Centamin rejects Endeavour Mining combination

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Centamin Plc [CEE-TSX; CEY-LON] has rejected a $1.9 billion takeover bid from Endeavour Mining Corp. [EDV-TSX; EDVMF-OTCQX].

Following a review of the proposal and the available public information on Endeavour, Centamin said in a press release on Wednesday December 4 that its board of directors believes the company is better positioned to deliver shareholder returns than the combined entity.

“The board believes that the proposal is skewed in favour of Endeavour’s shareholders and fundamentally undervalues Centamin,” the company said.

On December 3, 2019, Centamin issued a statement saying it notes the announcement by Endeavour Mining regarding an unsolicited preliminary proposal for a potential all-share combination of the company and Endeavour based on an exchange ratio of 0.0846 Endeavour shares for each Centamin share. It said the proposal implies a 5% premium based on the preceding 30-day weighted average price of each company to November 22, 2019.

On Wednesday, Centamin shares eased 0.45% or $0.01 to $2.19. The shares are currently trading in a 52-week range of $1.39 and $2.53.

Endeavour shares advanced 0.08% or $0.03 to $24.91 and now trade in a 52-week range of $16.34 and $28.98.

Centamin Plc is a mineral exploration and development mining company with a dual listing on the London and Toronto stock exchanges.

Centamin’s principal asset, the Sukari Gold Mine, began production in 2009 and is the first large scale modern mine in Egypt. Base case production is 500,000 ounces per year, with the potential to exceed this level as optimization of the mining and processing operations continues.

The company has said its strong record of replacing reserves at Sukari means that despite producing more than 3.7 million ounces of gold to date, Sukari still has a current reserve life of more than 15 years.

Centamin also gained a foothold in Burkina Faso, West Africa, via the 2014 acquisition of Australian company Ampella Mining Ltd. and a district-scale land package in southern Burkina that covers the southwest margin of the Boromo Greenstone belt and extends across the border into Cote D’Ivoire.

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 are expected to produce 650,000 ounces of gold this year at an all-in-sustaining cost of US$795 to US$845/oz. Its ongoing five-year exploration program aims to discover 10-15 million ounces of gold by 2021, which represents more than twice the reserve depletion during the period.

Endeavour has said it believes that an all-share merger with Centamin would strongly benefit both sets of shareholders due to the compelling long-term value creation opportunity.

“After several unsuccessful attempts to engage Centamin on November 25, 2019, Endeavour submitted a proposal regarding a merger to the board of directors of Centamin to initiate formal discussions regarding the prospects for a combination,” Endeavour said in a press release.

However, Endeavour said meaningful engagement was not forthcoming.

Endeavour has estimated that the combined entity could produce 1.2 million ounces of gold at an all-in-sustaining cost of US$875/oz.

However, in its response to the proposal, Centamin says the exchange ratio in the proposal would result in Centamin shareholders owning only 47% of the shares of the enlarged company even though Centamin would have contributed 100% of the free cash flow during the first half of 2019.

Centamin also said its board believes the proposal puts at risk Centamin’s shareholders’ ability to continue receiving dividends at historic levels and exposes the company to Endeavours’ substantial US$729 million gross debt obligations. That includes debt obligations of US$310 million that mature in 2021.

“The Board strongly believes that Endeavour’s proposal significantly increases financial and operating risk without any material benefits to our shareholders,” said Centamin Chairman Josef El-Raghy. “Centamin’s stated strategy has always been to maximise returns for all its shareholders, having returned approximately US$500 million to shareholders since 2014,” he said.

Centamin has advised its shareholders to take no action.

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