Endeavour Mining to sell Burkina Faso gold mines

Endeavour Mining has announced plans to sell its 90% interests in the Boungou and Wahgnion mines in Burkina Faso. The buyer is Lilium Mining, a subsidiary of Lilium Capital, which is owned by West African entrepreneurs.

The total consideration for the sale is up to $300 million, with an initial cash payment of $130 million due by the end of July. The remaining consideration includes deferred cash payments, a share of net free cash flow from Boungou, and net smelter royalty agreements.

Strategy

The sale of these non-core assets is in line with Endeavour’s strategy of actively managing its portfolio to focus on higher quality assets. It also reduces the company’s exposure to social unrest in Burkina Faso, particularly in the eastern region where Boungou is located. The divestment will lead to a decrease in Endeavour’s gold production forecast for the 2023 financial year, from 1.33-1.43 million ounces to 1.06-1.14 million ounces.

Apart from reducing exposure to Burkina Faso, the sale is expected to improve Endeavour’s all-in sustaining cost profile, lowering it by $45 per ounce. The adjusted all-in sustaining cost is now guided to be between $895 and $950 per ounce. Boungou and Wahgnion contributed 240,000 ounces, or 17% of Endeavour’s 2022 gold production, but both mines reported a net decline in reserves.

Security conditions in Burkina Faso have deteriorated in recent years due to increased attacks by jihadist organizations. Endeavour had previously suspended exploration beyond the Boungou mine boundary following the occurrence of two coups in the country. The sale of these assets is seen as a way for Endeavour to reduce its exposure to Burkina Faso and potentially increase its overall value.

Analysts have suggested that the divestment could provide Endeavour with a multiple uplift through reduced exposure to Burkina Faso. If the sales are completed, Endeavour’s exposure to Burkina Faso would decrease from 40% to 29% of net present value. While the realizable value of the assets in a divestment scenario might be lower than their carrying value, the reduced exposure to Burkina Faso is expected to be beneficial for the company.