La Mancha, a privately held investment company controlled by the family of Egyptian billionaire Naguib Sawiris — who earlier this month tweeted that he wants to buy an island in Europe to provide a home for refugees fleeing war-torn Syria — is taking a 30% stake in Endeavour Mining (TSX: EDV; US-OTC: EDVMF).
Sawiris controls the Orascom Group — one of Egypt’s largest and most diversified conglomerates, with interests in telecommunications, fertilizers, real estate and construction — and is best known in Canada (before his tweet on Sept. 3 that went viral) for providing some of the funding for launching Wind Mobile as a competitor to the country’s largest wireless carriers.
Sawiris’ holding company Orascom World Investment acquired La Mancha for $500 million in 2012, and the privately held company’s investment in Endeavour underscores his commitment to “the future of Africa and the gold mining industry.”
“By combining our African assets and management skills, we will grasp future opportunities to create a leading African gold producer,” Sawiris said in a prepared statement on Sept. 21. “My strategic goal is to create value with a long-term approach. The Endeavour board and management shares this objective, and has a successful track record of building and acquiring assets in Africa.”
Under the transaction, Endeavour will acquire La Mancha’s 55% stake in the Ity gold mine in the Côte d’Ivoire, US$63 million in cash and 3,500 sq. km of regional exploration properties in the West African nation. The deal also includes an in-principle commitment from La Mancha of up to US$75 million more funding to support growth “beyond immediate priorities.” In exchange, La Mancha will be given 177.1 million Endeavour shares, or 30% of the company’s enlarged share capital.
If Endeavour’s shareholders approve the deal, the Vancouver-based company will add a fifth gold mine in West Africa to its portfolio; increase total gold production to a rate of 580,000 oz. per year; and strengthen its balance sheet by reducing net debt from US$242 million to US$159 million, and slashing its net debt to earnings before interest, taxes, depreciation and amortization ratio from 1.3 times to 0.7 times.
The transaction also increases Endeavour’s attributable proven and probable reserves by 22% to 4.8 million oz. gold (measured and indicated resources rise by 23% to 8.5 million oz. gold), and will fund development of Endeavour’s Houndé project in Burkina Faso, after a construction decision early next year.
The agreement includes a two-year lock-up on the Endeavour shares issued to La Mancha. Sawiris will also be appointed to Endeavour’s board of directors, along with La Mancha’s current president and CEO Sébastien de Montessus. (De Montessus will also become Endeavour’s president, and within 24 months, transition to CEO.)
Endeavour estimates that it is paying US$17 per oz. for Ity based on the mine’s attributable proven and probable reserves (55% of 1.6 million oz.), or US$9 per oz., based on the mine’s measured and indicated resources (55% of 2.9 million oz.). Looking at the deal based on Endeavour’s market value of 58¢ per share, the value of the 177.1 million new shares issued to La Mancha is US$77.9 million.
“This kind of transaction doesn’t happen every day, particularly in the current depressed state of the market, and commodity prices more generally,” Doug Reddy, Endeavour’s executive vice-president of business development, says in an interview from the sidelines of the Denver Gold Forum. “Instead of going out and doing an equity raise, we’ve got something that no matter how we look at it, there are pluses to it for Endeavour, with the exception of dilution.
“It boils down to a new investor becoming a major shareholder with a standstill and lock-up of his interest, and he is doing that because he’s got the same view of Endeavour that we have, which is that it’s a good platform for creating a premier African gold mining company — and that’s why he’s coming in to be our number-one shareholder. He’s in it for the long-term.”
Endeavour has four mines in West Africa producing 500,000 oz. gold a year at all-in sustaining costs of just over US$900 per oz. Endeavour CEO Neil Woodyer founded the company and acquired its first mine — Youga in Burkina Faso — in 2010. A year later management picked up a second mine — Nzema, in Ghana — followed by Tabakoto in Mali, in 2013. Endeavour built its fourth mine — Agbaou, in Côte d’Ivoire— taking it into commercial production in 2014.
“Our history has been acquisition, build, improve, move on and bring the cost down,” Woodyer said in a presentation at the Denver Gold Forum. “If you look at our cost profile over this period of time, we started near US$1,200 per oz., and we brought it down progressively to just over US$900 per oz.”
Outlining the benefits of the latest transaction with La Mancha, Woodyer said the US$63 million in cash “is a tremendous benefit — it gives us a step-change in strengthening the balance sheet,” and helps “finance the construction of the Houndé project from our own resources.” It also adds a fifth producing mine and more cash flow, and gives it more exploration projects, which Endeavour says would make it the largest exploration company in Côte d’Ivoire.
The mining executive — whose 30 years in the resource sector includes a stint as CEO of Lloyds International Trading, a subsidiary of Lloyds Bank PLC, specializing in project and trade finance and commodity trading — also pointed to La Mancha’s track record over the last three years. Not only has the company increased production from about 50,000 oz. gold a year to 85,000 oz. gold, but it has cut costs, too, with AISC in the first half of 2015 about US$700 per oz.
La Mancha has also shown solid exploration results, he says, enlarging its resource base since 2011 from 200,000 oz. gold to 2.9 million oz. “They’ve spent US$25 million on exploration over the last few years and that program is ongoing, so we’d look to add ounces going forward,” he says. “We’re buying a viable mine, with big upside potential in terms of cash generation.”
La Mancha could bolster Ity by adding a carbon-in-leach circuit (CIL), with an expansion project winding its way through a final feasibility study. Ity’s heap-leach reserves support a three-year mine life, which could extend to five years by using some of the oxide reserves that are slated for the CIL project. If the CIL processing plant is built in 2017, gold production could begin in 2019, with the mine life extending until 2029.
Other shareholders in the Ity mine, 480 km northwest of Abidjan, are Côte d’Ivoire’s state mining company Sodemi (30%), the government directly (10%) and Ivorian professional soccer player Didier Drogba, who plays for the Montreal Impact club (5%).