National Post (National Edition)
Endeavour deal forges new top-10 gold player
Buys Teranga in$2.4 billion all-stock deal
In the latest reshaping of the gold mining sector, Toronto-listed Endeavour Mining Corp. on Monday announced a $2.4 billion allstock acquisition of Teranga Gold Corp., creating a new West African-focused senior producer.
It marks Endeavour’s second acquisition since July and would propel the company into one of the world’s 10 largest gold miners, with six mines spread across three African countries, capable of producing around 1.5 million ounces of bullion per year.
Sebastien de Montessus, CEO of London-based Endeavour, said the deal provides operational synergies and gives his company geographic concentration in Burkina Faso’s Houndé gold district, with additional mines concentrated in Senegal and Cote D’Ivoire. With a larger market capitalization and production profile, he said Endeavour will look more attractive to institutional and generalist investors seeking exposure to gold mining companies.
“Clearly, the industry needs to further consolidate,” de Montessus said in an interview. “When you look at the size of most players — they are pretty small players compared to the attractiveness of the industry for generalist investors, so I think this is a trend that will continue.”
He said Endeavour has now reached the ideal size, noting that any larger a production profile creates new problems with replacing depleted reserves and resources.
“It becomes very, very complicated (to replace) if you’re too big,” de Montessus said. That may signal the company’s acquisition spree will slow down. In December 2019, it tried, unsuccessfully, to acquire Egypt-based Centamin Plc.
But several months later, in July, it closed the $1 billion acquisition of West African-focused Semafo Inc. shortly after that company suffered a devastating attack in which 37 of its mine workers were killed and 60 injured while travelling to the company’s site in Burkina Faso.
De Montessus said his company has taken new safety precautions including flying workers on site, rather than driving, to avoid new attacks.
On Monday, he said he had just returned from Burkina Faso, after spending several days visiting Teranga sites, in his second round of due diligence since August.
De Montessus also said he conducted due diligence on Teranga's Massawa mine, in Senegal, in 2019 when Barrick Gold Corp. owned it.
Last December, Toronto-based Teranga bought the Massawa mine from Barrick in a $380-million deal, under the rationale that it could achieve immediate synergies and reduce capital investments by trucking ore from the mine to its own nearby mill. That deal paved the way for Endeavour to acquire Teranga, de Montessus said.
Teranga also owns a prospective gold project in Burkina Faso, near where Endeavour has infrastructure, creating similar synergies in some analysts' views.
Endeavour stock closed Monday at $31.40, up 1.5 per cent; Teranga, meanwhile, gained five per cent to finish trading at $14.53 a share. Gold prices were steady at US$1,887 per ounce on Monday but have declined steadily since hitting US$2,000 per ounce in August.
The company said it has already gained the support from each company's largest shareholders.
Don DeMarco, an analyst at the National Bank of Canada, described it as “favourable” in light of the synergies, diversification and “modest 5.1-per-cent premium” to Teranga's closing share price on Friday. He estimated the new entity would have a $6-billion market capitalization, and free cash flows of around $1.1 billion per year, given current gold prices.
Under the deal, Teranga's shareholders will receive 0.47 of an Endeavour share for each Teranga share, and will control 34 per cent of the company, and three out of 10 board seats.
But DeMarco noted both Endeavour and Teranga had been challenged by a relatively thin stock market trading volume, attributed to the high concentration of large shareholders at each company, with the top five shareholders controlling 46-per-cent and 59-per-cent stakes, respectively, in each company.
“All things considered, Endeavour could pull other levers to improve its trading float,” he wrote.
Nonetheless, DeMarco suggested the new company could be re-rated to a higher projected trading price, if it follows through on its plans to pursue a listing on the London Stock Exchange, which has historically been more receptive to African-focused gold miners.
“The case for a re-rate is also supported by de-risking benefits of an expanded portfolio, incrementally larger float, larger market cap, a strong balance sheet compared to other senior producers and the ability to sustain or grow a dividend all supportive of a higher valuation,” he wrote.