Thursday 20th October 2016

Resource Clips

Beyond 3Q

Avion Mines, Finds West African Gold

By Greg Klein

Avion Gold TSX:AVR has its sights set high in West Africa. Open-pit gold mining underway, a new mill to be commissioned, underground production about to begin and continued drilling to build the resources. The plan is to more than double its annual output to 200,000 gold ounces by 2013 and then maintain that rate for a decade, reaching two million ounces. All that is projected to come from Avion’s Tabakoto and Segala mines and Kofi Property in Mali and its Houndé Project in Burkina Faso.

The market remains unimpressed, however. With the release of Avion’s 3Q results, which reported the production of 21,687 gold ounces at $925 per ounce, share prices plunged from $2.04 November 15 to $1.54 10 days later. Then began an unsteady rise to the December 7 open of $1.73. The plunge isn’t surprising, perhaps, since 3Q net profit fell to $US7.2 million or $0.02 a share, exactly half the amounts for the same quarter in 2010. So what happened?

Avion Mines, Finds West African Gold

The 3Q report attributes additional costs of $4.2 million for taxes related to employee benefits and other obligations from earlier periods. In addition, there were higher fuel costs, transportation delays for parts and equipment and unexpectedly low-grade ore that’s since been mined out.

Beyond 3Q, pessimism is far from universal. Among the analysts who came to Avion’s defence were Steven Butler of Canaccord Genuity, who pronounced the company oversold, and Tara Hassan of National Bank Financial, who set a target of $2.95 and an outperform rating.

Yes, the company is “a growth story,” declares IR Manager Michael McAllister. That growth is fed by revenue from Avion’s Mali project, Tabakoto, which includes the Segala zones less than five kilometres away. Avion holds an 80% interest in Tabakoto, with the Mali government holding the remainder.

At Tabakoto South, mining has just finished off the open pit, and underground production is about to begin. “We’ll probably start stoping there in early January,” McAllister reports. Tabakoto’s Djambaye II open pit is also nearing production.

At Segala, the Dioulafondu open pit will be joined by underground production, probably in 3Q 2012. “At that point we’ll have two undergrounds and several open-pit targets as well,” he adds.

Including Segala, the Tabakoto deposits host July 2011 proven and probable reserves of 913,100 gold ounces, a measured and indicated resource of 149,100 ounces and an inferred resource of 1.07 million ounces.

“That’s to an average drilling depth of maybe 225 metres,” points out Senior VP of Exploration Don Dudek. “Every single zone is open down-plunge and some are open along strike. There’s a likelihood that in the next 250 metres we’ll add another two million ounces of resource. So our 10-year plan is 200,000 ounces of production a year for 10 years, about two million ounces.”

Central to the expansion plan is Avion’s new SAG (semi-autogenous grinding) mill, which will take in 4,000 tonnes per day, up from the current 2,300 tpd to 2,500 tpd capacity. “We’ll commission that by the end of 1Q [2012],” McAllister says. “By the time we work out the bugs, we’ll be at a 200,000-ounce run rate probably around the middle to end of 2Q. We’re forecasting about 160,000 ounces [for 2012] and then 200,000 going forward.”

A convenient 38 kilometres away, Avion drills its 81.25%-owned Kofi Property. Back in 2007, AXMIN TSXV:AXM estimated its resource at 293,000 gold ounces indicated and 368,000 ounces inferred. “I’m hoping our resource update is released this year,” Dudek says. “Kofi’s a lot more complicated, and I’ve got consultants working on it.”

Assays released December 5 include

7.52 g/t gold over 40.8 metres
4.85 g/t over 5.7 metres
11.61 g/t over 21.3 metres
12.92 g/t over 6 metres
22.84 g/t over 2 metres
6.42 g/t over 15 metres
4.6 g/t over 12 metres

“What these new results indicate to me is that there’s still a significant opportunity to the north, with two intercepts specifically being open to the north,” Dudek explains. “When you step back and look at the broader geophysical response, in this case the IP conductivity, it’s obvious that the pattern continues and so we’re hoping, and expecting, that the mineralization will continue as well.”

Every single zone is open down-plunge, and some are open along strike. There’s a likelihood that in the next 250 metres we’ll add another two million ounces of resource. So our 10-year plan is 200,000 ounces of production a year for 10 years, about two million ounces —Don Dudek

Farther southeast, Avion’s drills its Houndé Project in Burkina Faso. Results released November 22 from the Vindaloo Zone include

3.74 g/t gold over 61 metres
4.86 g/t over 38.5 metres
3.75 g/t over 44.9 metres
2.52 g/t over 47 metres
(including 3.69 g/t over 23 metres)
3.03 g/t over 35.2 metres
2.2 g/t over 30.4 metres
2.31 g/t over 21.1 metres

“It’s been a very prolific zone,” McAllister says. “We’ve had a lot of success there. It’s just 60 kilometres south of SEMAFO’s TSX:SMF Mana Mine and we’re on the same trend. So we’re having some great success, and the infrastructure’s terrific… Our goal is to have a million-ounce resource released just before Christmas. If we can do that, we’re looking to do a PEA and hopefully feasibility. Our goal is to have that as a producing mine in three to four years’ time.”

Dudek says he’ll be asking Avion’s board for a 2012 exploration budget of $26 million, compared to 2011′s $16 million. “That’s quite a bit of money. But I’m hoping that we’ll substantially grow the corporate resources and also get a very clear indication of when we can bring on additional production.” As of September 30, the company had $49.2 million in cash and equivalents.

Apart from production revenue, Avion boasts strong institutional investment. “Eric Sprott owns about 16%,” McAllister says. “Sentry Investments about 14%. Fidelity Asset Management about 12%. Overall, we’re about 75% institutionally owned.”

He concludes, “We did have some setbacks in the last quarter, but we worked through them, so it’s a great time to get in right now. There’s a lot to look forward to with Avion.”

At press time, Avion had 440.2 million shares outstanding at $1.73 a share for a market cap of $761.6 million.

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