Endeavour bids £1.5bn for Centamin in gold dealmaking wave

Endeavour Mining has refused to rule out a higher bid for rival African gold producer Centamin but said it would only consider improving its offer if it can hold friendly discussions.

The Canadian company went public with a £1.5bn all-stock offer on Tuesday after Centamin refused to engage in talks about a deal that would create a powerful new mid-tier gold company.

London-listed Centamin swiftly rejected the offer, saying it was skewed in favour of Endeavour shareholders and did not “adequately reflect” the contribution it would bring to a merged entity.

Under its proposal, Endeavour offered to exchange 0.0846 of its own shares for each Centamin share, equivalent to about 127p a share — a 13 per cent premium to Monday’s closing price. Under the deal, Endeavour shareholders would own approximately 52.9 per cent of the combined company and Centamin shareholders 47.1 per cent.

“At this stage it is not about the terms [of the offer],” Endeavour’s chief executive Sébastien de Montessus said in an interview. “It is about . . . being able to sit down to investigate the pros and cons [of a deal] and also the valuation required. That is not something we can do if there is not a party we can sit down and talk with.”

Shares in Centamin rose 8.1 per cent to 121.5p on Tuesday.

Centamin owns Sukari, a 500,000-ounce-a-year gold mine in Egypt, which is widely acknowledged to be one of the top ten gold deposits in the world.

However, the company has struggled with a series of operational issues at the mine, which have weighed on its share price. In October, Centamin announced the departure of its chief executive Andrew Pardy.

Mr de Montessus said he was “disappointed” that Centamin had refused to discuss a deal at a time when investors were pushing for consolidation of the highly fragmented gold sector.

“I am disappointed but this is why we are asking their shareholders to confirm whether this [offer] is not of interest or whether it should be investigated,” he said. Centamin’s biggest shareholders are BlackRock, which holds 16.5 per cent, and Van Eck Associates which has a stake of 11 per cent. They are also shareholders in Endeavour.

A combination of Centamin and Endeavour would create a company with a market value of more than £2.9bn and annual production of more than 1.2m ounces of gold from three flagship assets. This would be big enough to appeal even to investors who have shunned the gold sector in recent years.

“This would rank the combined entity as the largest listed gold miner in London (assuming they keep the Centamin listing),” said analysts at Peel Hunt.

Mr de Montessus refused to comment on a potential London listing but said the company, which produces gold from its mines in Mali, the Ivory Coast and Burkina Faso, wanted a “larger portfolio of assets” and Egypt was a country it knew well.

Endeavour’s biggest shareholder is Naguib Sawiris, the Egyptian billionaire who made his fortune building a telecoms empire extending from Algeria to Pakistan.

“Our major shareholder is the Sawiris family and they are pre-eminent investors in Egypt,” said Mr de Montessus. “We are not jumping into the unknown. It is a country we know very well. We have a very supportive shareholder backing the [proposed] combination.”

Endeavour’s proposal marks the latest potential deal in the gold industry. Investors have been urging single project companies to combine with rivals to create bigger, more diversified miners.

In the past week, China’s state-backed Zijin Mining agreed a $1bn offer for Canada’s Continental Gold, while Kirkland Lake Gold launched a $3.7bn offer for Detour Gold.

Analysts at Berenberg said: “The success of a deal is likely to be based on two things. Firstly, Endeavour being able to initiate a non-hostile deal process with an open due diligence process which allows it to address the uncertainty around the Sukari mine plan. Secondly, the shareholders on both sides are likely to be sensitive to valuation and we expect the exchange ratio to be hotly debated.”