Good karma comes to True Gold as Endeavour swoops in with C$191m acquisition offer

TORONTO (miningweekly.com) – The TSX-V-listed stock of Canadian project developer True Gold on Friday spiked 30% to new one-year highs after fellow Canadian miner Endeavour Mining moved to acquire the company for its 90% interest in Burkina Faso's Karma project, in an all-scrip deal valued at about C$191-million.

The deal would create a new West Africa-focused intermediate gold producer, with a portfolio of low-cost producing assets spread across Côte d’Ivoire, Mali, Burkina Faso and Ghana.

"The production profile and low cost of True Gold’s Karma mine is a very attractive fit with our West African operating portfolio," stated Endeavour CEO Neil Woodyer.

True Gold executive chairperson Mark O’Dea added that this transaction allowed True Gold to reach its strategic objective of becoming an intermediate gold producer.

"Our long-term goal for the company has been to grow the business into a significant and highly profitable producer. This transaction with Endeavour accomplishes that goal, giving our shareholders meaningful ongoing exposure to Karma as it moves into production, as well as exposure to Endeavour’s exceptional portfolio of producing mines and development projects," he said.

Under terms of an arrangement agreement signed by both companies, Endeavour offered 0.044 of a common share for each True Gold share held. Outstanding True Gold options would become exchangeable at the same 0.044 exchange ratio for 180 days, or one year from closing, depending on the optionee’s employment agreement.

Based on Thursday’s closing prices on the TSX and TSX-V, the offer represented a 43.4% premium for the True Gold shareholders, and a 32.7% premium using 20-day volume-weighted average prices on the TSX and TSX-V, respectively.

As part of the transaction, Endeavour would provide True Gold with a $15-million convertible bridge loan to ensure that True Gold remained well funded as it completed construction of the Karma mine. With True Gold having drawn $105-million under its $120-million gold streaming facility with financing partners Franco-Nevada and Sandstorm gold, Endeavour offered the bridge loan to ensure that True Gold maintained its current liquidity without further gold streaming.

Further, Endeavour’s largest shareholder, with 30% ownership, Egyptian billionaire Naguib Sawiris's La Mancha Holding, intended to exercise its antidilution rights, allowing it to subscribe for about 7.5-million newly issued Endeavour shares at a price of C$10.94 apiece, for proceeds of about C$82.6-million, subject to regulatory approvals.

As at December 31, Endeavour’s cash balance and available amount from its revolving credit facility totalled $220-million. Including the $20-million proceeds received from the sale of the Youga mine on February 29, and the La Mancha anti-dilution investment of $61.5-million, Endeavour’s available liquidity would rise to about $301.5-million.

Upon closing, which was subject to shareholder approval, as well as other regulatory endorsements, True Gold shareholders would hold a 20.9% stake in Endeavour. The two shareholder meetings were expected to be held in the third week of April, and the transaction was expected to close before the end of that month.

Both companies’ boards had unanimously approved the arrangement agreement. Further, all of True Gold’s directors and shareholders who held about 15.7% of the company had entered support agreements with Endeavour in favour of the transaction; Endeavour directors, officers and certain shareholders who held 31.5% of the company had done the same.

Based on Endeavour’s closing price on the TSX on Thursday, the combined company would have pro forma market capitalisation of C$1.08-billion.

MATERIAL UPGRADE
Endeavour advised that the $131.5-million Karma mine, which would produce about 97 000 oz/y of gold over its 8.5-year mine life, provided a material upgrade to the recently divested noncore Youga mine, also located in Burkina Faso. Karma was nearing production start-up, with the first gold pour expected late this month, or in early April.

The acquisition would increase Endeavour’s forecast gold output rate by about 110 000 oz/y to 120 000 oz/y during the first five years of production.

After the transaction had closed, Endeavour would own five producing mines, as well as the shovel-ready Houndé project, also located in Burkina Faso, and a pipeline of other development and exploration properties.

"With the expected closing of this acquisition in April 2016, we intend to see Karma complete its production ramp-up and then commence construction of the Houndé project," said Woodyer.

Endeavour expected to produce between 535 000 oz and 560 000 oz of gold in 2016, excluding the Youga divesture, at an all-in sustaining cost (AISC) of $870/oz to 920/oz. Should the new Karma mine ramp up according to plan, and achieve an AISC of $700/oz this year, Endeavour’s consolidated AISC could fall another $25/oz. 

As a result of the transaction, Endeavour’s attributable proven and probable gold reserves would increase by 19% to 5.4-million ounces and measured and indicated gold resources would rise by 39% to 10.2-million ounces, while inferred resources would increase by 123% to 3.9-million ounces.

True Gold’s TSX-V-listed stock on Friday rose as much as 30% to C$0.50 apiece, while that of Endeavour fell as much as 11% on Friday morning to C$11.49 each.

Q4 RESULTS
Endeavour on Friday reported a fourth-quarter headline loss of $6-million, or $0.12 a share, missing analyst estimates that it would earn $0.06 a share.

Revenue for the three months ended December 31 rose 3% year-on-year to $601-million. Strong output resulted in the company beating its 2015 guidance by more than 6 600 oz, while a 9% lower AISC offset an 8% decline in the average realised gold price.

Free cash flow jumped 257% in the quarter to $25-million.