Endeavour to take over Etruscan Resources

Shares of Etruscan Resources (EET-T) leapt 15.4% to 45¢ on news that Endeavour Financial (EDV-T) plans to acquire the remaining shares it doesn’t already own in the West Africa-focused junior, with 6.6 million shares changing hands.

Currently, Endeavour owns 55% of Etruscan and its cash-and-share offer for the remaining 45% will be undertaken through a court-approved plan of arrangement for a total consideration of 48¢ per share.

The offer consists of 26¢ in cash and 0.0932 of an Endeavour share, or a 33% premium to the 20-day volume-weighted average prices of Endeavour and Etruscan on the Toronto Stock Exchange for the period ended June 25.

The boards of both companies have approved the transaction and Endeavour, which has been an active shareholder in Etruscan since October 2009, will use about $43 million of a US$100-million revolving acquisition facility to conclude the deal. The acquisition facility, provided by Unicredit on June 25, is for new gold acquisitions or capital investments.

Endeavour Financial, a gold investment company, also owns 43.21% of Crew Gold (CRU-T), and is advised by Frank Giustra. The mining entrepreneur joined Endeavour Financial in 2001 and while chairman of the merchant bank oversaw transactions involving US$3.3 billion in equity finance, US$1.8 billion in debt finance and US$27 billion in mergers and acquisitions, according to Michael Barnes’ book, Fortunes Found: Canadian Mining Success.

After leaving Endeavour, Giustra set up a boutique investment firm, Fiore Financial Corp. but remains an exclusive advisor to Endeavour.

Endeavour targets listed gold producing companies with “quality assets but with financial or (other) issues and deploys specialized skills and financial resources to create growth plans and improve share values,” the company explains on its website.

Etruscan has operated in Africa for more than 14 years and has three gold properties: Youga in Burkina Faso, Agbaou in Cte d’Ivoire and Finkolo in Mali. The company also holds land packages on a number of known gold belts in West Africa covering more than 8,000 sq. km in four countries. (Its Youga gold mine started production in February 2008 and exploration is continuing to develop satellite deposits to extend the project’s mine life)

The boards of Etruscan and Endeavour believe the acquisition will benefit Etruscan shareholders by giving them 13.6% ownership of Endeavour and exposure to Crew Gold’s unhedged gold production at its Lefa mine in Guinea, and its restarted exploration program.

Etruscan shareholders also get exposure to “significantly increased share liquidity” (over the last six months, Endeavour has had 14 times more daily-value traded than Etruscan) and improved financial strength and access to finance.

If the acquisition is completed, Endeavour will have combined annual gold production from the Youga and Lefa mines of 350,000 oz. gold, with about 189,000 oz. gold attributable to Endeavour. (About 270,000 oz. gold from Crew Gold’s Lefa mine and 80,000 oz. gold from Etruscan’s Youga mine.)

About 18% of Youga’s remaining life of mine production is hedged (for a total commitment of 76,196 oz.) with 36,030 oz. due in 2011, and 23,532 oz. in 2012, at a price of US$700 per oz., Sally Eyre, Etruscan’s president and CEO, clarified on a June 30 conference call. The remaining hedge commitment for 2010 is 16,634 oz.

Endeavour’s management added that Endeavour’s net asset value per share valuation would be $3.42 on a pro forma basis if the deal with Etruscan goes through at 48¢ per share.

Neil Woodyer, Endeavour’s president and chief executive, said the deal was compelling for Etruscan shareholders. “We’re well-positioned to make additional acquisitions,” he said during the conference call. “We’re well-positioned and well-financed to continue our growth plan. . . Our core business is now very much the gold business, and changing to an operating situation.”

News of the proposed acquisition sent Endeavour’s shares down 11¢ to close at $2.25.