Endeavour to buy Teranga, creating top 10 gold miner

The combined company will produce about 1.5 million ounces of gold a year across West Africa. (Image: Agbaou gold mine, in Côte d’Ivoire. Courtesy of Endeavour Mining.

Endeavour Mining (TSX: EDV), already West Africa’s top gold producer, has agreed to buy Teranga Gold (TSX: TGZ) in an all-share deal worth C$2.44 billion ($1.86 billion), which would create a top 10 gold producer.

The miner is offering 0.470 of its own shares for each Teranga share, a 5.1% premium to Teranga’s closing price on Friday.

The combined company will produce about 1.5 million ounces of gold a year across West Africa, making it one of the 10 largest producers

Endeavour shareholders will end up with 66% of the combined entity, with Teranga shareholders holding the remaining 34%. Teranga will get three seats on the board to Endeavour’s seven.

La Mancha, the vehicle which Egyptian billionaire Naguib Sawiris holds his stake in Endeavour, will invest a further $200 million into the combined miner, leaving it with a 19% stake. 

Endeavour’s acquisition of Teranga adds another operating asset — Wahgnion — to its four existing mines in Burkina Faso. It also gives it exposure to Senegal through the Massawa project, which Teranga bought from Barrick Gold (TSX:ABX) (NYSE:GOLD) last year.

A successful deal would consolidate Endeavour’s growth, which completed the acquisition of smaller rival Semafo in July, bringing together six mines with strong cash flows into one portfolio.

The company’s had previously tried to buy Egypt-focused Centamin (LON:CEY) (TSX:CEE), but talks failed to deliver a deal.

Among top dogs

The combined miner, which aims to list in London next year, will produce about 1.5 million ounces of gold a year from six core operating mines in three countries — Senegal, Burkina Faso and Côte d’Ivoire.

With a pro-forma market capitalization of C$7.6 billion ($5.8bn), it would also be among the most valuable precious metals companies currently listed on the London Stock Exchange. These include Russian duo Polyus (LON: PLZL) and Polymetal International (LON: POLY), Mexico-focused Fresnillo (LON: FRES) and Canadian Yamana Gold (LON: AUY).

“We like the strategic rationale for the combination with respect to asset quality, diversification and potential synergies in West Africa, larger production profile and potentially improved share liquidity,” BMO Metals & Mining analyst Raj Ray wrote on Monday.

The deal is expected to close in the first quarter of 2021.