Adamus Resources + Endeavour Mining = Perfect Synergy
ANALYSIS – ProspectingJournal.com – During this last August, in the waning days of North American summer and Australian winter, Adamus Resources [ADU – ASX] and Endeavour Mining [EDV – TSX] announced a “merger of equals,” which would entail the creation of a multi-mine operating entity emerging as a gold production leader in West Africa.
Each company would bring their own blend of strengths and market-perceived weaknesses to the table, virtually erasing doubt with the flick of a pen.
In Adamus’ case, the merger represented unilateral dismantling of its US$60M project loan principal obligation, with Endeavour agreeing to wipe clean this debt. On top of this strategic implementation of capital, was an additional US$100M investment slated to reduce the heavy gold hedge volumes that the Australian-based Adamus was on the hook for.
For Endeavour, it was not only a sign to investors that the large cash volumes that had been sitting on the sidelines would be implemented appropriately, but that the company was engaged in its goal to increase production.
Through the merger, the combined entity crosses the coveted mid-tier mark of 100,000 ounces of gold production at an earlier date than both companies would’ve achieved on their own.
Without the merger, Endeavour’s estimated production to end 2011 would be 84,000 ounces, whereas Adamus’ would be 88,000. Combined, the production of the new entity is 172,000 ounces, with an estimated cash cost per ounce of $575-$625.
By 2013, with the anticipated production of Endeavour’s Agbaou Mine in Côte d’Ivoire, the partnership will eclipse the 250,000-ounce gold production mark and have a combined resource of 3.5M oz, thus truly putting the new entity in a new room of peers.
While the numbers in the gold production column rise with the merger, so too does the respectability of the combined management teams.
Endeavour comes to the table with a single mine in West Africa producing 84,000 ozs of annual production, a Cote d’Ivoire project now in feasibility, US$195M of cash and marketable securities, an undrawn US$100M acquisition facility and a financially oriented management team.
Adamus also brings a “new” producing West Africa mine with 88,000 ozs of annual production, extensive exploration land position and a valuable reputation of building on time and on budget.
With its latest mine-building project completed (Nzema in Ghana), Adamus’ team of mine builders are now available to be deployed on the next project, which according to the schedule laid out by Endeavour is pointing towards Agbaou. Ideally for both companies, Agbaou will not require the gold hedgebook that Nzema was saddled with (275,887 ozs at US$1,075). Through the merger, this Nzema hedge will be significantly reduced, and new capital facilities are opened up for the company’s use.
From the sidelines, the merger makes sense. Pre-merger, each company is considered “small” with ~US$300M market caps each, which reduces market visibility and the participation of institutions, thus presenting weaker opportunity for growth and acquisitions. As well, the market typically discounts valuations on single-mine operators compared to multi-mine operators.
Both parties need to approve the merger to make the deal official. So far, the merger has passed the vetting of the Australian government.
“The merger combines two junior gold producers and creates a platform for West African growth,” states Neil Woodyer, CEO of Endeavour Mining, “The merged entity has a strong production growth profile, excellent exploration potential and a focused acquisition strategy. It will have the management and financial strength to carry out its plans.”
With government approval out of the way, the final steps lay with the shareholders of each party. Endeavour shareholders are set to meet on November 25, 2011, while Adamus shareholders are set to meet on November 28, 2011.
Already, Adamus dispatched the Scheme Booklet pertaining to the merger to its shareholders on October 25, 2011, falling in line with the scheduled closing of the merger in December 2011.
Given the optics of the deep synergy of the deal, we anticipate that Endeavour and Adamus will become a new multi-mine entity.
Disclaimer: The author does not currently hold any shares of any of the companies mentioned in the article. However, some members of Cordova Media Inc. which owns the ProspectingJournal.com, may or may not have interests in one or more of the companies mentioned at the time of publication. Staff members from the Prospecting Journal reserve the right to acquire interests in any of the companies mentioned after 36 hours have elapsed upon initial publication of this article. Endeavour Mining is a sponsor of ProspectingJournal.com.