Kalana shows high-grade and low-cost potential
Avnel Gold Mining Limited (AVK.TO) has announced a preliminary economic assessment (PEA) for its Kalana Main Project gold deposit in south-west Mali. Importantly the PEA includes Avnel’s first resource estimate since its exploration agreements with IAMGOLD lapsed on 1 March 2013. The Kalana PEA highlights an indicated resource of 1.25Moz (at 4.53g/t) and an inferred resource of 0.25Moz (at 3.76g/t). It states an NPV10 for Kalana of US$194m (using a US$1,100/oz Au price).
Conventional processing and long mine life
The Kalana PEA indicates a 14-year life-of-mine (LOM) with an average gold head grade of 3.1g/t. Kalana’s gold production profile envisages 138koz for the first four years, with 98koz a year until the last year of planned operations. Processing Kalana’s gold ores should be relatively low risk using conventional gravity and CIL techniques, indicating a very positive 93% gold recovery factor can be achieved from primary ores mined from open-pit operations and 83% from the tailings.
Re-assays improve IAMGOLD’s grades 25-50%
Avnel’s consultant Snowden completed a re-assay programme in 2013 and 2014 using the LeachWell method, which tested 2.00kg samples rather than the more conventional 50g fire assay sample size used previously by IAMGold (IMG.TO). This was undertaken to investigate the potential for under-estimation in gold grades occurring from the highly variable nature of Kalana’s gold. Indeed Avnel states the re-assay results improved the gold grades by between 25% and 50% over that estimated using 50g fire assay samples.
Valuation: NI 43-101 required to check Kalana’s value
Although the mineral resource is not yet an ore reserve, the existing Kalana UG mine, and the high concentration of drilling undertaken by IAMGOLD, lend support to the preliminary mine scheduling that results in the NPV10 US$194m (post-tax and imputed interest). This was based on US$188m of initial capex, and all-in project costs (including capex) of US$679/oz Au. We stress that a PEA carries a high degree of risk, not just due to the fact no mineral reserves have yet been estimated to guide sophisticated mine planning, but also due to a lower degree of accuracy being applied to project operating and capital cost inputs. Avnel, however, is now looking to fast-track the Kalana Main Project through a PFS and FS (at an estimated total cost of US$16m), with first production anticipated in H217. We will reinstate our forecasts once the full Kalana NI 43-101 PEA is released and incorporated into our model (due by 31 March 2014).