Ahead of The Herd, Telling you things everyone else doesn't already know.

Richard (Rick) Mills
Ahead of the Herd

As a general rule, the most successful man in life is the man who has the best information

An innovative merchant bank focused on the natural resource sector Endeavour Financial Corporation (EDV-TSX) has seen its stock price double in the last 12 months on the heels of some astute junior gold mining acquisitions.

Yet today Endeavour has a P/E ratio of just one. That’s not a typo. In Q3 2010 EDV’s basic earnings per share were $2.20 and it’s currently trading at $2.20.

On June 25th 2010, Endeavour announced the signing of a US$100 million revolving line of credit provided by UniCredit Bank.

"We're pleased to have access to this facility which provides Endeavour with financial flexibility to fund new acquisitions." Endeavour CEO Neil Woodyer

Three days later EDV announced that they were entering into a definitive arrangement to acquire all of the remaining outstanding shares of Etruscan Resources (EET-TSX) - Endeavour currently owns 55% of Etruscan and, subject to shareholder approval, will acquire the remaining 45%. Etruscan controls about 10,000 sq. Km - the largest land position of any mining company in West Africa - and consequently may be well positioned for exploration success. In addition to Youga, an operating gold mine, Etruscan reported a gold resource of over three million ounces in West Africa and has recently produced a Feasibility Study for its Agbaou project in Côte d’Ivoire.

Under the terms of the Arrangement, Etruscan shareholders will receive C$0.48 per Etruscan share comprised of C$0.26 in cash plus 0.0932 of an Endeavour share, representing a premium of 33%. The cash component will use C$43 million of Endeavour's new line of credit.

“He who rejects change is the architect of decay.” Former British Prime Minister Harold Wilson

Endeavour now has a significantly different profile - it will operate Etruscan’s Youga Mine in Burkina Faso, an 80,000 oz producer, and is heavily invested in Crew Gold which operates the 250,000 oz per year Lefa Mine in Guinea. Between these two mines Endeavour has net production of 189,000 ozs of gold per year.

Etruscan’s minority shareholders will vote on the proposed buyout in August. Upon closing of the transaction, Etruscan shareholders will own 13.6% of Endeavour.

Endeavour has a long history of success in value creation in the mining industry:

  • Since 2002, Endeavour has advised on M&A transactions valued at over US$28 billion
  • Has helped arrange US$3.5 billion of equity finance and US$2.2 billion of debt finance

Endeavour also has a good track record of financing and restructuring companies such as:

*Wheaton River Mineral Ltd.

**Bema Gold Corp.

Northern Orion Resources Inc.

UrAsia Energy Ltd.

Pacific Rubiales Energy Corp.

*Endeavour provided numerous financings to Wheaton River Minerals - the acquisition of the Luismin gold-silver mine in Mexico, 25% of the Alumbrera copper-gold mine in Argentina and the Peak Gold mine in Australia.

**Endeavour financed Bema Gold Corporation’s Refugio Mine in Chile and their Julietta and Kupol Mines in Russia ("Mining Deal of the Year" - Project Financing International Awards 2005).

Few investors are comforted when a company seemingly reinvents itself overnight - with this deal Endeavour metamorphoses from a merchant bank to a gold producer but shareholders could see a potentially significant re-rating from the New Endeavour’s gold company profile.

Shareholders of both Endeavour and Etruscan might expect the deal to be accretive to both companies because:

  • Exploration and development projects will be advanced or monetized
  • The assets enjoy upside from re-rating, potentially as a larger going concern with exposure to higher gold prices
  • Etruscan shareholders will benefit from increased exposure to Endeavour’s LEFA’s production and its unhedged exploration
  • Endeavour also provides more liquidity to Etruscan shareholders as it has 14 times more daily value traded than Etruscan - over the six months ended June 25, 2010
  • Two producing gold mines in West Africa, on an attributable basis, annual production of 189,000 ozs. With gold resources (M&I) of 3.9 million ozs and gold reserves of 2.3 million ozs
  • Production growth profile
  • Significant exploration upside
  • Operating teams in place - Etruscan management and its exploration team have worked together through metal cycles and had a history of experience in the countries in which it’s operated.
  • Acquisitions - the company has strategic landholding in some of the most prolific gold belts in West Africa and Ghana - this makes other juniors in the area, in this authors opinion, takeover targets

Etruscan management has enjoyed tremendous success in building the largest exploration package in West Africa - Endeavour’s management has a track record of nimble deal making and operational expertise. This could be a watershed moment for the company and its shareholders.

The second gold producer to come into the Endeavour stable was Crew Gold with Endeavour acquiring a 37.88 per cent interest (Severstal, through its affiliate Bluecone, almost immediately increased its stake in Crew Gold to 19.79 per cent, the company obviously approved of Endeavours involvement in Crew).


With these deals Endeavour takes control of its cash flow and eliminates the public perception of being a financially non-transparent holding company - after the consolidation with Etruscan EDVs mark-to-market “investment” accounting will be replaced with “operating” accounting thus creating transparency, additional stability and strength on the balance sheet.

The plan for Endeavour is to build an extremely powerful position along the greenstone belts of West Africa, many of which are underexplored. With so many resource companies in a state of virtual paralysis it’s refreshing to see Endeavour expressing a clear vision on how to tackle a new challenge. This well thought out business plan should place Endeavour on every gold investors radar screen.

Is it on yours?

Richard (Rick) Mills

If you're interested in the junior resource market and would like to learn more please come and visit us at aheadoftheherd.com


Richard is host of aheadoftheherd.com and invests in the junior resource sector. His articles have been published on over 200 websites, including: Wall Street Journal, SafeHaven, Market Oracle, USAToday, National Post, Stockhouse, Casey Research, 24hgold, Vancouver Sun, SilverBearCafe, Infomine, 321Gold, Kitco, Gold-Eagle, The Gold/Energy Reports, Calgary Herald and Financial Sense.


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This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment. Richard Mills has based this document on information obtained from sources he believes to be reliable but which has not been independently verified; Richard Mills makes no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. Expressions of opinion are those of Richard Mills only and are subject to change without notice. Richard Mills assumes no warranty, liability or guarantee for the current relevance, correctness or completeness of any information provided within this Report and will not be held liable for the consequence of reliance upon any opinion or statement contained herein or any omission. Furthermore, I, Richard Mills, assume no liability for any direct or indirect loss or damage or, in particular, for lost profit, which you may incur as a result of the use and existence of the information provided within this Report.

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