After the Merger: Endeavour Mining Meets 2011 Gold Production Targets
ANALYSIS—ProspectingJournal.com—Shortly after announcing its “Merger of Equals” with Australia’s Adamus Resources, West African gold producer and explorer Endeavour Mining [EDV – TSX] has confirmed the value of this strategic partnership by meeting its 2011 production targets.
As the recent release of Endeavour’s Q4 and 2011 gold production results show, the 2011 targets were well-calculated to capitalize on the merger of the two companies’ producing West African projects: the Nzema Mine (Adamus) in Ghana and the Youga Mine (Endeavour) in Burkina Faso.
Without the merger, Endeavour’s estimated production in 2011 would have been approximately 84,000 ounces, while Adamus’ production would have come in at 88,000. With the merger, Endeavour achieved a total annual production of 177,290 ounces of gold at a cash cost per ounce of $614 (excluding royalties), with 90,026 ounces from Nzema and 87,264 ounces from Youga. As 2011 production was expected at 172,000 ounces, this announcement has eased any concerns shareholders may have in regards to the future growth of their company.
For Adamus, the merger presented the dismantling of its US$60M project loan and an additional US$100M slated to reduce its required gold hedge. For Endeavour, the merger presented an opportunity to expand its resources in a growing gold mining region, utilizing Adamus’ experienced management team, along with its excellent production and exploration projects.
The table below presents the 2011 production results from both mines:
Endeavour expects 2012 production from Nzema and Youga to range from 170,000 to 190,000 at a cash cost per ounce (excluding royalties) of $645 to $685. On top of this target, Endeavour anticipates near-term production of approximately 100,000 ounces per year from its Agbaou Gold Project in Côte d’Ivoire, which is set for 2013 production. With the addition of Agbaou, Endeavour expects to pass the 250,000 ounce gold production market and have a combined resource of 3.5 M ounces.
Of course, Endeavour’s ambitious production targets, which it has thus far met, are dependent not only on sound leadership but also on a strong cash position. As of December 31, 2011, the Company had a cash balance of $115 million and had drawn $100 million of its $200 million revolving corporate credit facility. This $215 million cash and credit facilities total, along with a cash operating margin from mining operations of approximately $150 million during 2012, place Endeavour in a position of significant financial strength.
The 2011 exploration program has also presented considerable rewards for further spending on both Youga and Nzema. As of December 31, 2011, the Proven and Probable gold reserves at Youga were 7.308 million tonnes at 1.9 g/t Au containing 448,000 ounces; Measured and Indicated Resources were 18,373 million tonnes at 1.6 g/t Au containing 928,000 ounces. These results equate to Youga’s mine life being extended to 7.3 years. Nzema’s resource and reserve estimates from 2011 are expected in February 2012.
Before Nzema’s results come in, shareholders can rest assured knowing that Endeavour has allotted an extensive 2012 exploration budget of $30 million. This ambitious program includes drilling, trenching, pitting, airborne and ground geophysics and geochemical surveys. Approximately half of the budget is allotted to increase resources at the Nzema and Youga operations, with over 200,000 metres of drilling. The remaining balance will go to increasing resources at Agbaou in Côte d’Ivoire, exploring and delineating resources at Bitou-Ouaré in Burkina Faso, delineating resources and conducting further metallurgical testing of the Nzema Sulphides in Ghana, and advancing the exploration programs on key properties in Burkina Faso, Côte d’Ivoire, Ghana, Liberia, and Mali.
With a successful merger now under its belt, Endeavour is in a strong position to push for growth through its projects in West Africa. Currently producing gold at a rate of approximately 180,000 ounces per year from its Nzema and Youga mines, the Company has embarked on an extensive 2012 exploration program that will increase its stake in the region.
With the construction of the Agbaou mine in 2013, Endeavour will see the production of approximately 250,000 ounces of gold per year. A strong cash position also places management in a key position to take advantage of furthering its acquisition growth strategy in a gold mining region that is just heating up. Thus, as 2012 unfolds, we expect to hear increasing buzz surrounding Endeavour, whose growth is set to follow the upward price of gold.
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.