Avnel sees Kalana as open pit mine

Howard Miller, executive chairman and CEO of Avnel Gold Mining (TSX: AVK), has had his fair share of success over the last 35 years.

As a founding director of Nelson Resources, he was part of the team that oversaw the sale of the company and its three onshore oilfields in Kazakhstan to Russian energy and petrochemicals company Lukoil in 2005 for US$2.2 billion.

He has raised over $600 million to finance the development or restart of 10 mines in Africa, Central Asia and Canada, and more recently has advanced Avnel Gold’s Kalana gold project — one of the largest and highest-grade undeveloped open-pit gold projects in West Africa.

Miller’s family trust (the Fern Trust) co-founded the company as a private concern with Elliott Management, the multibillion-dollar hedge fund founded by Paul Singer. The company went public in June 2005 and Elliott Management owns 61% of its stock, while Fern Trust owns 11%.

Workers log core at Avnel Gold Mining’s Kalana gold project in Mali. Credit: Avnel Gold Mining

“I had a good relationship with Jon Pollock — the current co-CEO of Elliott Management,” Miller says by phone from London, noting that the two worked together at Nelson Gold, which acquired a former Soviet gold mine in Tajikistan. It was there that the Russian geologists on staff told them about a former Soviet underground gold mine in Mali, where the geology looked prospective.

The Soviets built the mine in 1984 and it started production in 1985. But the small underground room-and-pillar operation only produced 81,000 oz. gold (227,000 tonnes ore at an average head grade of 13 grams gold per tonne) before the Soviet Union broke up in 1991, at which point the operation was put on care and maintenance.

Avnel acquired 80% of the past-producing mine and an accompanying land package of 387 sq. km through a subsidiary in December 2002 (the government of Mali owns the remaining 20%), and in 2003 was awarded an exploitation permit for its first 30 years. As part of the foundation agreement Avnel agreed to resume mining — but its goal was to convert the tiny operation to an open pit.

“We put the underground mine back into production and used it as a tool and base to explore the bulk-mineable potential,” Miller says.

Since then Avnel has defined measured and indicated resources at Kalana of 23.7 million tonnes grading 4.07 grams gold per tonne, at a cut-off grade of 0.9 gram gold per tonne for 3.1 million oz. gold. Inferred resources add 1.7 million tonnes grading 4.51 grams gold for 0.24 million oz. gold.

The Mali government has approved the company’s environmental and social impact assessment, and the associated environmental and social management plan.

In March, the company completed a feasibility study on an open-pit operation based on a US$1,200 per oz. gold price. The study outlined annual production of 101,000 oz. gold over an 18-year mine life at total cash costs of US$695 per oz., and all-in sustaining costs of US$784 per oz.

At an 8% discount rate, the after-tax net present value was US$196 million and the after-tax internal rate of return was 38%. A US$163-million pre-production capital cost payback would come within 1.2 years from the start of commercial production.

The deposit contains high-grade mineralized zones with 5-metre benches. The waste zones will be bulk-mined on 10-metre benches. The mine area consists of a weathered zone an average 60 metres below surface, which is amenable to free digging.

The mine schedule targets the saprolite areas that could make a lot of cash early in the mine life. The processing plant design is based on an annual throughput rate of 1.5 million tonnes per year of saprolite and 1.2 million tonnes per year for spark and fresh rock material.

“The project itself isn’t an easy project — it’s selective mining,” Miller says. “But I’m confident that it will get into production. The economics are robust.”