Avion Gold Corporation (TSX VENTURE:AVR)(OTCQX:AVGCF) today announces its financial results for the third quarter of 2010.
Highlights include:
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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 $17.3 million.
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During the third quarter, the Company sold 25,700 ounces of gold at an average realized price of US$ 1,233 per ounce, which was higher than the average realized price of US$ 1,194 for the previous quarter.
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Gold revenue for the third quarter was $31.7 million compared to $13.9 million for the comparable quarter last year.
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Net working capital as at September 30, 2010 was $38.1 million (including cash and cash equivalents of $ 28.2 million).
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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.
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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.
Source: Avion Gold Corporation