Patience and perseverance set to pay-off for Axmin?

Trying to build a gold mine in a sub-Saharan African country that has never had a modern mine is never an easy task. But the process seems to have been particularly arduous for Axmin (AXM-V).

There is little debate in mining circles about the quality of the company’s flagship project. Passendro is a well defined gold project that has been subjected to the rigours of both a feasibility study and an updated feasibility study.

But the sound economics and geological potential of the project have been overshadowed in years past by its location. The project sits in the Central African Republic (CAR), an at-times tumultuous country to the north of the Democratic Republic of the Congo. And while Axmin did manage to generate market momentum as it was proving up the project from 2003 to 2007, much of that momentum was lost when the government stalled on issuing a mining license and took away its rights to an iron ore discovery near Passendro.

The market has been slow to warm to the story ever since, even though the company has struck a favorable mining accord with the government, regained the rights to the iron ore grounds, and now – most importantly of all – is closing in on finalizing financing that would secure roughly two thirds of the capital it needs to build Passendro.

The latest announcement comes roughly six months after the company announced it had struck a deal with South Africa’s Standard Bank for US$100 million. That news led to a rally in the company’s share price, but unfortunately for Axmin shareholders, the good times were short lived and the company’s market cap began to sag all over again.

The release of its latest news – that it is set to raise another $85 million in debt financing – had little impact on its market cap as Axmin shares were flat in Toronto on Jan. 26 at 5.5¢.

The poor market performance has come despite the company holding 1.5 million oz. of proven and probable reserves at an average grade of 1.9 grams gold and another 2.03 million oz. of measured and indicated grading 2 grams gold.

The deposit is anticipated to feed into a mill that will turn out 205,000 oz. gold in its first three years of operation at operating cash cost of US$437.

Using a 5% discount rate, the project has a net present value (NPV) of $340 million but Axmin’s market cap sits at just $34 million. And that’s to say nothing of the roughly $10 million in cash it is sitting on – an amount left remaining even after it made an early and final payment to the CAR government for $3 million earlier this month.

“There’s not a decent correlation between where we are, what we have and what we are doing and our market cap,” Axmin chief executive George Roach says.

But with the latest announcement that could be set to change.

While the lending institutions didn’t want to be named at this point, Roach says they are European-based development agencies with a mandate to encourage economic growth in Africa.

“We don’t get any huge favours,” Roach says when asked if the agencies offer better terms than commercial institutions. “Although they want to do business in Africa for moral reasons, that doesn’t change the fact that they want their money back.”

He says the terms offered are comparable to what large commercial banks are offering.

The debt financing deal will be finalized once some remaining terms are met. The key work left to be done is on the legal due diligence side, where the process will be for lawyers to confirm the stability and legitimacy of the company’s mining agreement with the government and the role that international arbitrators would play in the case of any disputes.

Roach says that legal council has advised that such due diligence should be done by March 31 of this year.