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A Roxgold project in Côte d’Ivoire, in an undated file photo.

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Fortuna Silver Mines Inc.’s $1.1-billion takeover offer for fellow Canadian miner Roxgold Inc. was given a sour reception on the stock market, with the shares of both companies falling short of expectations, and analysts questioning the deal’s rationale.

Vancouver-based Fortuna, which mostly mines silver and whose operations are in the Americas, said on Monday it intends to pay 0.283 of its shares, and 0.1 cent in cash, for each Roxgold share, a 41-per-cent premium to Roxgold’s closing price on Friday. Toronto-based Roxgold operates a high-grade, low-cost gold mine in Burkina Faso, and has plans to build another one in Ivory Coast.

Even though the boards of both companies approved the transaction, their shareholders appear concerned about the merits of the marriage.

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After the deal was announced, Fortuna shares slid by 18.1 per cent to close at $7.90 on the Toronto Stock Exchange, their worst daily performance in more than a year. Meantime, Roxgold shares rose only by 15.1 per cent, to $2.21, far below the offer, which is worth approximately $2.73 on paper.

Chris Thompson, analyst with PI Financial, was one of a number of analysts who questioned the rationale for Fortuna’s pursuit of Roxgold, calling it a “weird combination.” In an interview, he wondered why the silver producer intends to diversify away from the precious metal, seeing as investors usually ascribe silver producers a higher stock market valuation than gold producers.

West Africa is also known for heightened operating risk. In 2019, 39 employees of Montreal-based Semafo Inc. were killed in an apparent jihadi attack while they were being bused to work in Burkina Faso. In the aftermath, Semafo was forced to close the Burkina mine because of security concerns for about a year.

Mr. Thompson also said that Fortuna had “surprised” the market by announcing an acquisition at a time when it is trying to finish construction of a new mine in Argentina, an endeavour that traditionally carries a fair amount of risk.

“Confusion on multiple levels” is how he summarized the proposed takeover.

Fortuna’s chief executive officer, Jorge Ganoza, defended the company’s move to acquire Roxgold in a conference call with analysts. He said he had been eying the combination as far back as 2015 and was impressed by the quality of Roxgold’s high-margin portfolio. He added that finding a similarly high-quality asset in the silver space would be “very difficult.”

Roxgold’s executive team also found itself on the defensive on Monday, during the same conference call. Ryan Walker, an analyst with Echelon Wealth Partners, asked why the company, which has operated very well as a stand-alone, would want to sell itself.

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“Why now?” he asked.

John Dorward, Roxgold’s CEO, replied it was in large part because of pressure from shareholders.

“We’ve had fairly strong feedback in recent times that a potential combination might be a positive way to go,” he said.

Unlike the planned Fortuna takeover of Roxgold, most of the big deals in the gold sector over the past three years have been welcomed by shareholders. Positively received acquisitions that are notable include Barrick Gold Corp.’s purchase of Randgold Resources Ltd., Newmont Corp.’s acquisition of Goldcorp Inc., and Kirkland Lake Gold Ltd. buying Detour Gold Corp. Unlike the Fortuna offer for Roxgold, all those deals were done at takeover prices that were low, or no premium, to the market price and saw predators pouncing on prey that operated in the same or similar jurisdictions.

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