Mahdia successfully bids for historic Omai gold mine

Mahdia Gold (MGD-C) has won the bid for Guyana’s famed Omai gold mine, which under operators Cambior Resources and Golden Star Resources (GSC-T, GSS-N) produced nearly 4 million gold oz. over 13 years starting from 1993.

Said to have been the first modern gold mine built in Guyana as well as the largest gold mine in South America at the time it began production, Omai landed itself in the annals of mining history in 1995 when a tailings dam at the mine broke, sending millions of litres of cyanide waste into a nearby river. The well-publicized accident led to a $2-billion class action lawsuit brought on behalf of 23,000 people connected to the area, though Guyana’s Supreme Court eventually dismissed the suit in 2008.

Cambior and Golden Star decommissioned the mine in 2005 due to the depletion of reserves, with Cambior’s successor Iamgold (IMG-T, IAG-N) then completing mine closure and reclamation before turning over the rights to Omai to the government of Guyana.

Mahdia has yet to disclose the price it paid for the mine, though it outbid three other companies for the property. Mahdia said it expects to close a previously arranged $5-million financing soon and will likely arrange another one shortly thereafter, giving some indication as to what the price was.

The company asserts Omai might still contain significant gold resources, citing work completed by Cambior/Iamgold in 2006 and 2007, including 46 diamond drill holes totalling 27,359 metres testing the Fennell open pit at depth (up to a maximum of 967 metres). The work outlined an additional resource of 17.5 million tonnes grading 2.51 grams gold per tonne for an estimated 1.4 million gold oz.

Among other things, Mahdia claims the purchase elevates it “from being an exploration company to a near-term producer,” and that it will soon apply to list its shares on the prestigious Toronto Stock Exchange rather than the low-profile Canadian National Stock Exchange, or CNSX.

Mahdia’s chairman and CEO, Sheik (Alan) Zaakir, has been with the company since around 2003, when it was a technology company known as Wintercrest Resources. He changed the company’s name to Mahdia in 2009 (along with a 1:2 rollback) after selling it three mineral prospects in Guyana near Omai through a private company, Aztek Resource Development, of which he was then president.

According to company documents, Zaakir was born in Guyana but is now a resident of Canada and a “close personal associate of the former president of the Co-operative Republic of Guyana.” Although he enjoys “excellent political and business ties to Guyana,” the bulk of Zaakir’s work experience concerning public companies lies in the technology sector.

One of his more noteworthy endeavours was MyStoryFriend, a developer of MP3-enabled plush toys for kids. (The toys could connect with the Internet to download stories, songs and other material from the company’s website for a small fee.) After unsuccessfully trying to sell the concept to a few public companies at the end of the 2001 Dotcom bubble, Zaakir took the toy business public by selling it to Wintercrest for 25 million shares and listing it in 2004. Wintercrest would then write off MyStoryFriend for a loss in 2008.

While Zaakir was not immediately available for comment, it appears he might have forgotten to update his insider trading reports on SEDI, which disclose him as owning zero Mahdia shares. (The last transaction entered for him is from 2004, when he gifted four million shares to his spouse at the time, Marilyn Medina, leaving him with no shares and her with 6.1 million. Her last reported transaction relating to the company is also from 2004.) Wintercrest’s 2009 management information circular, however, discloses Zaakir as beneficially controlling, either directly or indirectly, 3.6 million shares.

Shares of Mahdia have performed well in 2011, climbing from 15¢ in early February to an intraday high of $1 on May 31, following the acquisition of Omai. At presstime on June 1, they were down 5¢ to 81¢ on 130,000 shares traded.