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Endeavour Mining Corp. – whose gold mine in Hounde, Burkina Faso is seen here on Feb. 11, 2020 – says it has no idea why Ottawa would be taking a keen interest in its bid to buy Semafo Inc., a Canadian gold-mining company based in Montreal.

Anne Mimault/Reuters

A Cayman Islands-incorporated gold-mining company, whose principal investor is an Egyptian billionaire, has been notified that Ottawa is considering whether to subject its $1-billion takeover of a Canadian rival to a deeper national-security review.

All foreign takeovers are screened for national-security concerns but in rare instances – fewer than 10 in the previous fiscal year – Ottawa conducts a deeper, more thorough review under Section 25.3 (1) of the Investment Canada Act. These would be cases where the Innovation, Science and Economic Diversification Minister “considers that the investment could be injurious to national security.”

Endeavour Mining Corp., the buyer, whose corporate head office is in London, says it has no idea why Ottawa would be taking a keen interest in its bid to buy Semafo Inc., a Canadian gold-mining company based in Montreal. Both companies’ stocks are listed on the Toronto Stock Exchange.

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One of the major investors in Endeavour, however, has previously been rejected in his attempt to buy a Canadian company because of national-security concerns.

Endeavour’s biggest shareholder, Egyptian billionaire Naguib Sawiris, committed to investing an additional $100-million into the company as part of the acquisition of Semafo. Mr. Sawiris’s family currently owns nearly 31 per cent of Endeavour’s equity through La Mancha, a private holding company. Mr. Sawiris is chairman of the advisory board of La Mancha.

Back in 2013, the Canadian government blocked Accelero Capital Holdings, an investment company co-founded by Mr. Sawiris, from buying MTS Allstream, a national fibreoptic network, from Manitoba Telecom Services, citing national-security concerns.

Mr. Sawiris, who was one of the original backers of Wind Mobile, an upstart wireless provider that began business in Canada in 2008 and has since been rebranded Freedom Mobile, vowed back then that he would never again invest in Canada.

In late 2013, after failing to acquire MTS Allstream, he told Egyptian news website Ahram Online: “I am finished with Canada, I tell you."

The Globe and Mail talked to a former senior government official about the decision to block the 2013 MTS Allstream deal. The Globe is not revealing the identity of the official because they are prevented from publicly discussing sensitive national-security issues.

The former official said Ottawa rejected the 2013 takeover because of Mr. Sawiris’s business connections in Russia, where he sold telecom assets in 2011 to Russian company VimpelCom (now Veon) in a multibillion-dollar transaction.

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The source said the fact that the conglomerate Mr. Sawiris chairs today – Orascom Investment Holding – operates the Koryolink mobile phone network in North Korea in a joint venture is another red flag that might warrant a full-scale national-security review.

La Mancha declined to comment when asked whether it had any idea why Ottawa was subjecting this Endeavour deal to further scrutiny or whether it believed Mr. Sawiris’s previous experience with MTS-Allstream had anything to do with it.

“La Mancha has not been in contact with any authorities in respect of this matter and is not involved in it,” Tariq Qureshi, general counsel at La Mancha, said in an e-mailed statement to The Globe regarding the notice from Canada’s Innovation Ministry. He added that the company does not provide comments to the press “as a matter of general policy."

The proposed takeover, announced in late March, is an all-stock transaction. The assets of both companies are located in Africa, not Canada. Endeavour operates mines in Ivory Coast and Burkina Faso. Semafo owns two gold mines in Burkina Faso. The deal has been pitched to investors as one that would create a powerhouse miner in West Africa.

Endeavour told investors in a recent press release that it’s “not aware of any particular reasons for the notice” from Ottawa. The letter from the Innovation department informed the company that Ottawa “requires additional time to consider whether a review of the Transaction under section 25.3(1) of the Investment Canada Act concerning national security is needed," Endeavour’s May 13 release said.

The notification also informed the company that the Innovation, Science and Economic Development Minister has until June 25 to consider whether to order such a review.

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During a May 13 conference call with analysts, Endeavour chief executive Sébastien de Montessus said he believed that the notice might have something to do with the Canadian government’s April announcement that it was enhancing reviews of foreign takeovers during the COVID-19 pandemic.

Mr. de Montessus said that since none of Endeavour’s assets are in Canada, and because it doesn’t produce anything related to national security, he doesn’t anticipate any complications in closing the deal.

He speculated that the federal government may have even sent Endeavour the notice by accident, suggesting it should perhaps have instead been sent to China’s Shandong Gold Mining Co. Ltd., regarding its proposed acquisition of TMAC Resources Inc., a Canadian gold miner that operates in the Arctic.

"There might have been a mistake with the TMAC transaction and Shandong investment.”

The Innovation department, however, confirmed in a statement to The Globe that the notice was not sent in error. “The government of Canada can confirm that a notice under the national-security provisions of the Investment Canada Act was issued to the foreign investor, Endeavour Mining Corporation, regarding its proposed acquisition of Semafo Inc.”

Ottawa declined further comment, citing the need for confidentiality.

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A spokesman for Endeavour said the company had no comment on the notice from the Innovation department beyond what it said in the May 13 press release.

Endeavour said in March, when it announced the deal, that LaMancha’s stake in the combined company will fall to roughly 25 per cent after the acquisition closes.

The Endeavour-Semafo deal potentially sees Endeavour taking on added operational risk. Semafo at times has been unable to guarantee the security of its work force in West Africa. Last November, 39 people were killed after assailants ambushed a bus convoy packed with hundreds of Semafo’s workers who were en route to its Boungou mine in the eastern part of Burkina Faso. It was the third deadly attack on Semafo in the country in the past few years.

Since the latest attack, Boungou has been mostly shut down, with only partial production from stockpiles. Semafo has been working with the government to try to guarantee the security of the mine and hopes to restart mining at Boungou late this year.

Analysts and portfolio managers were also surprised that the deal might be subject to a full national-security review.

Justin Chan, mining analyst, with Numis Securities in London, said: “It’s caught everyone off guard. I know from speaking with the company that they were utterly confused and really had never considered [a security review]," he said.

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"From a Canadian national-security perspective it’s not an obvious one. And it’s not like Canada is a country with large active overseas bases that would potentially be infringed upon. I find it a bit strange.”

Jon Case, precious-metals portfolio manager with Sentry Investments in Toronto, said he can’t fathom a major reason why an in-depth security review might take place.

“Any Canadian-listed company that gets taken over during COVID is going to be subject to some sort of review. Whereas in normal operating circumstances it wouldn’t be.”

With a report from Reuters

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