Endeavour Mining (EDV-T) plans to buy Avion Gold (AVR-T) in a $389-million deal to consolidate its position in West Africa and grow its expected gold production for 2012 by 50%.
The miner has agreed to acquire all of Avion’s shares by way of a statutory plan of arrangement and provide a US$20-million loan to help the junior resume its mill expansion project at its Tabakoto gold mine in Mali.
The acquisition values Avion at 88¢ apiece, which represents a 56% premium to its August 7 closing price and a 70% premium over its 20-day volume-weighted average price.
According to the proposal, Avion shareholders will receive 0.365 of an Endeavour share for each share held.
“The proposed acquisition by Endeavour Mining appears to offer reasonable value and would create an appealing mid-tier West African gold producer,” BMO Capital Markets’ analyst Andrew Breichmanas writes in an August 8 note.
Endeavour currently operates two gold mines, Youga in Burkina Faso and Nzema in Ghana, and is developing the Agbaou gold project in Côte d’Ivoire, while Avion produces gold at its Tabakoto mine, and is advancing its Houndé project in Burkina Faso.
In a press release, Avion’s president and CEO John Begeman says he believes the proposed transaction provides a “substantial premium and meaningful ownership in a stronger combined West African-focused mining company with the financial resources to withstand a protracted lull in the capital markets.”
Once the deal closes, Avion shareholders will own roughly 40% of Endeavour.
For Endeavour, the acquisition brings geographical diversification and a third producing mine to its portfolio.
Endeavour’s management estimated consolidated production from Youga and Nzema of 187,000 to 202,000 oz. gold this year, but with Avion’s Tabakoto it expects a combined production of 282,000 to 304,000 oz.
The US$20-million exchangeable loan that Avion will receive has an initial term of six months and bears interest at LIBOR plus 6%.
Commenting on the bridge loan, Breichmanas notes that “it allows Avion to avoid a dilutive financing while Endeavour’s relatively strong balance sheet should allow advancement of future growth opportunities.”
The loan is repayable in either cash or Avion shares on the initial maturity date, Breichmanas explains, adding it also contains an exchange feature, if approved by the TSX, which will allow Endeavour to convert the principal at any time into Avion shares at an exchange price of US$0.4323.
All of Avion’s officers and directors as well as certain shareholders, representing 1.1% of the company’s fully diluted shares, have agreed to vote in favour of the proposed transaction and not to solicit other offers.
The deal is expected to close in October 2012, following shareholder and regulatory approvals. Once it does, Avion’s CEO and another Avion director are expected to join Endeavour’s board.
Endeavour has the right to match competing offers and if it calls off the deal it has agreed to pay the smaller miner a US$1-million expense fee.
If Avion walks away from the deal, it will have to pay an $11.5-million break fee and a US$2-million expense fee.
Avion closed the day up 21% at 68¢, while Endeavour lost 17% to end at $1.99 a piece.
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