On March 23, Endeavour Mining (TSX:EDV) (OTCQX:EDVMF) and SEMAFO (TSX, OMX: SMF) (“SEMAFO”) announced that they have entered into an agreement whereby Endeavour will merge with SEMAFO.
Transaction Details
SEMAFO common shares will be exchanged at a ratio of 0.1422 Endeavour shares for each one SEMAFO common share. After the deal closes, Endeavour and SEMAFO shareholders will own approximately 70% and 30%, respectively.
The ratio represents a 27.2% premium based on the 20-day volume weighted average price of both companies for the period ended March 20, 2020 and a 54.7% premium based on the closing price of Endeavour and SEMAFO on March 20, 2020.
Based on the March 20, 2020 closing price of Endeavour at C$21.65, this values SEMAFO at approximately $3.08/share. As can be seen in the SEMAFO chart, its share price is at a 5-year low point.
SEMAFO’s implied equity value is C$1.0 billion and values SEMAFO on an EV/oz basis at C$155/oz based on total resources (including reserves) and C$405/oz based only on reserves.
FIGURE 1: SEMAFO 5-Year Stock Chart
Combined Company
The transaction creates the largest gold producer in West Africa with:
- Six operating mines
- Combined gold production of over 1 million ounces expected in 2020 (based on current company guidance)
- 5 million ounces of gold Reserves
- 2 million ounces of Measured & Indicated gold Resources (exclusive of reserves)
- 3 million ounces of Inferred gold Resources
- A pipeline of 4 late-stage and 13 greenfield projects
FIGURE 2: Annual West African Gold Production
The combined company will be a top 15 global gold producer and should deliver significant synergies at corporate, country and asset level, with an enhanced company’s capital market profile and a greater ability to raise capital to fund growth.
As the largest gold producer in both Cote d’Ivoire and Burkina Faso, the merger strengthens the strategic position and enhances the ability to manage risks in the region.
CHART 3: Gold Industry Top Producers
La Mancha, currently holding approximately 31% of Endeavour’s shares, supports the transaction and plans to commit $100 million of capital into the combined entity. On completion of the merger and investment, La Mancha will own approximately 25% of the new merged company.
Michael Beckett, Chairman of Endeavour, stated:
“This combination will create one of the leading gold companies, with the largest portfolio of operating assets located entirely in West Africa. In addition to being immediately accretive on all key metrics, this transaction will enhance our scale as well as providing improved trading liquidity, greater asset diversification and a reduced risk profile for all shareholders.
We will also continue to benefit from having La Mancha as a cornerstone shareholder, who will invest $100 million into to the combined entity and hold a 25 per cent interest on a pro forma basis.”
CHART 4: Combined Company Production and AISC
Sébastien de Montessus, President & CEO of Endeavour, stated: “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. We believe this transaction represents a compelling value equation for both sets of shareholders with the potential for a meaningful re-rating, whilst providing increased asset diversification and enhancing our ability to manage risks within the business.”
Timing
Transaction details are expected to be mailed to shareholders at the end of April or early May 2020. Shareholder meetings and transaction closing is expected to take place in the second quarter of 2020.
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