TSX-listed gold miners Endeavour Mining Corporation and Teranga Gold Corporation have confirmed that they have entered into a definitive agreement, whereby Endeavour will acquire all of the issued and outstanding securities of Teranga by way of a Plan of Arrangement under the Canada Business Corporations Act.
The merger, in which existing Endeavour and Teranga shareholders will own approximately 66% and 34%, respectively, of the combined company on a fully diluted in-the-money basis, will create anew top 10 senior gold producer with average annual production of more than 1.5 Moz with industry-leading low production costs, synergies and diversification across three countries.
The combined entity will be diversified across six core operating mines in three countries, and strategically positioned as the largest gold producer in Senegal, Côte d’Ivoire and Burkina Faso. It will also have an industry-leading development pipeline of six greenfield projects (Fetekro, Golden Hill, Afema, Kalana, Bantou and Nabanga) and the largest exploration portfolio across the underexplored West African Birimian Greenstone Belt.
Pursuant to the Plan of Arrangement, Teranga common shares will be exchanged at a ratio of 0.470 Endeavour ordinary shares for each one Teranga common share. The exchange ratio represents a modest premium of 5.1% based on the closing price of Endeavour and Teranga’s shares on the TSX on 13 November 2020 and 9.4% based on the 20-day volume weighted average price of both companies for the period ended 13 November 2020.
According to Endeavour Mining Corporation President and CEO Sébastien de Montessus, the combination offers an attractive opportunity to both sets of shareholders. “By combining our complementary assets, we will enhance our strategic position on West Africa’s highly prospective Birimian Greenstone Belt and we will have the ability to deliver material synergies. The combined entity will become a new senior gold producer and enjoy an improved capital markets profile, underpinned by a healthy balance sheet and strong cash flow capabilities to support a sustainable dividend.
De Montessus further noted that the transaction is immediately accretive to Endeavour shareholders on a NAV basis and broadly CFPS and EPS neutral over the next two years. It will be strongly accretive from 2023 when Sabodala-Massawa is ramped up into a top asset in the region while immediately adding geographic diversification into mining-friendly Senegal. The Wahgnion mine provides immediate cash flow and the rapidly advancing Golden Hill and Afema projects offer further growth optionality. “The Teranga management team has done an outstanding job unlocking value and we look forward to continuing to deliver returns for shareholders through the creation of a business with outstanding prospects,” says de Montessus.
Teranga Gold Corporation President and CEO Richard Young, says: “We have taken Teranga from a single asset producer to a low cost, mid-tier gold producer over the past few years. This combination with Endeavour, strongly supported by our two largest shareholders, allows Teranga shareholders to benefit from an improved valuation as owners of a best in class senior gold producer with among the lowest costs as well as among the best balance sheet, free cash flow yield, growth pipeline and dividend yield.”
Potential for significant synergies
The combined entity will have the ability to leverage Endeavour’s West African operating model to extract significant financing, operating and capital synergies across all of Teranga’s assets in the following ways:
Sabodala-Massawa, in Senegal, to become a flagship asset alongside Ity and Houndé with the potential to become a top tier asset given its high-grade, low-cost, long mine life, large reserves and significant exploration potential, while Wahgnion, in Burkina Faso, will add immediate production and cash flow diversification, benefiting from significant operating cost and efficiency synergies as part of Endeavour’s West African platform with the potential to unlock additional value through exploration and asset optimisation.
Meanwhile, Golden Hill, an advanced exploration project in Burkina Faso, is situated within trucking distance of Endeavour’s Houndé mine and offers potentially significant capital and operating synergies through its development as a satellite operation.
Lastly, Afema is a very rapidly advancing and promising exploration project in Côte d’Ivoire with strong exploration results expected to be announced in the coming weeks, as well as a maiden resource in the first quarter of 2021.
Following Endeavour’s acquisition of SEMAFO on 1 Jult 2020, Endeavour has the ability to leverage a strong integration platform already in place as the company has completed a comprehensive evaluation of its organisational structure and capabilities, with a view to ensuring it was well positioned for future growth.
Financial benefits of the combination
The combined entity will immediately become a sustainable dividend payer, underpinned by a healthy balance sheet and expected robust free cash flow generation, following the combined building of three long life gold mines and the acquisition of the high grade Massawa project from Barrick, over the past several years.
As part of the combination, a refinancing has been negotiated which will materially lower financing costs and offer a clean and simple debt structure. The refinancing of existing Endeavour debt as well as higher cost Teranga debt is expected to save the combined entity approximately $40 million per year over the next several years.
Both Endeavour and Teranga shareholders will benefit from potential re-rating driven by the creation of a new best-in-class senior gold producer with among the lowest costs and highest cash flow yield of the senior gold group. The combined company would also have competitive dividend yields, a well-structured balance sheet, and a robust organic growth pipeline.
Moreover, La Mancha has committed to invest $200 million in support of the combination to further strengthen the balance sheet and help preserve the combined entities planned capital returns strategy.
Following completion of the combination and its investment, La Mancha’s shareholding will decrease from approximately 24% in Endeavour to approximately 19% in the combined entity (calculated on a pro forma basis using current share prices and exchange rates). This investment will strengthen the balance sheet of the combined entity and increase available liquidity, whilst the reduction in La Mancha’s shareholding will provide for a larger free float and greater stock liquidity.
It is anticipated that both shareholder meetings and the closing of the combination will take place in the first quarter of 2021. Upon completion, Sebastien de Montessus and his executive team will lead the combined group, with the support of key Teranga senior management.
Companies at a glance
Endeavour Mining Corporation’s portfolio consist of four cornerstone mines, namely the Ity and Houndé mines in Côte d’Ivoire and Burkina Faso respectively, and the Boungou and Mana mines, both in Burkina Faso, which were added to the portfolio following the acquisition of SEMAFO. Endeavour’s Karma and Agbaou mines in Burkina Faso and Côte d’Ivoire, respectively, top off the list of operating mines.
In addition to its operating mines, Endeavour has four development projects, which are able to provide near-term growth opportunities for the company, namely:
- Nabanga (acquired from SEMAFO) in Burkina Faso, which completed a preliminary economic assessment (PEA) in 2019;
- Bantou (acquired from SEMAFO) in Burkina Faso, which is approaching PEA stage;
- Kalana in Mali, which is currently underway with an updated feasibility study (PFS); and
- Fetekro in Côte d’Ivoire, which is underway with a PEA.
The company also has a portfolio comprising several longer-term Greenfield exploration targets in Burkina Faso, Côte d’Ivoire, Mali, Guinea and Niger, where exploration is expected to be ramped up in future.
Teranga Gold Corporation is a low cost, mid-tier gold producer in West Africa with two producing gold mines and an attractive growth pipeline in Senegal, Burkina Faso and Côte d’Ivoire. Teranga is expected to produce 533 000 ozpa of gold at average all-in-sustaining costs of $785/oz over the next five years. Endeavour is a leading West African gold producer with six mines across Burkina Faso and Côte d’Ivoire with a production profile of over 1 Moz at below $900/oz.