History of the Kalana Project
The area surrounding the Kalana Exploitation Permit was known as a gold producing region dating back to at least the 1300s under the reign of the Malian Emperor, Musa Keita I. The first documentation of modern gold exploration in the area covered by the Kalana Exploitation Permit began in the 1930s by French geologists. The area associated with the Kalana Gold Mine, was intensively explored from 1967 to 1982 by two Malian national companies, Société Nationale de Recherche et d’Exploitation Miniére (“SONAREM”) and Société de Gestion des Mines d’Or de Kalana (‘‘SOGEMORK’’), as part of Soviet technical assistance programs to Mali. In 1982, a decision was taken to develop the Kalana Gold Mine as a small, fresh rock only, underground mine using a recovery process based on crushing, milling, and gravity concentration. In 1984, the Kalana Exploitation Permit was created in the favour of SOGEMORK. The original permit was granted in 1984 for a period of 15 years, renewable at five-year intervals thereafter up to a maximum of a 30-year term.
Production from the underground mine commenced in 1985 and a total of 227,000 tonnes of ore was treated at an average head grade of 13 g/t to produce 81,000 ounces of gold by August 1991. In 1991, technical and financial resources were withdrawn from the Kalana Gold Mine following the dissolution of the Soviet Union. This resulted in the Kalana Gold Mine being placed on care and maintenance. The Kalana Exploitation Permit that was originally granted to SOGEMORK in 1984 reverted to the Malian Government following the dissolution of SOGEMORK in February 1992.
In 1994, the Malian Government embarked on a privatisation program with the assistance of the World Bank. As part of that program, the Malian Government launched an international call for tenders for the Kalana Exploitation Permit.
In February 1995, a joint venture (the “Ashanti-JCI Joint Venture”) of Ashanti Goldfields (“Ashanti”) and Johannesburg Consolidated Investment Co. (“JCI”) were awarded the right to acquire an 80% interest in the Kalana Exploitation Permit with the Malian Government holding the remaining 20% free carried interest, with Ashanti as the operator. JCI withdrew from the Ashanti-JCI Joint Venture in 1996 and in 1997 Ashanti mandated Rothschild Natural Resources LLC to seek a suitable mining company to develop, operate, and acquire a majority interest in the Kalana Exploitation Permit.
In May 1997, Nelson Gold Ltd. (“Nelson Gold”), a company previously managed by some of Avnel’s executive officers, reached agreement with Ashanti, subject to approval of the Malian Government. Following that agreement, Nelson Gold conducted a feasibility study on the Kalana Gold Mine. The Malian Government did not ratify the agreement between Nelson Gold and Ashanti. On April 15, 1999, the Minister of Mines of the Republic of Mali notified Ashanti that the Malian Government had terminated its right to the Kalana Exploitation Permit as the Ashanti-JCI Joint Venture had failed to meet its contractual commitment to resume production at the Kalana Gold Mine within the prescribed three-year term. The Malian Government re-issued international tenders in July 1999, and again in October 2001. Nelson Gold submitted a tender in July 1999, but was unsuccessful.
In July 2000, Elliott Associates L.P. acquired Nelson Gold’s intellectual property of the Kalana Gold Mine, which largely consisted of the various technical studies undertaken by Nelson Gold. In September 2001, Elliott Associates L.P. formed Avnel Cayman specifically to tender for the Kalana Gold Mine. Avnel Cayman tendered a bid in the October 2001 invitation, but was unsuccessful. However, when the successful company did not meet its initial financial commitments, the Malian Government offered Avnel Cayman the right to acquire the Kalana Exploitation Permit. The tender was formally awarded to Avnel Cayman on December 23, 2002.
The necessary legal agreements were concluded in the early part of 2003 and the permit was awarded to Avnel Cayman on April 7, 2003. On July 23, 2003, SOMIKA was incorporated as an 80% owned subsidiary of Avnel Cayman with the Malian Government holding a free carried 20% interest with anti-dilution results. Pursuant to the Foundation Agreement, which is summarised in the section titled “Material Contracts – Foundation Agreement”, Avnel Cayman transferred the permit to SOMIKA and the transfer was confirmed by the decree of the Malian Government in December 2003.
Mining operations were resumed by SOMIKA in January 2004 in accordance with the terms of the Foundation Agreement, which stipulated that the Kalana Gold Mine was to resume production for a period of no less than three years. At the date of this AIF, Avnel continues to operate the small, Soviet-era, Kalana Gold Mine as an underground room and pillar mine with gold being recovered in a gold plant using gravity recovery methods only.
In September 2009, the Kalana Main Project became part of a joint venture option agreement with IAMGOLD. The option agreement provided IAMGOLD the opportunity to earn an initial 51% interest in Avnel’s 80% share of the Kalana Project by spending a minimum of $11 million on exploration activities over three years and by delivering a NI 43-101 compliant technical report for a Mineral Resource of at least 2 million ounces of gold as well as proceeding with a feasibility study.
At the end of the exploration period, extended by mutual agreement to the end of February 2013, IAMGOLD had spent approximately $32.5 million on exploration activities at Kalana but had not delivered a Mineral Resource that met the two million ounce vesting threshold. This resulted in the automatic lapse of the option agreement. The costs incurred by IAMGOLD are represented by quasi-equity loans to Avnel Cayman, which were lent to SOMIKA. On expiry of the option agreement, IAMGOLD’s loans to Avnel Cayman were forfeited. IAMGOLD has no residual interest in the Kalana Main Project or SOMIKA.
Following the lapse of the option agreement, the Company expanded its management team and assembled a group of consultants to assist in the completion of studies and testing required to further advance the Kalana Main Project. To this effect, the Company completed a positive PEA for a potential open pit mining operation in the first quarter of 2014. Subsequently, the Company has completed four updates to the Mineral Resource, a drill program, and completed a definitive feasibility study.