Major Investors Piling into Gold

by: James West

Endeavour Financial Corp (TSX:EDV) closed a $100 million equity offering last week, and several other "bought deal" financings point to a strengthening trend: major investors are piling into gold.

The Offering was underwritten by a syndicate co-led by GMP Securities L.P. and Canaccord Capital Corporation (the "Underwriters"). Endeavour will use the funds to support its investment activity in the mining sector with an emphasis in the short term on precious metals.

The first quarter of 2009 has seen well over $1 billion flow into near term and existing mining companies, which is a reflection of the strong gold price amid safe haven demand. With estimates of U.S. government spending reaching as high as $2 trillion, large value investors are increasingly deterred by U.S. Treasury related securities in favour of precious metals.

  • Newmont Mining (NYSE:NEM), one of the world's largest gold mining companies, raised US$1.7 billion in a combined common share/convertible debt deal which it will use primarily to fund the acquisition of the remaining 33.33% interest in the Boddington project in Western Australia that it does not already own and the additional capital expenditures that will result from its increased ownership in the Boddington project, as well as for general corporate purposes. Citigroup Global Markets and J.P. Morgan Securities led the placement.
  • Freeport McMoran Copper and Gold (NYSE:FCX) raised US$740 million through the issuance of 26.8 million common shares at $28 per share;
  • Kinross Gold Corporation (NYSE:KGC) announced a "bought deal" financing for US$360 through the issuance of 24,035,000 million common shares US$17.25 per common share. The underwriters were led by UBS Securities Canada Inc.;
  • Osisko Mining Corporation (OSKFF.PK) entered into another "bought deal" led by Thomas Weisel Partners and BMO Capital Markets. The offering of 77 million units at $CA4.55 a share will gross CA$350.4 million. Osisko is developing the 6.28 million ounce Canadian Malartic Project Quebec.

Smaller deals are becoming more common for junior emerging gold companies as well. Among the recent actions:

  • Centamin Egypt (OTCPK:CELTF) raised $CA69 million through the issuance of 106.2 million shares at CA$0.65 per share for development and construction of the Sukari Project in Egypt. This financing was led by Thomas Weisel Partners and Cormark Securities.
  • Romarco Minerals Inc. (TSX.V:R) announced a bought deal Friday worth $20 million for the development of the Haile Gold Mine in South Carolina. Romarco issued 54 million units at $0.38 each. The financing was led by a syndicate of underwriters led by Macquarie Capital Markets Canada Ltd. and including Paradigm Capital Inc. and GMP Securities L.P.
  • International Tower Hill Mines (NYSEMKT:THM) sold 2 million common shares at $2.50 per share for gross proceeds of CA$5 million, which will be directed towards further development of its projects in Alaska and Nevada. The placement was a "bought deal" led by a syndicate of underwriters led by Canaccord Capital Corporation and including Genuity Capital Markets and GMP Securities L.P.
  • Exeter Resource Corporation (AMEX:XRA) raised CA$25.2 million at $2.40 a share for development of its assets in Argentina and Chile.

And it isn't just gold that is attracting big financing. On February 10th, Uranium One (OTC:SXRZF) announced a $270 million investment by a Japanese Consortium comprised of Tokyo Electric Power Company, Incorporated (OTCPK:TKECF), Toshiba Corporation (OTCPK:TOSBF), and The Japan Bank for International Cooperation.

Concurrently with the execution of the subscription agreement, Uranium One has also entered into a long-term off-take agreement and a strategic relationship agreement with the Japanese consortium, both of which will become effective upon closing of the private placement.

The off-take agreement provides the consortium with an option to purchase, on industry-standard terms, up to 20% of Uranium One's available production from assets in respect of which Uranium One has the marketing rights.

Junior Uranium company First Uranium Corp. (OTC:FURAF) was also the beneficiary of a bought deal financing led by Macquarie Capital Markets this week, which saw First Uranium place 20.5 million units of its shares at $3.00 per unit for gross proceeds of $61.5 million. First Uranium will direct the funds towards the development of the Ezulwini Mine in South Africa.

Endeavour Financial is followed by many analysts and newsletter writers for its robust project pipeline.

Brien Lundin, who publishes the Gold Newsletter, says one of the main reasons he follows Endeavour Financials is because of management – especially Mr. Frank Giustra. He says this team now senses a market bottom, as they are raising capital to go after assets that now cost a fraction of what they did last year, or even six months ago. He intimates strongly that his subscribers should do the same, using Endeavour as their proxy. A mix of entrepreneurial expertise and value investing, he outlines what the smart money is doing now.

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