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Adamus Resources to merge with Endeavour Mining to create new West African gold producer

Published: 09:22 23 Aug 2011 AEST

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Canada's Endeavour Mining Corp (TSE: EDV) announced over the weekend that it plans to acquire Australia-based Adamus Resources (CVE: ADU) (ASX: ADU) (FSE: AXM) in an all-stock "merger of equals" transaction valued at around C$313 million, creating a new West African gold producer.

The new company will have 2011 forecast production of 172,000 ounces from two mines, including the Youga gold mine in Burkina Faso and Adamus' Nzema property in Ghana, which achieved commercial production in April, at a cash cost of between US$575 to $625 per ounce.

"This combination will create a stronger and better positioned company with the financial strength to grow through strategic acquisitions," said CEO of Endeavour, Neil Woodyer.

"Merging with Adamus is a significant step forward and we seek to become a mid-tier gold producer."

Under the terms of the transaction, Adamus shareholders will receive 0.285 Endeavour shares for each existing Adamus oridnary share they hold.

As part of the deal, Endeavour said it plans to invest at least US$160 million from its current balance sheet to relieve the constraints of Adamus' project finance structure for the Nzema property in Ghana, including the repayment of a US$60 million project loan, and at least US$100 million towards the reduction of hedged gold volumes.

The companies said that they will benefit from greater leverage to the rising gold price, and increased operating cashflow and EBITDA.

"Our financial strength will unlock value and increase operating flexibility through our ability to repay the Nzema project finance facility, significantly reduce Nzema's gold hedge and fully fund development of Agbaou," continued Woodyer.

A decision on whether to go ahead with the construction of Endeavour's Agbaou feasibility-stage project in Côte d’Ivoire, one of the largest undeveloped gold deposits in the region, is due in the first quarter of 2012.

Once the deal closes, Endeavour will hold 55% of the combined entity on a fully-diluted basis, with Adamus shareholders holding the remainder.

The combined entity's gold production rate is expected to reach roughly 250,000 ounces per year by the end of 2013 from only existing assets. But the plan is to more than double this rate by this time through an acquisitive growth strategy.

The new company will also hold a large portfolio of exploration properties in Ghana, Burkina Faso, Côte d’Ivoire, Liberia and Mali, with a land package totaling over 10,400 square kilometres.

"We look forward to working with Mark Connelly and his team's West African mine building experience which will enhance our Agbaou mine development team and future projects," added Woodyer.

The two companies combined will have US$516 million to their name, including Adamus' $200 million revolving corporate loan facility provided by Unicredit Bank.

Woodyer will be the CEO of the new entity, while Adamus' Mark Connelly will be the chief operating officer.

The deal, which has already been approved by both boards, is subject to regulatory, Australian court, and shareholder approvals. Endeavour's shareholder meeting to vote on the transaction is due to be held in November.

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