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TABLE OF CONTENTS Feb 25 - Mar 3, 2013 Volume 99 Number 2 - 0 comments

PMI, Keegan scrap merger, for now

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VANCOUVER — Keegan Resources (KGN-T, KGN-X) and PMI Gold (PMV-T) have terminated a plan to merge after it became clear PMI shareholders were not going to approve the deal.

The two companies, which own neighbouring gold projects in Ghana, announced a merger-of-equals in early December. The deal would have given PMI access to Keegan’s well-stocked bank account, so that the company could finish building its Obotan gold mine without taking on extra debt.

The merged company would have used cash flow from Obotan to develop Keegan’s Esaase project.

The deal took advantage of a unique synergy: two companies rarely have neighbouring projects at similar stages and sizes that can be developed together to create a new gold camp. Unfortunately, PMI’s shareholders were not impressed with the deal.

“The decision [to terminate the merger] comes as a result of the mutual determination by PMI and Keegan that it is unlikely that PMI’s shareholders will approve the transactions contemplated by the arrangement agreement,” the companies wrote in a joint release. “The termination of the agreement is not on account of any differences arising between the respective boards about valuation issues, or on account of any new facts coming to their attention.”

PMI’s chairman Peter Buck says that several big shareholders objected to the transaction because they felt it ascribed too much value to the Keegan assets. The gold at Esaase is slightly lower grade than the gold at Obotan.

PMI shareholders were also concerned that the new company wouldn’t be listed on the Australian Securities Exchange, and would have a new slate of directors.

Buck says that PMI intends to hold further discussions with Keegan and its major shareholders to see if there are amended merger terms that would be acceptable to everyone involved. Since both parties agreed to terminate the deal, neither will pay a termination fee.

A PMI shareholders meeting scheduled for Feb. 20 has been cancelled, while a Keegan shareholders meeting scheduled for Feb. 19 will proceed, but only to consider approving a name change to Asanko Gold, which reflects the region of Ghana in which the company operates that was intended as the name of the merged entity.

The mine being built at PMI’s Obotan project is expected to produce 200,000 oz. gold annually starting in 2014. Plans for Keegan’s Esaase project envision a similar operation, producing 150,000 to 200,000 oz. gold annually starting in 2017. Obotan is home to 44.8 million measured-and-indicated tonnes grading 2.16 grams gold per tonne for 3.1 million oz. gold. Esaase hosts 68.9 million measured and indicated tonnes averaging 1.73 grams gold for 3.8 million contained oz. gold.

PMI’s share price had remained steady near 86¢ for six weeks following news of the merger, but from January to February it fell 25% to 63¢. Keegan’s share price performed similarly, holding near $3.90 until mid-January, before falling 20% to $3.10.

Canadian markets were closed on Feb. 18, when the companies announced the merger termination.

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The planned pit location at PMI Gold's Obotan gold project in Ghana. Source: PMI Gold
The planned pit location at PMI Gold's Obotan gold proj...

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