Avnel Gold Mining Limited (AVK: TSX) announces second quarter 2008 results - Period ended June 30, 2008



    ST. PETER PORT, Guernsey, Aug. 14 /CNW Telbec/ - Avnel records a net loss
of $2,102,000 in the second quarter of 2008 and gold sales for the quarter of
3,679 ounces. Drilling has advanced on Avnel's Fougadian Exploration Permit.

    Results

    Avnel Gold Mining Limited ("Avnel" or the "Company") recorded net loss of
$2,102,000 for the three months ended June 30, 2008 compared to net income of
$280,000 for the same period in 2007. The net loss compared to last year's net
income is mainly due to the increase in total expenses of 26% and a decrease
in revenue by 29%.
    Revenue has decreased to $3,330,000 in the second quarter of 2008 from
$4,657,000 in the same quarter of 2007. Gold sales of 3,679 ounces decreased
in the second quarter of 2008 compared to 7,994 ounces sold in the second
quarter of 2007 due to lower grade. Average sales price increased from $581
per ounce in the second quarter of 2007 to $903 per ounce in the second
quarter of 2008. Spot price has increased significantly from last year. Sales
in the second quarter of 2007 included 3,060 ounces sold forward in a contract
established in 2004 at a significantly lower price than the spot price. Sales
in the second quarter of 2008 included 750 ounces sold forward at a price of
$948 per ounce.

    Operations

    Avnel's principal asset is an 80% interest in Societe des Mines d'Or De
Kalana ("SOMIKA"). Avnel holds a 90% interest in the Fougadian Exploration
Permit through its subsidiary, Avnel Mali SARL. The State of Mali holds the
remaining 20% interest in SOMIKA. SOMIKA is the owner and operator of the
Kalana Gold Mine located in the southwest of Mali and is the holder of an
exploration permit in respect of 387.4 kilometres squared in south western
Mali. Production data for the Kalana Mine for the three month period ended
June 30, 2008 and 2007 are as follows:

    
                         Three months ended June 30
    -------------------------------------------------------------------------
                                                        2008            2007
    -------------------------------------------------------------------------
    Tonnes  milled                                    12,110           8,694
    -------------------------------------------------------------------------
    Gold grade - grams per tonne (g/t)                 12.37            24.3
    -------------------------------------------------------------------------
    Recovery rate - %                                   86.3            90.3
    -------------------------------------------------------------------------
    Gold production - ounces                           4,150           6,144
    -------------------------------------------------------------------------
    Cost per tonne milled                                239             292
    -------------------------------------------------------------------------
    Operating cost per ounce of gold sold                846             344
    -------------------------------------------------------------------------
    Operating cost per ounce of gold produced            698             413
    -------------------------------------------------------------------------
    

    Gold production of 4,150 ounces in the second quarter of 2008 was 12%
below plan and 32% lower than the production in the second quarter of 2007.
The lower gold production than plan was due to lower head grade (15%) and
lower gold recovery (2.0%), despite 6% higher mill throughput.
    Tonnes milled in the second quarter of 2008 were 39% above the production
achieved in the corresponding period of 2007 and 6% higher than the planned
production for the second quarter. 25% of ore was mined from vein 1 with ore
being gravitated to the 180m level. Approximately 25% of ore was mined from
development of vein 17 on 150m level and vein 18C on 180m level. Vein 17 is
being prepared for stoping in the second half of the year.
    The gold grade of ore milled in the second quarter of 2008 was 47% lower
than that obtained in the second quarter of 2007, which was an exceptional
high grade. The grade was 7% lower than the planned grade (15.0g/t) which is
forecast to increase in the second half of the year. Gold recovery was 86% in
the second quarter of 2008 compared to the planned rate (88%). Recovery was
lower than plan due to the lower head grade.
    Development advanced 535 metres in the second quarter of 2008 compared to
the planned 506 metres and 419 metres in the second quarter of 2007. The 180m
level haulage north intersected vein 18 North reserve block in May. Limited
ore development was carried out on this vein and the grade of approximately
10g/t is less than the 30g/t reserve grade. This reserve block needs to be
exposed by more development and diamond drilling to evaluate the block. In
February, the 180m level haulage north intersected a steep dipping vein that
is being developed by raising between 180m level and 150m level. The position
and geometry of this vein was not anticipated by the current geological model
that is based on historic drill holes spaced 50m apart. This vein has been
designated vein 18C and has been developed from 180m level to 150m level.
    Development of diamond drill sites on 150m level was completed in the
second quarter. Using the existing compressed air diamond drill, 1,366m were
drilled during the quarter compared to budget of 900m. The holes were
targeting vein 18 north and vein 17 north between 100m level and 180m level to
assist with mine production planning for 2008 and 2009. A new hydraulic drill
was delivered in the second quarter and the first drill hole started in June.
The drill holes will be drilled from 150m and 100m levels down to the 300m
level. It is planned to complete 6,000m of diamond drilling with this new
drill. These holes will provide additional information on the existing mineral
resources and reserves between 180m and 300m levels. This information will be
used to update the mineral resource and reserve estimates in early 2009. Due
to the late delivery of this drill the program started 4 months behind the
plan. It is anticipated that 1,500m will be drilled per quarter.
    Mine operating costs for the three months ended June 30, 2008 amounted to
$3,212,000 compared with $2,887,000 in the second quarter of 2007, an increase
of 11%. One of the key factors driving the increase in costs is that the
number of tonnes milled in the second quarter of 2008 was 39% greater than in
the same quarter of 2007. Another reason for the increase in costs is the
weakening of the US dollar against the CFA Franc. The average exchange rate of
the US dollar to the CFA Franc has changed from 502 in the second quarter of
2007 to 428 in the second quarter of 2008, making CFA Franc costs incurred in
Mali 17% more expensive in US dollar terms.
    Cash operating costs of $239 per tonne milled in the second quarter of
2008 were 18% lower than the cost per tonne in the corresponding period of
2007. Cash operating costs per ounce sold of $846 per ounce of gold sold in
the second quarter of 2008 increased significantly from $344 per ounce in the
same period for 2007. The main factor increasing the costs per ounce of gold
sold is the decrease in grade and higher operating costs.

    Exploration

    Avnel advanced its exploration of the Fougadian Exploration Permit by
commencing an exploration drilling program in March 2008. The Fougadian Permit
is located directly south of the Permit on which the Kalana Mine is operating.
    The drill program was focused on the Avnel-1 gold-in-soil geochemical
anomaly that is the largest and the most important in terms of gold and
arsenic values on the Fougadian Permit. It extends for almost 4 kilometres in
a N-S direction and for 1.5 kilometres in an E-W direction.
    Two diamond drill holes were completed to a depth of 190 metres in order
to provide information on the bedrock structure that can be used to optimise
the orientation of the RC drilling programme. 5,000m of inclined RC drill
holes were completed on a grid pattern during the second quarter, covering
only a portion of the Avnel 1 anomaly. Results are expected in the third
quarter.
    During the quarter, 44 RC holes totalling 1,400m were drilled on surface
to a depth of 40m to provide infill information for the Kalana II and Kalana
III open pit resources. This information will be used to revise the open pit
resource estimate at the Kalana Mine.

    Financing

    As a result of the Company having incurred recurring operating losses,
additional funding has been put in place to cover an expected working capital
shortfall during the first half of 2008 (the "Financing"). The Financing,
which was completed on April 14, 2008, involved three transactions with its
principal shareholders and two other shareholders of the Company. Elliott, the
majority shareholder, has provided the Company with $3,000,000 in the form of
a term loan, secured on the Company's assets, with an interest rate of 10%,
for the purpose of providing additional working capital to bridge the
projected cash shortfall in the second and third quarters of 2008 (the "Bridge
Loan"). The Company has utilised $1,000,000 of the Bridge Loan as at June 30,
2008. The Company projects that the Bridge Loan could be repaid out of
operating cash flow in 2009. The Company's existing term loans with Elliott
and Fern have been extended by one year from their current maturity of
December 31, 2008. In addition, Elliott and two other shareholders of the
Company have purchased 6,542,857 common shares of the Company at a
subscription price of Cdn$0.35 per common share in the form of a private
placement (the "Private Placement"). This raised gross proceeds of
Cdn$2,290,000.
    Additional information is available in the MD&A for the quarter ended
March 31, 2008 which is available on the Canadian System for Electronic
Document Analysis and Retrieval (SEDAR) at www.sedar.com and the Company's
website www.avnelgold.com.

    Caution Regarding Forward Looking Statements:

    Statements regarding the corporation's plans with respect to the Kalana
Mine and exploration of the Kalana Permit are forward-looking statements.
There can be no assurance that the planned ongoing development of the Kalana
Gold Mine will be completed as forecast or that the exploration program on the
Kalana Permit will identify minerals resources.

    The TSX has neither approved nor disapproved the form or content of this
    information release.
    %SEDAR: 00021819E




For further information:

For further information: Roy Meade, Chief Executive Officer, +44 207 589
9082, Fax +44 207 589 8507, rmeade@avnelgold.com, www.avnelgold.com; Renmark
Financial Communications: Barry Mire: bmire@renmarkfinancial.com; Maurice
Dagenais: mdagenais@renmarkfinancial.com, (514) 939-3989, Fax (514) 939-8507,
www.renmarkfinancial.com


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