Avion Gold Corp.

20th May '12 by marben100

37 comments 16045 reads

This header is a stub. I hope to add more detail when I have time but I'm creating this thread as a place to post regarding this midcap gold producer. Only listed on the TSX, ticker AVR. Website here: http://www.aviongoldcorp.com/HomePage/default.aspx

PLEASE Stockopedia can we have a better way of "anchoring" international stocks? ;0)

Currently producing around 100koz p.a. in Mali, set to expand to 200koz as soon as political turmoil dies down (kit for expansion awaiting customs clearance and safe conditions for installation contractors to enter country and proceed). Share price trashed due primarily to Mailian turmoil IMO.

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Marben100

Premium Member

I am a full-time private investor... with a little trading on the side (generally small-scale arbitrage in specialist niches). Previously, I spent 24 years in the IT industry, 13 of those running my own IT services firm. I invested as a "hobby" for 20 years before turning it into a full-time occupation in 2004. I really enjoy the "research" side of investing, finding out about varied businesses and industries and learning what makes them tick. Since going "full-time" I have learnt an awful lot from some very erudite investors & professionals who are kind enough to share their expertise in electronc forums such as this. I can now count a number of them as my friends, having had the opportunity to meet them in the real world, as well as this virtual one! I try to pay back the debt I owe by sharing what I've learnt and I always value constructive criticism to correct my errors and misapprehensions! I am a Director of ShareSoc, the UK organisation for individual shareholders. See below for details. more »

37 comments

marben100

20th May '12

Whilst I've been busy with AGMs this week, I see that there have been some significant updates from Avion.

Firstly, the AGM has been postponed: http://www.aviongoldcorp.com/News/News-Details/2012/Avion-Gold-Corporation-Re-Schedules-Annual-Meeting-of-Shareholders1129526/default.aspx

TORONTO, ONTARIO--(Marketwire - May 16, 2012) -Avion Gold Corporation (TSX:AVR)(OTCQX:AVGCF) ("Avion" or the "Company") announces that the annual meeting (the "Meeting") of holders of common shares (the "Shareholders") of the Company scheduled to be held at 10:00 a.m. (Toronto time) on Thursday, May 17, 2012 has been cancelled and will be re-scheduled.

The Company is going to re-schedule the annual shareholders' meeting in an effort to increase the number of shareholders represented and voting at the meeting. The Company has received an unusually high number of proxies indicating votes are to be withheld with respect to the election of its proposed slate of board nominees. In light of the over-all low level of representation of its shareholders at the Meeting, the board of directors of the Company has decided it was in the best interest of the Company and its shareholders to cancel the Meeting and hold an annual meeting at a later date to give time for the board to understand what its shareholders' concerns are and generate a broader level of participation by its shareholders in general at the annual meeting.

It is expected the annual meeting will be re-scheduled for June 26, 2012 and the new record date will be May 25, 2012. New meeting materials, including a management information circular, will be mailed to the Company's shareholders and filed on SEDAR.

The Company has engaged Kingsdale Shareholders Services Inc. to provide proxy solicitation and corporate governance services.

Most peculiar, wonder what's going on there? I wasn't aware of any problems with the current Board, who seem to be doing an excellent job, AFAICS. If anyone knows anything, I'd be most grateful to hear.

Then we have Q1 results: http://www.aviongoldcorp.com/News/News-Details/2012/Avion-Achieves-Record-Production-for-the-First-Quarter-of-2012-With-Over-26000-Ounces-of-Gold-Produced-and-Revenues-of-33-Mil/default.aspx [You can also find a replay of the Q1 conference call on Avion's home page.]

Perhaps the Board ructions are due to corporate & admin costs + share based compensation rising to $3.6m in the quarter (though that's lower than the equivalent quarter of the previous year)?

A quick scan of the results is disappointing. However, production was at a record level of over 26koz. It appears to me that the results are heavily distorted by non-cash factors particularly the call option sale. Studying the cashflow statement (which I always regard as closer to the "truth"), the company produced a positive operating cashflow, though much lower than a year ago. Operating costs have risen, due to a move to underground operations, but not to the extent suggested by the "bottom line". I suspect figures are distorted by the 6,000oz gold that were unsold as at the end of March, but which the company reports have been sold in April and will appear in the Q2 figures (in the conference call). Q2 figures will be very interesting, to see whether these apparently high expenses reverse.

Having topped up recently, I continue to watch with interest. The conference call reports that though the mill expansion remains halted, mining operations have been largely unaffected by the coup.

It is fairly obvious why the shares have sold off heavily, but a strong recovery is distinctly possible if the situation in Mali calms down and Q2 results look more attractive. I am not tempted to sell because of one quarter that appears poor financially. The important thing for me is continued strong production, which I suspect will lead to better financial numbers next time.

Cheers,

Mark

marben100

21st May '12

Important positive news on the Mali coup: http://www.hindustantimes.com/world-news/Africa/Mali-coup-leader-backs-transition-prez/Article1-858808.aspx Sanago had been threatening to take back control, but now seems to have acquiesced to a longer transitional period. That should allow a return to proper constitutional rule, in the fullness of time.

I'd expect order to be restored pretty quickly in the sourthern part of the country, where Avion resides, paving the way for contractors to return to complete the mill upgrade. Fingers crossed!

Cheers,

Mark

marben100

15th Aug '12

Those following me on Twitter (@marben100) will have seen the excitiing news about Endeavour Mining's (TSX:EDV, ASX:EVR) all-share bid for Avion.

Avion has today released its 2012 interim results: http://www.aviongoldcorp.com/News/News-Details/2012/Avion-Gold-Announces-Second-Quarter-Earnings-of-157-Million-004-Per-Share1130637/default.aspx See SEDAR for the detailed financial report and MD&A (sorry, cannot link directly to the reports).

Pleasing to see record production (as previously reported) and positive earnings but somewhat troubling to see cash cost/oz soaring to $910/oz from $544/oz in 2011. I would expect that figure to come down substantially once the mill expansion is complete, but it is a question I intend to pose in this afternoon's conference call.

As mentioned during the conference call relating to the takeover, without that deal, Avion would clearly face a financial squeeze over CAPEX required to complete the mill expansion.

Cheers,

Mark

marben100

16th Aug '12

Just to complete this... (and as I tweeted in real-time earlier today), I asked my question and Avion responded that they were implementing a cost control programme (having only recently moved to underground mining) and expected cash costs to fall in the second half, towards $750/oz. This will fall further when the mill expansion is completed and economies of scale can be brought to bear.

I find it quite interesting that some Avion PIs felt that the Board had sold them out too cheaply -- just as an Endeavour investor felt that his company was overpaying! I think my own conclusion that the proposed deal is eminenintly fair to both sets of shareholders is probably about right! Looking at proforma production and reserves figures for the combined entity, the proportion that Avion shareholders will end up owning (~40%) seems fair to me. Here is my calculation for proforma reserves and resources:

		Reserves			Resources (Inc Reserve)
	Proven	Probable	Total	M&I	Inferred	Total
Endeavour	1,280,000	854,000	2,134,000	3,952,000	1,234,000	5,186,000
Avion	93,000	569,000	662,000	2,071,000	2,061,000	4,132,000

Proforma Total	1,373,000	1,423,000	2,796,000	6,023,000	3,295,000	9,318,000

Mark

marben100

27th Sep '12

One area where the LSE and London regs are ahead of the TSX is in release of statutory information to shareholders...

Thanks to TD Waterhouse, only just discovered that the meetings to approve the SoA between Avion & Endeavour have been set for 12th October and supporting documentation published. Endeavour's version can be found on their website: http://www.endeavourmining.com/i/pdf/2012-09-10_InfoCirc.pdf . For Avion's, you need to search on SEDAR. Nothing in the news section of either company's website and nothing at all on Avion's website. Also received no e-mail despite having registered for e-mail alerts.

Anyhoo, looks like the market is starting to recognise the value of this transaction, with both AVR and EDV up nicely since my last post (helped by a firm gold price no doubt). Still looks an astonishing bargain - cf Randgold Resources (LON:RRS) . Randgold has not much more than double the production & reserves of the EDV/AVR combo (once the Tabakoto upgrade is complete)... but a market cap. of close to £7bn, and also operates in West Africa.

This new firm looks like an obvious T/O target for Randgold - but I'm happy for production, profits & divvies to speak for themselves. :0)

Here's a summary from Endeavour's document:

In reaching its decision to approve the acquisition, Endeavour's board of directors considered the positive results of the due diligence review conducted by Endeavour's management and its advisors, as well as the benefits of creating a combined entity with the following attributes:

Gold Production Growth. The acquisition will immediately increase Endeavour's 2012 forecast gold production by approximately 50% to between 282,000 and 304,000 ounces, and including the Tabakoto mill expansion and completion of Agbaou construction, our gold production is forecast to reach approximately 450,000 ounces per year.

Unlocking Value at Tabakoto. To enable the rapid restart of the Tabakoto mill capacity expansion, Endeavour provided a US$20 million short term exchangeable loan to Avion. This funding facilitates the re?mobilization of contractors without further delay. The capacity upgrade is expected to increase Tabakoto production from current levels of 95,000 to 102,000 ounces per year to over 150,000 ounces per year.

Resource and Reserve Base. Endeavour's NI 43?101 compliant attributable Proven and Probable gold reserves will increase by 31% to 2.8 million ounces, Measured and Indicated gold resources will increase by 52% to 6.0 million ounces, and Inferred gold resources will increase by 167% to 3.3 million ounces.1

Pipeline for West African Exploration and Development Growth. The acquisition will add a portfolio of highly prospective exploration properties to Endeavour's existing West African land package, which will exceed 11,800km². Avion's Houndé project in Burkina Faso is progressing towards a Preliminary Economic Assessment which is anticipated by year end. Current resources are 893,000 indicated ounces and 712,000 inferred ounces. Avion's Kofi project in Western Mali currently hosts 500,000 indicated ounces and 702,000 inferred ounces. These properties are attractive additions to our growth profile that already includes the Nzema sulphides project in Ghana and the Ouaré deposit in Burkina Faso.

Improvements and Efficiency Gains. Endeavour has a track record of successfully optimizing assets with timely capital investments and using the skills of its experienced operations and project development teams, which are led by an experienced and centralized senior operations team based in Accra, Ghana. Tabakoto is a complementary addition to Endeavour's West African operating platform.

Financial Strength. The new Endeavour is expected to have a strong financial profile, with pro forma cash and cash equivalents of US$51 million (as of June 30, 2012 and net of the US$100 million drawn from the corporate loan facility), plus operating cashflow from three mines and access to a US$200 million revolving corporate loan facility to be used for general corporate purposes, capital expenditure and acquisitions. New Endeavour anticipates additional cash proceeds of up to approximately C$115 million from options and warrants having an exercise price of C$2.50 or less.

Enhanced Capital Markets Profile. With a combined market capitalization of approximately C$977 million (August 7, 2012 acquisition announcement date basis), Endeavour is emerging as a mid?tier gold producer. Growing our annual gold production rate and expanding the pipeline of future development projects improves Endeavour's market visibility, and potentially attracts a wider group of investors as well as increasing our trading liquidity and broadening our analyst coverage.

marben100

9th Oct '12

I am liking my investments in Avion & Endeavour more and more :0)... http://tmx.quotemedia.com/article.php?newsid=54872384&qm_symbol=AVR

Despite market fears about Mali, Avion announces new record quarterly production of 32,167oz and indicates that the upper limit of annual production guidance of 102koz is expected to be beaten.

With the aid of a firm gold price, Mr Market appears to be coming round to my view.

Cheers,

Mark

snaj

9th Oct '12

Hi Mark

Congratulations on a more-than-handy performance, so far! Given the near-doubling since you first wrote about the company, do you think there's still a lot of mileage left in Avion or Endeavour?

Regards
Sanjeev

marben100

9th Oct '12

Hi Sanjeev,

Well, if you look at the comparison against Randgold Resources (LON:RRS) , the New Endeavour still looks remarkably undervalued to me.

A further indicator is that this time last year, before the Mali coup, Avion alone was trading above C$2 - giving it a market cap. not far different from that of the New Endeavour, post the merger - yet the new company will have more than 3x the production that Avion had then (and rising) and a multiple of Avion's resources. It will also be less risky with production spread across 3 mines and 3 countries, with a fourth mine in another west African nation (Cote d'Ivoire) under construction and due on stream in mid 2014.

I am not inclined to sell any shares yet.

Cheers,

Mark

marben100

11th Oct '12

Some news to report...

Firstly, I see that an amending document to the Plan of Arrangement between Avion and Endeavour was posted to SEDAR on Friday - as usual can't link directly so you'll have to search SEDAR to obtain it. AFAICS there is nothing substantive in the amendments, seems like a legal tidying up exercise to me.

The shareholder meetings are tomorrow, so the deal will be confirmed then (or not!). Assuming it receives approval from both sets of shareholders it should complete within a week or two. I expect there to be an announcement confirming the timetable.

Secondly, I note this report that Laurent Gbagbo, ex-President of the Cote d'Ivoire may have been trying to recruit Islamists from the north of Mali (as well as the Malian Junta!), in an attempt to destabilise C d'I and seek a return to power. Endeavour have recently commenced construction of a new mine in C d'I. Given that there is considerable opposition to the Islamists, both from Malians and the wider world, and that their numbers are relatively few, I wouldn't expect Gbagbo to have much success.

Cheers,

Mark

marben100

12th Oct '12

Notification posted on SEDAR that Sentry Investments sold 4.76m Avion shares in September, reducing its holding to 55.4m shares = 12.49%

marben100

12th Oct '12

...and just alerted that the deal has been voted through overwelmingly: http://tmx.quotemedia.com/article.php?newsid=54984016&qm_symbol=AVR

99.5% of Avion votes cast in favour; 93.8% of Endeavour votes in favour.

...Endeavour is well funded, has available liquidity and strong operating cash flow sufficient to meet the company's foreseeable capital needs...

...

The combined company's 2012 production guidance is 282,000 - 304,000 ounces gold with diversified production and cash flow from mines located in major gold producing regions solidifying the company's status as one of the growth leaders in West Africa

From Endeavour: http://tmx.quotemedia.com/article.php?newsid=54984007&qm_symbol=EDV

...The acquisition is expected to complete on or about 18 October, 2012 (subject to final court approval and other customary closing conditions) and will result in Avion becoming a subsidiary of Endeavour

Neil Woodyer, CEO, commented:

"The new Endeavour Mining has the assets and finance to grow its gold production from over 300,000 ounces per annum to over 450,000 ounces, generating annual cash margins of over US$350 million. With mines in four neighbouring West African countries, extensive advanced stage projects, a comparatively low cost base, a market capitalisation over US$1 billion and substantially increased liquidity, we are now in a position to pursue an aggressive growth strategy.

Integration of our operations has already begun with emphasis on expanding Tabakoto production, improving mine efficiency and lowering costs. In parallel, an advanced exploration and development program is underway at the Houndé project in Burkina Faso and the Kofi project in Mali.

Endeavour Mining has well-established and experienced operating, mine building and exploration teams based in Accra which are able to cover the gold producing areas of West Africa."

When I have time, I'll write an article about the new Endeavour and why I think it's still good value [if the above facts & figures don't speak for themselves]. ;0)

Cheers,

Mark

marben100

14th Oct '12

A useful update on the current situation in Mali and a UN resolution on Friday, aimed at resolving the current annexation of the northern half of the country (distant from Avion's operations) by Islamists: http://www.thenational.ae/thenationalconversation/editorial/tuareg-are-part-of-the-solution-in-northern-mali

marben100

30th Oct '12

Well, Avion has now officially merged with Endeavour Mining and my Avion shares have been replaced by shiny, new Endeavour ones.

I'll have to get round to writing an article on the new Endeavour. Meanwhile, found some recent Canaccord comment on the new company here: http://www.stockhouse.com/bullboards/messagedetailthread.aspx?sv=2&p=0&m=31690056&r=0&s=edv&t=list

...Canaccord Genuity Mining Analyst Nicholas Campbell forecasts production of 324,000 ounces of gold in 2013, growing to 431,000 ounces of gold in 2014 and up to 477,000 ounces of gold in 2015. The growth over the next two years comes from the mill throughput expansion at the Tabakoto mine and the development of the Agbaou project.

This growth profile reflects no contribution from the Houndé, Kofi, Ouaré or Nzema sulphide projects. Longer-term, Campbell sees potential for these projects to push EDV's production profile above 600,000 ounces of gold over the next 3-5 years...

...

The company is currently at 0.48x P/NAV (5%, spot), 3.6x 2013E CFPS and 2.6x 2014E CFPS vs. the junior producer average valuation of 0.74x P/NAV (5%, spot), 9.1x 2013E CFPS and 7.7x 2014E CFPS. EDV has diversified cash flow across three gold mines, with a fourth mine to come online by early 2014 (Agbaou), the potential for a fifth mine to come on line in 2015 (Houndé) and it is trading at a 35-66% discount to the average junior valuation...

Absolute madness that a large, diversified, business like this should be at a discount to typical junior valuations.

Like the analyst, I expect a substantial rerating, as the figures unfold over the coming quarters. September quarter numbers should be published in the next few weeks - and we already know that Avion's contribution to overall production will be at a record level (assuming figures are consolidated for the entire quarter).

Were I not already well loaded-up with EDV stock, I'd consider today's SP decline to be a buying opportunity...

Cheers,

Mark

alano20

30th Oct '12

You are lucky, with selftrade I still have the old rusty Avion ones. Re rerating have you read yesterday's article on Mali in Der Spiegel? Its title is "A Trip Through Hell" and fears it will become the next Somalia worrying. For months, an Islamist regime has been terrorizing northern Mali. Hundreds of thousands have already fled the region, and those who have stayed behind are experiencing new forms of cruelty with each passing day. A SPIEGEL reporter documents a two-week journey through a region Europe fears will become the next Somalia.
http://www.spiegel.de/international/world/a-trip-through-hell-daily-life-in-islamist-controlled-north-mali-a-864014.html

marben100

30th Oct '12

IMO, this is what the market has misunderstood about the whole Avion/Endeavour story - and what has created the bargain. Everyone fears the Islamist insurgency in Mali:

a) The insurgency is in the North of the the country, 1,000km from Tabakoto. Tabakoto operations have been unaffected (except for the temporary travel restrictions, now lifted). There is no realistic threat to the capital, Bamako, or areas south of Bamako, which Endeavour operates in.

b) Once the African/international community gets its act together, I really don't see a big problem dislodging the Islamists. According to reports such as the one you quote, they've made themselves very unpopular with the local populace so will not be supported by that populace. The numbers of Islamists is relatively small (low thousands at most) and it won't need a huge force to remove them from the areas they've taken control of.

c) Mali is just one "leg" of Endeavour's operations (albeit an important one).

See this report, for example, about where things are at on organising the fightback: http://globalpublicsquare.blogs.cnn.com/2012/10/30/the-next-war-youll-probably-hear-about/

Though, personally, I think "war" is too strong a word and suspect that the Islamists will melt away once they meet properly armed and trained local opposition. Very sad for Malians that we have the usual bickering, complicated by the earlier coup and its leadership, delaying their liberation from this barbaric menace.

Anyhoo, having checked my porty, decided that I did have room to add a few more EDV @ C$2.31 this afternoon. :0)

Cheers,

Mark

SteMiS

31st Oct '12

I don't really understand Canaccord's comments on 2014 valuation.
Market cap at $2.35/share (x 407.5m shares) is $958m
Cash margin guidance for 2014 is $350m. Deduct central costs (is $30m a reasonable figure?) gives $320m. So valuation is more like 3.0 x CFPS than 2.6. Maybe not significant but I like to know where the numbers come from.
Net cash in EDV was $44m at June but what was Avion cash position?
Do you have a link to merger documents?

marben100

31st Oct '12

Hi SteMis,

Thanks. Endveavour's circular etc is here: http://www.endeavourmining.com/i/pdf/2012-09-10_InfoCirc.pdf

I'd assume Avion had v little cash, due to big CAPEX outflows for mine development & mill expansion. The coup-induced delay in getting the expansion completed & cash flowing was a key factor leading to the merger, with the merged co. leaning on Endeavour's balance sheet. The cashflow from the combine, though, should be ample to finance forward expansion plans.

I haven't checked Endeavour's circular but assume that it overlaps with Avion's which I do have a copy of. Feel free to message me off-board if you need a copy of that.

Cheers,

Mark

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Marben100

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