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Middle Island Resources Limited (ASX: MDI) has announced it has entered into a heads of agreement for the purchase of a 100% interest in African GeoMin Mining Development Corporation Limited (AGMDC).

AGMDC, a wholly-owned indirect subsidiary of SEMAFO Inc. (TSX:SMF), holds an 80% interest in Société des Mines du Liptako (SML) S.A. (SML), owner and operator of the Samira Hill gold mine. The Government of Niger owns the remaining 20% interest in SML.

The acquisition comprises an operating gold project that includes approximately three years Ore Reserves, Inferred Resources at Tala Tonde and Tonde Boubangou that have the potential to add a further two or more years mine life to the project, plus considerable exploration potential. In addition, the centrally located gold plant provides the opportunity to process any gold discoveries within the company’s own surrounding permit interests.

Middle Island MD, Rick Yeates said: “Although representing an option on the gold price in the short term, this acquisition completes the remaining piece in Middle Island’s highly prospective Sirba Project strategy, providing the opportunity to process all deposits identified by MDI and partners within the project area itself and the wider Sirba Project at a centrally located milling facility that is in sound working order.”

The projected production from the project is anticipated to approximate 40 000oz to 50 000oz per year over the initial three year period, subject to further optimisation and detailed mine design.

Based on existing reserves and resources, plus the likely addition of the company’s Tialkam South deposit, Yeates said it is easy to envisage a possible mine life of at least eight years, with plenty of exploration upside throughout the enlarged Sirba Project to provide further additions with time.

“The acquisition, we believe, also represents exceptional value to Middle Island shareholders, obviating the need for substantial capital expenditure on a new processing facility and associated infrastructure at the project.”

The acquisition provides the opportunity for Middle Island to be in gold production from 1 October 2013, thereby providing cashflow in the 2013 December quarter.

Consideration for the purchase comprises a cash payment of US$1.25 million and a fixed net smelter return (“NSR”) royalty of 1.2% on gold sold from the Samira Hill plant. The NSR is payable only if the spot price of gold is at or greater than US$1,450 per ounce and is capped at US$12 million.

Closing of the transaction is subject to the following conditions:-

 Completion of satisfactory legal and financial due diligence by Middle Island Resources.

 Completion of mutually satisfactory transaction documents.

 Completion of an AUD$5 million equity capital raising by Middle Island Resources.

 Grant of substitute exploration permits to Middle Island over the land presently the subject of exploration permits located in the vicinity of the Samira Hill plant in which Middle Island is currently earning an interest.

 Obtaining all required governmental and regulatory approvals.

 Transfer by SML to Semafo of certain rolling stock and mining equipment.

Subject to fulfillment of the above conditions, closing of the transaction is anticipated to take place on or prior to September 30, 2013. Each party has the right to terminate the Heads of Agreement prior to closing the transaction.

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