Teranga deal creates top 10 gold producer
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 Côte 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.
“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 Egyptbased Centamin Plc. But several months later, in July, it closed the $1-billion acquisition of West African-focused Semafo Inc. Shortly after, that company had suffered a devastating attack in which 37 of its mine workers were killed and 60 injured while travelling to the company's mine 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.
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.