Resource World Magazine

50 www.resourceworld.com J U N E / J U L Y 2 0 1 6 miNiNg W ith gold prices slowly creeping upward and profits starting to trickle back into the gold sector, investors are looking for low risk projects that provide quick return on investment. Generally, these projects have proven gold reserves, robust economics and construction permits in hand. The closer the project is to shovel-ready the better. One company risk-adverse investors have turned their attention recently is Avnel Gold Mining [AVK-TSX] and, in particular, its 80%-owned Kalana Main Project, the third largest undeveloped high-grade open pittable gold project in West Africa. For the most part, Avnel Mining has de-risked Kalana Main, an important consideration for savvy resource investors. The proven and probable mineral reserve is 21.0 million tonnes at an aver- age grade of 2.8 g/t gold containing 1.96 million ounces of gold. The total measured and indicated mineral resource is 23.7 million tonnes averaging 4.07 g/t gold containing 3.10 million ounces at a cut-off grade of 0.9 g/t gold. In March, 2016, Avnel reported the results of a feasibility study that outlined a low-cost, open-pit mining operation with a rapid payback. On a 100% ownership basis and utilizing a constant gold price of US $1,200/oz, the project has an unlevered IRR of 38%, an NPV of US $257 million at a 5% discount rate (US $196 million at an 8% discount rate), and an undiscounted initial capital cost payback period of 1.2 years. In addition, Avnel recently received the approval from the Malian regulators for their Environmental and Social Impact Assessment—a key government approval needed to advance the Kalana Main Project towards the construction phase. "We were delighted to have received approval of the ESIA for Kalana Main, which is a major milestone, as the proj- ect is now effectively 'shovel ready'. We will continue to advance the project with the goal of being in a position to consider a construction decision this year," said Howard Miller, Avnel's CEO and Chairman and the Chairman of Société d'Exploitation des Mines d'Or de Kalana, S.A. (SOMIKA). The Kalana Project is owned by SOMIKA. Avnel has an 80% equity inter- est in SOMIKA and the Malian government holds an interest in the remaining 20%, which has anti-dilution and free-carry rights. SOMIKA also owns and operates the Kalana gold mine, a small, Soviet-era, underground gold mine, and holds the rights to the Kalana Exploitation Permit, a combined exploitation and exploration permit that is subject to the 1999 Mining Code and is unique in Mali. The permit covers a surface area of 387.4 km 2 and was renewed in 2003 for a term of 30 years. This permit is host to 29 exploration tar- gets, including the Kalana Main Project. Large high-grade deposits like the Kalana Main Project are becoming harder to find. Currently, there are only two undeveloped gold projects in West Africa with more ounces of gold then the Kalana Main Project – the Fekola Project in Mali and the Yaoure Project in Côte d'Ivoire. Both projects were recently acquired by well-respected mine builders for handsome sums. B2Gold acquired the Fekola Project in 2014 for US $492 million. The Fekola Project is currently the largest undevel- oped gold project in West Africa. Fekola has an indicated resource of 4.28 million ounces of gold with an average grade of 2.16 g/t gold and an inferred resource of 490,000 ounces of gold with an average grade of 1.68 g/t gold (cutoff is 0.6 g/t). To date, B2Gold has begun early stage con- struction activities. In 2016, Pereus acquired the Yaoure Project for US $132 million. Yaoure boasts 1.1 million ounces of measured gold resources, 4.0 million ounces (indicated) and 2.2 million ounces of inferred ounces of gold. The project is at the prefeasibility stage. In contrast, Kalana Main is shovel-ready with permits in hand. Yet, construction of the Kalana open pit mine comes with a US $196 million price tag and deep pock- eted investors will be needed before mine development can begin. The initial net capital expenditure is US $163 million; gross initial capital expenditure of US $196 million (including contingency) and working capital of US $8 million offset by US $41 million from gold production prior to commercial produc- tion. The sustaining capital expenditures are US $123 million. Avnel Gold intends to generate revenue through gold production of 53,000 ounces from processing existing gravity tailings and ore during the commissioning of the mill which will total US $41.2 million and will offset some of the initial the capital expenditure. "We are engaged in early discus- sions with banks, financial institutions, the company's major shareholders, and other mining companies for the necessary West African gold project gains investor attention Avnel Gold's Kalana Main ranks among the three largest, high-grade, undeveloped open pit gold projects in West Africa. by Robert Simpson

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