ENDEAVOUR Mining has signed a definitive agreement to acquire Teranga Mining through a plan of arrangement which represents a 5.1% premium as of the November 13 close, said Endeavour in an announcement today.
The prospect of the merger was flagged by Endeavour on November 10 and represents its second major transaction in just over half a year after acquiring SEMAFO in April.
Endeavour and Teranga shareholders will own 66% and 34% of the combined company respectively which will have annual production of at least 1.5 million ounces. It therefore joins the ranks of the world’s ten largest gold producers.
The combined company will also seek a secondary listing in London potentially filling the vacancy of Randgold Resources following its 2019 merger with Barrick Gold – a transaction that was triggered a space of combinations in the sector.
The merger consolidates Endeavour’s existing position as a gold producer in Côte d’Ivoire and Burkina Faso and adds another geography in Senegal where Teranga is positioned to produce the bulk of its 533,000 oz in annual production.
Sébastien de Montessus, CEO of Endeavour Mining, and his executive team will lead the combined group, with the support of key Teranga senior management, the companies said. The acquisition of Teranga would be immediately beneficial, said De Montessus.
The incorporation of Massawa mine, acquired from Barrick last year, into its Sabodala mine, both in Senegal, is the jewel contained in Teranga, however. The commissioning of the mining complex from 2023 would make the acquisition “strongly accretive,” he said.
In addition to existing production from Sabodala, Teranga produces gold from its Wahgnion mine in Burkina Faso. It has forecast production of s 375,000 to 400,000 oz for this year. Teranga also has mining prospects in Burkina Faso and Côte d’Ivoire.
Endeavour Mining, which forecast full year production of up to 1.1 million oz in 2020, has 250,000 oz/year flagship mines each in Houndé in Burkina Faso and Côte d’Ivoire’s Ity, as well as production from its Agbaou mine in Côte d’Ivoire as well as the Burkina Faso mines Karma and Mana, acquired in the SEMAFO transaction.
SUPPORT
“We like the strategic rationale for the combination with respect to asset quality, diversification, and potential synergies in West Africa and larger production profile (pro forma 1.5-1.6 million oz,” said Raj Ray, an analyst for BMO Global Markets in a note covering Endeavour’s third quarter numbers before the transaction was formalised.
Endeavour said in its third quarter presentation it would pay a $60m maiden dividend, equal to 0.37 cents a share after slashing net debt amid elevated gold prices.
De Montessus said today the dividend would be paid to Endeavour shareholders before completion of the transaction next year. Two-thirds of Teranga shareholders are required to support the proposed transaction at a ratio of 0.470x for each Teranga share.
Both companies said major shareholders had thrown their weight behind the proposed transaction including La Mancha, an investment firm led by Egyptian gold bull Naguib Sawiris, which owns about 24% of Endeavour Mining.
La Mancha, which will see its shareholding reduce to 19% post the acquisition, will also pump $200m into the combined company which asks of Endeavour shareholders to shoulder Teranga’s balance sheet after seeing their own reduced by some 71% since the beginning of this year.
BALANCE SHEET & DIVIDENDS
The combined entity would have net debt of $279m, equal to a net debt to EBITDA ratio of 0.3x on a pro forma basis as of September 30. However, Endeavour forecast the combined entity would be cash positive by mid-2021, just slightly later than Endeavour might have been in terms of its forecast as a standalone company.
Dividend payments would not be affected.
As per Endeavour’s third quarter announcement, the company intended to maintain a dividend yield of 1.6% until it had built up net cash of about $250m. Dividends would be paid semi-annually as previously announced.
As part of the combination, the balance sheet would be refinanced saving Teranga shareholders $40m in costs as a result. In terms of this, Endeavour has arranged $800m in a refinancing package which will be used to consolidate existing debt instruments of Endeavour and Teranga, it said.
The transaction also cuts the umbilical cord between La Mancha and Endeavour. Steered with significant input from La Mancha, its anti-dilution right will be removed post the acquisition of Teranga. In addition, La Mancha will lost its right to nominate two representatives to the Endeavour board if its shareholding falls below 15%. In such an event, La Mancha will have a right to nominate a single representative.
