|
As a general
rule, the most successful man in life is the man who has the best information
For the last
decade, Endeavour (EDV: TSX) has been the architect of numerous equity
financings and acquisitions in the junior gold sector. Over the years, the
company has proven to be a savvy dealmaker, participating in M&A
transactions valued at over US$28 billion.
In October 2009,
EDV paid US$58.3 million for 55% ownership (average cost of C$0.33/share) of
Etruscan Resources (EET-TSX) – a West African gold miner.
A few months
later, EDV had acquired 43% of Crew Gold (CRU-TSX) for approximately $135
million at an average cost of 15 cents, whose primary asset is the LEFA Gold
mine in Guinea, West Africa.
On August 24th,
2010 the Supreme Court of Nova Scotia approved EDV’s purchase of the
remaining 45% of Etruscan common shares.
Suddenly the wily
merchant bank is looking like a gold producer but the market seems unsure how
to assimilate this news. All summer the stock has oscillated around
$2.20 as the institutional investors ask themselves: what does a merchant
bank know about running a gold mine and can a leopard change its spots?
From the early
evidence, the answers appear to be: quite a bit and yes it can.
The former
Etruscan’s producing Youga mine in Burkina Faso has total reserves of
474,000 oz and is currently producing at an annual rate of 80,000 oz with a
life of mine (LOM) of 5 years.
Before acquiring
Etruscan Endeavour’s analytical team identified Youga as an excellent
turnaround story. Currently a program is well under way to improve operations
and maximize value for shareholders by reducing costs at the Youga Mine:
- Replace
underperforming drill and blast contractor
- Better grade control
- Fuel savings
from improved operating efficiencies
- Lower power
costs with grid power vs. gensets
- Solve CIL
tank sanding problems
- Improve
inventory and supply of machine parts
- Higher mill throughputs
- Upgrade management team
- Tighter
control on requisitions and spending
According to a
July 27, 2010 OB Research report, Endeavour “is viewed and priced by
the market today as a merchant bank...this view is no longer valid. We
are of the view that the Etruscan assets alone justify most of the current
EDV market cap of $220 million.”
If this research
report is correct, and the increased operational efficiencies at Etruscan are
not a mirage, then the current valuation of EDV offers the following assets
for free:
- 46.21 million
shares of Crew Gold (43.2% of the company) worth about $210 million.
- The book
value of the merchant banking business is worth about $90 million.
Endeavour
Financial Corporation will release its financial results for the year ended
June 30, 2010 on Wednesday, September 8, 2010. Endeavour currently has a P/E
of less than one - the market always assumes that a leopard can’t
change its spots. I guess time will tell.
Is this merchant
bank AND gold producer on your radar screen?
If not, maybe it
should be.
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. If
you're interested in learning more about specific junior gold/silver stocks
and the junior resource market in general please come and visit his site at
www.aheadoftheherd.com
|
