South African dealmaker finds US$100 million for struggling Axmin

Turning around a penniless junior mineral explorer looking to develop a gold project in the Central African Republic, of all places, is not a job most people would relish. Taking the job without a salary in order to save the company money – well, that would only seem to make it less appealing.

But Toronto-based Axmin (AXM-V) seems to have found just the right man for the job in its new president and CEO, George Roach.

Hailing from South Africa, Roach is an old hand when it comes to sub-Saharan Africa, having worked throughout Chad, Zambia, Mali, Namibia, the CAR and others over the years finding properties and getting the right people together to make things happen. Though neither a geologist nor a mining engineer, Roach describes himself as something of a “dealmaker, a company-starter and so on,” in a telephone interview with The Northern Miner from his office in Toronto.

Roach has been around Africa’s mineral exploration industry since the 1980s, with various recent ventures of his including: potash explorer Ethiopian Potash (FED-V), which Roach helped set up and list in March of this year boasting an option to acquire a potash project in the prospective Danakil Depression; former uranium resource company UraMin Inc., of which Roach was one of four founding directors, having helped the company secure its properties in its formative stages before it was sold to French nuclear giant Areva for US$2.5 billion in 2007; owning a 20,000-hectare tract of land in the CAR for which Roach has an agreement with the government to turn into a sugar plantation; starting a successful South Africa-based spice trading and milling business, now in its fifth year of operations; the list goes on.

So when Roach learned Axmin was struggling to get approval for a mining licence for its promising Passendro gold project in the CAR, he saw an opportunity that was too good to pass up. CAR’s government had delayed the permitting process and had even removed the company’s rights to iron ore discovered on a property adjacent to Passendro, which when added to woes of the 2008 financial crisis, culminated in Axmin’s shares dropping from around $1 to the 10¢ range, where they have largely remained since early 2009.

“I started reopening negotiations with the state around March/April last year… and it culminated in a new addendum to [Axmin’s] historic mining convention being signed in July, and a new 25-year mining licence and 2 new exploration licences granted to us in August,” recalls Roach.

Dreadfully short on cash, Axmin completed a reverse takeover of sorts in mid-2010 with AIM-listed AfNat Resources – of which Roach was then president and CEO – giving Axmin control of AfNat’s roughly $15 million in cash and marketable securities, and putting Roach in charge.

The dealmaker then went to work updating Axmin’s 2008 bankable feasibility study, which South African engineering firm Senet completed in January 2011, and started looking for lenders to provide the nearly US$265 million needed to put the Passendro project into production.

Nearly half a year’s worth of negotiations later, Roach finally signed a mandate letter in mid-July 2011 with the Standard Bank of South Africa to arrange and underwrite a US$100-million term loan facility backed by Export Credit Insurance Corp. of South Africa. The bank has also proposed to work with other parties to provide a further US$130-million of debt facilities, bringing the total to US$230 million.

“We are in advanced negotiations,” explains Roach. “We’re hoping very soon to be able to deal with a second tranche… obviously we have to go through the various processes still of detail verification checks and so on and so forth, plus formal agreements with the lenders. But collectively, once we’re able to announce this next portion and get that signed, it will put us in a position where the debt component required to build the mine will be in place.

That will then leave us to come back to the market and deal with a manageable equity component.”

First, however, Axmin will have to fix some capital structure problems. The company has approximately 628 million shares currently outstanding, ballooning to 791 million if fully diluted, though Axmin has recently received shareholder approval for a rollback. According to Roach, a share consolidation in the order of about 1:20 seems about right, leaving Axmin with just 31.4 million shares outstanding or 39.5 million fully diluted and a share price around $2.

Should both the debt and equity financings go ahead as planned, Roach figures Axmin could put Passendro into production by the end of 2013. With production forecast to be 205,000 oz. gold over years one to three and an average of 163,000 oz. gold over an 8.3-year mine life, Passendro’s economics look to be robust assuming a US$1,100 gold price. The recently updated feasibility study considers conventional open pit mining using an owner-operator mining fleet and a 2.8-million-tonne-per-year gravity-CIL process plant. It estimates an internal rate of return of 32%, an NPV of US$340 million using a 5% discount rate and fairly low cash costs of US$484 per oz.

An updated mineral resource estimate for Passendro from June 2009 outlined measured and indicated resources totalling 31.5 million tonnes grading 2 grams gold per tonne for 2.02 million oz. gold, in addition to inferred resources totalling 21.6 million tonnes grading 1.6 grams gold containing another 1.1 million oz gold.

According to Axmin’s latest management information circular, president Roach “elected to receive options in lieu of a salary” for his six months of service in 2010, “in view of the company’s financial situation at the time… and his interest in assisting the company in preserving the funds required to advance the development of the company’s properties.” He was granted options to buy 5 million shares at 10¢ each.

Roach also purchased 2.1 million shares of the company directly and controls another 6.93 million shares indirectly through a family trust.

Following the debt financing announcement on July 20, shares of Axmin closed up 2¢ to 12¢ on 2.85 million shares traded.