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.
Filed Under: Gold Mining,
Disclaimer:
The author may hold shares in this company, all opinions are his own and you should check any statements that appear factual and not rely on them before making an investment decision. The author is NOT a qualified analyst nor authorised to give investment advice. Whilst the author is a director of ShareSoc, all views expressed are entirely his own and not necessarily those of ShareSoc.
28 Posts on this Thread show/hide all
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
Notification posted on SEDAR that Sentry Investments sold 4.76m Avion shares in September, reducing its holding to 55.4m shares = 12.49%
...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.
From Endeavour: http://tmx.quotemedia.com/article.php?newsid=54984007&qm_symbol=EDV
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
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
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
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
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
In reply to alano20, post #14
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
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?
In reply to SteMiS, post #16
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
RNS from Randgold Resources (LON:RRS) : http://www.investegate.co.uk/Article.aspx?id=201210311516130060Q
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.
In reply to SteMiS, post #19
Another factor depressing first half EBIDTA at Avion is that costs became very high as operations moved underground at Tabakoto. If you check back on the thread, you'll see that I raised this at a post-result teleconference with management, who indicated that a cost reduction programme was underway and that they expected Tabako operating costs to fall to ITRO of $750/oz.
Last year, Endeavour (then with only the Youga mine) merged with Adamus, bringing the Nzema mine. Totalling the three companies production figures shows the 3 companies growth trend:
As the Tabakoto mill expansion completes, I don't see too much risk in raising the production profile. Combined production in the first half of 2012 already comfortably exceeds the 300koz annualised figure - and Avion's reported Q3 figure augurs well. :0)
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.
Listened to Endeavour's Q3 call this afternoon. Picked up a couple of interesting snippets:
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 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
In reply to marben100, post #23
Good to see the company, together with others, providing humanitarian assistance in Mali.
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.
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
Further confirmation of progress at Agbao: http://web.tmxmoney.com/article.php?newsid=59682683&qm_symbol=EDV
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.
Damn good Q1 results announced today! Key highlights:
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
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:
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