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Discussions advance with banks and financial institutions on financing the Kalana Main Project
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Repairs to bridge equipment in 2017
at the Bale
River completed, enabling safe delivery of heavy loads of project
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Detailed design of Tailings Dam Storage construction ready to be issued
Facility ("TSF") completed and tender document for
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Tender for Engineering, Procurement and Construction Management ("EPC") for the gold plant and infrastructure issued and proposals received
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Project optimisation shows potential for project construction to be
completed in 19 months, a 3
month shorter timeframe than set out in the Definitive Feasibility Study ("DFS").
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Optimisation ident fied potential engineering improvements to reduce cost and operation risk
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Development of
Environmental Social Management
Plan ("ESMP") and International Finance
Corporation Performance standards advanced
Subsequent to September 30, 2016:
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Announced infill and extension drilling programme on the Kalanako deposit and regional exploration activity in Q4 2016 and Q1 2017
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Appointed Anne-Séverine Le Doaré to the Board of Directors
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Base shelf prospectus filed on SEDAR
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Appointed DRA Mineral Services and Group 5 Joint Venture to execute the EPC for the Kalana Project, subject to final contractual documentation
Outlook
A positive feasibility study for the Kalana Main Project (the "Feasibility Study") has been completed and
the related Environmental and Social Impact
Assessment ("ESIA") and
associated
Environmental and
Social Management Plan ("ESMP") have been approved by the Malian authorities. The approval of the ESIA was the key government approval required to advance the Kalana Main Project towards construction as the Kalana Exploitation Permit was awarded to Avnel in 2003 with an initial term of 30 years plus two
ten year extentions. The only significant government approval required
to develop new mines on the
permit is an ESIA and the associated ESMP. The ESIA has been prepared to conform to the requirements
of the
International
Finance Corporation's
Performance Standards, the World Bank Group's
Environmental, Health, and Safety guidelines, and other financial institutions that are signatories to the Equator Principles.
The Company continues to advance the Kalana Main Project towards a construction decision through its 80% ownership in Société d'Exploitation des Mines d'Or de Kalana, S.A. ("SOMIKA"). Discussions are progressing with banks and other financial institutions to provide financing for the development of the Kalana Main Project. Cost optimisation analysis continued in the period on the construction costs of the Kalana Main Project. The Company anticipates that the Kalana Main Project will be sufficiently advanced
to consider a construction decision in 2017, subject to the availability of adequate financing on a timely basis.
With respect to operations at the small, Soviet-era, underground Kalana Mine, gold production in the nine months to September 30, 2016 was 7,181 ounces. The Company forecasts gold production of 9,000 ounces for the full year of 2016. The Company continues to sustain operations to partially offset the cost of providing underground access to facilitate due diligence activities necessary to secure mine development financing. The continued operation of the mine also helps to maintain socio-economic stability in the local community in compliance with World Bank Equatorial principles and Malian laws. The continued operation of the underground mine also helps to maintain socio-economic stability in the local community as the workforce prepares to transition to activities related to the construction and operation of the proposed Kalana Main Mine. The Company intends to sustain operations for as long as economically feasible and safe to do so, without incurring any significant capital expenditures, until such a time as the Company is able to evaluate development options for the Kalana Main Project.
Kalana Main Project Update
In preparation for the approval to commence construction of the Kalana Main Project, a number of activities have progressed during the third quarter 2016
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The existing road bridge across the Bale River is located on the National Route between Yanfolila and Kalana. Following an updated engineering inspection of the bridge by a South African Engineering Consultant, the company initiated a repair project with the National Roads Department. The repair work was completed in Q3 when the water level in the river allows access to bridge foundations and steelwork. The Engineering Consultant confirms the load capacity of the bridge is 100 tonnes following the repair work. This is sufficient for the maximum loads required for the project and will be safe for transport during 2017. The project cost of US$180,000 was funded by SOMIKA and two mining companies who also require this bridge for access to their projects.
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EPOCH Resources (Pty.) Ltd., a specialist tailings storage consultant, was appointed in June 2016 to commence the final design for the TSF (Tailings Storage Facility), SWCD (Storm Water Control Dam) and WRD (Waste Rock Dump). In 2015/2016 EPOCH completed DFS design and cost estimate. EPOCH completed the detailed design for this work package, including detailed engineering drawings, a revised bill of quantities, construction specifications and complete tender document. The tender package was put out to tender in November 2016 with award of the contract expected to be in early 2017.
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Avnel issued a tender for the EPC services for the Kalana Gold Plant and associated infrastructure. Two international Engineering Companies were selected and have submitted bids for the EPC and the company is evaluating the proposals.
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Based on the EPC tender proposals, the project construction time table will be reduced by 3 months. On completion of Phase 1 existing tailings will be processed using the CIL and gold recovery circuits. The Feasibility Study assumed Phase 1 would be complete in month 17 and the optimized schedule is 15 months. On completion of Phase 2, the mill will be commissioned to process saprolite ore. The Feasibility Study assumed Phase 2 would be complete in month 22 and the optimized schedule is 19 months.
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As part of the optimisation process, Avnel is in advanced discussions with an international Power Provider to the mining industry to provide an "over the fence" power supply based on a hybrid plant utilizing fossil fuel and solar energy sources. The Power Provider will fund the project capital and charge the company a rate per KwH. If implemented the capital cost in the Feasibility
Study will be significantly reduced. For the first 5 years operating cost per KwH will be impacted by the recovery of capital investment. The project predicts that 20% of the power requirements will be generated from the solar plant, leading to significant cost reductions and lower environmental impact. Project risk is reduced by the power provider being contracted for the operation and maintenance of the power plant, plus the risk of any higher fossil fuel prices
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The process flow sheet was reviewed and a strategic decision made to incur additional capital expenditure in the up-front crushing circuits. When processing saprolite material there is potential risk that increased moisture content can lead the sticky material that can cause delays in production. Whilst the risk is considered low for Kalana saprolites, there is potential to identify additional ore resources close to Kalana, such as Kalanako, where sticky ore may be a higher risk. The engineering solution is to install a mineral sizer through which saprolite will pass directly to the mill. Mineral sizers are used in some mines in West Africa, particularly where the saprolite is stickier than Kalana saprolites. The Feasibility Study proposed saprolite would pass through a jaw crusher prior to milling. Fresh ore would also pass through the jaw crusher and then be crushed in a secondary crushing circuit. As fresh ore will not be milled until month 30 of the project, the capital expenditure for the ROM bin, jaw crusher and secondary crusher will be postponed for one year. In addition the second standby secondary crusher will be removed from the flow sheet. The impact on capital expenditure is estimated as $1.4 million for the mineral sizer circuit with a reduction of $800,000 in the secondary crushing circuit. The benefit is a strategic related to other sources of saprolite, reducing risk during the initial two years of production with saprolite being the major ore source and deferred capital
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SOMIKA has appointed ABS Africa, a South African Environmental Consultant, to assist in the drafting of the action plans required to comply with the ESIA and IFC Performance standards. ABS Africa prepared the ESIA completed in Q1 2016 and approved by the Malian Authorities. During Q3 significant progress has been made and the ESMS (Environmental and Social Management System) and Actions Plans will be completed Q4.
ESDCO, a leading Malian Environmental Consultancy, has been appointed to provide external consultant expertise for the implementation of the approved Resettlement Action Plan ("RAP") in line with Malian legislation and IFC Performance Standards. The RAP will be implemented by a Steering Committee headed by the Prefet of Yanfolila. The Committee members include local government administration officials, representatives of Technical Agencies (environment/forestry/land usage, health and education), the Mayor of the Commune, village chiefs, associations representing youth/women/disadvantaged individuals/hunters, artisanal miners, transport companies. Recently an Association has been formed to represent the interests of impacted persons and has been formally recognised and will participate in the Committee ESDCO completed the RAP and socio-economic study as part of the ESIA. ESDCO has a major role to play as an independent expert within the Committee.
The Committee will formally commence in December 2016 after the local government elections in Mali in November.
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An ESIA is being prepared for the 5.5 Km public road diversion around the new mine infrastructure. This will replace the existing public road to Kalana Town. The ESIA will be submitted in Q4 and approval is expected in Q1, 2017
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The site for the relocation of impacted persons was identified by the Community in Q1 2016. During Q3 2016 SOMIKA has completed a geotechnical survey of the site and the results provided to ESDCO urban development specialists and the Administration Authorities. The Mayor has submitted a letter to the Governor of Sikasso providing a request to allow development of an urban area south of Kalana Town for the Resettlement Action Plan. This is the first step in the formal process of approval for the new urban area.
Although the lateral near-surface extents of the Kalana Main deposit seem to have been fairly well defined, the company believes that the deposit could be improved in grade and quality in the deepest part of both the reserve and resource pits. Indeed the drop in ore grade (from 3.1 to 2.5g/t Au) and the strong increasing of the strip ratio observed in the DFS stage 12 (reserve pit) as well as in the deep resource (not yet included into reserve), are both interpreted as being the result of 1) the less dense drilling pattern at depth; 2) the decreasing of the average DDH core diameter and subsequent sample size and 3) the lack of large RCH sample alternating with cored samples. These 3 factors cannot be entirely managed from surface and an in-pit infill exploration drilling campaign has been designed.
There is also significant regional exploration potential. Avnel's exploration team has dedicated significant resources to the evaluation of regional exploration prospects outside of the Kalana Main area. This initial work is based upon historical data carried out by others, regional work conducted by Avnel and the IAMGOLD Corporation, and the Company's field surveys of active and historical orpaillage. This work, which is still ongoing, is used to prioritise targets for future exploration. An advanced geochemical survey, started in October 2016, has been designed to improve the knowledge on 3 to 5 high priority prospects, which are at the grassroots level in our exploration pipeline.
A high-priority exploration project for the Company is the Kalanako deposit. The deep weathering profile at Kalanako displays a potential free digging high-grade ore satellite located less than 3 km northeast of the Kalana Main Project proposed mill site. The Kalanako deposit currently has an Inferred in-situ resource of 0.38 Mt grading 5.55 g/t Au, containing 0.07 Moz of gold. The March 2015 Kalanako Mineral Resource Statement was completed by Denny Jones Pty Ltd, at a cut-off grade of 0.9 g/t Au based upon information from 46 diamond drill holes (9,661m) and 232 RC drill holes (24,952m); no local estimates for internal or external dilution. The current Kalanako maiden mineral resource is based on a wide drill spacing (75m x 25m). Several mineralized trends have been established from RC and diamond drilling at Kalanako, resulting in a single northwest-southeast corridor of 1,500 meters by 250 meters. These mineralized zones are less than 10 meters thick and appear to be steeply dipping, often contain high- grade intercepts near surface.
New drilling is expected to start mid-November 2016. This RC infill drilling campaign of 7,000m to 9,000m has been designed to improve grade continuity infilling the in-pit resource to upgrade resource classification and, using historical data as a guide, to increase the total amount of resources drilling the mineralised zones between these resource pits. The infill drilling programme will be focused on saprolite and saprock weathered domains, a depth considerably deeper than observed at Kalana Main (drillhole depth of 75-175 meters). Please refer to the press release dated October 17, 2016 for further details