Axmin’s Troubles Land It In Toro Gold’s Arms

A private gold exploration company with an interest in sub-Saharan and equatorial Africa hopes to acquire Canadian junior Axmin (AXM-V, AXMIF-O), which has gold and other assets in the Central African Republic, Mali, Sierra Leone and Senegal.

The Axmin acquisition would give Toro Gold a foothold in Central and West Africa, furthering its pan-African ambitions.

The Guernsey-registered company proposes to acquire all of Axmin’s shares for 14¢ per share in an all-cash deal.

At presstime in Toronto, Axmin was trading at 12¢ a share — down from a 52-week high of 17.5¢ in September 2009 but well above its 52- week low of 3¢ per share in December 2008.

Axmin was blindsided in late August 2008 when the government of the Central African Republic suddenly restricted the company’s permits to gold from a broad suite of minerals including silver, copper, nickel, lead, zinc and iron. The junior had found promising iron ore assets (the company’s wholly owned Topa iron belt) on its Bambari permits in the country.

Axmin launched a strategic review of its options in March 2009.

“After eight arduous months of pounding the pavement and marketing the company, this is the best offer we’ve come up with and it has the support of our major shareholder — the AOG Group (a subsidiary of the Addax & Oryx Group) — which holds nearly 50 per cent of the company,” Mario Caron, Axmin’s president and chief executive, explained in an interview.

“We’ve been extremely quiet because of the difficulty we’ve encountered in the Central African Republic so our financings have been modest and we haven’t done as much exploration as we have wanted to do,” Caron says. “We’ve been supported by our major shareholder but there was no guarantee that this was going to continue in the future.”

The acquisition is anticipated to close in January 2010 and is conditional on the completion by Toro Gold of an equity financing. The proceeds from the financing will be used for the Axmin acquisition and for general corporate purposes.

A circular to Axmin’s shareholders will only be distributed once the equity financing has been completed, Caron says. So far there is no break fee in place.

“There is the opportunity to consider superior proposals,” Caron adds. “If anyone has a chance or thinks it wants to offer more, there is a window of opportunity.”

Axmin’s most advanced asset is its Passendro project in the Central African Republic, which has a measured and indicated resource of 32 million tonnes grading 2 grams gold per tonne for 2 million contained ounces gold. Passendro’s inferred resource weighs in at 22 million tonnes grading 1.6 grams gold for 1.01 million oz. gold.

In May 2008, the government said it wanted to review some of the conditions of the mining convention it had signed with Axmin in January 2006. Among other things, the government noted that it would be willing to consider exchanging its 10% free carried interest in the company that holds the Passendro gold project, for a cash consideration and an enhanced royalty.

Passendro, about 60 km north of Bambari, would be a conventional open-pit mine with a carbon-in-leach plant. Caron said the project, which completed a bankable feasibility study in April 2008, has yet to receive a mining licence.

If the acquisition goes ahead, Toro Gold will also acquire Axmin’s Komahun gold project in the Archean greenstone belt of east-central Sierra Leone. Komahun has a National Instrument 43-101 indicated resource estimate of 400,000 tonnes grading 9.1 grams gold per tonne for 110,000 oz., plus 3.1 million inferred tonnes grading 4.3 grams gold for 435,000 oz. gold.

In March, Amxin completed a scoping study demonstrating that the Komahun project has the potential to be developed as an underground mine with production levels of about 50,000 oz. gold a year. At a gold price of US$750 per oz., the project would have a net present value (NPV) at a 5% discount rate of US$11 million; at a US$900 per oz. gold price, that would climb to US$48 million.

The third project in Axmin’s pipeline is the Kofigold project in Mali. As of December 2007, Kofi hosted indicated resources of 3.6 million tonnes grading 2.5 grams gold per tonne for 293,000 oz. gold, plus 5.3 million inferred tonnes grading 2.2 grams gold for 368,000 oz. gold.

“Mali is at the resource stage and we don’t have a plan yet and we don’t have enough resource to move to the prefeasibility study phase,” Caron notes.

For its part, Toro Gold is seeking to establish a multi-million-ounce portfolio through a combination of acquisitions and organic development. The company already has a joint-venture gold property in northeastern Guinea and another in Senegal.

Toro Gold’s chief executive officer, Martin Horgan, says the company has significant African experience both in terms of the board and the operating management and believes it can reach an agreement with the government of the Central African Republic.

“We’re very comfortable working in Africa,” he told The Northern Miner in a telephone interview from London. “We’ve got a significant amount of business and political relationships (there). We can work with the government of the CAR to reach a negotiated settlement around the issuance of the licence and put Passendro into development.”

Horgan, a mining engineer by training, has worked in the mining sector as an engineer in South Africa for Gold Fields; for Steffen Robertson & Kirsten in the United Kingdom; for Barclays Capital; and as executive director for BDI Mining Corp. Martin was part of the team that sold BDI Mining to Gem Diamonds (GEMD-L) in 2007.

Toro Gold’s management team also includes Adonis Pouroulis as non-executive chairman. Pouroulis founded Petra Diamonds( PDMDF-O, PDL-L) and listed it on London’s AIM market in 1997. He also successfully listed Chariot Oil & Gas, which holds offshore licences in Namibia. Chariot recently signed a farm-out agreement with Petrobras of Brazil.

Horgan says Toro Gold is seeking a listing on a major stock exchange “in the relatively short-to-medium term.”