Avion Gold Corporation

Avion Gold Corporation

August 11, 2011 17:33 ET

Avion Gold Announces Second Quarter Earnings of $15.2 Million ($0.04 Per Share)

The Mine Produced 25,823 Ounces at a Cash Cost of $544 Per Ounce

TORONTO, ONTARIO--(Marketwire - Aug. 11, 2011) - Avion Gold Corporation (TSX:AVR)(OTCQX:AVGCF) ("Avion" or the "Company") today announces its financial results for the second quarter ended June 30, 2011. All amounts are in United States dollars unless otherwise indicated.

Avion plans to host a conference call on August 16th at 10:30 AM (ET). To participate in the call please dial:

International: +1 416 340 9432
Toll Free North America: 877-440-9795
Toronto Area: 416 340 9432

To register and listen to the webcast of the call, please go to Avion's website at www.aviongoldcorp.com. A webcast play back recording will remain on the Company's website after the completion of the call.

Complete financial statements and related Management's Discussion and Analysis will be available under the Company's profile on www.sedar.com before the market opens August 12, 2011.

Second Quarter Highlights:

  • The Company had earnings of $15.2 million, or $0.04 per share for the quarter as compared to $0.3 million in earnings, or $0.00 per share for the comparable quarter last year.

  • The Company achieved revenues of $37.9 million this quarter compared to revenues of $26.0 million for the comparable quarter last year representing a 46% increase.

  • During the quarter, the Company sold 24,996 ounces of gold at an average realized price of $1,516 per ounce. Year to date the Company has achieved an average realized price of $1,456 on its gold sales compared to the London PM fix of $1,445 which represents a premium of $11.83.

  • The Company produced 25,823 ounces of gold at a cash cost per ounce of $544 and total cash costs produced of $639. The Company generated $21.3 million in operating cash flow before working capital adjustments in the 2nd quarter compared to $8.5 million for the comparable quarter last year.
  • The Company expended $41.6 million on its extensive capital programs including underground development, mill plant expansion activities and exploration. These programs are continuing on schedule.
  • The Company completed the quarter with a strong balance sheet having $25.9 million in working capital which included $ 9.8 million in cash and cash equivalents.
  • In the 2nd quarter the Company completed a $35 million credit facility through Atlantic Financial Group available for a 3 year term with an annual interest rate of 7% and no hedging or security requirements as is normally requested by lenders.

Commenting on the second quarter 2011 results, Avion's Chief Financial Officer, Mr. Gregory Duras stated: "The Company continued to generate strong earnings this quarter, resulting in significant operating cash flow. The Company is anticipating strong earnings in subsequent quarters as it is un-hedged and fully exposed to this favorable gold price environment."

Capital Expansion Programs

Expansion plans continued at Tabakoto, consisting of the following activities:

  • Over 3,500 metres of underground development has been completed at the Tabakoto deposit. Eight ore zones have been developed. Four additional ore zones are planned to begin development in the third quarter of 2011. Two ore zones are currently being developed on the first sublevel down giving a total of two levels of development. Plans remain on schedule to enable production in 2012.
  • Besides ore mined from Tabakoto underground, ore is also being mined from several open pits, namely, Dioulafoundou, Tabakoto South and Ségala NW.
  • Preparations to start underground development of the Ségala deposit in the third quarter of 2011 are continuing. Most of the required surface infrastructure is in place, and the east wall cutback for the underground portal location is nearing completion.
  • Construction for the plant expansion to 4,000 tonnes per day is well underway, with several major cement pours accomplished. To date, approximately 90% of the required plant equipment has been ordered, and over half of the budget has been committed, equivalent to over US$36 million. The project remains on schedule and within budget.

Financial Discussion: three months ended June 30, 2011

The Company reported net income of $15,206,796 ($0.04 per share, basic and diluted) for the three months ended June 30, 2011 compared to $333,629 ($0.00 per share, basic and diluted) for the three months ended June 30, 2010.

During Q2-2011, the Company sold 24,996 ounces of gold and generated $37,772,410 in gold sales revenue. In Q2-2010, 21,793 ounces of gold was sold generating $25,928,672 in gold sales revenue. Mining and processing costs were $12,822,914 (Q2-2010: $15,401,268), which includes $nil (Q2-2010: $189,635) in amortized deferred stripping costs, and the Company recorded amortization and depletion of $4,131,748 (Q2-2010: $2,295,218). The Company is amortizing deferred property, plant and equipment related to the Mali projects on a unit of production basis from the current mine plan. The Company was subject to a 6% royalty on metal sales during Q2-2011. Royalties expense totaled $2,458,430 (Q2-2010: $1,817,196) for the ounces of gold sold during Q2-2011. The Company previously bought out an aggregate 3% royalty in late 2009 and 2010 for a combined $3,000,000 in cash, and shares and warrants worth $1,107,116. These amounts have been deferred and will be amortized over the life of the mine. Royalties expense during the comparative quarter included an additional 1% royalty.

The Company realized a cash cost per ounce produced of $544 per ounce for Q2-2011 compared to $596 for Q2-2010. Please see "Non-GAAP Measures" below.

Corporate and administrative expenses for the quarter ended June 30, 2011 totaled $1,150,011 compared to $1,358,669 for Q2-2010. The decrease in corporate costs is a result of performance bonuses offered during Q2-2010 that were not incurred during Q2-2011. Other corporate costs increased moderately over the quarter reflecting the increased activity of the Company.

Non-cash share based compensation expense for Q2-2011 was $337,725 (Q2-2010: $3,860,973) related to the estimated fair value of stock options that were granted and vested during Q2-2011. A total of 425,000 stock options were granted during Q2-2011 compared to 9,440,000 during Q2-2010. Share based compensation was estimated using the Black-Scholes option pricing model as at the date of grant.

During Q2-2011, the Company incurred a non-cash accretion expense of $61,750 related to the Company's asset retirement obligations acquired through the acquisition of the Mali projects (Q2-2010: $55,500). As well, the Company incurred $96,978 in interest expense related to obligations under finance leases (Q2-2010: $nil).

The Company recognized an unrealized loss of $878,918 during Q2-2011 (Q2-2010: an unrealized loss of $885,275) related to their held-for-trading investments based on the fair market value of these investments as at June 30, 2011.

The Company also incurred a foreign exchange translation loss of $753,480 during Q2-2011 compared to a loss of $1,050,019 during Q2-2010. The FCFA which is pegged to the Euro strengthened compared to the US$ during the quarter and a large proportion of the Company's net monetary assets are carried in FCFA. During the comparative quarter, the Company recognized a gain of $1,077,486 on the revaluation of the warrant provision from warrants held in a currency other than the Company's functional currency. The Company also incurred exploration expenditures during the comparative year of $88,174.

John Begeman, the Chief Executive Officer of the Company, and a qualified person under National Instrument 43-101, has reviewed and approved the scientific and technical information in this press release.

About Avion Gold Corporation

Avion is a Canadian-based gold mining company focused in West Africa that holds 80% of the Tabakoto and Ségala gold projects in Mali. Gold production commenced at these projects in 2009 with just over 51,000 ounces produced. 2010 production was 87,630 ounces of gold. Production sustainability will continue to be supported and enhanced by an aggressive 2011 drill program over an approximately 600 km2 exploration package that both surrounds and is near to the Company's existing mine infrastructure. The current mineral resources estimate for the Tabakoto project demonstrates several sources of excellent grade open pit and good grade underground mineral resources thus providing significant flexibility for Avion's future mining plans. Additionally, the 1,670 km2 Houndé exploration property in Burkina Faso continues to return promising results. These properties will be subject to a preliminary US$ 10 million dollar, approximate 60,000 metre, drill-focused, exploration program in 2011. Avion continues to progress towards its medium term goal of 200,000 ounces of gold per year and a longer term goal of organic growth through development of its exploration properties. The Company is developing an underground mine at the Tabakoto deposit, and is preparing to mine underground at the Ségala deposit. Avion has a highly skilled management team, with a focus on growth and consolidation within West Africa.

Cautionary Notes

This press release contains "forward-looking information" within the meaning of applicable Canadian securities legislation. Forward-looking information includes, without limitation, statements regarding the impact of the financial results on the Company, development potential and timetable of the Mali projects; the future price of gold; the estimation of mineral resources; conclusions of economic evaluation (including scoping studies); the realization of mineral resource estimates; the timing and amount of estimated future production, development and exploration; costs of future activities; capital and operating expenditures; success of exploration activities; mining or processing issues; currency exchange rates; government regulation of mining operations; and environmental risks. Generally, forward-looking information can be identified by the use of forward-looking terminology such as "plans", "expects" or "does not expect", "is expected", "budget", "scheduled", "estimates", "forecasts", "intends", "anticipates" or "does not anticipate", or "believes", or variations of such words and phrases or state that certain actions, events or results "may", "could", "would", "might" or "will be taken", "occur" or "be achieved". Forward-looking information is subject to known and unknown risks, uncertainties and other factors that may cause the actual results, level of activity, performance or achievements of the Company to be materially different from those expressed or implied by such forward-looking information, including but not limited to: general business, economic, competitive, geopolitical and social uncertainties; the actual results of current exploration activities; foreign operations risks; other risks inherent in the mining industry and other risks described in the annual information form of the Company, which is available under the profile of the Company on SEDAR at www.sedar.com. Although the Company has attempted to identify important factors that could cause actual results to differ materially from those contained in forward-looking information, there may be other factors that cause results not to be as anticipated, estimated or intended. There can be no assurance that such information will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking information. The Company does not undertake to update any forward-looking information, except in accordance with applicable securities laws.

Cautionary Non-GAAP Statements

Avion believes that investors use certain indicators to assess gold mining companies. The indicators are intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared with GAAP. "Cash flow from operating activities before changes in non-cash working capital" is a non-GAAP performance measure which could provide an indication of the Company's ability to generate cash flows from operations, and is calculated by adding back the change in non-cash working capital to "Cash provided by (used for) operating activities" as presented on the Company's consolidated statements of cash flows. "Cash flow per share" is calculated by dividing "Cash provided by (used for) operating activities" and adding back the change in non-cash working capital by the fully diluted number of shares outstanding for the period. "Cash cost per ounce produced" is a non-GAAP performance measure which could provide an indication of the mining and processing efficiency and effectiveness at the mine. It is determined by dividing the relevant mining and processing costs excluding royalties by the ounces produced in the period. There may be some variation in the method of computation of "cash cost per ounce produced" as determined by the Company compared with other mining companies. In this context, "ounces produced" includes in-process and dore inventory along with ounces of gold sold in the period. "Cash costs per ounce produced" may vary from one period to another due to operating efficiencies, waste to ore ratios, grade of ore processed and gold recovery rates in the period.

The following table provides a reconciliation of mining and processing costs per the financial statements and cash operating for the purposes of calculating cash costs per ounce produced and total cash costs produced.

Three months ended Three months ended
June 30, 2011 June 30, 2010
Mining and processing expenses 12,822,914 15,401,088
By-product silver sales credit (117,420 ) (109,092 )
Inventory movements and adjustments 1,342,755 (2,048,684 )
Cash operating costs 14,048,249 13,243,312
Divided by ounces of gold produced 25,823 22,222
Cash cost per ounce produced 544 596
Royalties 2,458,430 1,817,196
Total cash cost per ounce produced 639 678
Operating cashflow 11,544,710 12,533,747
Operating cashflow per ounce produced 447 564

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