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Avnel Announces Definitive Feasibility Study Results for Kalana Main Project
ST. PETER PORT, GUERNSEY, MARCH 30, 2016 - Avnel Gold Mining Limited ("Avnel" or the "Company") (TSX:AVK) is pleased to announce results from a definitive feasibility study for its Kalana Main Project in south-western Mali with an effective date of March 1, 2016 (the "DFS"). The Company is reporting a maiden Mineral Reserve of 1.96 million ounces of gold and an updated Measured plus Indicated Mineral Resource estimate of 3.06 million ounces of gold for the Kalana Main project. The key performance indicators reported in this news release are based upon 100% ownership of the Kalana Main Project. All amounts are in United States dollars ("$") unless specified otherwise.
Feasibility Study Highlights
Project Economics (base case gold price of $1,200 per ounce)
Mine Production
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During first 5 years:
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Average annual production of 148,000 ounces at a total cash cost of $507/oz and an average on-site all-in-sustaining cost ("AISC") of $595/oz
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Average mill head grade of 3.6 g/t Au with gold recovery of 94.6%
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Average annual throughput of 1.35 million tonnes milled
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Over 18 year life of mine ("LOM"):
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Total production of 1.82 million ounces with gold recovery of 92.7%
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Average annual production of 101,000 ounces at a total cash cost of $695/oz and an on-site AISC of $784/oz
Mineral Reserves
Maiden Mineral Reserve declared of 1.96 million ounces:
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21.0 million tonnes of ore at a grade of 2.80 g/t Au containing 1.92 million ounces declared
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0.7 million tonnes of existing tailings at a grade of 1.80 g/t Au containing 0.04 million ounces to be hydraulically mined and processed prior to commissioning the new mill
Capital Expenditure
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Initial net capital expenditure of $163 million; gross initial capital expenditure of $196 million (including contingency) and working capital of $8 million offset by $41 million from gold production prior to commercial production
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Sustaining capital expenditure of $123 million
Project Construction Schedule
Key project milestones after start of construction:
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Month 16: Commence pre-strip
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Month 17: Commence processing tails through new carbon-in-leach ("CIL") section of the plant
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Month 22: Commence hot commissioning of mill
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Month 25: Commercial production
Mineral Resources
Updated March 2016 Mineral Resource for the Kalana Main deposit utilizing a $1,400/oz gold price:
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In situ Measured plus Indicated Resource of 23.0 million tonnes grading 4.14 g/t Au containing 3.06 million ounces at a 0.90 g/t Au cut-off
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In situ Inferred Resource of 1.7 million tonnes grading 4.51 g/t Au containing 0.24 million ounces at a 0.90 g/t Au cut-off
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The diluted (internal and external) Measured plus Indicated Resource of 35.7 million tonnes
grading 2.78 g/t Au containing 3.20 million ounces
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Tailings of 0.7 million tonnes at a grade of 1.80 g/t Au containing 0.04 million ounces
Kalana Project
The Kalana Project is owned by Société d'Exploitation des Mines d'Or de Kalana, S.A. ("SOMIKA"). Avnel has an 80% equity interest in SOMIKA and the Malian Government holds a beneficial interest in the remaining 20%, which has anti-dilution and free-carry rights. SOMIKA 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 km2 and was last renewed in 2003 for a term of 30 years. This permit is host to 29 exploration targets, including the Kalana Main Project, the Company's flagship development-stage project, which is the subject of the DFS.
Kalana Main Definitive Feasibility Study
The DFS was led by Snowden Mining Consultants Pty Ltd. ("Snowden") with the support of several leading consulting firms, all of whom have extensive experience in Mali, including Mr. Ivor Jones of Denny Jones Pty. Ltd. ("Denny Jones"), DRA Projects (Pty) Ltd. ("DRA"), and Epoch Resources. The key performance indicators reported in this news release are based upon 100% ownership of the Kalana Main Project. The assumptions used in the economic evaluation are set out in Table 1 below and the results of the economic evaluation are summarised in Table 2.
Table 1: Assumptions used in the Economic Evaluation
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Economic Assumptions
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Unit
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Value
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Plant Throughput (saprolite)
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Mtpa
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1.5
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|
Plant Throughput (fresh rock)
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Mtpa
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1.2
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|
Gold Price
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$/oz
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1,200
|
|
Discount Rate
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%
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8%
|
|
Diesel Fuel Price
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$/litre
|
1.0
|
|
Corporate Tax Rate
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%
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30%
|
|
ZAR/USD Exchange Rate
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x
|
15
|
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Refining, Transport, and Insurance Costs
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$/oz
|
4
|
|
Stamp Duty on Gold Sale
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%
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0.6%
|
|
Net Smelter Royalty
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%
|
3.0%
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Table 2: Summary of Economic Analysis
Financial Summary Unit Value
LOM Tonnage Material Mined kt 228,795
LOM Tonnage Ore Mined kt 20,999
LOM Tonnage Ore Processed kt 21,759
LOM Feed Grade Processed g/t Au 2.80
LOM Gold Recovery % 93%
LOM Gold Production Oz Au 1,821,383
Production Period years 18.0
Pre-production Capital Costs $M 196
LOM Sustaining Capital Costs
(including mine closure and community investment)
$M 123
*Pre-Tax 8% NPV $M 266
*Post-Tax 8% NPV $M 196
Pre-Tax IRR % 44%
Post-Tax IRR % 38%
Undiscounted Payback Period years 1.2
*West African peers commonly use a 5% NPV which would compute to a Pre-tax NPV of $345 million and a Post-tax NPV of $257 million
Also included in these after-tax estimates are management fees paid to Avnel for the operation of the Kalana Main Mine (the "Mine Management Fee"). As per the Company's Operator Agreement with SOMIKA, the Mine Management Fee is calculated as 0.75% of turnover (gross revenue) and 2.5% of brut exploitation excess (or "EBE", which is equivalent to Earnings Before Interest, Taxes, and Depreciation or "EBITDA") as calculated in accordance with Le Système Comptable Ouest Africain ("SYSCOA").
Excluded from this analysis is SOMIKA's repayment of existing inter-company loans, accrued interest, and accrued Mine Management and Engineering Fees associated with the underground Kalana Gold Mine to Avnel. Avnel estimates that these amounts to approximately $115 million.
A sensitivity analysis was conducted on the Project model, to evaluate its robustness to variation in performance and financial input parameters. The NPV (at 8% discount rate) and IRR sensitivities are presented in Table 3.
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Table 3: NPV and IRR Sensitivities
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Post-Tax NPV
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Post-Tax IRR
|
|
Scenario
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Variation
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($M)
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(%)
|
|
Base Case
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0
|
196
|
38%
|
|
Recovery Rate
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-5%
|
156
|
33%
|
|
Gold Production
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-10%
|
115
|
28%
|
|
Gold Price
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-10%
|
115
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28%
|
|
Gold Price
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+10%
|
275
|
46%
|
|
All Operating Costs
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+15%
|
132
|
32%
|
|
All Capital Costs
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+10%
|
172
|
32%
|
|
Gold Recovery & Operating Costs
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+5%, +10%
|
194
|
39%
|
|
Gold Price, Operating Costs & Capital Costs
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+5%, +5%, +5%
|
203
|
37%
|
|
Gold Production, Gold Price & Operating
|
|
Costs
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-5%, +10%, +10%
|
190
|
38%
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Mining
The DFS' mine plan provides for 18 years of production from the Kalana Main deposit from a single open-pit with 12 stages as shown in Figure 1. A total of 228 million tonnes will be mined with LOM waste-to-ore ratio of 9.9:1 including the pre-strip. Production schedules are included in the appendix.
The deposit contains high grade mineralized zones that will be extracted by selective mining using 5m benches. Bulk mining of the waste zones will be conducted on 10m benches.
The mine area consists of a weathered zone to an average depth of 60 m below surface which is amenable to free digging. The mining schedule targets the areas of saprolite that will generate higher cash flow early in the mine life. The pre-strip of six months will provide ore stockpiles to enable higher grade ore to be processed in the early years of the mine life.
Mining will be conducted by the owner whilst maintenance of the open pit mining machinery will initially be carried out by the original equipment manufacturer to ensure fleet availability. The maintenance plan provides for a five-year handover period to the owner after completion of the initial capital purchase of the full fleet component.
As part of the DFS, Snowden examined the impact of a lower gold price of $1,000 per ounce on the mine plan and design schedule and cash flow. At this lower price, the mine plan would allow mining of all the current planned pit stages with the exception of stage 12 (see Figure 1). Stages 1 to 11 contain 60% of the reserve ore tonnes, 65% of the reserve gold ounces but only 54% of the waste tonnes. Approximately 50% of stages 1 to 11 are in the softer saprolite material which is mainly free- dig and requiring limited drilling and blasting.