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Consolidation in West African Gold Mining

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Consolidation in West African Gold Mining

Gold ProspectorThere was a barrage of mergers and acquisitions in the gold mining sphere during 2015. This was largely due to the declines in precious metals prices over the course of the year. Falling spot prices were forcing several of the small miners to accept being bought out (or face total collapse). At the same time, it made sense for the major miners, too: snapping up a competitor at rock-bottom prices helped mitigate their dwindling revenues.

Interestingly enough, M&A activity can also be the result of a rising gold price environment. This is the case with the purchase of True Gold (TGM) by its larger counterpart, Canadian-based firm Endeavour Mining (EDV). The stronger gold price (and the improved margins for gold miners that come along with it) allow even a medium-sized company like Endeavour to get in on the action.

Deal Makes Sense for Endeavour

Endeavour Mining's CEO, Neil Woodyer, said this of the deal: "The production profile and low cost of True Gold’s Karma Mine is a very attractive fit with our West African operating portfolio."

In addition to making strategic sense for Endeavour, the deal also fits into the company's plans geographically. The Karma gold mine, located in the relatively small West African nation of Burkina Faso, will be refining its first batch of gold in a matter of weeks. This gives Endeavour a low-cost project smack in the middle of several other operations it maintains in the surrounding countries of Mali, Ghana, and the Ivory Coast (known as Côte d'Ivoire in French), as shown in the map below.

Source: Seeking Alpha Source: Seeking Alpha

According to the company, their stake in True Gold's Karma mine would boost its gold production in the range of 110,000-120,000 oz per year over the first five years of operation. This is a marked improvement, however, given the widespread social unrest that Burkina Faso has been inundated by in recent years. These disruptions have prevented the Karma mine from coming online as local leaders squabble over the terms of its operation. With Endeavour Mining's wealth of experience building relationsips with the various governments of West Africa, the situation is much easier to take care of.

Share Performance

It's worth noting that the share price of EDV has doubled over the last three months (since the beginning of 2016), with trade volumes periodically spiking above 1 million shares in a single session. The company has been a fast-grower on the Toronto Stock Exchange (TSX) since the rebound in gold prices began in earnest at the beginning of the year.

EDV 3-month price chart. Source: Google Finance EDV 3-month price chart. Source: Google Finance

Compared to Endeavour's overall all-in sustaining costs (AISC) around $900/oz this year, the Karma mine is an extremely inexpensive option: its individual AISC is only $725 per ounce of gold. This helps lower EDV's overall costs across its mining assets, making it a key addition to the company's portfolio.

 

The opinions and forecasts herein are provided solely for informational purposes, and should not be used or construed as an offer, solicitation, or recommendation to buy or sell any product.

About the Author

Everett Millman

Everett Millman

Analyst, Commodities and Finance
Managing Editor

Everett has been the head content writer and market analyst at Gainesville Coins since 2013. He has a background in History and is deeply interested in how gold and silver have historically fit into the financial system.

In addition to blogging, Everett's work has been featured in CoinWeek, Advisor Perspectives, Wealth Management, Activist Post, and has been referenced by the Washington Post.

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