Centamin rebuffs $1.9 billion takeover bid from Endeavour Mining

Sukari, located 700 km from Cairo, is the only operating gold mine in Egypt. (Image courtesy of Centamin.)

Egypt-focused gold miner Centamin (LON:CEY) (TSX:CEE) has rejected the $1.9 billion (£1.5 billion) all-stock takeover bid from Canada’s Endeavour Mining (TSX:EDV) released earlier on Tuesday, saying it did not offer enough value to the company’s shareholders.

Centamin also said that the terms of the offer did not adequately reflect the contribution that it would make to the merged entity, adding that the company was better positioned to deliver shareholder returns than the combined entity. 

Additionally, the proposed deal would put dividends at risk and expose Centamin to $729 million of gross debt obligations held by Endeavour, including $310 million maturing in 2021, it said.

Endeavour was planning to offer 0.0846 of its own shares for each Centamin share, equivalent to about 126.27 pence per share. That represents a 13% premium to the British company’s last closing price.

Endeavour is seeking to gain control of Centamin’s Sukari mine in Egypt, which is a 500,000-ounce-a-year operation and one the world’s top ten deposits of the yellow metal 

The Toronto-listed miner, which is ultimately seeking to gain control of Centamin’s Sukari mine in Egypt, also said Centamin had rejected several previous attempts to engage in talks.

“Despite repeated good faith attempts to engage with Centamin, our efforts have been frustrated by their refusal to entertain any discussions about a merger before entering into a standstill agreement,” Endeavour’s chief executive Sébastien de Montessus said. “A standstill would have the effect of precluding us from taking the Proposal to shareholders if the Proposal was not seriously considered by Centamin,” he noted.

The firm’s 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.

A merger of both companies would create a miner with a market value of more than £2.9bn ($3.8bn) and annual production of more than 1.2 million ounces of gold from three assets.

“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 merger of both companies would create a miner with a market value of more than £2.9bn ($3.8bn) and annual production of more than 1.2 million ounces of gold from three flagship assets.

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 pastfew 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.

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