Britain’s Endeavour Mining Corp. plans to acquire Canadian gold miner Semafo Inc. in a friendly deal worth $1-billion as an increasing cadre of global mining companies pare back operations and conserve cash with the COVID-19 pandemic worsening.
West Africa-focused Endeavour has agreed to pay 0.1422 of its shares for each Semafo share, a 55-per-cent premium to Semafo’s closing price on Friday.
London-based Endeavour, whose main listing is on the Toronto Stock Exchange, operates gold mines in Ivory Coast and Burkina Faso. Montreal-based Semafo’s main operations are in Burkina Faso, including its biggest mine, Boungou, which was idled late last year after a deadly terrorist attack.
Sébastien de Montessus, chief executive officer of Endeavour, said he considered putting takeover talks with Semafo on hold until after the COVID-19 pandemic passes, but ultimately decided the miner would be better off weathering the crisis as part of a bigger entity than going it alone.
“We might face a lot of issues right now in Africa with the virus spreading, but I think we’ll be stronger having four operations and being together, rather than being smaller and remote,” he said.
Despite the optimistic framing from Mr. de Montessus, shares in Endeavour declined by 7.3 per cent on the Toronto Stock Exchange, the worst performer by far in the TSX Global Gold Index, which tracks the world’s biggest gold companies.
While the timing of the company’s takeover transaction likely surprised some investors, Mr. de Montessus said, the company did get a strong vouch of approval from its single biggest shareholder. Egyptian billionaire Naguib Sawiris, who currently owns 31 per cent of Endeavour’s equity, plans to invest another $100-million into the combined entity in a private placement once the deal closes.
The gold sector takeover comes at a time when the mining industry is slowly contracting amid the spread of COVID-19. While not suffering anywhere close to the catastrophic damage the retail or airline sectors are facing, gold miners are still experiencing a slow burn downwards, as restrictions on the movement of people grow, and supply chain problems start to pop up.
Over the past 48 hours, Newmont Corp., B2Gold Corp., Lundin Gold Corp., Kirkland Lake Gold Ltd., have announced either full or partial mine shutdowns because of the growing threat of COVID-19 in North and South America.
That comes on top of similar announcements last week from the likes of New Gold Inc., Yamana Gold Inc., Pan American Silver Corp., SSR Mining Inc., and Kinross Gold Corp.
“These announcements could be the tip of the iceberg in terms of further disrupts to 2020 forecasts,” wrote Scotia Capital Inc. analyst Trevor Turnbull in a note to clients.
Apart from fears over the potentially damaging impact on Endeavour’s operations due to the novel coronavirus, some analysts also fretted about the risk Endeavour is likely introducing to its business by inheriting Semafo’s troubled Boungou operation in Burkina Faso.
Last November, 39 Semafo workers were killed in a bus attack by suspected Jihadists while they were en route to the Boungou site in the eastern part of the country, a known hotbed of terrorist activity.
Since the attack, mining at Boungou has been shut down, with only partial production in the interim from stockpiles. Semafo has been working with the government to try to guarantee the security of the site, and is building an airstrip that would mean workers would fly in and out, as opposed to travelling by road. The company hopes the mine will be back in production in the fourth quarter.
It does increase operation risk,” James Bell, analyst with RBC wrote in a note to clients about Endeavour inheriting the Boungou mine, “given the increased exposure to Burkina Faso, where our concerns on terrorism in the east of the country remain high.”
This is Endeavour’s second attempt in the past six months to buy a competitor.
Late last year, Endeavour tried to buy Jersey-based Centamin PLC, which operates a big gold mine in Egypt. Centamin rejected the offer as too low and Endeavour walked away.
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Niall McGee