Avion Gold Corporation

Avion Gold Corporation

November 24, 2010 07:30 ET

Avion Gold Produces 23,609 Ounces at Cash Costs of US$ 498 in Third Quarter 2010

Company Reports Net Income of US$ 13.6 Million or US$ .04 Per Share

TORONTO, ONTARIO--(Marketwire - Nov. 24, 2010) - Avion Gold Corporation (TSX VENTURE:AVR)(OTCQX:AVGCF) ("Avion" or the "Company") today announces its financial results for the third quarter of 2010. All amounts are in United States dollars unless otherwise indicated.

Avion will host a conference call at 11:00 AM (EST) on Wednesday, November 24, 2010 to discuss the results. To participate in the call please dial:

International: +1 416 340 2216
Toll Free: 877 240 9772
Toronto Area: 416 340 2216

Highlights include:

  • During the third quarter the Company had earnings of $13.6 million, or $0.04 per share, and cash flow from operations before working capital adjustments of $17.3 million.

  • During the third quarter, the Company sold 25,700 ounces of gold at an average realized price of US$ 1,233 per ounce, which was higher than the average realized price of US$ 1,194 for the previous quarter.

  • Gold revenue for the third quarter was $31.7 million compared to $13.9 million for the comparable quarter last year.

  • Net working capital as at September 30, 2010 was $38.1 million (including cash and cash equivalents of $ 28.2 million).

  • Underground development commenced at the Tabakoto deposit on October 6, 2010. The Company also started waste rock stripping at its Dioulafoundou deposit in late October.

  • Subsequent to the end of the quarter, the Company bought out the 1% royalty on the Tabakoto and Segala projects for a cash payment of $2 million.

Commenting on the third quarter results, Avion's Chief Financial Officer, Mr. Greg Duras stated: "Third quarter results achieved were very encouraging as the Company generated significant income and operating cash flow. At current gold prices, we believe the Company will have sufficient cash resources from operations to finance its capital intensive programs, which are underway. The Company has completed the third quarter of 2010 with a strong balance sheet and is on track to complete its first full year of commercial production with strong operational and financial results."

Financial Discussion

The Company reported net income of $13,588,390 ($0.04 per share) for the three months ended September 30, 2010 compared to net income of $444,261 ($0.00 per share) for the three months ended September 30, 2009. Other comprehensive income for Q3-2010 amounted to $2,247,567 (Q3-2009: other comprehensive income of $2,602,078), which represents the foreign exchange difference determined using the current rate method to translate the financial statements to US$.

During Q3-2010, the Company sold 25,700 ounces of gold and generated $31,702,673 in gold sales revenue. In Q3-2009, 14,796 ounces of gold was sold generating $13,889,255 in gold sales revenue. Mine and processing expenses were $11,763,087 (Q3-2009: $9,765,102), which includes $278,773, (Q3- 2009: $78,260) in amortized deferred stripping costs, and the Company recorded amortization and depletion of $2,807,928 (Q3-2009: $962,192). 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 over an estimated 333,558 ounces (approximately four years). The Company was subject to an aggregate NSR of 7% on metal sales during the quarter. Royalties expense totaled $2,078,488 for the ounces of gold sold during Q3-2010 (Q3-2009: $1,287,968). Subsequent to the end of the quarter, the Company bought out a 1% royalty for $2,000,000.

The Company also incurred a foreign exchange translation loss of $1,029,595 during the Q3-2010 compared to $422,728 during Q3-2009. The FCFA remained weak compared to the US$ during the quarter and a large proportion of the Company's net assets are carried in FCFA.

Operations Discussion

Avion produced 23,609 ounces of gold during Q3-2010, which is an 89% improvement over the 12,517 ounces produced in the third quarter of 2009. The Tabakoto plant processed 178,800 tonnes of ore at an average grade of 4.28 g/t Au and the average mill recovery for the quarter was 96.2%. This compares to third quarter of 2009 production of 125,100 tonnes of ore at an average grade of 3.25 g/t Au and a mill recovery of 95.5%.

Capital projects

Avion has contracted Byrnecut Offshore Pty Ltd ("Byrnecut"), a large international mining contractor based in Perth, Australia, to carry out underground development of the Tabakoto deposit. Portal development at the bottom of the existing Tabakoto open pit commenced on October 6, 2010. The contract also includes underground development of the Ségala deposit, to commence in Q1, 2011.

Avion has received a cost estimate report on the Tabakoto plant expansion that supports yearly production of 200,000 ounces of gold per year, subject to completion of a technical report once new mineral resource models are generated based on the 2010 exploration program and development of the Tabakoto underground mine.

The cost estimate report, by an Australian engineering firm, recommended that the Company install a 4,000 tonnes per day semi-autogenous grinding ("SAG") mill. The Company has also determined that keeping the existing cone crushers and ball mill as a separate circuit will allow for less down time during construction, greater flexibility when operating in the future, and the potential to further increase gold production. With these assumptions, the estimated cost of the expansion, using all new equipment, has been estimated at $57 million. The opportunity exists to procure used equipment, and source from alternative suppliers, in an effort to reduce capital costs. Detailed engineering is now being done by an Engineering, Procurement, Construction Management ("EPCM") firm, GENIVAR Limited Partnership of Montreal. The intent is to quickly verify the size of the proposed grinding equipment and place orders for a SAG and a ball mill. Avion plans to increase plant throughput from 2,000 tonnes per day to 4,000 tonnes per day. This project is anticipated to be completed in 2012. Activities during 2010 will focus on detailed engineering analysis, and ordering of long lead time equipment. Most of the construction will take place in 2011, with commissioning planned in 2012.

Additionally, the Company has received final reports for all of the leach and gravity gold recovery test work that has been performed on Ségala and Tabakoto sub-grade and low grade mineralized material. The results of this test work will be considered in the final design configuration of the expanded plant. The test work indicated that a significant amount of gold, even in the sub-grade mineralization, can be recovered using a gravity circuit, with recoveries between 72% and 87%, depending on the grind size. Heap leach test work studies were halted once it became evident that gravity gold recoveries were as high as those that might be expected by leaching.

It is estimated that mill source feed will be derived from underground sources at Ségala and Tabakoto. However management believes that recent exploration success at the Dioulafoundou and Djambaye II zones and the acquisition of Axmin's Kofi Project, have the potential as alternative feed sources for the Tabakoto mill. Continued exploration, in 2010 has the potential to firm up these prospective alternative ore sources. Studies would then evaluate which ore source would provide the best return. The Company has received its Environmental Permit to mine the Dioulafoundou Deposit. Preparations for mining, such as a stream diversion, fencing around the deposit, and access road construction are complete. Subsequent to Q3, the Company started waste rock stripping at Dioulafoundou in late October. In 2011, the Company plans to supplement Ségala open pit ore with production from Dioulafoundou, and development ore from Tabakoto and Ségala underground operations.

Avion has signed capital lease agreements with Volvo Construction Equipment AB of Sweden and Amalgamated Mining Inc. of Canada for the supply of 12 underground haul trucks and a wheel loader, and two underground Caterpillar loaders, respectively. The purchase of this equipment will reduce future operating costs by decreasing the reliance on contractor-supplied mining equipment.

Complete interim financial statements and related Management's Discussion and Analysis are filed under the Company's profile on www.sedar.com. All amounts are in United States dollars unless otherwise indicated.

About Avion Gold Corporation

Avion is a Canadian-based gold mining company focused in West Africa that holds 80% of the Tabakoto and Segala gold projects in Mali. Gold production commenced at these projects in 2009 with just over 51,000 ounces produced; 2010 production is estimated at 75,000 to 85,000 ounces. Production sustainability is supported and enhanced by an aggressive 2010 drill program over an approximately 600 km2 exploration package that both surrounds and is near to our existing mine infrastructure. Additionally, a new1,670 km2 exploration property in Burkina Faso is expected to continue to return good results from an ongoing drill program. These properties are the subject of an approximate US$ 12 million dollar, 60,000 metre plus, drill-focused exploration program in 2010, which is expected, based on results to date, to add new resources and future opportunities for Avion. Avion continues to progress towards its longer term goal of producing 200,000 ounces of gold per year and is evaluating and developing an underground mine plan for the Segala and Tabakoto deposits. Avion has a highly skilled management team, with a focus on growth and consolidation within West Africa.

Cautionary Notes

The ability of Avion to increase production to 200,000 ounces of gold per year has not been the subject of a feasibility study and there is no certainty that the proposed expansion will be economically viable.

This press release contains "forward-looking information" within the meaning of applicable Canadian securities legislation. Forward-looking information includes, without limitation, statements regarding the 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 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.

  Three months ended   Nine months ended  
  September 30, 2010   September 30, 2010  
Mining and processing expenses 11,763,087   38,573,597  
By-product silver sales credit (86,582 ) (236,911 )
Inventory movements and adjustments 71,000   420,098  
Cash operating costs 11,747,505   38,756,784  
Divided by ounces of gold produced 23,609   61,541  
Cash cost per ounce produced 498   630  


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