Sounkounkou, Heremakono and Sabodala Licences
AXMIN has retained a 20% interest in its Sounkounkou, Sabodala NW and Heremokono explorations licences (the “Senegal Project”) located in the Birimian belt of eastern Senegal. Its joint venture partner, Teranga Gold Corporation (“Teranga”) earned an 80% in the Senegal Project in July 2011, by spending US$6 million on exploration.
During the first quarter of 2012, the Company announced that as a result of advancing the Gora deposit towards development, AXMIN and its joint venture partner Sabodala Mining Company SARL (“SMC”), a wholly owned subsidiary of Teranga, agreed to amend the original 2008 joint venture agreement. The amended joint venture and royalty agreement (the “Agreement”) supersedes and replaces the original joint venture agreement. The amended Agreement better reflects AXMIN’s interest in Senegal and gives the Company better flexibility to focus its work cost obligations on the Target Area’s that AXMIN deems will add most value for its shareholders.
The 2012 Agreement with SMC includes, among other things, the following terms: (a) both parties agree that their respective interests (Teranga–80% and AXMIN–20%) in the Project are divided into Target Areas (being areas subject to exploration) and Remainder Areas (areas not yet subject to exploration); and (b) that both parties will retain all respective interests in all of these areas, until an election is made by AXMIN to convert its 20% interest in a Target Area into a 1.5% NSR or Royalty Interest. AXMIN has made a Royalty Election with respect to the Target Area and SMC will solely fund all finance work costs for each of the Royalty Interests. In addition, AXMIN will have a free carried interest of US$2.5 million, with respect to the Target Area work costs commencing October 1, 2011, after which both parties are to jointly fund the Target Area work costs on a pro-rata basis.
At the date of this report, AXMIN has elected to maintain its 20% interest in all the Target Areas defined in the Agreement and has elected to take a Royalty Interest in the Gora Deposit. Currently under the terms of the Agreement, AXMIN has in excess of $527 in free carried exploration costs remaining in its account.
The Gora deposit, located on the Sounkounkou licence, has a proven and probable reserve, based on a US$1,500 gold price, of 2.1 Mt grading 4.22 g/t Au containing 285,000 ounces. The Measured and Indicated Resource at Gora has increased to 374,000 ounces of gold at 5.0 g/t Au and an Inferred resource of 20,000 ounces grading 3.4 g/t Au.
AXMIN holds a 1.5% NSR royalty interest in the Gora deposit, which is scheduled for production in 2014. The project capital cost is estimated to be $45 to $50 million. Total cash costs for Gora are estimated to average $675 to $700 per ounce which will be mined over an estimated 4-year period. The Project economics based on the proposed operating scenario and a discount rate of 5% return an after tax NPV of $105 million and an IRR of 69 percent at an assumed gold price of $1500 per ounce.
The terms of the joint venture with MDL include: