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Endeavour Mining to acquire True Gold to grow its low-cost gold production

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Endeavour Mining to acquire True Gold to grow its low-cost gold production

 

 

 

 

 

Endeavour Mining (TSX:EDV) (OTCQX:EDVMF) is pleased to announce that it has entered into a definitive arrangement agreement with True Gold Mining Inc. (TSX-V:TGM) pursuant to which Endeavour Mining will acquire all of the issued and outstanding common shares of True Gold

via a court-approved plan of arrangement.

 

 

In conjunction with the acquisition, Endeavour Mining is pleased to announce that La Mancha Holding S.ar.l., its largest shareholder with 30% ownership, intends to exercise an anti-dilution right that will

result in an approximate CDN$82.6 million (US$61.5 million) new equity placement in Endeavour Mining.

 

 

 

Summary of the transaction

 

 

 

  — Acquisition of True Gold in an all share transaction with each True Gold

     common share exchanged for 0.044 of an Endeavour Mining common share

     valuing True Gold at approximately CDN$0.57 per share or CDN$226 million,

     using closing prices on the TSX and TSX-V as of March 3, 2016. Using

     Endeavour Mining’s 20-day volume weighted average price the

     acquisition is valued at CDN$191 million.

 

 

 

 

 

  — The offer represents a 43.4% premium for the True Gold shareholders using

     closing prices as of March 3, 2016 and a 32.7% premium using 20-day

     VWAPs, on the TSX and TSX-V, respectively.

 

 

 

 

 

  — True Gold has a 90% interest in the Karma gold mine in Burkina Faso,

     which is nearing production start-up with first gold pour anticipated in

     late March / early April 2016.  The acquisition will increase Endeavour

     Mining’s forecast gold production rate by approximately 110,000 – 120,000

     ounces per year at a low AISC of approximately US$700/oz in years 1 to 5,

     with a mine life of 8.5 years based on current reserves.

 

 

 

 

 

  — Endeavour Mining’s attributable Proven and Probable gold reserves will

     increase by 19% to 5.4 million ounces and Measured and Indicated gold

     resources will increase by 39% to 10.2 million ounces, and Inferred gold

     resources will increase by 123% to 3.9 million ounces (see Appendix 2).

 

 

 

 

 

  — Under the transaction, Endeavour Mining is providing a US$15 million

     convertible bridge loan to True Gold (the “Bridge Loan”) to ensure True

     Gold remains well funded as it completes construction of the Karma Mine.

     Currently, True Gold has drawn US$105 million of its US$120 million gold

     streaming facility with Franco-Nevada Corporation and Sandstorm Gold Ltd.

     Endeavour Mining is providing the Bridge Loan as a financing alternative

     that allows True Gold to maintain its current liquidity without

     additional gold streaming.

 

 

 

 

 

  — The anti-dilution right permits La Mancha to subscribe for new Endeavour

     Mining shares to maintain its current 30% ownership.  Upon completion of

     the True Gold acquisition, La Mancha has committed to purchase

     approximately 7.5 million Endeavour Mining shares at a price of CDN$10.94

     (in line with 20-day VWAP) for proceeds of approximately CDN$82.6

     million. The subscription for, and listing of, all new shares is subject

     to TSX and other regulatory approvals.

 

 

 

 

Neil Woodyer, CEO of Endeavour Mining, stated: “The production profile and low cost of True Gold’s Karma Mine is a very attractive fit with our West African operating portfolio. Karma is nearing production, and Endeavour Mining has both the financial strength and an experienced operations team to ensure Karma’s value is maximized during this important stage. While True Gold shareholders are receiving an attractive premium and an opportunity to participate in a larger diversified West African producer, Endeavour Mining shareholders are gaining a new, low-cost mine that boosts group production while reducing group AISC/oz in a value accretive transaction. In the long term, the Karma Mine has extensive exploration potential to extend its mine life. Endeavour Mining’s enhanced ability to finance an expanded exploration strategy at Karma, and at our own mines, is expected to generate significant value.

 

 

 

With the expected closing of this acquisition in April 2016, we intend to see Karma complete its production ramp-up and then commence construction of the Hounde Project.

 

 

 

This transaction also demonstrates the strength of Endeavour Mining’s strategic relationship with La Mancha and Naguib Sawiris as our long term partner with the shared vision of building a leading,

Africa-focused gold producer.”

 

 

 

Terms of the Arrangement Agreement

 

 

 

Under the Arrangement Agreement, each True Gold shareholder will receive 0.044 of an Endeavour Mining common share in exchange for each True Gold common share. Also under the Arrangement Agreement, True Gold stock options will become exercisable for Endeavour Mining Shares using the same 0.044 exchange ratio subject to a maximum term of 180 days from closing, or 1 year from closing if

so provided under the relevant optionee’s employment agreement.

 

 

 

True Gold shareholders will represent 20.9% of Endeavour Mining capital after the exercise of the La Mancha anti-dilution right.

 

 

 

Completion of the Arrangement will be subject to, among other things, approval by 66 2/3% of the True Gold shareholder votes cast, approval by 50% of the Endeavour Mining shareholder votes cast, and other customary conditions including court approvals. The two shareholder meetings are expected to occur in the third week of April 2016 and the transaction is expected to close before the end of April 2016.

 

 

 

For the benefit of Endeavour Mining’s shareholders, full details of the proposed transaction will be included in a management information circular to be filed with regulatory authorities in Canada and mailed to the Endeavour Mining shareholders in accordance with applicable securities laws. The record date for the special meeting of the Endeavour Mining shareholders will be announced in the near future.

 

 

 

Highlights of the Acquisition

 

 

 

  — The True Gold acquisition is consistent with Endeavour Mining’s

     previously-announced ‘buy-and-build’ strategy and firmly positions the

     company as one of West Africa’s premier gold miners.

 

 

 

 

 

  — The Karma Mine provides a material upgrade to the recently divested Youga

     Mine and emphasizes management’s dedication to proactive portfolio

     management and cash flow maximization.

 

 

 

 

 

  — On a pro forma basis, Endeavour Mining will have five producing mines;

     the Hounde Project, a long-life and low-cost development project that is

     construction ready; and an attractive pipeline of development and

     exploration properties (see Figure 1 for locations).

 

 

 

 

 

  — Through an all-stock transaction, True Gold shareholders can continue to

     participate in the future growth of Karma through Endeavour Mining shares

     and, importantly, access its superior financial capacity and leverage its

     proven operating team.

 

 

 

 

 

  — Endeavour Mining’s cash balance and available amount from its revolving

     credit facility totaled US$220 million, as of December 31, 2015.

     Including the US$20 million proceeds received from the sale of the Youga

     Mine on February 29, 2016 and the La Mancha anti-dilution investment of

     US$61.5 million increases the available liquidity to approximately

     US$301.5 million.

 

 

 

 

 

  — A pro forma market capitalization of CDN$1.08 billion using Endeavour

     Mining’s closing price on the TSX as of March 3, 2016.

 

 

 

 

 

  — For 2016, Endeavour Mining has production guidance range of 535,000 to

     560,000 ounces (updated to exclude the recently sold Youga Mine) at an

     AISC/oz range of US$870 to US$920.  Adding the Karma Mine potentially

     lowers the AISC range by approximately US$25/oz (assuming Karma achieves

     US$700 AISC/oz in 2016).

 

 

 

 

 

  — Endeavour Mining will integrate Karma into its existing operations

     management structures and does not anticipate an increase in its

     corporate G&A expense also True Gold G&A will be eliminated (~6 m

     C$/year).

 

 

 

 

 

  — Across a range of valuation metrics and contribution analysis, this

     acquisition is value accretive to the Endeavour Mining shareholders.

 

 

 

 

 

  — Valuation upside as Endeavour Mining continues to grow its low-cost gold

     production, and this transaction enhances a financing plan that

     accelerates the construction of the Hounde Project and the ability to

     finance an expanded exploration strategy.

 

 

 

 

 

 

Additional Transaction Details

 

 

 

The proceeds of the US$15 million Bridge Loan may be used by True Gold to fund capital expenditures for the completion of the Karma Mine, and for other working capital needs. The terms of the Bridge Loan include a repayment date which is 12 months from the date of the loan; the loan may be repaid in cash or, at Endeavour Mining’s sole election, may be converted into common shares of True Gold on certain events. The conversion price for the principal amount of the Bridge Loan will be at a price per common share equal to the 5-day VWAP on the date prior to True Gold’s drawdown of the Bridge Loan. Interest on the Bridge Loan will accrue from draw-down at a rate of LIBOR plus 4% and may be paid

in cash or in True Gold shares based on True Gold’s future market price prevailing at the time.

 

 

 

The Arrangement Agreement includes customary deal protections. True Gold has agreed not to solicit any alternative transactions; Endeavour Mining has been granted the right to match any superior competing offer; True Gold has agreed to pay Endeavour Mining a break fee of approximately C$4.5 million in certain circumstances; Endeavour Mining has agreed to pay True Gold an expense fee of C$4.5 million in certain circumstances.

 

 

 

Both the Endeavour Mining and True Gold Boards of Directors have unanimously approved the terms of the Arrangement Agreement and recommend that their respective shareholders vote in favour of the

proposed acquisition.

 

 

 

All of True Gold’s officers and directors and certain shareholders, holding, in the aggregate 15.7% of the issued and outstanding True Gold shares, have entered into support agreements with Endeavour Mining to vote in favour of the Transaction.

 

 

 

All of Endeavour Mining’s directors and officers and certain shareholders, holding in the aggregate 31.5% of the issued and outstanding ordinary shares of Endeavour Mining have entered into support agreements with True Gold to vote in favour of the issuance of the ordinary shares pursuant to the Transaction.

 

 

 

Pro Forma Capital Structure

 

 

Table 1: Pro Forma Capital Structure

 

 

 

 

 

 

 

 

 

 

 

                                                           Pro Forma

                                              Issued and      Issued

                                             outstanding      shares  Pro Forma Ownership

                                       shares (millions)  (millions)

  —————————————————————————————

  Endeavour Mining                                 59.04       59.04     70.19%

  True Gold                                       398.84       17.55     20.86%

  La Mancha, anti-dilution investment                           7.53      8.95%   30.00%1

  Total issued shares                                          84.12    100.00%

  —————————————————————————————

 

 

 

 

1 La Mancha currently owns 17,706,157 shares of Endeavour Mining such

that it will hold 30.00% ownership following the anti-dilution

investment

 

 

 

Advisors

 

 

Endeavour Mining is being advised by UBS Investment Bank and Stikeman Elliott LLP.

 

 

True Gold is being advised by National Bank Financial, Haywood Securities Inc. (Special Committee) and Blake, Cassels & Graydon LLP.

 

 

La Mancha is being advised by Norton Rose Fulbright LLP.

 

 

 

About Endeavour Mining Corporation

 

 

 

Endeavour Mining is a TSX-listed intermediate gold mining company which operates four West African mines in Cote d’Ivoire, Mali, Burkina Faso and Ghana. In 2016, it expects to produce between 535,000 and 560,000 ounces at an all-in sustaining cost of US$870 to US$920 per ounce, after the sale of the Youga Mine and before the addition of the Karma Mine. Endeavour Mining is focused on effectively managing its existing assets to maximize cash flow as well as pursuing organic and strategic growth opportunities that benefit from its management and operational expertise.

 

Posted March 4, 2016

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