Avnel Gold Mining Limited (AVK: TSX) Announces First Quarter 2013 Results

Period ended March 31, 2013.

ST. PETER PORT, Guernsey, May 15, 2013 /CNW/ -

Overview of the Company

Avnel's strategic objective, through its 80% owned subsidiary, SOMIKA, is to commercially exploit underground reserves at the Kalana Gold Mine, whilst exploring for commercially viable opportunities for the exploitation of a bulk mineable deposit.

Avnel entered into an agreement (the "Option Agreement") with IAMGOLD Corporation ("IAMGOLD") on August 10, 2009 pursuant to which IAMGOLD had the right to earn a 51% interest in Avnel's 80% interest in the Kalana Permit by spending $11 million over a three year period and making two payments to Avnel of $1 million each on August 10, 2009 and August 10, 2010.  The IAMGOLD work programme focussed primarily on the evaluation of the Kalana Mine and its environs to examine the potential for a large scale, bulk mineable resource. The Option Agreement automatically lapsed on March 1, 2013 as IAMGOLD did not produce a Resource Study as defined in the Option Agreement within the timescale allowed.

Avnel has engaged Dundee Securities Limited as its exclusive financial advisor in assisting Avnel in exploring all options available to maximise the value of the Kalana Project and shareholder value.

Kalana Permit Exploration

IAMGOLD spent approximately $32.0 million on the Kalana Main Project between the periods, mid-August 2009 to February 28, 2013. Under the terms of the Option agreement IAMGOLD's cost receivable has been forfeited to Avnel. Avnel has received an extensive geological database after the completion of 127,000 metres of drill holes at the Kalana Mine that has added value to the future development of a bulk mineable deposit. At the Kalanako prospect, IAMGOLD completed 27,000 metres of drilling. IAMGOLD reported that 14 gold anomaly targets were identified on the Kalana Permit that are worthy of additional exploration.

Avnel has been working with its consultants Roscoe Postle Associates ("RPA") and Snowden Mining Industry Consultants ("Snowden") in analysing the database arising from the exploration program conducted by IAMGOLD. The final drill assay results (15,340 assays) and the geological logging were received from IAMGOLD during the first quarter. RPA has progressed the interpretation of the geological model and expects to complete the model in May 2013.

IAMGOLD and RPA identified the technical challenge to evaluate grade associated with the high content of free milling gold (nuggets) in the Kalana Mine. Historically gold grades from drill holes have under estimated mined grades at Kalana.

IAMGOLD conducted a limited number of metallurgical tests to address the under estimation of gold in drill hole samples. The main variable was a larger sample weight than the standard 50 gram fire assay used for all assays reported to date.

In 2011 metallurgical test work was carried out with seven samples from two RC holes and underground samples (weighing 50-70kgs per sample) sent to Lakefield Laboratories in Canada. IAMGOLD have reported that the seven Kalana 50 kg metallurgical test samples mostly showed a significantly higher grade than the 50 gram fire assay results.

In 2012 a total of fifty bulk metallurgical samples were submitted for heavy concentrate analysis by using the Knelson concentrator at the SGS laboratory in Johannesburg. IAMGOLD reported that 50g fire assay results underestimate grade when the FA grade is 4g/t or higher. In the range 1g/t to 4g/t the FA and the bulk sample assays report similar results.  In the range below 1g/t there appears to be some limited upgrade in bulk sample assays compared to 50g FA results.

IAMGOLD reported initial indications are that the bulk samples analysed in Johannesburg and metallurgical samples previously analysed in Canada display the same behaviour as illustrated by the "Poisson effect" during sub-sampling with the global under-estimation of grade using a classical FA 50g approach.

RPA have recommended that higher grade assays from the 2010-2012 drill program might benefit from re-assaying by a more exhaustive assay method. RPA recommend that a screens metallic assay on a 1kg sample be implemented.

Avnel has appointed Snowden to review the sampling procedures utilised at Kalana deposit which demonstrates a high coarse gold nugget effect. Dr Simon Dominy, from Snowden, an expert in this field, has reviewed the nature of the coarse gold mineralisation at Kalana and has reported that alternative assay protocols may be more suitable to optimise the coarse gold mineralisation present in the Kalana deposit. Snowden will complete the study in May 2013 and work with Avnel to design possible alternative protocols. Options for improved protocols include the use of screen fire assays, LeachWELL bottle roll and laboratory-scale gravity processing of samples.

It is expected that an exploration project update will be released shortly.

First Quarter Exploration

Kalana Exploration Permit

In the first quarter of 2013, $1.9m cost were incurred by IAMGOLD mainly relating to RC and DD drilling completed in the fourth quarter of 2012 and the final drill assay results received in the first quarter 2013. Assay results for two RC drill holes are still awaited.

Fougadian Exploration Permit

On October 17, 2006, Avnel was awarded the Fougadian Exploration Permit which lies south of the Kalana Permit. The Fougadian Exploration Permit covers an area of 150 square kilometres including a portion of the Niessoumala exploration area.  The permit was awarded in accordance with the 1999 Mining Code and a foundation agreement (the "Foundation Agreement") was signed between Avnel Mali, a 100% wholly-owned subsidiary of Avnel, and the Government of the Republic of Mali.   The Foundation Agreement provides for the exploration and exploitation of Group 2 minerals as defined in the 1999 Mineral Code. Group 2 minerals include gold and silver, and base metals, but exclude precious stones, semi-precious stones and fossils.

Avnel applied for a renewal of the Fougadian Exploration Permit and this was granted in March 2010, with the commencement date December 2009. Avnel has specified a new area of 75 sq. km as required by the Malian Code. This area lies in the northern half of the original permit and includes the largest anomaly Avnel 1. The renewal was for 3 years and Avnel has committed to expenditures of $1.9 million over this period.  As at December 31, 2012 expenditure totalled US$1.8 million.

The Permit expired in December 2012. Avnel is applying for a two year extension of the permit and is confident this will be granted during the second quarter, 2013. It is IAMGOLD's responsibility to obtain the necessary renewal at its cost.

Joint Venture Arrangements Agreement - Fougadian Exploration Permit

In 2010, Avnel Gold and IAMGOLD entered into the Joint Venture Arrangements Agreement whereby IAMGOLD has the option to acquire up to an initial 51% interest in Avnel's 90% interest in the Fougadian Exploration Permit as described below.

The Fougadian Exploration Permit held by Avnel previously comprised 150 sq. km. to the south of and abutting the Kalana Exploitation Permit.  Avnel relinquished the southern half of its ground in accordance with the Malian Mining Code and was granted a new exploration licence on the northern half on March 23, 2010.  IAMGOLD applied for an exploration permit in respect of the southern 75 sq. km and this was granted on June 20, 2012.  The combined permits are referred to as the "Fougadian Exploration Permit".

Following the military coup in Mali in March 2012, IAMGOLD halted the planned drilling program. A ground geophysics program was completed over the Maramele target by SAGAX. 192 line kilometers were completed and results received. The results confirm the previous interpretation as reported above.

Avnel is waiting for a 2013 detailed work program and budget from IAMGOLD. IAMGOLD closed its Bamako office in January 2013. The office re-opened in April and staff started preparation for the exploration program for 2013.

IAMGOLD is proposing to complete an air core drill program to further define the optimum targets within the Maramale anomaly prior to an RC drill program.

First Quarter Results

Selected Financial Information
(In thousands of U.S. dollars except per share amounts)   

	Three months ended March 31
	2013					2012
Total Revenue...............................................................................................	4,197					5,034
Total Expenses..............................................................................................	4,257					5,052
Other Income.................................................................................................	1,280					4,632
Net Profit ......................................................................................................	1,220					4,614
Net Profit from continuing operations attributable to owners of the parent.....................................................................................	1,230					5,529
Net Profit per share attributable to owners of the parent	$0.006					$0.029
Basic weighted average shares outstanding	191,743,724					191,739,477
Balance Sheet
	March 2013					December  2012
Working Capital surplus...................................................................................	12,393					12,226
Total Assets ....................................................................................................	29,896					31,051
Shareholders' Equity ........................................................................................	33,992					32,750

Results of Operations
Metal revenues reduced to $4,197,000 in the quarter to March 31, 2013 from $5,034,000 in the quarter to March 31, 2012. This was as a result of reduced gold ounces sold from 2,980 ounces in the quarter to March 31, 2012 to 2,551 ounces in the quarter to March 31, 2013 and a reduction in the realised average sales price of gold from $1,684 per ounce in quarter to March 31, 2012 to $1,641 per ounce in quarter to March 31, 2013.

Total expenses reduced from $5,052,000 in the quarter to March 31, 2012 to $4,257,000 in the quarter to March 31, 2013, arising from finished goods movement.  Operating costs per ounce of gold produced for the quarter to March 31, 2013 increased from $1,153/oz to $1,169/oz.

Avnel recorded a net profit of $1,220,000 ($0.006 attributable profit per share) for the quarter to March 31, 2013, compared to a net profit of $4,614,000 ($0.029 attributable loss per share) in the comparative period in 2012. Included in the first quarter of 2013, is an accounting finance gain on the fair value of derivative financial instruments of $1,600,000, arising from a reduction in the Company's share price from December 31, 2012. This compared to a profit of $4,597,000 in the quarter to March 31, 2012. These fair value accounting gains reported have no cash effect on the Company.

As compared to the balance sheet as at December 31, 2012, Avnel's cash and cash equivalents as at March 2013, decreased by $580,000 from $7,979,000 to $7,399,000. This decrease was mainly due to $559,000 of working capital movement.

There was a working capital surplus of $12,393,000 as at March 31, 2013 compared to working capital surplus of $12,226,000 as at December 31, 2012. The working capital figure reported at December 31, 2012 exclude the other derivative financial liability reported on the Company's balance sheet which had no cash liability to the Company.

Total assets reduced from $31,051,000 as at December 31, 2012 to $29,896,000 at March 31, 2013.

Total stockholders' equity also increased to $33,992,000 as at March 31, 2013 from $32,750,000 at December 31, 2012. The retained deficit reduced by $1,641,000 as a result of the net profit made in the quarter to March 31, 2013.

Mining Operations

The following table shows the production from the Kalana Gold Mine:

		Three months ended March 31
		2013	2012
	Tonnes milled .........................................................................................	12,524	11,254
	Gold grade          - grams per tonne (g/t) ................................................	8.2	8.6
	Recovery rate     - % ...............................................................................	83.8	89.3
	Gold production  - ounces …………………………………………………..	2,769	2,769
	Cost per tonne milled ................................................................................	$258	$284
	Operating cost per ounce of gold sold…………………………………….	$1,109	$1,176
	Operating cost per ounce of gold produced……………………………….	$1,169	$1,153

Tonnes milled in the quarter to March 31, 2013, were 11% higher than achieved in comparative period in 2012. Gold production at 2,769 ounces in the quarter to March 31, 2013 remained the same as the quarter to March 31, 2012 resulting from the higher tonnes milled offset by lower head grade of 8.2g/t and reduced recovery of 83.8% in the quarter to March 31, 2013 compared to 8.6g/t and 89.3% in the quarter to March 31, 2012. The decrease in gold recovery is due to less gravity gold being recovered from Vein 1 and Vein 17 adjacent to the diorite. Some of the free milling gold is very fine and cannot be recovered by a Knelson concentrator in the gravity circuit.

Mine development totalled 355 metres in the first quarter of 2012 compared to 332 metres in the first quarter of 2012 and was 128 metres ahead of the mine plan.  Ore development increased to 342 metres in the first quarter of 2013 from 260 metres in the first quarter of 2012. Ore development focused on opening Vein 18D and Vein 20 below 180m level. Above 150m level ore development opened up Vein 1 for mining during 2013.

During the quarter 9m (budget 60m) were advanced as part of the exploration program for the mine. This development has been stopped due to IAMGOLD not proceeding with the Joint Venture. SOMIKA will evaluate the need to continue with this development.

Outlook

Avnel has appointed Snowden Mining Industry Consultants to review the gold sampling procedures for the Kalana deposit. Following their report Avnel, in conjunction with its technical consultants, will consider the possibility to re-assay the 2010-2012 drill hole assays using a new sampling protocol in order to better capture the course mineralisation in the deposit.

Avnel has been closely working with its consultants, Roscoe Postle Associates, in analysing the database arising from the extensive exploration program conducted by IAMGOLD. Roscoe Postle Associates will continue to develop the geological model for the Kalana deposit for review with Avnel in June 2013.

Avnel has strengthened its management team by appointing Dr Olivier Femenias as Group Geological Manager. Dr Femenias was previously the IAMGOLD Project Geologist responsible for the exploration program at Kalana from 2009 to 2012. He has an intimate knowledge of the Kalana Project and the 14 gold anomaly targets on the Kalana Permit. Dr Femenias was awarded a PhD in geology (Honors with jury's congratulations) by the University of Brussels and the University of La Rochelle in 2003. He was Assistant Professor at Brussels University from 2006 to 2009. Dr Femenias has an outstanding academic background married to extensive field experience at the Kalana Project.

For the remainder of 2013, Avnel is planning gold production of 6,400 ounces from 34,000 tonnes of ore milled, at an average grade of 6.8g/t. This plan is very sensitive to grade, gold price and costs. The plan assumes that the major ore sources will be Vein 20 and Vein 18D which will be fully developed during the first quarter 2013. Lower grade ore is planned to be mined from Veins 17 and 1 based on the gold price of $1,500 per ounce.  The Company intends to sustain the operation as long as feasible while the exploration program progresses. This is important to reduce the social impact on the community and to cover the costs of underground pumping.  Once underground mining operations are temporarily stopped, the mine will be placed on care and maintenance. The underground water pumping system will remain in operation to prevent flooding of the mine and permit access for future exploration activity.

The mine plans to advance development 486 metres during the remainder of 2013.  Development will focus on opening up Vein 18D below the 180m level and Vein 20 below the 180m level. Dependent on results, development will continue.

It is forecast that the mineable reserves available from the current mine infrastructure are approximately 52,000 tonnes at 6.8g/t containing 11,000 ounces.  This assumes that ongoing development of Vein 20 and Vein 18D below 180m level will be successful. This will allow mining to average 3,800 tonnes per month to May 2014.

Current Events in Mali

Following the military coup d'etat on March 21, 2012 developments in Mali are closely monitored by Avnel. Mr. Roy Meade, Executive Director of Operations based at Kalana, reports that mining activities at the mine site are continuing as normal and conditions in the surrounding communities are completely calm.  The road between the Kalana Mine Site and the capital, Bamako, has remained open. The mine, which is operating normally, operates on grid power and there have been no interruptions to electric power supply to date. We are optimistic that the current ongoing operations by the Malian army backed by French and ECOWAS troops will enable elections to be held this year.

Avnel was pleased participate with five companies operating gold mines in Mali in a humanitarian aid donation.

The Interim Financial Statements and Management's Discussion and Analysis for the three months ended March 31, 2013 are available on SEDAR (www.sedar.com) and the Avnel Gold website (www.avnelgold.com).

ABOUT THE COMPANY
Avnel is a producing gold mining company operating the Kalana Mine in south-west Mali and is engaged in the exploration of the 30-year Kalana Exploitation Permit encompassing 387.4 sq km around and to the south of the Kalana Mine.

Avnel's principal asset is an 80% interest in Société d'Exploitation des Mines d'Or de Kalana ("SOMIKA") which is the holder of the Kalana Exploitation Permit.  The Kalana Project is situate in south west Mali.  The 387.4 sq km exploitation permit has a NI-43-101 compliant resource of 1,020,000 oz (at an average grade of 10.4 g/t) in the measured and indicated category, and 249,000 oz (at an average grade of 3.4 g/t) in the inferred category.  Avnel also holds the Fougadian Exploration Permit covering an area of 75 sq. km. to the south of the main Kalana Exploitation Permit area and abutting it.

Technical Information and Qualified Person/Quality Control Notes

Information in this release arising subsequent to the date of the 2005 Snowden Technical Report regarding the Kalana Gold Mine and exploration activity is provided by Avnel management under the supervision of Roy Meade (a director of the Company) who is a non-independent "Qualified Person" as such term is defined in National Instrument 43-101. Portions of the information are based on assumptions, qualifications and procedures which are not fully described herein.

Forward-Looking Information

This release includes certain statements that may be deemed "forward-looking statements". All statements in this release, other than statements of historical facts are forward-looking statements. Although Avnel believes the expectations expressed in such forward-looking statements are based on reasonable assumptions, such statements are not guarantees of future performance and actual results or developments may differ materially from those in the forward-looking statements. Factors that could cause actual results to differ materially from those in forward looking statements include market prices, continued availability of capital and financing and general economic, market or business conditions. Investors are cautioned that any such statements are not guarantees of future performance and actual results or developments may differ materially from those projected in the forward-looking statements. Avnel does not assume any obligation to update or revise its forward-looking statements, whether as a result of new information, future events or otherwise.

SOURCE: AVNEL GOLD MINING LTD.

Howard Miller
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