Avion Gold Corp.

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

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

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

In reply to marben100, post #3

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:

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.

 

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

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

In reply to snaj, post #7

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