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By: Mineralstox.com
A week ago Canadian merchant bank Endeavour (TSX:EDV) appeared to be warming up
for a bare knuckle fight with Russian steel giant Severstal (SVST-LSE) for
control of Crew Gold (TSX:CRU).
Just before the first bell, the boxing ring was deconstructed and they are now
working together to build a powerful mid-tier gold production company.
Crew’s LEFA gold mine in West Africa is now one of the top turnaround stories in
the global mining industry – production is up, costs are down by almost 50% over
last year and the company now has fresh capital and large new shareholders.
There is also a large exploration portfolio that both groups are keen to
develop.
Both companies are headed by master deal makers, Frank Giustra (Endeavour) and
Alexei Mordashov (Severstal). Both companies are gold focused merchant banks, so
the synergies were obvious.
"Endeavour and Severstal share a common goal of maximizing the value of our
investments in Crew Gold,” confirmed Endeavour CEO Neil Woodyer. “We are
delighted to be working in tandem with Severstal as a co-operative approach will
allow each of us to best achieve the value creation potential of our gold
investment strategies."
Nikolai Zelenski, Chief Executive Officer of Severstal's Gold Division,
commented, "we are pleased to have reached an agreement with Endeavour and Crew
that will result in each of Crew's major shareholder groups being properly
represented on the board."
Interestingly, both Endeavour and Severstal have other West African assets.
Endeavour owns a controlling interest in Etruscan Resources (TSX:EET), which
produces 80,000 ounces of gold per year in Burkina Faso, and Severstal owns 69%
of High River Resources, which has the Taparko-Bouroum Gold Mine in Burkina
Faso.
Severstal is integrated steel and mining with a market cap of $10 billion. In
2009, Severstal produced 16.7 million tonnes of steel. It has 92,000 employees.
In 2007 it began acquiring gold assets with exploration fields in Russia,
Kazakhstan and Burkina Faso. Last year, Severstal's gold mines produced 530,000
ounces of gold.
Endeavour is a gold investment company and merchant bank offering financial
advice (debt, equity, M&A and strategic business development) and financings to
natural resource clients. Endeavour creates new growth companies as both an
advisor and investor.
The three companies have agreed to a reconstituted board of nine directors, four
of whom will be nominees of Endeavour, three of whom will be nominees of
Severstal and two of whom will be nominees of certain other shareholders.
"Endeavour and Severstal share a common goal of maximizing the value of our
investments in Crew Gold,” states Neil Woodyer. “As active shareholders, we both
see operational efficiency at the LEFA Mine as a key driver for organic value
growth”.
Higher production at Crew has lowered costs. A $75 million capital program to be
spent over three years refurbishing the asset will greatly improve performance
and contribute to lower cost per ounce. The LEFA mine produced 57,930 ounces of
gold in the quarter ended March 31, 2010 selling for an average price of $1,105
an ounce.
Endeavour’s investment in Crew has more than doubled – at one point it was up
four times – and has had a big impact on Endeavour’s share price. Endeavour
trades for substantially less than the combined value of its two major West
African investments.
With the uncertainty surrounding Crew now gone, this could further reduce the
discount to NAV the share price is now experiencing.
Severstal has about $2 billion in its petty cash drawer, so this squabble over
Crew Gold is a minor skirmish for them.
A good brawl is fun to watch. But it seems certain that, in this case,
friendship is more profitable.
