http://www.bullionbullscanada.com/index.php?option=com_content&view=article&id=6811&catid=44

Metals and Mining -- Precious Metals and Minerals
NEW PRICE DECK RAISES TARGET
TO C$1.30, SPECULATIVE BUY
RATING MAINTAINED

Event
Avion Gold has been removed from our research restricted list. In the interim we raised our long-term gold price forecast to US$850/oz and our peak gold price to US$1,300/oz.

Impact – Positive
The raised gold price forecasts increase our valuation for the Ségala and Tabakoto gold mining operation in Mali.

Valuation and action
We apply US$850/oz long-term price deck and US$1,300/oz peak gold pricing scenarios to our operational model for the Ségala and Tabakoto gold mining operation in Mali. With our price deck we estimate a project NPV(7.5%) of C$174 million, increased from C$154 million. Taking into account corporate adjustments yields a corporate NAV of C$222 million, increased from C$190 million. Applying a conservative 1.1x P/NAV multiple generates a supportive C
.80 per share price target under long-term pricing, or a formal C$1.30 price target under peak pricing, both increased from C
.70 and C
.90, respectively. The 202% projected return amply supports a SPECULATIVE BUY rating.
Avion Gold continues to be one of the least expensive of the gold producers under our coverage, trading at 2.9x 2010E P/E, 2.6x 2010E P/CF and 0.39x P/NAV (5%, spot) versus peer metrics of 10.5x, 7.9x and 1.05x, respectively. We expect that successive successful quarters will prompt a rerating. Watch for a report from the company by year-end considering the feasibility of doubling mill throughput.

VALUATION AND ACTION
Figure 1 shows our new forecast deck for metal prices featuring a long-term gold price forecast of US$850/oz. In addition we have raised the peak gold price used in generating our formal price targets to US$1,300/oz from US$1,100/oz. We apply US$850/oz long-term price deck and US$1,300/oz peak gold pricing scenarios to our operational model for the Ségala and Tabakoto gold mining operation in Mali. Figure 2 provides a snapshot of
expected mine production. As summarized in Figure 3, we apply a 7.5% discount rate to the cash flows generated by Tabakoto and Ségala, a rate higher than the 5% we normally use to account for Avion’s short track record, the lack of diversified supply (single mine producer) and location in Mali. With our price deck we estimate a project NPV(7.5%) of C$174 million, increased from C$154 million. Taking into account corporate adjustments yields a corporate NAV of C$222 million, increased from C$190 million. Applying a conservative 1.1x P/NAV multiple
generates a supportive C
.80 per share price target under long-term pricing, or a formal C$1.30 price target under peak pricing, both increased from C
.70 and C
.90, respectively. The 202% projected return amply supports a SPECULATIVE BUY rating. In Figure 4 we show the new earnings and cash flow estimates compared to our previous estimates. Avion Gold continues to be one of the least expensive of the gold producers under our coverage, trading at 2.9x 2010E P/E, 2.6x 2010E P/CF and 0.39x P/NAV (5%, spot) versus peer metrics of 10.5x, 7.9x and 1.05x, respectively.

Important possible share price catalysts near-term include:
• Ongoing assays from the completed 2009 drill program,
• Release of study by year-end to expand production to 200,000 oz/a,
• Release of initial results of study in Q1/10 concerning low-grade heap leach, and
• Potential acquisitions meeting Avion Gold’s stated goal of consolidating West African gold production.