Axmin’s permits restricted in Central African Republic (August 29, 2008)

A decree by the Central African Republic to restrict permits valid for a number of minerals to gold alone is a devastating blow for Axmin Inc. (AXM-V), which over the last ten years has spent $60 million in the country.

The gold and iron ore exploration company’s permits for its Bambari 1 and 2 properties were originally valid for gold, silver, copper, nickel, lead, zinc and iron.

The two contiguous permits together make up about 1,000 sq km and host Axmin’s Passendro gold project and its promising Topa iron belt.

“This came out of nowhere,” says Mario Caron, Axmin’s president and chief executive, who joined the company in January. “We’re extremely disappointed and upset. This is not good news for the country.”

Caron declined to speculate on the reasons behind the decree, but promising drill results from its Topa iron project may offer a clue.

Topa’s first batch of exploration drill holes demonstrated high-grade iron horizons with a weighted average grade of 63.1% iron. The horizons were delineated by airborne magnetics for at least 28 km.

Axmin believes that the initial results suggest that the Topa iron belt has the potential scale and quality of similar high-grade iron ore deposits that are being developed in neighbouring Cameroon and Guinea.

The decree does not affect Axmin’s Passendro gold project, however. Currently Axmin and its subsidiary Aurafrique are in discussions with the government for a mining licence for Passendro, on which a bankable feasibility study was completed in April.

Now even that project looks like it is on shaky ground. “Even though we’ve retained the right to gold it could prove difficult to secure financing for the project because of the uncertainty and the political risk that has definitely increased with this kind of action,” Caron says.

Moreover, the government announced in May that it wanted to review the terms of the existing convention with Axmin on Passendro.

The decree will have repercussions far beyond Axmin itself and will send yet another chill through the mining industry in Africa, Caron says.

“It will have consequences above and beyond just our activities in the country,” he says. “I think it’s going to scare off a lot of other people who may have been looking at us because we are essentially trail-blazing in the country.”

Caron says Axmin has been in the Central African Republic longer than any other junior and has spent the most money. He believes that many companies are looking at it as a test case for investment there.

“The industry is looking at us to see what will happen and if we’re successful I think you’d see more exploration in the country,” he says.

More investment is certainly what this landlocked nation of 4.3 million, among the world’s poorest, desperately needs. The Central African Republic ranks 172nd out of 177 on the UNDP’s Human Development Index and 67% of its people live on less than US$1 per day.

Since its independence from France in 1960, the country has experienced fifteen coup d’etats and its long and porous borders with troubled Chad in the north, Sudan in the east, the Republic of the Congo and the Democratic Republic of Congo in the south and Cameroon in the west have not added to its appeal.

Until recently, however, Axmin felt relatively confident about the company’s future there. In a company presentation published in April, Axmin described the government as being “pro-mining” and outlined the “excellent fiscal terms” of its mining convention for the Passendro gold project, which include a 5-year tax holiday, no VAT and a fuel tax exemption for the life of the mine.

Caron is not giving up hope that Axmin can push ahead with Passendro despite the difficult conditions. “As difficult as it may seem, we’re trying not to go into open warfare with the government,” he says. “We’re pursuing the gold mining licence and we’re close to getting a satisfactory resolution on that. We definitely have a project that merits going ahead with production.”

A recent feasibility study demonstrated that during the first three years a mine at Passendro would produce an average of 223,000 oz. gold a year at an average cash cost of US$343 per oz.

Using a base case of US$750 per oz., Passendro would have an internal rate of return of 29.4% and a net present value, at a 5% discount rate, of US$164 million.

The deposit hosts a measured and indicated resource of 23.2 million tonnes grading 2.4 grams gold per tonne (for total contained gold of 1.8 million oz.). Inferred resources are estimated at 16.7 million tonnes grading 1.9 grams gold per tonne (for 1 million oz. contained gold).

The Bakari permits were last renewed on June 29, 2007 and are valid until June 29, 2010.

News of the setback sent Axmin’s shares down 21.05%, or 4 apiece, to 15 a share.

Over the last year the junior’s stock has been trading at between 17.5-98 per share.