TORONTO () -- AXMIN's [TSXv:AXM] management team and private Swiss energy-trading giant Addax & Oryx were the first mineral explorers to enter Tanzania in 1989. In just a few years, the group discovered the Golden Pride mine, and the behemoth Geita gold mine and then sold the company for several hundred million dollars.
Today, we will look at how these same people are repeating the formula in another African nation that is hugely rich in mineral wealth and totally underexplored: the Central African Republic. This piece will focus on the bottom line and the exit strategy for investors, and so will avoid serious discussion of some of AXMIN's other projects in central and west Africa.
Properties
Included in AXMIN's 3,000 square kilometres of ground in the CAR are the Bambari permits, which host an indicated and inferred resource of 2.2 million ounces of gold.
Four drill rigs are working to further delineate and upgrade the present resource, and feasibility studies are ongoing with a final feasibility projected by Q1 of 2007.
Presently the company is talking about putting Bambari into production at around 150,000 ounces per year, though the ultimate goal could be twice or three times this number.
Valuation
At present, AXM is valued at about C$45 per ounce if one looks only at their CAR ounces, and not the few hundred thousand 43-101 ounces that they have at their various projects in other parts of Africa.
This is not a very promotional group, and AXMIN flew under the radar for a long time, but having just completed a C$20 million private placement with RBC, AXM will now be followed by three analysts, and this will help to raise the company's profile.
Granted, the company appears to be doing more in-fill type work rather than generating new exploration targets at the moment, but the end game seems fairly obvious: these are world-class explorers and minefinders with a massive land package, and the 2.2 million ounce resource could well be expanded to 5+ million ounces over the next couple of years. As this occurs, the proposed "minimum 150,000 ounces of gold production" per annum which is currently being contemplated could rise to 300-500 thousand ounces per year.
A look at AXMIN's corporate presentation leads one to believe that the company is trying to bring the mine to production itself with the stated strategy of using cash flow to boost the resource over time, but we do not believe that operating a mine is likely to be in this company's future.
Conclusion
The most probable outcome to all of this, in the opinion of your humble correspondent, is that sometime in 2007, a major with experience operating in Africa could step in, probably an Ashanti (they bought Geita from this group), or a Goldfields.
Depending on the progress made over the next 12-18 months, an offer for AXM in and around C$2 per share (could be a little bit more than this if VIA is any guide) would seem fair (in the current gold price environment) in order to account for all of the exploration upside plus the ounces that are already delineated.
At that point, Addax & Oryx, the Swiss group that controls around 40% of the company would almost certainly elect to take the liquidity offered by a larger suitor, and monetize its position - and whoever acquires Bambari will have what at the end of the day will likely be a world-class mine ready for first pour before 2010.
C$2 per share would represent a 320% gain from the current share price, and though some other vehicles offer more potential upside, the risk/reward ratio on AXMIN is superb, as the downside is extremely limited at these levels. Even the perceived risk of operating in the CAR is very much offset by Addax & Oryx's excellent African connections, and the fact that AXMIN just practically co-wrote the country's mining law. All of this adds up to the fact that AXM looks quite attractive at these prices.
And one can be sure that if and when AXMIN is sold off, this group will turn around and do it all over again.
