Giustra looks to become bigger gold player through Etruscan

Legendary financier Frank Giustra is looking to get into gold in a bigger way.

The Giustra connected Endeavour Financial merchant bank is looking to take a 54% stake in West African gold producer Etruscan Resources (EET-T) by forking over US$43 million in cash for shares of the company.

The placement – which would see Endeavour pay 30¢ per share — comes with a major financial restructuring plan that Endeavour says will repositioned Etruscan for stronger growth.

To ensure such growth materializes the way it envisions, Endeavour would get to nominate four members to Etruscan’s seven member board.

Included in those nominations would be Frank Giustra himself, along with Endeavour’s chief executive Neil Woodyer, Gordon Keep and David Street.

Endeavour says the move is part of its “macro gold-focused investment strategy,” and that it will actively guide Etruscan to ensure operational turnaround its flagship Youga gold project in Burkina Faso.

With roughly US$150 million of cash dedicated to its gold-focused investment strategy the move is Endeavour’s first big step towards following through on its stated mission of making timely strategic investments in gold producers, and ultimately creating an intermediate sized gold company.

It said its belief in Etruscan comes from its having quality underlying resource assets but with short-term financial challenges that have left its share price water logged.

The big inflow of cash will clean up Etruscan’s balance sheet and will offer investors more incentive to put their money into the company as a play on gold prices, as Endeavour plans to reduce Etruscan’s US$700 per oz gold hedge by 50%.

In all, Endeavour says, it will have to spend US$23 million to re-purchase those gold call options in question.

Beyond sorting out Etruscan’s hedge book, the deal will also bring a restructuring of Etruscan’s debt.

In connection with the deal RMB Australia Holdings and Macquarie Bank have agreed to defer debt repayments until December of 2010.

If the deal goes through, the banks would convert US$3 million of the US$33 million outstanding facility to common shares of Etruscan at the 30¢ per share level.

Other funds from the deal would flow towards paying down US$8.5 million of Etruscan’s unsecured convertible debt, and US$5 million would go towards working capital and improvements at Youga.

Key issues at Youga that Endeavour is targeting are ensuring the completion of the projects tapping into the power grid from neighbouring Ghana and implementing better drill and blast methods at the site.

Etruscan has a 90% stake in the Youga open-pit gold mine, with the government of Burkina Faso holding the other 10%.

The mine went into production in the summer of last year with an estimated 6.6 year mine life and the open-pit is expected to produce an average of 88,000 oz. of gold per year at a cash cost of US$560 per oz.

The deal is subject to Etruscan shareholder approval who will meet on October 22.

Endeavour says it has already received support from key Etruscan shareholders, which make up more than 40% of the issued and outstanding shares.

The news sent Etruscan shares up roughly 10% or 4¢ to 43¢ in Toronto on Sept. 23.