The Underground Kalana Gold Mine

The Company’s principal asset is an 80% indirect equity interest in SOMIKA, with the Republic of Mali holding the remaining 20% equity interest, which has free carry and anti-dilution rights. SOMIKA owns and operates the Kalana Gold Mine, a small, Soviet-era, underground gold mine, and hold rights to the Kalana Exploitation Permit, a combined exploitation and exploration permit that is unique in Mali. This permit is also host to the Kalana Main Project, the Company’s flagship development-stage project, plus a number of advanced exploration projects and mineral prospects.

2016 Production Forecast

In 2016, the Kalana Gold Mine is scheduled to produce approximately 4,400 tonnes of material per month from a mix of underground production and surface stockpiles at an average grade of 6.4 g/t until the end of 2016. Following the cessation of underground mining, the Company plans to process surface stockpiles, which are estimated to contain 2,500 tonnes of material at an average grade of 6.7 g/t Au. As a result, Avnel is forecasting gold production of 8,600 ounces in 2016 from a total of 53,000 tonnes of material at an average grade of 6.4 g/t Au with a budgeted metallurgical recovery rate of 78%.

Under the prevailing gold price environment, the underground mine is not profitable and continues to be operated principally for exploration purposes and to maintain socio-economic stability in the local community. The Company plans to continue underground mining following the recent completion of the DFS until such time as the Company has assessed the DFS in order to better evaluate future development options for an open pit mine to enable a smooth transition for the workforce to a proposed open pit mining operation at the Kalana Main Project.

History of the Kalana Gold Mine

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.

Avnel resumed mining operations at the Kalana Gold Mine in January 2004 as one of it’s commitments under its 2003 Foundation Agreement with the Government of Mali. Avnel continues to operate the mine as an underground room and pillar mine with gold being recovered in a gold plant using gravity recovery methods only. From 2004 to year-end 2015, the mine has produced 168,170 ounces of gold from a total of 530,991 tonnes at an average grade of 11.5 g/t at an average recovery of 85.9%.