Avnel Gold Mining Limited (AVK: TSX) announces second quarter 2009 results



    Period ended June 30, 2009.

    ST. PETER PORT, Guernsey, Aug. 14 /CNW Telbec/ -

    Results

    Avnel recorded net loss of $1,395,000 ($0.018 per share) for the three
months ended June 30, 2009 compared to net loss of $2,102,000 ($0.03 per
share) in the second quarter of 2008. Whilst revenue has increased by 42% in
the second quarter of 2009 compared to the second quarter of 2008 due to
higher gold sales volumes and prices, costs have increased by 27% due mainly
to higher depreciation charges.
    Revenue has increased to $4,738,000 in the second quarter of 2009 from
$3,330,000 in the same quarter of 2008. Gold sales of 5,085 ounces increased
in the second quarter of 2009 compared to 3,679 ounces sold in the second
quarter of 2008. Average sales price increased from $903 per ounce in the
second quarter of 2008 to $930 per ounce in the second quarter of 2009. Sales
in the second quarter of 2009 included 750 ounces sold forward at $964 per
ounce compared to sales in the second quarter of 2008 of 750 ounces at $948
per ounce.

    Operations

    Avnel's principal assets are an 80% indirect interest in Société
d'Exploitation des Mines d'Or De Kalana, S.A. ("SOMIKA") and a 90% indirect
interest in the Fougadian exploration and exploitation permit (the "Fougadian
Exploration Permit"), through its subsidiary, Avnel Mali SARL. The State of
Mali holds the remaining 20% interest in SOMIKA and 10% interest in the
Fougadian Exploration Permit. SOMIKA is the owner of a gold mine located in
the southwest of Mali (the "Kalana Gold Mine") and is the holder of an
exploration permit in respect of 387.4 kilometres squared in south western
Mali (the "Kalana Permit"). Avnel's strategic objective, through SOMIKA, is to
commercially exploit the underground reserves at the Kalana Gold Mine, and
enhance the economics of the Kalana Gold Mine through the conversion of
existing open pit mineral resources into open pit reserves and to increase the
resource base of open pit resources.
    The mineral reserves that can be mined from existing underground
infrastructure are currently under review and Avnel has commenced addressing
strategies for optimising the exploitation of its extensive resource base at
and in the immediate proximity of the Kalana Gold Mine. See below under the
heading " Kalana Main Project".
    The Company announced by press release on August 11, 2009 that it had
entered into an option agreement dated August 10, 2009 (the "Option
Agreement") with IAMGOLD Corporation ("IAMGOLD") whereby IAMGOLD has the
option to acquire up to an initial 51% indirect interest in the Company's 80%
interest in SOMIKA and up to an initial 51% undivided interest in all of the
loans made by Avnel to SOMIKA (the "Guernsey Loans") by spending US$11,000,000
on exploration activities over a three year period, subject to extension, and
by delivering a resource calculation of at least 2 million ounces of gold as
well as proceeding with a feasibility study. The principal focus of the
exploration work to be done by IAMGOLD will be on the northern most part of
the Kalana Permit area encompassing the Kalana Gold Mine. A copy of the press
release announcing the Option Agreement can be found on the System for
Electronic Document Analysis and Retrieval (SEDAR) and the company's website.
Together with IAMGOLD, the Company believes that it will have the expertise,
experience and funding to take the Kalana Main Project forward and, if
successful, to a production decision for a bulk mining operation. The Company
and IAMGOLD may also further explore the remainder of the 387.4 sq. km. Kalana
Permit which is in a geologically prospective setting and on which the Company
has had some initial exploration success.
    The main details of the Option Agreement are as follows:

    
    1.  IAMGOLD paid Avnel a signing fee of US$1 million and will pay a
        continuation fee of a further US$1 million in cash on the first
        anniversary of the Option Agreement subject to IAMGOLD not
        terminating the option.

    2.  IAMGOLD is required to spend US$11 million (net of fees and
        overheads) within three years (subject to a one year extension) to
        explore the potential for further gold mineralisation principally in
        and around the area of the existing Kalana Gold Mine.

    3.  If IAMGOLD, on the completion of exploration, delivers a National
        Instrument 43-101 compliant resource study establishing the existence
        of not less than 2 million ounces of gold and a feasibility study
        work plan to move forward with a feasibility study, it will have the
        option to acquire a 51% indirect interest in Avnel's 80% interest in
        SOMIKA and an undivided 51% interest in the Guernsey Loans. If
        IAMGOLD funds the exploration costs within the required time period
        but does not deliver the required resource study and feasibility
        study work plan it will have the option to acquire a 25% indirect
        interest in Avnel's interest in SOMIKA and an undivided 25% interest
        in the Guernsey Loans.

    4.  After IAMGOLD has acquired an indirect interest in SOMIKA under the
        Option Agreement, it will enter into a shareholders' agreement (the
        "Shareholders' Agreement") with Avnel (the terms of which are agreed)
        to govern IAMGOLD's and Avnel's indirect joint ownership interest in
        SOMIKA.

    5.  Under the Shareholders' Agreement, if IAMGOLD exercises its right to
        acquire a 51% interest under the Option Agreement, IAMGOLD will have
        the right to acquire up to an additional 19% interest if, among other
        requirements, it solely funds the preparation of and delivers a
        feasibility study that supports the development or re-development of
        a gold mine in the Kalana Permit area. If Avnel participates in the
        funding of the feasibility study by reimbursing IAMGOLD for 25% of
        its feasibility study costs, IAMGOLD's additional interest will be
        reduced to 14%.

    6.  Pursuant to the Shareholders' Agreement, during the period of the
        preparation of the feasibility study, Avnel and IAMGOLD will share
        all operating costs related to the Kalana Mine and Permit Area on a
        pro-rata basis based on their indirect partnership in SOMIKA.

    7.  Under the Shareholders' Agreement, if IAMGOLD does not deliver the
        feasibility study, its interest will drop to 35%.

    8.  The holder of the majority indirect interest in SOMIKA from time to
        time will be the operator of the Permit Area.

    9.  Pursuant to the Shareholders' Agreement, upon delivery of the
        feasibility study, IAMGOLD will pay a cash fee to Avnel based the
        number of ounces of gold categorized as reserves in the feasibility
        study and the number of ounces of gold in excess of 650,000 ounces
        categorized as resources (excluding reserves) in the feasibility
        study multiplied by different dollars per ounce depending on the
        previous 180 day trading average gold price.

    10. Pursuant to the Shareholders' Agreement, upon delivery of the
        feasibility study, as a precondition to IAMGOLD increasing its
        indirect interest in SOMIKA, IAMGOLD is required to provide a
        completion guarantee to secure project financing for the development
        and construction of the mine outlined in the feasibility study or, if
        it cannot provide such a guarantee or determines project financing on
        acceptable terms is not available, IAMGOLD shall itself provide the
        project financing in an amount equal to 60% of the development costs.
        Avnel and IAMGOLD shall fund the remaining 40% of development costs
        on a pro-rata basis based on their indirect ownership interest in
        SOMIKA.

    11. In addition, on August 10, 2009, Avnel issued to IAMGOLD warrants to
        acquire up to 2 million common shares of Avnel at a exercise price of
        Cdn.$0.45 per share. The warrant exercise period expires on the
        earlier of (i) August 10, 2012 and (ii) the exercise by IAMGOLD of
        its option under the Option Agreement or otherwise the termination or
        forfeiture of the option.
    

    Production data for the Kalana Mine for the three month period ended June
30, 2009 and 2008 are as follows:

    Mining Operations

    The following table shows the production from the Kalana Gold Mine:
    
                                      Three months            Six months
                                      ended June 30          ended June 30
                                  ------------------    ---------------------
                                    2009        2008        2009        2008
                                  --------- ---------   ---------- ----------

    Tonnes milled:
    Underground ore               11,568      12,110      24,351      22,400

                                 --------------------------------------------

                                 --------------------------------------------
                                 --------------------------------------------

    Gold grade - grams
     per tonne (g/t):
    Underground ore                 12.2       12.37       12.63       14.82

                                 --------------------------------------------

                                 --------------------------------------------
                                 --------------------------------------------

    Recovery rate - %               85.6        86.3        86.1        87.2
    Gold production - ounces       3,879       4,150       8,542       9,200
    Gold production from
     mill reline-ounces              492
    Cost per tonne milled           $277        $239        $281        $268
    Operating cost per ounce
     of gold sold                   $763        $846        $740        $664
    Operating cost per ounce
     of gold produced               $827        $698        $802        $652
    

    Gold production of 3,879 ounces in the three months ending June 30, 2009
was 39% below plan and 6% lower than the production in the second quarter of
2008. The lower gold production than plan was due to lower mill throughput
(22%) and lower head grade (20%).
    492 ounces of gold were recovered during the mill reline in May and are
shown as additional gold production. This gold was trapped behind the liners
that were installed in October 2008. This gold was recovered when the plant
was standing due to the underground flooding of the mine. The gold recovered
was deposited during the period from October 2008 to May 2009.
    Tonnes milled in the second quarter of 2009 were 6% lower than the
production achieved in the corresponding period of 2008. This was due to the
flooding of the 180m level on 21st May resulting in the underground ore
production stopping. Underground production commenced on 6 June. It is
estimated that the production loss was 2,300 tonnes and 700 ounces during this
period.
    The gold grade of ore milled in the second quarter of 2009 was 4% lower
than that obtained in the second quarter of 2008. The grade was 20% lower than
the planned grade (15.3g/t). Production from the higher grade zone on vein 17
was lower than plan resulting in a decrease in overall grade. The mining grade
in the remainder of vein 17 was in line with plan at 13g/t due to better than
planned mining widths (1.27m versus 1.6m). Vein channel grades were lower than
expected in the quarter. Ore development grade was 5g/t with disappointing
results from vein 18, vein 18C and Vein 1 ore development
    Gold recovery of 85.6% in the second quarter of 2009 was 1% lower than
plan due to the lower head grade.
    Development advanced 133 metres in the second quarter of 2009 compared to
the planned 302 metres and 535 metres in the first quarter of 2008.
Development activities were reduced in the north side of the mine as initial
development ore grades and diamond drill assay results indicated lower grades
than forecast. Development focused on extending the mining areas on vein 17
and vein 18C where good grades have been mined. Development of vein 18 between
180m level and 100m level has shown ore grades to be lower than expected. The
quartz vein is thin with erratic grades. Over a mining width of 1.2m the
potential grade is 10g/t which is marginally economic. Management are
currently reviewing the planned minable minereal reserves.
    The head grade in the second quarter showed a downward trend from 14g/t
in April to 9g/t in June. The grade recovered to 10g/t in July. Management are
currently reviewing the planned mineable mineral reserves.
    Based on the diamond drill results in the 1st quarter, it has been
decided to stop underground diamond drill operations. The target areas lie
below the existing infrastructure at No 2 Shaft and it is not considered
appropriate to continue with this program. The drill holes were targeting Vein
19 and 19A between the 180m level and 220m level. The results show that the
veins contain good grades over several narrow channel widths. When the
mineralised zone is combined as a number of narrow quartz veins within the
metasediments, the mineralised package extends over several metres but at
lower grades. This mineralisation is not suitable for narrow vein mining with
only gravity recovery as currently practised at Kalana but will be suitable
for a mass mining method with a larger gold plant which is designed to recover
all gold, not just free milling gravity gold.
    Mine operating costs for the three months ended June 30, 2009 amounted to
$4,016,000, and included gold bullion stock movement of $670,000, compared
with $3,212,000 in the second quarter of 2008. Cash operating costs of $277
per tonne milled in the second quarter of 2009 were 16% higher than the cost
per tonne in the corresponding period of 2008. Cash operating costs per ounce
sold of $763 per ounce of gold sold in the second quarter of 2009 reduced from
$846 per ounce in the same period for 2008.

    Liquidity and going concern

    The consolidated financial statements have been presented on the basis
that the Company is a going concern. Accordingly, the financial statements do
not include adjustments relating to the carrying value of assets, the amounts
and classification of liabilities, or other adjustments that might result
should the Company be unable to continue as a going concern. The Company has
total current liability debts of $13.8 million, $2.9 million due for repayment
on 31 December 2009, and $10.9 million due 30 June 2010. This debt repayment
and continuing operations of the Company are dependent on its ability to
restructure and re-negotiate the debt and/or obtain additional financing.
There is a risk that additional financing will not be available on a timely
basis or on acceptable terms. Management are actively looking at re-financing
options to address this issue and expect that financing options will be
available to enable the Company to continue to operate as a going concern. In
the event that the Company is unable to repay this debt, refinance such debt,
or secure additional financing and continue as a going concern, material
adjustments would be required to the carrying value of the assets and
liabilities and the balance sheet classifications used.
    Additional information is available in the MD&A for the quarter ended
June 30, 2009 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: Howard Miller, Chief Executive Officer, +44 207
589 9082, Fax +44 207 589 8507, Howard@hbmiller.co.uk; www.avnelgold.com;
Renmark Financial Communications Inc.: Barry Mire: bmire@renmarkfinancial.com;
Henri Perron: hperron@renmarkfinancial.com, (514) 939 3989, (416) 644 2020;
www.renmarkfinancial.com


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