Britain’s Endeavour Mining Corp. is buying Teranga Gold Corp. in an all-stock transaction worth about $2.44-billion, the latest in a whirlwind of deal making in the global gold sector over the past two years aimed at winning back generalist investors.
London-based Endeavour is paying 0.470 of its shares for each Teranga share, a 5.1-per-cent premium to Teranga’s closing share price last Friday. Endeavour’s biggest shareholder, Egyptian billionaire Naguib Sawiris, has pledged to invest an additional $200-million into the combined company to strengthen the balance sheet as part of the transaction.
Endeavour has six mines in Burkina Faso and Côte d’Ivoire, while Toronto-based Teranga has two mines in Senegal and Burkina Faso. The transaction will see Endeavour distance itself from B2Gold Corp. and Kinross Gold Corp. as West Africa’s biggest gold miner by production, with projected yearly output of 1.5 million ounces.
Endeavour, which trades on the Toronto Stock Exchange, is planning to list the combined company in a secondary listing on the London Stock Exchange, and hopes to gain an inclusion in the FTSE 100, which would bring added demand through index purchases by mutual funds.
Since late 2018, several large gold companies have combined with competitors in transactions with low or no acquisition premiums at a time when bullion prices have been in a major upswing. Gold sector deals have generally been welcomed by investors who have long called for consolidation in an industry that is characterized by a large number of companies chasing a limited pool of capital.
Jon Case, a precious metals portfolio manager with Sentry Inc., said that Endeavour’s takeover of Teranga will result in substantial savings in general and administrative costs, such as executive pay, and possibly at the mine site by combining some operations in Burkina Faso.
“This makes great sense,” Mr. Case said. “You’re cutting a ton of costs and potentially saving a bunch of capital.”
This is the second acquisition by Endeavour of a Canadian gold company this year. In July, it bought Montreal-based Semafo Inc. for $1-billion. Teranga has also been active in M&A, paying US$430-million in March to buy Barrick Gold Corp.'s Massawa gold development project in Senegal.
At the open of trading on Monday, shares in both Endeavour and Teranga fell, but eventually both turned positive and ended the session up 1.5 per cent and 5 per cent, respectively, on the Toronto Stock Exchange.
“There is always nervousness around transactions like these,” Sébastien de Montessus, chief executive of Endeavour, said in an interview.
“You need to convince your shareholders that you’re doing the right thing in the mid to long term. Value short creation is not a short term game.”
By buying Teranga, Endeavour adds to its already substantial footprint in Burkina Faso, considered one of the world’s riskiest mining jurisdictions. Through the Semafo acquisition, Endeavour inherited the Boungou gold mine in the country. Just over a year ago, 39 of Semafo’s employees were killed in an apparent jihadi attack while they were enroute to the mine.
In the aftermath of the tragedy, Semafo shut down Boungou amid continuing security concerns. Last month, Endeavour restarted the mine with tightened security protocols in place.
“We try to put in place all the tools and all the management systems to ensure that we do protect our staff and our assets,” Mr. de Montessus said.
“So far, whether in Burkina Faso or elsewhere in West Africa, we haven’t had any [security] issues at Endeavour at any of our mine sites.”
Endeavour’s acquisition of Semafo was subject to an enhanced national security review by the Canadian government under Section 25.3 (1) of the Investment Canada Act. While Mr. de Montessus doesn’t know whether the Teranga acquisition will also be flagged for a similar security review, he’s confident that even if that happens, it will be approved. He said the government’s review of the Semafo acquisition likely revolved around the heavy share ownership of Mr. Sawiris.
By ultimately approving the Semafo deal, it was clear the Canadian government “got all the comfort that they wanted,” Mr. de Montessus said.
The current round of deal making in the gold industry was kicked off in 2018 by Barrick Gold Corp.'s US$6-billion no-premium acquisition of Randgold Resources Ltd. In 2019, Goldcorp Inc. was sold to Newmont Corp. for US$10-billion. Later that year, Kirkland Lake Gold Ltd. bought Detour Gold Corp. for $4.9-billion. This year, Canada’s SSR Mining Inc. combined with Denver-based miner Alacer Gold Corp. in a zero-premium transaction worth $2.4-billion.
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