Avnel Gold Mining Limited (AVK: TSX) announces second quarter 2010 results

Period ended June 30, 2010.

TORONTO, Aug. 13 /CNW/ -

Results of Operations

Mining Operations

The following table shows the production from the Kalana Gold Mine:

    
                                Three months ended       Six months ended
                                      June 30                 June 30
                              ----------------------- -----------------------
                                 2010        2009        2010        2009
                              ----------- ----------- ----------- -----------
    Tonnes milled:
    Underground ore               12,280      11,568      25,853      24,351

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

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

    Gold grade - grams per
     tonne (g/t):
    Underground ore                 8.06        12.2        8.24       12.63

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

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

    Recovery rate - %               86.7        85.6        83.1        86.1
    Gold production - ounces       2,760       3,879       5,920       8,542
    Cost per tonne milled           $225        $277        $227        $281
    Operating cost per ounce of
     gold sold                      $742        $763        $947        $740
    Operating cost per ounce of
     gold produced                $1,000        $827        $989        $802
    

Gold production of 2,760 ounces in the three months ending June 30, 2010 was 2% below plan and 29% lower than the production in the second quarter of 2009. The lower gold production than plan was due to higher mill throughput (17%) offset by lower head grade (19%).

Tonnes milled in the second quarter of 2010 were 6% higher than the production achieved in the corresponding period of 2009. This was due to the flooding of the 180m level on May 21, 2009 resulting in the underground ore production stopping for 3 weeks. Underground productivity has increased since the retrenchment of employees in November 2009.

The gold grade of ore milled in the second quarter of 2010 was 34% lower than that obtained in the second quarter of 2009. The grade was 19% lower than the planned grade (10.0g/t). Production from the higher grade zone on vein 17 east of the fault was lower (8.3g/t) than plan (12g/t) resulting in a decrease in overall grade. Approximately 15% of tonnes were mined from Vein18C above 150m level at less than the planned 6g/t. Ore development grade was 4g/t with disappointing results from vein 17 east of the fault.

Gold recovery of 86.7% in the second quarter of 2010 was 4% higher than plan and 1% higher than the second quarter of 2009.

Development advanced 232 metres in the second quarter of 2010 compared to the planned 41 metres and 133 metres in the second quarter of 2009. Development advanced east from the 180 haulage to access the potential down dip extensions of Vein 17 west and east of the fault. This area is planned to be mined in the fourth quarter 2010 and 2011. Ore development continued east on Vein 17 on 150 m level and increased the potential mining areas, although at lower grades.

The head grade in the second quarter showed a downward trend from 8.4g/t in quarter 1 2010 to 8.1g/t in the second quarter 2010. The grade in June 2010 fell to 7.0g/t.

Selected Interim Information

(In thousands of U.S. dollars except per share amounts)

    
                                Three months ended       Six months ended
                                      June 30                 June 30
                              ----------------------- -----------------------
                                 2010        2009        2010        2009
                              ----------- ----------- ----------- -----------
    Total Revenue.............     4,001       4,738       7,583      11,222
    Total Expenses............     3,580       6,433       8,465      14,525
    Net Loss..................    (1,821)     (1,395)     (4,222)     (4,486)
    Loss per share                (0.022)     (0.018)     (0.052)     (0.058)
    Weighted average shares
     outstanding              81,893,392  79,187,189  81,843,428  77,525,114

                                                        June 30,    June 30,
                                                         2010        2009
    Balance Sheet                                     ----------- -----------
    Working Capital                                      (15,849)    (12,592)
    Total Assets..............                            22,751      27,054
    Long Term Debt............                                 -           -
    Shareholders' Equity......                             1,083       8,327
    

On August 5, 2010 the Company completed a private placement (the "Private Placement") of 13,025,000 units of Avnel at a price of C$0.20 per Unit. Each Unit consisted of one ordinary share of Avnel and one-half of one ordinary share purchase warrant (each whole warrant a "Warrant"). Each Warrant entitles the holder to purchase one ordinary share of Avnel at a price of Cdn$0.35, at any time for a period of 36 months from the date of issue of the Warrants. Dundee Securities Corporation was the lead agent for the Private Placement which also included Haywood Securities Inc. and PI Financial Corp. The gross proceeds of the Private Placement was C$2,605,000 and Avnel intends to use these proceeds for general corporate purposes. Concurrently with the closing of the Private Placement, Avnel equitised all of its outstanding indebtedness (US$13.8m) through the issuance of 71,492,382 Units to the holders of such indebtedness at the Issue Price. On August 10, 2010 IAMGOLD paid the second Kalana Joint Venture option fee of US$1,000,000.

These transactions eliminated all of Avnel's debt and provide the Company with enhanced financial strength through a debt-free balance sheet to continue working with IAMGOLD to advance the Company's goal of fully exploring the upside potential at its Kalana mine and Permit.

Exploration

SOMIKA

IAMGOLD continued with the exploration program to meet the requirements of the Joint Venture Agreement. During the second quarter total expenditure was $1,518,000.

Diamond Drilling

Diamond drilling commenced in February 2010 and 40 holes totalling 9,800 metres were completed at the Kalana Mine by the end of May. The first phase drill program was designed to test:

    
    -  potential extensions of known veins and inter vein material between
       high grade veins

    -  potential mineralisation outside of the known Mineral Resources

    -  the results of recent underground drilling in the aureole around the
       central intrusion
    

IAMGOLD's recent diamond drill holes are mainly located outside the existing Kalana Mine and target potential additions to the known Mineral Resources. The holes were drilled on the eastern, northern, western and southern boundaries of the mine. Holes are drilled at sixty degrees to an average depth of 250 metres. One hole (DDH-39) was drilled to a depth of 487 metres and was located within the existing mining area.

Potential Extension of known mineralisation within the mine

Eight holes (DDH 1, 6, 7, 8, 27, 28, 29 and 30) were drilled to test possible extensions of known veins currently being exploited. Diamond drill hole DDH-28 showed that Vein 17 extends east of the main fault as has been shown by mine development. The intersection shows that the vein may continue approximately 50m beyond the current mine development on 150m elevation. The holes also indicate that Vein 17 is part of a mineralised, stockwork zone that may generate significant ore tonnes at lower grades. This has been further supported in recent mine development where a twenty degree inclined winze of 75m assayed 4.5g/t over 75m of development. The inclined area is estimated to be equivalent to 15m vertical thickness. DDH06 returned 17m at 1.64g/t in this Vein 17 mineralized stockwork close to the bulk sample from the underground development. DDH27 returned 8m at 2.5g/t and DDH28 returned 8m at 1.98g/t. Visible gold was observed in all three holes, although the assay results did not show very high grades. These results indicate that borehole assay results will generally undervalue these high grade, nugget quartz mineralised zones. This has been historically recognised in similar mineralised deposits and within the existing Kalana Mine.

DDH-27 intersected Vein 17 close to the 180m elevation and a new haulage is being developed to access Vein 17 between 180 metre and 165 metre elevations.

Two diamond drill holes (DDH-29 and DDH-30) intersected possible extensions of Vein 18 and Vein 18C approximately 50 metres west of the current mining blocks. No assay grades are available.

DDH 39 was collared south of the Kalana diorite intrusion and drilled north at sixty degrees through the diorite to a final hole depth of 480 metres. The hole traversed 224 metres of diorite. Beyond the diorite the hole intersected twelve metres of hornfels, strongly altered and silicified with sulphides. The remainder of the hole showed quartz veins and stockwork, with areas of strong alteration and breccias zones.

DDH 1 (last hole drilled) was collared west of the Kalana Mine and drilled north-east to a depth of 329 metres. The hole was targeting an area north of existing mine development to test the up dip extension of the Vein 19 and 19A and Vein 20 Mineral Resources. This area has been partially tested by underground diamond drilling by SOMIKA in 2008. Multiple grains of visible gold were observed throughout the hole. The hole traversed a zone of vertical, thin quartz veins that have not previously been reported. No assay results are available for this hole at this time.

Potential Mineralisation beyond the Known Mineral Resources

An east-west drill line of six holes (DDH 33 to 38) was completed north of the known Mineral Resources. Holes were drilled from east to west dipping at sixty degrees. The holes were testing reported vertical structures in previous exploration and interpretation of geophysical data. The holes intersected vertical quartz vein structures as well as flat dipping quartz vein zones.

Au assay grades have been received for three of these holes. Visible gold was observed in some of the drill core.

An east-west drill line of six holes (DDH 20 to 25) was completed south of the known Mineral Resources. Holes were drilled from East to West dipping at sixty degrees. Both vertical and flat dipping quartz veins and stockworks were intersected. No assay results are available at this time.

This drill line above was extended to the east with seven holes (DDH 13 to 19). Holes were drilled from east to west dipping at sixty degrees. These holes were testing the inferred Mineral Resources at Kalana II which are associated with an extension of the diorite from the centre of the Kalana Mine to the east. DDH 18, 19 and 20 intersected quartz veins that may be extensions of the Vein 1, 2 and 4 with visible gold observed. DDH13, 15 and 16 intersected breciatted quartz vein and stockwork and diorites. No assay results are available at this time.

A north-south drill line of four holes (DDH 9 to 12) was completed over the Kalana II area. Holes were drilled from South to North at sixty degrees. The holes tested the extension of mineralisation north and south of the east-west striking diorite intrusion. No assay results are available.

Potential mineral resources south of the Kalana Diorite Intrusion

A north-south fence of four holes (DDH 2 to 5) was completed. The holes were drilled from south to north at sixty degrees. These holes were testing a zone south of the Kalana diorite intrusion where Avnel completed three underground diamond drill holes in 2008 with long intersections of lower grade mineralisation. DDH 4 intersected quartz vein and stockworks associated with Veins 1 and 3 in the Kalana Mine. Assay results produced 10m at 4.9g/t and 8m at 3.3g/t.

All cores from the diamond drill holes are being logged by geologists prior to being cut in half for sample preparation. Intersections of quartz vein and quartz stockworks have been observed, with visible gold observed in some holes.

Samples are being prepared at the Kalana Mine in a sample laboratory established by SGS. All samples are then fire assayed at the mine laboratory that is operated by SGS. To date 5,000 metres of diamond drill core has been logged and 3,600 metres prepared for assaying. Results have been received for 2,851 metres.

QAQC procedures are in place with blank and standards inserted into the sampling process. The QAQC results for first batch of samples for the first hole drilled, DDH-6, were unacceptable. These pulps were re-assayed at two other laboratories and the SGS laboratory at Kalana. The re-assays confirmed the first assay results for DDH-6. No QAQC problems have been encountered since this problem occurred.

Assay results and interpretation should be available by the end of the third quarter. The assay methodology is being reviewed to assess the most effective method to evaluate the "nugget" impact on results. It is planned to conduct screen fire assays where good mineralisation is seen in the drill cores. To date all samples have been fire assayed. The screen fire assays may show higher grades in the coarser fraction as has been the mine experience. A total of 200 screen fire assays of diamond drill samples have been completed.

RC Drilling

The RC drilling campaign totalling 11,346 metres, which commenced in May 2009, has now been completed and is designed to test:

    
    -  Further extensions to the Kalana Mine zone

    -  The Kalanako Prospect with a strike of over 3 km and a width of 1 km
       where Russian drilling delineated a historical non-compliant C1 + C2
       resource of 600,000 tonnes @ 3.6 g/t over a foot print of
       400 metres by 200 metres. This Prospect has a strong magnetic signal
       correlating with a strong geochemical signal

    -  The Dadjan Prospect supported by both a magnetic and geochemical
       signal.

    -  5,234 metres have been drilled at the Kalana Mine zone and
       1,000 metres at the Kalanako Prospect during the second quarter
    

Laboratory Assays

During the period assays of diamond drill core and RC chips was suspended due to the equity raising which was completed August 5, 2010. This was done to ensure full compliance during the equity issue in which IAMGOLD participated by purchasing 5,000,000 units for C$ 1,000,000. Assaying only restarted on August 10, 2010.

Geochemical Sampling of Termite Mounds

It is planned to collect samples of termite mounds over the total Permit. During the first quarter 5,907 samples were collected in the northern area near the Kalana Mine. The sample density is one per hectare. The sampling continued in the second quarter in the southern area of the Permit. The density of samples will be one per 2 hectares. During the second quarter 90% of the planned samples in the south were collected. 4,472 square kilometres were collected.

All samples will be prepared and assayed by SGS at the Kalana Mine Site. 4,500 assay results have been received. Of the 4,500 assays, 1,980 assays were from samples collected in the south of the permit. 8.1% of the 1,980 assays give values (Au1) above the regional threshold ((greater than)30 ppb); 84 samples gave assay results between 50 and 100 ppb; 28 between 100 and 500 ppb and 4 over 500 ppb (maximum value of 5450 ppb) Regolith mapping and recording of orphilage workings are conducted at the same time as sampling of termite mounds.

Underground Sampling

During 2009 3,753 underground samples were collected from the workings in the mine. Samples were collected from the main haulages and crosscuts to access the major quartz veins that have been mined. The assay results were received in the first quarter. The average grade was 2.17g/t. 25% of the assays are above 0.7g/t with an average value of 8.5g/t. It was decided to re-assay samples where the grade was higher than 0.7g/t utilising fire screen assay with a screen size of 106 micron. Preliminary results suggest that the screen fire assays are approximately 20% higher than the standard fire assays without significant relation to the grade of the sample. Further re-assaying is planned to evaluate the impact of screen fire assaying and different sample preparation protocols.

The lithological and mineralogical descriptions were integrated into a Geosoft program that produced a lithological and mineralogical map of the underground tunnels. The maps showed extensive zones of pyrite and aresenopyrite.

Geophysics

    
    -  Interpretation of the airborne geophysics program in 2009 is ongoing
       using field data from the regolith mapping program. A structural and
       lithological network (lineaments, faults, bedding, major boundaries
       etc.) has been drawn; gold corridors and numerous circular structures
       have been identified. The interim results confirm the known major
       structures on the Permit.

    -  At the Kalanako prospect, where drilling occurred in the 1980s, the
       magnetic anomaly indicates that the north-west trending zone between
       two structures may be wider than currently understood. This will be
       tested by RC drilling during 2010.

    -  The survey also identified an anomaly associated with artisanal
       workings at Dadjan, a few kilometres south of Kalana. This may be
       tested by RC drilling during 2010.
    

Additional information is available in the MD&A for the quarter ended March 31, 2010 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.

SOURCE Avnel Gold Mining Ltd.

For further information: For further information: Howard Miller, Chief Executive Officer, Phone +44 207 589 9082, 416 726 8174, Email: Howard@hbmiller.co.uk, Website: www.avnelgold.com


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