Endeavour Mining acquires Teranga Gold Corp in £1.40bn deal
Endeavour Mining Corporation has entered into a definitive agreement to acquire Teranga Gold Corporation in an all-share transaction worth £1.40 billion.
In a joint news release, the companies say the combination creates a new top 10 senior gold producer with an average annual production of more than 1.5 million ounces, lower production costs, and six core operating mines across three West African countries – Senegal, Cote d’Ivoire, and Burkina Faso.
Existing Endeavour and Teranga shareholders will own approximately 66 percent and 34 percent respectively of the combined company on a fully diluted in-money basis. Teranga common shares will be exchanged at a ratio of 0.470 Endeavour ordinary shares for each one Teranga common share (the “Exchange Ratio”), according to the statement.
The Exchange Ratio represents a modest premium of 5.1 percent based on the closing price of Endeavour and Teranga’s shares on the TSX on November 13, 2020 and 9.4 percent based on the 20-day volume weighted average price of both companies for the period ended November 13.
Sébastien de Montessus, President and CEO of Endeavour, said: "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."
The new entity 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, the release adds.
It will also be able to leverage Endeavour’s West African operating model to extract significant financing, operating and capital synergies across all of Teranga’s assets:
- 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
- Wahgnion, in Burkina Faso, to 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
- 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
- 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
The new entity will also have the ability to leverage a strong integration platform already in place as, following the C$1 billion acquisition of SEMAFO in July, Endeavour completed a comprehensive evaluation of its organizational structure and capabilities.
Richard Young, President and Chief Executive Office of Teranga, 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,” he concludes.
Copper, iron ore surge as Chinese investors unleash demand
The reopening of major industrial economies is sparking a surge across commodities markets from corn to lumber, with tin climbing above $30,000 a tonne for the first time since 2011 on Thursday.
In the wake of mounting evidence of inflation fuelled by higher raw materials prices, investors are also increasingly focused on when the U.S. Federal Reserve might start throttling back its emergency support.
Many banks say the rally has further to run, particularly for copper, which will benefit from rising investment in new energy sectors. Copper is at the highest in a decade, fueling bets it will rally further to take out the record set in February 2011. Steel demand is surging as economies chart a path back to growth just as the world’s biggest miners have been hampered by operational issues, tightening ore supply.
“The long-term prospects for metals prices are ‘too good’ and point to higher prices in the next few years,” said Commerzbank AG analyst Daniel Briesemann. “The decarbonization trends in many countries, which include switching to electric vehicles and expanding wind and solar power, are likely to generate additional demand for metals.”
Trading house Trafigura Group and several major Wall Street banks including Goldman Sachs Group Inc. and Bank of America Corp. expect copper to extend gains.
Copper rose as much as 1.6% to $10,108.50 a ton on the London Metal Exchange before trading at $10,080 as of 4:07 p.m. in London.
Benchmark spot iron ore prices rose to a record, while futures in Singapore and China climbed.
The boom comes as China’s steelmakers keep output rates above 1 billion tons a year, despite a swath of production curbs aimed at reducing carbon emissions and reining in supply. Instead, those measures have boosted steel prices and profitability at mills, allowing them to better accommodate higher iron ore costs.
Spot iron ore with 62% content hit $201.15 a ton on Thursday, according to Mysteel. Futures in Singapore jumped as much as 5.1% to $196.40 a ton, the highest since contracts were launched in 2013. In Dalian, prices closed 8.8% higher.
Erik Hedborg, Principal Analyst, Steel at CRU Group commented: “Recent production cuts in Tangshan have boosted demand for higher-quality ore and prompted mills to build iron ore inventories as their margins are on the rise. Iron ore producers are enjoying exceptionally high margins as well, around two thirds of seaborne supply only require prices of $50 /dmt to break even.”
Still, some analysts including Commerzbank’s Briesemann expect a short-term correction as metals become detached from fundamentals. There’s also a risk that China could engage in policies that may cool demand for iron ore and copper.
The metals rally has boosted concerns about short-term Chinese demand. Some manufacturers and end-users have been slowing production or pushing back delivery times after costs surged, while weaker-than-expected domestic consumption has opened the arbitrage window for exports.
Tin climbed as much as 2% to $30,280 a ton on the LME, boosted by rising orders for the soldering metal. Tin is at the highest since May 2011, with a 48% gain this year making it the best performing metal on the LME.