Avion Gold’s Q1/10 results missed with negative short-term implications, but the growth story remains intactfor the long term. In the quarter, the company opted to continue building gold inventory rather than selling it down. Gold sales
were 17,298 oz versus 24,000 oz expected and 13,376 oz in Q4/09. Cash costs were higher due to the previously-announced
operational challenges (minor pit slump and mill down-time) and resulted in a US$773/oz average versus US$554/oz expected
and US$604/oz in Q4/09. Bottom line, Avion reported Q1/10 net and comprehensive income of US$1.7 million, or
US
.00/share, versus US$11.1 million, or US
.04/share, expected and US$7.4 million in Q4/09. Earnings were also
negatively impacted by higher stock-based compensation, a foreign-exchange loss, and an unrealized loss in investments.
However, Avion is a growth story and a quarter of missed earnings is likely not material. Canaccord Genuity Mining Analyst
Eric Zaunscherb highlights that in the ongoing flight from risk, short-term negative performance will be seized upon as an
excuse to sell. His growth thesis remains intact, with plans for mill expansion and underground development crystallizing,
supported by exceptional exploration results. Avion Gold is among Zaunscherb’s top picks as it remains one of the least
expensive of the gold producers in the Canaccord Genuity coverage universe, offering excellent upside in resources and,
consequently, gold production. Upcoming catalysts include: 1) Monthly operational updates demonstrating steady-state
production; 2) Commencement of underground development at Tabakoto in Q3/10; 3) Updated Tabakoto resource estimate in
Q3/10; 4) Exploration results from aggressive US$10 million program through 2010; and 5) Potential acquisitions meeting
Avion’s stated goal of consolidating West African gold production.