GOLD NEWSLETTER ALERT #638 Endeavour Mining Corporation
The "new" Endeavour Mining (TSX.EDV; ASX.EVR) is now official, thanks to the completion of the company's merger of equals with Australia-based Adamus Resources.
The deal creates a significant, mid-tier gold producer at a time of record gold prices. With a West African focus and a combined management team that includes some of the sector's savviest players, this gold producer has the potential to make waves through mine development, exploration and acquisitions in the coming months.
The merged company wasted no time in cleaning up some of its lingering pre-merger issues. This effort started with the repayment of the $57 million project loan that Adamus had outstanding on is Nzema mine in Ghana.
It continued with the closing out of 139,000 ounces in the 255,000-ounce hedge book for Nzema. That represented a 55% reduction in the mine's hedge book. The move cost the new company a cash settlement price of $96.7 million.
The move came just days after Endeavour announced that it had completely closed out the hedge book for its Youga Mine in Burkina Faso.
These bold moves reflect the confidence that Endeavour has in its ability to grow, both through production and acquisition moves and through continued strength in the price of gold.
After all is said and done, the company now has hedged a mere 6% of the 2.0 million gold ounces in its reserves. Given the current price of gold, this de-hedged profile should allow the company to increase its cash flow in 2012 and beyond. It also significantly improves its chances to become a lever on rising gold prices.
The addition of Nzema effectively doubles Endeavour's annual gold production to 180,000 ounces. The company has ambitious plans to increase that annual production total to 250,000 ounces by year-end 2013. It will do so by bringing its Agbaou gold deposit in Cote d'Ivoire online and by growing the resource and reserve bases for Youga and Nzema via drilling.
Endeavour has done an admirable job making the transformation from mining finance company to gold producer. It now has two producing assets, a near-term production asset and a ton of exploration potential.
On top of all this organic growth potential is the prospect that Endeavour will make more moves on the acquisition front. Given the strong presence it has created in West Africa, I would expect that region to receive the bulk of the company's attention for additions to its production profile.
The soft market for mining stocks has kept investors from truly appreciating Endeavour's recent accomplishments. Mid-tier gold producers (especially lightly-hedged ones) should provide significant leverage for investors looking to make the most of the next phase in the yellow metal's bull market.
It's a buy at current levels.
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