Having worked side by side as industry partners on a range of gold issues in West Africa for the past several years, TSX-listed miners Endeavour Mining and SEMAFO have begun the process of joining forces to create West Africa’s largest gold producer, with six mining operations and an attractive growth pipeline to boot, writes CHANTELLE KOTZE.
The two West African-focused gold producers entered into a definitive agreement in March 2020, which will see Endeavour acquire all of the issued and outstanding securities of SEMAFO.
If approved by the two parties’ shareholders – earmarked for finalisation in Q2, 2020 – the combined company will have more than 1 Mozpa in gold production.
This would make it one of the top 15 gold producers globally and the largest in West Africa with six mines, supported by a robust pipeline of development projects and a significantly enhanced exploration portfolio focused on the highly-prospective Birimian Greenstone Belt, Endeavour Mining President and CEO Sébastien De Montessus said during a webcast.
In early 2019, Endeavour and SEMAFO engaged in a mutual dialogue in order to evaluate the merits of a business combination.
The dialogue included extensive mutual due diligence as well as discussion of potential terms of a transaction, with a final proposal in May 2019. At that time, it was not possible to agree on terms that appropriately shared the risks and rewards of a combination.
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In early 2020, discussions between Endeavour and SEMAFO recommenced. Endeavour’s management team completed on-site due diligence at SEMAFO’s operations in Burkina Faso during February 2020, including a comprehensive assessment of security, operations and exploration.
Both companies also re-opened data rooms for mutual confirmatory due diligence, including visits and, following collaborative discussions, confirmed their shared strategic vision and desire to complete a combination, subject to negotiation of agreeable terms.
Despite the current market volatility, negotiations proceeded and culminated in signing of the definitive agreement, with teams currently engaged in discussing the merits of the combination.
The C$1 billion offer consists of 0.1422 Endeavour shares for each one SEMAFO common share, and represents a premium of 27.2% based on the 20-day volume weighted average price of both companies for the period ended 20 March 2020, with existing Endeavour and SEMAFO shareholders owning approximately 70% and 30%, respectively, of the combined company.
Endeavour’s cornerstone investor, La Mancha, has committed to invest US$100 million through a private placement into the combined company in order to maintain a 25% stake in the company – a reduction from its current approximately 31% interest in Endeavour.
This will provide for a larger free float and greater liquidity in the stock of the combined entity.
De Montessus will be the CEO of the new company while Benoit Desormeaux, President and CEO of SEMAFO, will become President and will oversee operational performance.
Upon closing of the transaction, SEMAFO’s CFO Martin Milette will be appointed Executive VP and CFO of the combined entity, while the remaining board of directors will be comprised of ten directors, seven of whom will be nominated by Endeavour and three of whom will be nominated by SEMAFO.
“This combination offers a rare opportunity to bring together two leading West African mine operators with a shared strategic vision, complementary assets, and management teams with a proven track record,” says De Montessus.
The transaction represents a compelling value equation for both sets of shareholders with the potential for a meaningful re-rating, while providing increased asset diversification, enhancing the ability to manage risks within the business, he added.
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The combined company, which brings together experienced management teams with complementary skills, as well as synergies at a corporate, asset and country level in a number of areas, also provides a much stronger base in dealing with governments and key stakeholders, says De Montessus.
He adds that on a country level, there are significant opportunities to combine the expertise of the operational and financial teams through efforts in procurement, logistics and supply chain management, and knowledge to create a centralised technical services hub with enhanced security across all operations, as well as opportunities to enhance the workforce across operations.
The merged company would consist of four cornerstone mines, each producing over 200 000 ozpa of gold, namely Endeavour’s Ity and Houndé mines in Côte d’Ivoire and Burkina Faso respectively, and the Boungou and Mana mines from SEMAFO, both in Burkina Faso.
Endeavour’s Karma and Agbaou mines in Burkina Faso and Côte d’Ivoire, respectively, top of the list of operating mines.
The Birimian Greenstone Belt in West Africa, which extends through Ghana, Côte d’Ivoire, Guinea, Mali and Burkina Faso, is one of the most prospective gold mining belts globally, and with the asset combination, the merged company will have one of the strongest positions in the region.
The merged company will also allow for the consolidation of assets within the 200 kmHoundé Greenstone Belt, in Burkina Faso, which is host to two mines and a development project, and strong future development potential.
The Houndé Belt holds, where the company expects to produce 400 000 ozpa of gold, holds significant exploration potential with over 20 Moz already discovered on belt.
When combined with the Ity Belt in Côte d’Ivoire, where the company holds extensive exploration permits covering the most prospective areas of the belt – the company believes that it holds one of the most extensive and prospective land positions in West Africa.
“With both companies having recently completed build-out phases and mine ramp-ups, both companies are at the right juncture to combine operations and emerge stronger together as the combined business is well positioned for a sustained period of strong cash flows,” says De Montessus, adding that the company’s enhanced capital markets profile should provide added trading liquidity, free float and size, characteristics that investors are seeking in today’s market environment.
Moreover, there is a strong alignment in upcoming strategic focus with both companies looking to de-risk the project builds and ramp ups, optimise their portfolio’s and use exploration as a tool to extend mine lives and source new projects, in preparation for the next growth phase.
Unlocking the project pipeline
In addition to the six operating mines, the new company will have four development projects, which could provide near-term growth opportunities for the company:
- SEMAFO’s Nabanga in Burkina Faso, which completed a preliminary economic assessment (PEA) in 2019;
- SEMAFO’s Bantou in Burkina Faso, which is approaching PEA stage;
- Endeavour’s Kalana in Mali, which is currently underway with an updated feasibility study; and
- Endeavour’s Fetekro in Côte d’Ivoire, which is under way with a PEA.
The company also has a portfolio comprising several longer-term Greenfield exploration targets in Burkina Faso, Côte d’Ivoire, Mali, Guinea and Niger, where exploration is expected to be ramped up in future.
The key priorities at its four cornerstone mines includes restarting mining operations at Boungou by Q4, 2020 with an enhanced security and operations plan.
This includes working with the government and Burkina Faso partners in order to ensure that its people, partners and assets are safe when mining restarts. Operations were suspended in November 2019 owing to the deteriorating security situation in Burkina Faso.
Meanwhile at Mana, the company will focus on extending the current mine life through an ambitious near-mine exploration programme.
The focus at Ity and Houndé will be to continue the exploration programmes, bringing high-grade Le Plaque deposit at the Ity mine into production and bringing the high-grade Kari Pump into production in 2020, while also bringing Kari West/Kari Centre discoveries into reserves at Houndé.