Canada’s Endeavour Mining
(TSX:EDV) and Egypt-focused miner Centamin (LON:CEY) (TSX:CEE) have agreed
to assess the merits of a merger that would create a strong mid-tier gold company
with a market value of almost $4 billion and annual output of more than 1.2
million ounces.
The announcement follows talks last
week in Perth, Australia, between Endeavour’s chief executive, Sébastien de
Montessus, and Centamin’s chairman, Joseph Josef El-Raghy. The meeting was
arranged after Centamin rejected
early this month Endeavour’s $1.9 billion (£1.5 billion) all-stock takeover
bid, saying it did not offer enough value to its shareholders.
The Toronto-listed miner, which is
ultimately seeking to gain control of Centamin’s Sukari gold mine
in Egypt, said a reciprocal due diligence exercise would be a “critical
precursor” to determining whether a deal could be agreed.
“The objective…would be to allow
both companies to further understand each other’s assets,” Endeavour said
in the statement.
Sukari gold mine is a
500,000-ounce-a-year operation and one of the world’s top ten deposits of the
yellow metal. However, the company has struggled with a series
of operational issues at
the mine, which have weighed on the asset’s performance and on Centamin’s share price.
Sukari, which began operations in
January 2010 and is Egypt’s largest gold mine, comprises a large open
pit and an underground portion. Last year, the company worked on
operational improvements on both sections, but they took longer than
planned to materialize, which affected output.
Tough year
Centamin began 2019 with some key board changes, including the move of Josef
El-Raghy from executive chairman to chairman, 16 years after becoming managing
director. He has remained linked to the company while it searches for a
successor.
In the months to follow, the
company struggled to boost production at Sukari, its only operating mine, and
the disappointments ended with the departure of Centamin’s chief executive,
Andrew Pardy, announced in October.
Like El-Raghy, Pardy agreed to stay
at the post for a year, while Centamin looks for a new boss.
Montessus said he was
“disappointed” with Centamin’s refusal to discuss a business combination at a
time when investors were pushing for consolidation in the gold sector.
“We believe that the Centamin’s
shareholders are currently disadvantaged by the Sukari mine being managed
within a single-asset portfolio, by the recent operational challenges and the
ongoing leadership transition at Centamin,” he said.
A potential agreement would be just
one more of the many mergers and acquisitions that have swept the gold sector
this year, kicked off by the highly publicized multi-billion mergers of Barrick
– Randgold and Newmont – Goldcorp.
The past few days have been
especially busy, with China’s state-backed Zijin Mining offering $1bn for Canada’s Continental Gold and
Kirkland Lake Gold launching a $3.7bn offer for Detour Gold.
Under English takeover rules, Endeavour has until the end of December to make a
firm bid. Given the time that has elapsed since it went public with its offer,
it has asked the Takeover Panel for more time to work on the new bid.
“Centamin has however not yet done
this and there can be no certainty that they will,” it added. Endeavour also
said it was prepared, subject to agreement on due diligence, not to make a
formal offer unless it was recommended by Centamin’s board.
“The ball is firmly back in
Centamin’s court,” analysts at Berenberg said in a note to
investors. “We look for an announcement from Centamin either agreeing to or
rejecting the extension to the Put Up or Shut Up terms.”