Avion Gold Corp.

A full transcript of the CC, including my questions & answers is now available here: http://www.earningsimpact.com/Transcript/83089/EDV/Endeavour-Mining-Corp---Q2-2013-Earnings-Call#sthash.RavPYfY5.WCXVnQ0T.dpbs

Endeavour published its quarterly results last week, a 97 page tome.

Headline numbers of all-in sustaining costs of $1,038/oz for Q2 and a realised average price of $1,385/oz don't look too bad, but the actual IFRS figures are less pretty: an adjusted loss of $11.6m and negative operating cashflow of $7.2m for the quarter (before CAPEX).

There was also a writedown of $225.4m relating mainly to past acquired operations (so I don't view that as too concerning).

The conference call relating to the results was held today, with an associated presentation, giving me an opportunity to ask a few questions. I have tweeted some new points I picked up on the webcast.

My chief question was to ask for an explanation of the discrepancy between the apparent "profit" on gold sold with cashflow and reported profit. Christian Milau CFO, put the cashflow difference down to a $17m increase in working capital and one-off payment of a tax bill relating to the Youga mine. The company is seeking to reduce its working capital and there may also be some VAT recovery to help. There were significant cash outflows relating to the Tabakoto mill expansion. The company does expect its working capital level to stabilise and reduce in time. Outside consultants are being employed to seek further ways of optimising cashflow.

Though not mentioned in the company's response, a big factor in the discrepancy between (adjusted) profits and the reported cash margin on gold sold is depletion & depreciation, which was a hefty $24.8m in Q2.

I note from p42 of the quarterly report that the company will move to the WGC definition of "all-in sustaining costs" from January 2014. At present it is still capitalising underground development costs (which is a bit of a fiddle IMO). Choosing that date should be rather convenient, as the Segala development should be largely complete by then. However, as Segala is not yet in production I think capitalisation of costs there is a reasonable treatment at this stage.

It is encouraging that, per slide 4 of today's presentation, the company anticipates that all-in costs, including u/g development will be under $1,000/oz in 2014. That compares favourably with most major gold miners.

I noted that corporate G&A was running at over $20m p.a. CM expected this to reduce to $15-$16m p.a. I said that this still seemed rather high (without saying explicity that a lot of it was due to massive management pay), and it was indicated that the co. will continue to look for further savings in the G&A figure. CM also said that that level of costs was comparable with similar sized miners.

Finally I asked about a comment on p9 of the quarterly report, regaring Nzema operations:

As expected and discussed in Endeavour’s first quarter report, production was lower in the first half of 2013 due to slower than planned access to and development of the Adamus pits because of protracted negotiations in the resettlement process as well as lower than expected grade in the upper portions of the deposit.

How many people were involved in this resettlement? I was somewhat shocked to learn that 1,000 households were affected. Attie Roux, COO advised that a new village (township?) was to be built by early 2014 to house the inhabitants. Meantime work was proceeding at starter pits. I have found this article showing some political opposition to the move, in May. I hope that the company is going about this in the right way and is properly compensating those that are moved and providing them with a good standard of accommodation.

I must admit that it is now very tricky to value this company, as a valuation rests on the anticipated lower costs feeding through to the bottom line and cashflow. To me, the latter is more significant (after taking into account CAPEX that genuinely lifts production and is not merely sustaining). There are a large number of factors that distort reported profits, such as hedges, impairments/write-backs - depletion may be immaterial too, if not offset by sustaining capital. Cashflow, as always, is a clearer indication of genuine profitability. Obviously valuation is also hugely subject to future gold prices. I remain (relatively) bullish on those, because without price around $1,500/oz or higher, much new investment in mines will dry up, leading to a fall in production. I believe that mined supplies will be required in the medium term to meet demand (especially from BRICS and other emerging markets). I also observe that gold has been in a clear uptrend since the end of June. If the price does reach $1,500 per ounce, Endeavour should produce some excellent cashflows and will appear remarkbly cheap at its current valuation.

Bottom line: there is certainly execution and gold price risk in the current share price, but upside is potentially very large.

Cheers,

Mark

Useful article on Endeavour here: http://www.bus-ex.com/article/endeavour-mining

Generally v bullish, but I'm a little concerned about this:

Neil Woodyer’s long and extensive involvement in the market means that financial risk is minimised. Endeavour’s experienced mine operators and mine builders ensure that operational risk is well-managed. As former CEO of Lloyds International Trading before running his own merchant bank he is uniquely qualified to steer a gold production company at a time when gold futures are anyone’s guess. “We have a $200 million credit facility that we have to start paying back in about 18 months. I am in the process of trying to increase that facility and extend it to give us more flexibility,” he explains. “We may want to spend some capital on our existing operations and fine tune them to get better economic value out of them. I am making sure we have the financial flexibility to optimise the return without having to dilute the shareholding.”

Now, the company has previously flagged that it wished to extend/increase its faciltiies, which seems a prudent move to me, if it is able to do so, considering the uncertain climate. However, I'm not so keen on "spending  some capital" to "fine tune" operations... would have thought that would be covered by operating cashflows, otherwise could be used dress up OPEX as CAPEX. I will have to ask exactly what "fine tuning" he has in mind at the next opportunity.

Cheers,

Mark

Thanks for the encouragement! Endeavour now announces Tabakoto mill expansion complete and producing gold at expected rates: http://web.tmxmoney.com/article.php?newsid=61060636&qm_symbol=EDV

Well on the way to 450,000oz p.a. by mid-2014 now, with Agbaou also confirmed on track. Can it really be right that a producer of this scale is valued at just C$210m? I do appreciate the risks, should the gold price continue dropping, but I've been adding to my holding recently.

Keep up the good work Mark! Your efforts are always appreciated.

"Am I talking to myself on this thread?" No :-)

Am I talking to myself on this thread? If so, I'll stop posting - just let me know.

Very interesting response to a shareholder enquiry from a shareholder nervous about the ever declining share price: http://www.stockhouse.com/bullboards/messagedetail.aspx?s=EDV&t=LIST&m=32664993&l=0&pd=2&r=0

The reasons given are precisely what I'd expect and the comparison with other Canadian listed goldies is fascinating. So, the $64,000 question is whither the gold price? If it continues down then I would expect Endeavour's SP to follow. However, if it turns (and Endevaour continues to deliver the promised production/cost levels) there could be massive gains to be made here.

I last added to my holding at C$0.88.

Finally, Endeavour has announced good progress on the new Agbao mine, which appears well on schedule for production start in 1Q14, as promised: http://web.tmxmoney.com/article.php?newsid=60813007&qm_symbol=EDV

Cheers,

Mark

In the Q1 conference call, Endeavour mentioned that it was seeking to divest some of its very large West African explo. land package that was surplus to requirements (so as to reduce costs associated with holding that land). The Q1 Presentation  shows that Endeavour has one of the largest land positons of any gold miner is West Africa (10,000km2 was mentioned in the presentation). Sensible, it seeks to reduce that by 50%.  It appears that work on that has already started:

Legend Gold Corp. (The "Company" or "Legend Gold") (TSX VENTURE:LGN) is pleased to announce that the Company is nearing completion of definitive agreements to acquire several exploration-stage properties located in Mali from Endeavour Mining Corporation ("Endeavour") (TSX:EDV)(ASX:EVR)...

...Endeavour Property Acquisition

• Portfolio being acquired from Endeavour includes 10 exploration licenses and one permit application in Mali (1,043.2 square kilometers) which range from early to advanced stage gold properties.
• Legend will issue 10,000,000 consolidated Legend shares and pay $750,000 to Endeavour.
• Upon completion of both Endeavour and Corado acquisitions as well as the financing, Endeavour will own approximately 19.5% of Legend

Sensible control of costs, whilst retaining an interest. Legend will have ~50m shares in issue following this transaction (and a similar transaction wwith Corado and a placing to raise cash), leaving Endeavour with an ~20% interest which is, effectively, free carried.

I am really impressed by Endeavour's management, who seem to react promptly & effectively to changes in the gold market, protecting the company's balance sheet and P&L - as well as delivering on promised production & cost reduction programmes.

Cheers,

Mark

Damn good Q1 results announced today! Key highlights:

• 73,654oz produced (note that this is before Tabakoto mill expansion & whilst Nzema is transitioning between pits)
• Costs controlled, with further cost improvement expected. All in sustaining cash cost $1,083/oz
• Focus on cost improvement and reducing CAPEX, in a falling gold price environment.
• Cash & bullion remains @ $128m (despite investments in Tabakoto expansion & construction of new mine at Agbao )
• Net earnings of $15.1m ($9.0m, adjusted), boosted by impact of hedges (NB these hedges will have a major positive impactt in Q2, when the gold price fell substantially, assuming it remains low).
• All in sustaining margin forecast for 2013 reduced to $127m, with a reduced gold price assumption of $1,400/oz vs $1,600/oz previously. Seems rather good against a market cap. that has now shrivelled to $371m!
• Tabakoto mill expansion now complete. Improvement expected at Nzema in H2, once pit transition complete.
• Agbao on track to start production in 1Q14

I observe from the full results that the company sold most of its bullion holding post the quarter end, increasing the level of protection against further gold price falls from its hedges.

V happy to continue holding here.

Mark

Further confirmation of progress at Agbao: http://web.tmxmoney.com/article.php?newsid=59682683&qm_symbol=EDV

...To date, approximately 68% of the US$160 million construction budget has been committed, with US$59 million spent and the project is approximately 57% physically complete overall. At current gold prices, mine cash flows and balance sheet resources, including cash and bullion of approximately $130 million as of March 31, are sufficient to complete construction as planned...

That seems to have done the trick: SP up over 23% today to C$1.06 :0)

I hope that's just the start of recovery from these ludicrous levels - otherwise there's a distinct risk of a lowball T/O.

Unsurprisingly, considering the rout in gold, Endeavour's share price has been hammered lately.

Last week I added some more @ C$0.90 - risky, should the gold price collapse altogether, but offering a substantial reward if it does not. IMO C$2.50* is easily achievable, if the gold price recovers a bit.

I see that CEO Neil Woodyer gave an interview to Reuters yesterday.

(Reuters) - Toronto-listed Endeavour Mining Corp said its Agbaou gold project in Ivory Coast remained on track for completion by the end of the year, unaffected by a record drop in the price of gold...

Consistent with management's past strong track record of delivery on expectations, Endeavour's latest project appears ahead of schedule and 450koz of production in 2014 is ahead of expectations.

I find it hard to see the gold price going below Endeavour's cost of production for long, as those costs are in line with industry averages. Many mines would be forced to close if the gold price fell below $1,100/oz for long. Given still-strong Asian demand, that scenario seems unlikely to me. Though Endeavour has some debt ($200m gross), it's balance sheet is strong, with $151m of cash and bullion offsetting that debt (so net debt only around $50m). Worth noting that the loss of value of that bullion will be more than offset by a strong reduction in gold hedge liabilities covering114koz due 2014 and beyond (2013 hedges were bought back last year). I would expect that diminution in hedge liabilities to have a strong positive effect on reported profits in the current quarter (Q2).

Hence, I do not expect Endeavour to encounter any near-term financial difficulties, or disruption to projects under construction, despite the gold price fall.

*Based on: all-in costs of $1,100/oz, 300koz annual production, $1,600 gold price, 30% average tax and a P/E of 10. That would rise to C$4.60 if 2016 production targets of 550,000oz are hit.

Cheers,

Mark

Endeavour released 2012 results today. See http://web.tmxmoney.com/article.php?newsid=59087431&qm_symbol=EDV for a summary and download the full PDF here: http://stream1.newswire.ca/media/2013/03/27/20130327_C8867_DOC_EN_24884.pdf

I have also just participated in their analyst/investor conference call (slides can be viewed here)

Endeavour's share price performance since I last posted has been very disappointing, in common with that of many gold miners. Clearly, Mr Market is not confident that the current gold price will be sustained/increase.

The results look perfectly satisfactory to me, though an unadjusted loss is shown, due to non-cash factors. There are clearly "issues" to resolve at Tabakoto, but these are well explained in the reports and the measures being taken sound eminently sensible to me. Most importantly, the company achieved operating cashflows of over US$93m over the year (allowing for 75 days production from Tabakoto, since the Avion takeover)

I very much like the inclusion of a proper "all-in sustaining cash cost" figure. The actual for 2012 was $1,077/oz with a forecast range of $1,055-$1,155/oz for 2013. Various cost-reduction programmes are underway (especially improvement of ex-Avion operations), so I'd expect the costs to be higher in the early part of the year, reducing later. This was confirmed by the company in response to my question in the conference call, and they advised that they expected to exit 2013 with a cost run-rate towards the lower end of the guidance range (assuming no increase in raw materials or labour unit costs over the course of the year - if there is general costs inflation I would expect that to be reflected in a rising gold price in the medium term).

Also in response to my question, they advised that tax rates were 17.5% in Burkino Faso, 30% in Mali and 35% in Ghana.

These figures allow me to do a very crude back-of-fag-packet valuation.

A gold price of $1,600/oz and $1,100 of all-in costs leads to a per oz margin of $500. Knock off 30% tax and you're left with $350/oz. Assuming 300koz run rate, that's around $100m p.a. of net profit. Putting that on a multiple of 10 leads to a $1bn valuation.

So with a market cap. of $615m the current SP of $1.49 looks pretty cheap to me.

It is notable that the valuation is heavily geared to the gold price - but as I want some exposure to gold in my porty, this looks like a pretty good way of getting it to me. Endeavour's balance sheet looks pretty strong, with only around $50m of net debt and $150m of gross cash/bullion - meaning they are robust against a near term fall in the POG.

There is strong upside potential from two main sources:

1. A resurgence in the gold price

2. New projects coming on-stream. By mid-2014, we should be approaching 450koz of production with Agbaou coming on stream. Management confirmed in the conf call that they expect Agbaou ramp-up to be rapid, with full  production (100koz) being reached within one quarter of commencing mine/mill operations. At that point development of Hounde should begin, leading to a further 160koz p.a. by mid 2016.

When the Segala underground mine gets into production (confirmed to be late 2013/early 2014 in the cc), that should raise Tabakoto production beyond 160koz p.a.

I am very happy to hold here and may consider topping up. Management's track-record has been pretty good and the diversity of production (+strong balance sheet) should make this business robust. ISTM that it's a case of waiting and watching for delivery on targets (but expect better margins in the second half on 2013 than in the first!).

Cheers,

Mark

Listened to Endeavour's Q3 call this afternoon. Picked up a couple of interesting snippets:

• "Steady state" G&A (once Avion overheads folded in - e.g. closing Toronto office) expected to be $20m p.a.
• Tabakoto CAPEX was $28m for Q3

There were a couple of key slides, IMO: 

Of course, that's before tax, G&A, D&D (depletion & depreciation)... interesting, nonetheless.

Mr Market not overly impressed, yet, so remains attractive to me, at a market cap. of $880m currently. Should see profits flowing, as integration of the companies proceeds, and expansion/new projects add further cashflow. Obv. a gold price above $1,700/oz helps too.

Cheers,

Mark

Endeavour Q3 results released after market hours: http://files.newswire.ca/910/ENdeavourMDA.pdf 

The "?" above is 49,468oz, making the quarterly proforma figure (including Avion/Tabakoto) 81,605oz. Nicely ahead of the 300koz annualised target. Cash costs are satisfactory @ $644/oz across Youga/Nzema, leading to operating cashflow of US$25.6m for those properties in the quarter.

Conference call 16:00GMT tomorrow.

Thanks for the link. Looks like Avion had a little bit of cash as the proforma net cash at 30 June 2012 per the narrative was $51m (cp $44m EDV). However the analysis in the body of the circular (C2) suggests it is $24m. Not a material difference on $958m market cap. Proforma tNAV is $916m.

Underlying proforma EBITDA in 6 months to 30 June 2012 was $87m and 12 months ended 31 December 2011 was $138m.

It's all about them getting production up and the market clearly has some degree of scepticism.

RNS from Randgold Resources (LON:RRS) : http://www.investegate.co.uk/Article.aspx?id=201210311516130060Q

Bamako, Mali, 31 October 2012 - Gold mining companies in Mali will donate US$735 000 in emergency funding to avert an interruption of the Mass Drug Administration (MDA) programme fighting a range of neglected tropical diseases (NTDs) endemic to that country.

 

The donations by Randgold Resources, Avion Gold including personal donations by its shareholders Forbes & Manhattan and executives John Begeman and Don Dudek, AngloGold Ashanti, IAMGOLD, Resolute Mining, Gold Fields and African Mining & Exploration, are being made to The End Fund, a non-governmental organisation committed to providing access to treatment for these NTDs. ... 

 

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?

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

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

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

...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

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

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

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

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

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.

 

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

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

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