance with your acceptance, please call the Avoca Offer information line on 1300 751 719 (callers within Australia) or +613 9415 4346 (callers outside Australia).

Yours sincerely,

Robert Reynolds

Chairman