Update: Avnel Gold's Earnings And Pre-Feasibility Study Commencement

Aug.20.14 | About: Avnel Gold (AVNZF)


Avnel Gold reported its Q2 earnings and announced that it has commenced its pre-feasibility study for its Kalana Project.

The bullish thesis I put forth in April remains intact as management moves the Kalana Project forward as expected.

As I anticipated in April the stock has pulled back as investors have taken profits, but the shares have reached support making them extremely compelling for long-term investors.

*Note that investors should buy this illiquid stock in Toronto under the ticker [TSE: AVK] given that it is so illiquid in the OTC market.

Avnel Gold (OTC:AVNZF) just announced its second quarter earnings results. The company's earnings fell to ($2.1 million) from ($900,000) as gold production fell along with the gold price. Revenues fell from $4.7 million to $2.8 million, again reflecting lower gold price and production.

However for Avnel the development of the Kalana surface mine is far more important than the small loss from the mine's underground operation. That is why I was pleased to see that the company announced that it is commencing its pre-feasibility study for the surface mine at Kalana.

If you'll recall my April article, I pointed out that the Kalana surface mine is one of the most economic projects owned by a publicly traded company. While production costs will rise steadily throughout the mine's life, they start at under $400/oz. and rise to just $900/oz., meaning that Avnel is one of the few companies that can withstand lower gold prices. In fact in the company's preliminary economic assessment it uses a gold price of $1,110/oz. as its "base case" and shows an IRR of more than 50%. The PFS is expected to solidify the bold claims made in the PEA and generate investor confidence so that management can secure financing for this project despite its location -- Mali.

Since I wrote about the stock it has fallen back to Earth after spiking on the PEA news that prompted my bullish article. However I anticipated this. Since around May, the stock has been consolidating and forming a base at around C$0.12/share to C$0.15/share, and I think this is a compelling entry point. More conservative investors may want to wait for the actual release of the PFS, which should be towards the end of the year.

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