VANCOUVER, B.C. -- West African rock is looking prime.
Severstal’s implied offer for Guinea gold miner Crew Gold (TSX: T.CRU, Stock Forum) likely will boost prospects for enterprising producers and explorers in those and neighboring countries. Our takeaway: to identify two or three gobble candidates across the gold-lush rock of Ghana, Mali, Burkina Faso, Sierra Leone and Guinea.
As (now Sir) Sam Jonah, former patriarch of Ghana’s Ashanti and its flagship Obuasi Mine, told me (five or six years ago, pointing at a map in his Accra office), “There has never been any doubt that Ghana and Burkina Faso and these others have some of the largest and longest-living gold deposits in the world. The properties just require patience and persistence and belief in the possible.” (And yes, I still have my notebooks from that and nearly all interviews and mine tours of the past 10 or so years.)
Severstal, a steelmaker controlled by a Russian tycoon, is putting all of its – in this case – kroner on the West Africa table. The London-based Severstal’s offer for the rest of Crew Gold it does not already owns amounts to a takeover offer that is some 80 percent richer than the entry price of merchant bank Endeavour Financial’s purchase of a month or soago. Please see details.
Endeavour Financial (TSX: T.EDV, Stock Forum) of Vancouver and the Cayman Islands is the bank that gobbled 37 percent of Crew’s shares at far cheaper prices than today’s post-Severstal price. That was just four weeks ago. Neil Woodyer, Endeavour’s chairman and a founder of the profitable bank, tells me today that his firm still sees Crew’s total value at a steep discount to its risk-adjusted net asset value. Mr. Woodyer and his traders on Thursday, after Severstal’s intentions reached the news wire, bought even more Crew shares.
In basic stock-price terms, Endeavour Financial’s purchase of some 810 million shares a month ago amounted to an average of 12 cents Canada a share. Crew shares today are 30 cents.
An asset manager in the USA who has a stake in the outcome of the Crew scrum told me today (Friday), “The possible NOK1.10 offer from Severstal is 69.2 percent above EDV's purchase price of 0.65. (You can easily find) technical reports that show a 5 percent NAV valuation -- roughly implying some NOK2.50 per share at $1,000-ounce gold.”
So, says this young and bright money manager, there is “still lots of room to fight it out.”
My confirmation of that number crunch comes from Endeavour’s Douglas Bowlby this morning: “EDV bought at NOK 0.66 (or approx CDN$0.12). The Severstal offer of NOK 1.10 is a 66.7 percent premium over our cost. Please note the current Crew share price of CDN$0.30 on the TSX is a 150 percent premium over our cost.”
Our interest (at Stockhouse and at subscriber service Ticker Trax) is pinned to two of our Planetary Prospects for the wealth service. One of them is Endeavour Financial (TSX: T.EDV, Stock Forum), which we regard as a consistently profitable bank whose portfolio of holdings make it a kind of closed-end fund for natural resources, largely gold, oil, uranium, potash, silver and, if I am correct, molybdenum and several lesser known metals.
Endeavour’s $200 million market worth got what many resource executives say was a long-awaited price push, thanks entirely to Crew. At this early stage in the commodities melt-up (as in up in price), merchant banks that hold securities tend to sell for a discount of their holdings. Thus, Endeavour’s Canada-traded shares, even with the squeegee bump up to $2.10 Canada this week, are well below a book value (based on the recently reported quarter) of more than $3.50 a share.
The extra whammy in all of this Crew brew, as Mr. Woodyer describes it, is that Crew shares sell for a discount to West Africa companies in general. And West Africa miners and prospectors tend to be worth less than other miners in Africa. And Africa miners tend to be worth less than miners in South America … And, well, you get the continent, I mean, the picture.
Endeavour’s first West Africa stock-buying foray was Etruscan Resources (TSX: T.EET, Stock Forum), a distressed gold producer primarily in Burkina Faso. I met most of that miner’s executives two months ago. Now, in the wake of the merchant bank’s US$58 million cash for 55 percent bragging rights on Etruscan Resources’ shares, Endeavour occupies four of eight Etruscan board seats. The bank’s average price of about 33 cents a share is below the current 42 cents Canada price today.
Endeavour Financial is on record as being amidst a strategy of forming a regional gold-mining juggernaut via the use of stock purchases, executive recruitment and debt financing. Its first region, clearly, is West Africa. Endeavour, as we learned from several months of conference calls, is accumulating positions in gold miners its team of analysts view as sickeningly cheap.
Endeavour Financial in the past eight or so years (I first met the bank’s executives in 2001 or so) has guided merger and purchase transactions worth almost $30 billion. Its equity finance and debt finance businesses helped contribute more than $22 million of profit to the bank’s income statement in the most recently reported quarter.
Of most interest is Mr. Woodyer’s intent to dedicate about $150 million scrubbing stone for distressed gold producers and prospectors that are saddled in debt, geopolitical woes and gnarled and money-thieving forward call gold sales. The merchant banks’ motive stems in large part, as explained to me several weeks ago by Endeavour’s Sally Eyre, the new CEO of Etruscan Resources, from a belief that gold will outpace gains in all commodity prices in coming years.
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Gonzo for Ghana
Now that OAO Severstal, a steelmaker controlled by Russian billionaire Alexei Mordashov, is bidding about $400 million for Crew, Endeavour likely will be searching for other cheap gold holdings in the region of West Africa.
Ghana, my favorite nation in that neck of the continent, produced about three million ounces of gold in 2009 – an amount that has been rising steadily for more than 20 years.
“Everyone is searching for good gold assets,” says James Longshore, whose Xtra-Gold Resources (OTC:BB: XTGR, Stock Forum) is prospecting Ghana’s Kibi Gold Belt. “The consolidating has begun.” Xtra-Gold is a Planetary Prospect of our Ticker Trax service, one of 12.
West Africa “is one of the last frontiers. Randgold went there in 1998 and put together all West Africa assets, on the way cheap, and look where they are now,” says Xtra-Gold’s Longshore. “A few years ago you could have had many of the concessions now being worked by Redback or Keegan (AMEX: KGN, Stock Forum) or 
some of these others for pennies on the current dollar.”
Ghana is seen as West Africa’s primary gold hub: good roads, a longstanding democracy and a Minerals Commission that takes a stake in the country’s freshly scrubbed prospectors. The other nations in West Africa are “low hanging fruit that can easily be brought into production, but just not as easily as English-speaking Ghana,” says Longshore.
We here at Ticker Trax have been engaged in the Ghana dynamic since about 2003, when we first toured the nation, courtesy of Sam Jonah, the Ghana pioneer who ran Ashanti.
Our take (distributed to subscribers after our September 2009 visit to the Kibi and the Esaase in Ghana): Xtra-Gold’s 600-meter ridge above Zone 2 of its Kibi Gold Trend will – and I stake my reputation and the livelihood of Ticker Trax upon this premise -- will one day be seen as a intensely high-grade source of gold that equals, or dwarfs prospects that are being worked (or mined) by Redback, Keegan Resources (TSX: T.KGN, Stock Forum) and others in Ghana.
James Longshore and his Ghana team, including VP of Exploration Yves Clement,and two new consultants whose reputations of geologic valor and honor precede them, are perhaps 18 months behind where CEO Dan McCoy has taken Keegan in the Esaase.
As Xtra-Gold’s contracting rigs in the Kibi add, say, another 150 drill holes to their current 68 holes in the next six to nine months, it is likely that Xtra’s market value will slowly and surely climb, notch by notch, toward per-ounce market cap metrics that are more representative of three million-plus ounce prospects. Whether those metrics get into the $150 per-ounce acquisition costs seen in the past three years (Agnico Eagle-Cumberland, for instance; or Yamana Gold-Desert Sun) depends on the size and grades of this vast Kibi Gold District that Xtra has been developing for several years.
(The following first appeared in Ticker Trax earlier this week.)
Even if Xtra-Gold shows, over the next year, a resource of merely half what Mr. Longshore and his team believe is possible (say two million ounces instead of four million or five million ounces), the extra gloss of Ghana, its mining-savvy laws, ocean access and legacy of 25-year and greater mine life spans will result in valuations per ounce far higher than anything else outside of Ghana but in West Africa.
A question, coming at us from points West and East, is whether a merchant bank or an Africa-active major, such as Newmont Mining (NYSE: NEM, Stock Forum), would jump the data gun and make a run at tightly held Xtra-Gold Resources. Or other West Africa gold producers and prospectors.
After all, this would not be the first time a large commodities producer followed the lead of a small but active merchant bank. The answer: After the scrum for Crew Gold, perhaps. But then, there are at least five companies on our Ticker Trax screen that we consider: 1. West African; 2. Cheap; 3. Easily Oxidized; and 4. Real.
As Sam Jonah says, when it comes to accumulating substantial and lifelong wealth in the world of gold (and other minerals) investing: Patience. Persistence.
We here at home have been adding to our Xtra-Gold and Endeavour Financial stakes this week and last. So there. Where next for the merchant bank’s gold-gobble? I think it is Colombia.
Ticker Trax™
Please see tickertrax.com to learn more about this wealth service and its 12 Planetary Prospects. Also, see its breakout feature examination of a Ghana prospector headed toward a golden harvest. Subscribers, please click here for password-secure Ticker Trax.
HOLDINGS: Thom’s holdings are listed for all Stockhouse members at www.Stockhouse.com under the “portfolio setting” for user TCALANDRA. It is public and free to view. He and his family own recently minted gold and silver coins and shares of a number of public and two private companies. He and his family DO NOT OWN Crew Gold shares. As with each of the 12 Planetary Prospects, Thom Calandra owns Endeavour Financial and Xtra-Gold shares.
THOM CALANDRA of Ticker Traxhelps his audience find value in a quagmire of investment choices. Thom co-founded CBS MarketWatch andMarketWatch.com. As the voice of Thom Calandra's StockWatch and The Calandra Report, Thom pegged $300-ounce gold as a long-term hold.
(All photos by Thom Calandra. Thom owns shares of each of the 12 Planetary Prospects in subscriber service Ticker Trax. Thom’s personal holdings are available for all to see on Stockhouse, the Canada publishing company.)
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