|
As a general
rule, the most successful man in life is the man who has the best information
An innovative
merchant bank focused on the natural resource sector Endeavour Financial
Corporation (EDV-TSX) has seen its stock price double in the last 12 months
on the heels of some astute junior gold mining acquisitions.
Yet today Endeavour
has a P/E ratio of just one. That’s not a typo. In Q3 2010 EDV’s
basic earnings per share were $2.20 and it’s currently trading at
$2.20.
On June 25th
2010, Endeavour announced the signing of a US$100 million revolving line of
credit provided by UniCredit Bank.
"We're
pleased to have access to this facility which provides Endeavour with
financial flexibility to fund new acquisitions." Endeavour CEO Neil
Woodyer
Three days later
EDV announced that they were entering into a definitive arrangement to acquire
all of the remaining outstanding shares of Etruscan Resources (EET-TSX) -
Endeavour currently owns 55% of Etruscan and, subject to shareholder
approval, will acquire the remaining 45%. Etruscan controls about 10,000 sq.
Km - the largest land position of any mining company in West Africa - and
consequently may be well positioned for exploration success. In addition to
Youga, an operating gold mine, Etruscan reported a gold resource of over
three million ounces in West Africa and has recently produced a Feasibility
Study for its Agbaou project in Côte d’Ivoire.
Under the terms
of the Arrangement, Etruscan shareholders will receive C$0.48 per Etruscan
share comprised of C$0.26 in cash plus 0.0932 of an Endeavour share,
representing a premium of 33%. The cash component will use C$43 million of
Endeavour's new line of credit.
“He who
rejects change is the architect of decay.” Former British Prime
Minister Harold Wilson
Endeavour now has
a significantly different profile - it will operate Etruscan’s Youga
Mine in Burkina Faso, an 80,000 oz producer, and is heavily invested in Crew
Gold which operates the 250,000 oz per year Lefa Mine in Guinea. Between
these two mines Endeavour has net production of 189,000 ozs of gold per year.
Etruscan’s
minority shareholders will vote on the proposed buyout in August. Upon
closing of the transaction, Etruscan shareholders will own 13.6% of
Endeavour.
Endeavour has a
long history of success in value creation in the mining industry:
- Since 2002,
Endeavour has advised on M&A transactions valued at over US$28
billion
- Has helped
arrange US$3.5 billion of equity finance and US$2.2 billion of debt
finance
Endeavour also
has a good track record of financing and restructuring companies such as:
*Wheaton River
Mineral Ltd.
**Bema Gold Corp.
Northern Orion
Resources Inc.
UrAsia Energy
Ltd.
Pacific Rubiales
Energy Corp.
*Endeavour
provided numerous financings to Wheaton River Minerals - the acquisition of
the Luismin gold-silver mine in Mexico, 25% of the Alumbrera copper-gold mine
in Argentina and the Peak Gold mine in Australia.
**Endeavour
financed Bema Gold Corporation’s Refugio Mine in Chile and their
Julietta and Kupol Mines in Russia ("Mining Deal of the Year" -
Project Financing International Awards 2005).
Few investors are
comforted when a company seemingly reinvents itself overnight - with this
deal Endeavour metamorphoses from a merchant bank to a gold producer but
shareholders could see a potentially significant re-rating from the New
Endeavour’s gold company profile.
Shareholders of
both Endeavour and Etruscan might expect the deal to be accretive to both
companies because:
- Exploration
and development projects will be advanced or monetized
- The assets
enjoy upside from re-rating, potentially as a larger going concern with
exposure to higher gold prices
- Etruscan
shareholders will benefit from increased exposure to Endeavour’s
LEFA’s production and its unhedged exploration
- Endeavour
also provides more liquidity to Etruscan shareholders as it has 14 times
more daily value traded than Etruscan - over the six months ended June
25, 2010
- Two
producing gold mines in West Africa, on an attributable basis, annual
production of 189,000 ozs. With gold resources (M&I) of 3.9 million
ozs and gold reserves of 2.3 million ozs
- Production growth profile
- Significant exploration upside
- Operating
teams in place - Etruscan management and its exploration team have
worked together through metal cycles and had a history of experience in
the countries in which it’s operated.
- Acquisitions
- the company has strategic landholding in some of the most prolific
gold belts in West Africa and Ghana - this makes other juniors in the
area, in this authors opinion, takeover targets
Etruscan
management has enjoyed tremendous success in building the largest exploration
package in West Africa - Endeavour’s management has a track record of
nimble deal making and operational expertise. This could be a watershed
moment for the company and its shareholders.
The second gold
producer to come into the Endeavour stable was Crew Gold with Endeavour
acquiring a 37.88 per cent interest (Severstal, through its affiliate
Bluecone, almost immediately increased its stake in Crew Gold to 19.79 per
cent, the company obviously approved of Endeavours involvement in Crew).
Conclusion
With these deals
Endeavour takes control of its cash flow and eliminates the public perception
of being a financially non-transparent holding company - after the
consolidation with Etruscan EDVs mark-to-market “investment”
accounting will be replaced with “operating” accounting thus creating
transparency, additional stability and strength on the balance sheet.
The plan for
Endeavour is to build an extremely powerful position along the greenstone
belts of West Africa, many of which are underexplored. With so many resource
companies in a state of virtual paralysis it’s refreshing to see
Endeavour expressing a clear vision on how to tackle a new challenge. This
well thought out business plan should place Endeavour on every gold investors
radar screen.
Is it on yours?
Richard Mills
Aheadoftheherd.com
Richard
is host of www.aheadoftheherd.com and invests in the
junior resource sector. His articles have been published on over 60 websites
including - Wall Street Journal, 24hGold, Kitco, USAToday, Safehaven,
SeekingAlpha, The Gold/Energy Reports, Gold-Eagle and Financial Sense.
|
