Endeavour Mining Corp (TSE:EDV) (OTCMKTS:EDVMF) (FRA:E5Y1), the West-Africa focused miner, is to sell its 85% stake in non-core Agbaou gold mine in Ivory Coast to Allied Gold Corp for up to C$80 million, so it can concentrate on high-margin, long-life core assets, it told investors.
Agbaou is an open-pit mine with CIL (carbon-in-leach) processing. In the first nine months of last year, the asset generated 76,713 ounces of gold at an AISC (all-in sustaining cost) of $1,013 per ounce. The sale is expected to conclude on March 1 this year.
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"Agbaou has been a highly cash generative asset, which facilitated the organic development of Hounde and Ity, and given that it has now become non-core to Endeavour, we firmly believe that this transaction is in the best interests of all of Agbaou's stakeholders, including the government of Cote d'Ivoire, local communities and the employees themselves," said Sebastien de Montessus, chief executive at Endeavour.
"This transaction will ensure mining activities can continue for many years to come through the creation of the Bonikro-Agbaou complex."
Private African operator Allied Gold owns the nearby Bonikro mine and once the deal is complete, the new Bonikro-Agbaou operation will comprise multiple open pits and two processing plants with a total milling capacity of over five million tonnes a year.
Endeavour will receive C$20 million in cash payable in the first quarter this year, and C$40 million of Allied Gold shares, which could be sold back by Endeavour.
There is also a contingent payment of up to C$20 million, composed of C$5 million for each quarter of 2021, where the average gold price exceeds US$1,900 per ounce. Endeavour retains a net smelter royalty (NSR) royalty on ounces produced in excess of the Agbaou reserves,, which were estimated at the end of 2019.
The NSR royalty will be based on a sliding scale, as follows: 2.5% NSR if the gold price is at least US$1,400 per ounce; 2% if it is at least US$1,200 and less than US$1,400.
The royalty will be 1% if the gold price is at least US$1,000 per ounce and less than US$1,200 per ounce, and 0% if the gold price is below US$1,000 per ounce.
Following the news, broker Canaccord repeated a 'Buy' rating on Endeavour Mining and a target price of C$48. It predicts production at Agbaou ending in 2022.
The broker currently values the Ivory Coast mine at C$166 million at spot gold, implying a purchase price of around 0.5 times' net asset value (NAV).
Canaccord forecasts 2020 production for Agbaou of 105,000 ounces at an all-in-sustaining cost (AISC) of US$1,031 per ounce. Notably, the mine represents just around 3% of the broker's mining NAV for Endeavour.
Contact the author at giles@proactiveinvestors.com