Centamin gold output up 51% as deadline for Endeavour takeover looms

The Sukari gold mine, 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) saw production increase 51% in the last three months of 2019, putting pressure on rival Endeavour Mining (TSX:EDV) to improve its bid for the company, which is expected by Jan. 14.

The gold producer said it churned out 148,387 ounces of gold in the fourth quarter from Sukari mine, the strongest performance since the end of 2017. It attributed the output jump mainly to better feed grades, metallurgical recoveries and a year-end plant drawdown of gold in-circuit.

Gold production for the whole of 2019 was 480,529 ounces, a 2% improvement from the previous year, while output estimates for 2020 were unchanged at between 510,000-540,000 ounces.

The results come less than a week before the deadline for Canada’s Endeavour to make a firm bid for Centamin or walk away.

Centamin produced 148,387 ounces of gold in the fourth quarter from its Sukari mine, the strongest performance since the end of 2017

The Toronto-listed miner first disclosed its intention to buy the target company in December, noting it had made “several unsuccessful attempts” to engage with Centamin’s board and the lack of response has pushed it to set out its stall publicly to encourage the company to enter talks.

The $1.9 billion all-stock takeover bid was unanimously rejected by Centamin’s management shortly after.

Centamin said at the time that the proposal did not offer enough value to the company’s shareholders. It also noted that the terms of the deal 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. 

Endeavour, a West African-focused gold miner owned by billionaire Egyptian Naguib Sawiris, previously had until Dec. 31 to present a firm offer under the ‘put up or shut up’ rules of the UK’s Takeover Panel. At Centamin’s request, the deadline was extended to next week.

Endeavour is seeking to gain control of Sukari, a 500,000-ounce-a-year gold mine and one of the world’s top ten deposits of the yellow metal. Centamin has, however, struggled with a series of operational issues at the asset, which have weighed on  its performance and on the company’s share price.

The operation, which entered production in January 2010 and is Egypt’s largest gold mine, comprises a large open pit and an underground portion. The company spent most of 2018 working on operational improvements on both sections, but they took longer than planned to materialize, which affected output.

Rough patch

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 searched 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 Pardey, announced in October.

The deal 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

Like El-Raghy, Pardey agreed to stay at the post for a year, while Centamin looks for a new boss.

A potential agreement 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.

It would be just one more of the many mergers and acquisitions that have swept the gold sector, with pending and completed deals worth $33 billion so far this year.

The frenzy, kicked off by the highly publicized multi-billion mergers of Barrick – Randgold and Newmont – Goldcorp, has picked up speed in the past month. China’s state-backed Zijin Mining offered $1bn for Canada’s Continental Gold in early December and Kirkland Lake Gold launched a $3.7bn offer for Detour Gold.

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