Friday, May 18, 2012

West Africa Focused Gold Producer Looking For a Bottom

West Africa Focused Gold Producer Looking For a BottomOrlando, FL 5/18/12 (StreetBeat) -- West Africa has become a hotbed for gold mining activity in recent years with its vast reserves of high-grade gold as production in South Africa has contracted, but the area is not without its risks. An uprising in March in the north of Mali by Touareg rebels, impacted several North American-based miners in the area; some worse than others. Top ten gold producer Gold Fields (NYSE:GFI) suspending drilling operations; Randgold Resources Ltd.(Nasdaq:GOLD), who derives the majority of its gold sales from Mali mines, said that operations weren’t affected as much as their fuel supplies; and Avion Gold Corp. (OTCQX:AVGCF) saw shares plummet on the coup news. Avion reported that it had suspended mill expansion plans as a result of the conflict. In addition to owning its promising Houndé gold project in Burkina Faso, Avion holds 80 percent of the Tabakoto and Kofi mines, both of which are northwest of Mali’s capital, Bamako.

Shares of Avion have tumbled about 70 percent to date in in 2012, but are getting a bit of a bounce in early morning trading upon releasing its first quarter 2012 results from operations.

The company reported a four percent increase in revenue of $33.0 million for the quarter compared to revenues of $31.8 million for the comparable quarter in 2011. Avion produced 26,256 ounce of gold during the quarter after final refinery adjustments at a cash cost of per ounce produced of $898. Mining and processing costs were $19.0 million compared to $13.0 million for the comparable quarter last year. Avion recorded a net loss of $6.2 million, or $0.01 per share, for the quarter as compared to net income of $12.6 million, or $0.03 per share, for the same quarter in 2011. In part, the loss was attributed to higher costs from transitions to underground mining; depletion and depreciation charges of $5.1 million and foreign exchange losses of $3.0 million.

Adding some promise to a better second quarter, despite recently cutting production expectations for 2012 from 140,000 – 150,000 ounces to 90,000 – 100,000 ounces, Avion sold 6,188 more ounces of gold in April from inventories. Those sales will benefit operational profits during this quarter. To that end, production mining at the Tabakoto underground deposit also began in February with the ore registering an average estimated grade of 5.40 g/t gold.

At the end of the quarter, Avion had $41.2 million in cash and cash equivalents, including working capital of $19.2 million.

Shares gapped-up modestly with the report this morning but at the time of publishing were back down to even trading on the day. Avion has substantial holdings in a prime gold belt in West Africa, which give the company a certain amount of appeal at these depressed prices. There are clearly hurdles ahead of their mining operations, but the company could represent a value proposition based upon its improved mineral resources at Tabakoto. The stock price is in free-fall, but investors should have their eyes open to it finally finding a bottom as the market cap has been chopped from more than $800 million at peaks in February to around $215 million presently.

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