Financial Strength Delivers Growth for Endeavour Mining
ANALYSIS – ProspectingJournal.com – Cash flow, producing mines and fully funded: Endeavour Mining (TSX: EDV) is in an enviable position compared to many junior gold producers. Endeavour, who we’ve covered for some time now, has continued to dig deeper and impress us with their operational and financial results. This August and September was no exception, when the company had several exciting announcements including an acquisition and a strong earnings update, solidifying itself as one of Western Africa’s leading miners.
Beginning with their August 7th news release, Endeavour provided their operational and financial results for Q2. In the quarter, the company produced 50,728 ounces of gold from their two operating mines, Nzema in Ghana and Youga in Burkina Faso, increasing total production to 102,691ozs for the first six months of the year. Specific highlights included a cash cost of $618/oz produced, an adjusted operating cash flow of $47.6 million and adjusted net earnings of $21.4 million, or $0.09 per share.
Looking forward, Endeavour is focused on long-term growth and is making significant investments in exploration and development at Nzema, Youga and Agbaou for future production. Their Agbaou Gold Project in Cote d’Ivoire was granted a mining permit on August 15th and is expected to enter production in 2014. Construction is underway now and the mine has a forecast 8 year mine life producing an average of 103,000 ounces/yr. Recent drilling has demonstrated potential for pit expansion and the possibility to increase the expected mine life.
Continuing with its growth philosophy, Endeavour announced that it had entered into an agreement to purchase Avion Gold Corp. (TSX: AVR). The deal saw Endeavor purchase Avion for 88 cents a share or $389 million, using August 7, 2012 closing prices on the TSX. The purchase price represented a 56.4% premium on Avion’s prior closing price. Post transaction, Avion’s shareholders hold almost 40% of Endeavour’s outstanding shares. Endeavour shareholders have approved the transaction which closed on October 18. Under the arrangement, Endeavour also agreed to immediately loan Avion $20 million to resume the ongoing mill expansion on its Tabakoto property.
The acquisition of Avion adds further diversification to Endeavor’s portfolio of West African assets. The Tabakoto mine in Southwestern Mali will be Endeavour’s third producing mine and is expected to produce 95,000-102,000 ounces in 2012. The deposit hosts reserves of 6.91 million tonnes grading 3.73 g/t Au for 827,100 ounces of gold and additional inferred mineral resources of 7,598,000 tonnes at 4.57 g/t Au containing 1,117,400 ounces of gold. Avion’s Houndé & Kofi projects offer more exploration and future growth avenues for Endeavour. Houndé has measured and indicated gold resources of 893,000 ozs and 712,000 ozs in the inferred category, and is advancing towards a PEA.
With the Avion acquisition, Endeavour has been forecast to be become of the largest African junior gold producers by 2014, as well as one of the largest junior gold producers on the TSX. Endeavour’s two mines, the Nzema Gold Mine in Ghana and the Youga Gold Mine in Burkina Faso, are expected to produce roughly 195,000 ounces of gold in 2012. The addition of Tabakoto immediately increased Endeavour’s forecast gold production by approximately 50% to 282,000-304,000 and help realize its vision of becoming a large West African gold producer. With its Agbaou project forecast to come online in 2014, the company’s gold production is on track to reach 450,000 oz per year.
As CEO Neil Woodyer noted, “The acquisition of Avion complements our strategy of becoming a leading and diversified West African gold producer. Avion’s Tabakoto Mine and Kofi property in western Mali and the advanced Hounde property in Burkina Faso fit very well into Endeavor’s production and development portfolios”.
Producing a commodity with a high price and proven demand, we are confident in Endeavour’s growth strategy and expect to hear more exciting news from their collection of West African gold mines going forward.
Disclaimer: The Prospecting Journal does not currently hold any shares of any of the companies mentioned in the article. However, staff members reserve the right to purchase shares 36 hours after the publication of the article. Endeavour Mining is a sponsor of the Prospecting Journal.