GOLD MINERS STRIKE $1B TIE-UP IN AGE OF CORONAVIRUS.
As the spread of COVID-19 accelerates, threatening lives and leaving large portions of the world’s economy shut, deals and operations in the gold mining sector persist.
On Mo n d ay, London- based Endeavour Mining Corp. announced a $ 1- billion all- stock deal to purchase Montreal- based Semafo Inc., which would create a company with six gold mines in West Africa.
The deal comes even as the price of gold dropped in recent weeks when global markets were routed by the coronavirus fallout. This interrupted gold’s steady march upward since last May, but analysts believe gold remains resilient and will rally further amid rising risk and uncertainty caused by a health pandemic. That’s motivating some miners to maintain production despite mounting signs that the virus is creating risks.
Endeavour, for example, identified two individuals at mines in two different countries who tested positive for COVID-19 this month, yet has resisted adjusting its production levels.
“For the time being, the virus hasn’t affected any of the six operations of the combined group,” Sébastien de Montessus, chief executive of Endeavour, who will remain at the helm post- merger, told Financial Post on Monday.
De Montessus, who is based in London, said the two individuals are in quarantine and the company believes it has controlled the risk, including by identifying individuals who may have been in contact with them.
As there are at least 72 confirmed cases in Burkina Faso and at least nine in Côte d’ivoire — the two countries where it operates mines — the company has mandated that anyone travelling to its mines from an infected area self-isolate before joining the workforce. But its production levels do not change.
“The operations are absolutely continuing,” said de Montessus. “What we need to prepare now is in case of a spread in-country ... a plan that allows us to produce in a locked-down environment.”
A few companies have taken greater caution. Lundin Gold Inc. announced Sunday the shutdown of its mine in Ecuador over rising concerns in recent days.
On Monday, Vancouver- based B2gold Corp. announced it halted its operations in the Philippines because government restrictions aimed at stopping the spread of coronavirus caused a temporary fuel shortage.
“It’s hard to know exactly what the right thing to do is,” said Clive Johnson, chief executive of B2gold. “If someone shows symptoms, then they get tested and isolated, we think that is the responsible way to deal with it.”
Johnson acknowledged not all COVID- 19 carriers show symptoms, making screening difficult, but emphasized a need to maintain industrial production for the sake of the economy. Many mines provide essential services to local communities, such as power and water, he added.
Endeavour’s de Montessus said he was able to complete the deal now in part because he and Benoit Desormeaux, chief executive of Semafo, had discussed a merger in February and March 2019. Those talks fell apart because of a difference in share price.
Then, in November last year, Semafo experienced a tragic attack on a convoy of its workers in Burkina Faso that left 37 dead and many more wounded. It closed its Boungou mine afterward and its share price has dropped by half. Then discussions restarted in mid-january, according to de Montessus.
Under the deal, already approved by both companies’ boards if not yet shareholders, each Semafo share was valued at 0.1422 of an Endeavour share, implying a 55-per-cent premium.
Semafo and Endeavour, respectively, were trading up 36 per cent to $ 2.71 and down six per cent to $ 20.29 on Monday afternoon.
The plan is to restart Boungou by the fourth quarter, de Montessus said.
“This morning I had the president of Burkina Faso on the phone to inform him of this combination,” he said. “He was very happy.”
Both companies are cur
a plan that allows us to produce in a locked-down environment.
rently listed on the TSX, and together would produce around one million ounces of gold per year with a market capitalization of around US$2.1 billion.
De Montessus said the company may consider listing on the London Stock Exchange at some point.
“It has always been part of our thinking to have a London listing at some point,” de Montessus told investors on Monday morning. “We’ve always said to do that we need a bigger size.”
Meanwhile, analysts have suggested that demand for gold, now trading at US$ 1,536 per ounce, is increasing as investors value its role as a hedge against uncertainty.
“Obviously, there are still many unknowns and much uncertainty, both with respect to the global pandemic and the human/ societal costs, as well as the economic impacts, sure to be long- lasting in a variety of unpredictable ways,” Michael Siperco wrote in a note for Velocity Trade Capital Research on Monday.
Siperco added, “Nonetheless, and without minimizing the dramatic and tragic events unfolding, these are the conditions under which gold serves the purpose it has occupied for thousands of years; to serve as a store of value and medium of exchange of last resort.”
While he noted gold has come down 13 per cent off recent highs, and could fall further as a result of market volatility, Siperco’s “bull case” projects gold rising to all- time highs in 2020 at US$2,000 per ounce.