Endeavour agrees to $1 billion SEMAFO takeover

Endeavour Mining Corp. [EDV-TSX; EDVMF-OTCQX] said Monday March 23 that it has struck a deal to acquire all the shares of SEMAFO Inc. [SMF-TSX, OMX] in a $1.0 billion all share transaction that will create the largest gold producer in West Africa.

The combined entity will have six operations, located in Burkina Faso, Cote d’Ivoire, and Mali that are expected to produce over one million ounces of gold this year at an all-in-sustaining cost of US$896 per ounce.

“This combination will create one of the leading gold companies, with the largest portfolio of operating assets located entirely in West Africa,” said Endeavour Chairman Michael Beckett. “In addition to being immediately accretive on all key metrics, this transaction will enhance our scale as well as providing improved trading liquidity, greater asset diversification and a reduced risk profile for all shareholders,” Beckett said.

Endeavour Mining is a West Africa-focused gold producer. It operates four mines across Cote d’Ivoire (Agbaou and Ity) and Burkina Faso (Hounde, Karma), which were expected to produce 650,000 ounces of gold this year at an all-in-sustaining cost of US$795 to US$845 an ounce.

Under the plan of arrangement, SEMAFO common shares will be exchanged at a ratio of 0.1422 Endeavour ordinary shares for each SEMAFO common share. The exchange ratio represents a premium of 27.2% based on the 20-day volume weighted average price of both companies for the period ended March 20, 2020, and a premium of 54.7% based on the closing price of Endeavour and SEMAFO’s shares on the TSX on March 20, 2020. The implied equity value for SEMAFO is $1.0 billion.

Existing Endeavour and SEMAFO shareholders will own approximately 70% and 30%, respectively, of the combined company on a fully-diluted, in-the-money basis.

“This transaction has received strong support from our key shareholders who recognize it as an exciting value creating opportunity to bring together two companies with common values and shared cultures build on decades of successful West African experience,” said SEMAFO President and CEO Benoit Desormeaux.

SEMAFO shares advanced on the news, rising 32% or 64 cents to $2.63 on volume of almost 4.4 million. The shares are currently trading in a 52-week range of $1.58 and $5.75.

Endeavour shares eased 10.8% or $2.35 to $19.30 on volume of just over one million. Endeavour is currently trading in a 52-week range of $15.69 and $29.19.

SEMAFO operates two mines, the Boungou and Mana Mines in Burkina Faso.

Last year, SEMAFO’s production increased by 39% from 2018 levels to 340,900 ounces at an all-in-sustaining cost of US$724 an ounce.

That included 205,000 ounces from the Bongou Mine and 135,700 ounces from the Mana Mine. This year, production at Mana is expected to be sourced from the Siou underground and from the Siou and Wona open pits.

The company’s consolidated production target for 2020 was 315,000 to 355,000 ounces.

For Endeavour, the transaction will require the approval by a simple majority of the votes cast by its shareholders. In addition, shareholders will be asked to approve the issuance of Endeavour ordinary shares to Luxembourg-based La Mancha Holding S.a.r.l.

For SEMAFO, the transaction will require the approval of 66 and 2/3 of the votes cast by its shareholders.

Endeavour is preparing to combine with SEMAFO after recently dropping its planned takeover of Centamin PLC [CEE-TSX, LON-CEY].

The move came after Centamin did not seek an extension to a January 14, 2020 deadline for the prospective buyer to make a firm offer. Endeavour said the information Centamin provided during the due diligence process was not enough for it to be confident about lodging a firm offer.

On Monday, Endeavour said La Mancha will continue to be a “highly supportive” cornerstone shareholder, one that is committed to invest $100 million, although decreasing its overall stake from approximately 31% in Endeavour to approximately 25% in the combined entity.