Endeavour hoping to strike gold with £1.5 billion bid for Centamin

Endeavour hoping to strike gold with £1.5 billion bid for Centamin

Endeavour Mining Corporation (Endeavour) is going for gold with an unsolicited all-share merger offer for FTSE 250 mining company Centamin plc.

The Toronto listed mining giant has been trying to engage in constructive discussions about a possible combination with Centamin since October 2018. However, Centamin has refused to engage fully in these discussions. After another proposed discussion between the boards was turned down in late November, Endeavour announced a possible offer proposing an exchange of 0.0846 Endeavour shares for each Centamin share. Endeavour has until 31 December to confirm whether it intends to make a firm offer.

Endeavour has argued that combining the firms would encourage diversification as the entities between them would have three flagship gold mines, allowing better management of the mines, improvement of operational efficiency, increased cash flow and strengthening of the balance sheet. The new entity would have the backing of La Mancha, an investment vehicle owned by the Egyptian Sawiri family which has invested $350 million (£260 million) in Endeavour since 2015 and which invests heavily in Egypt. Naguab Sawiri, the telecoms tycoon who has become a mining investor, has a 29.8% stake in the company and is driving the bid.

For Centamin, the £1.5 billion offer is not the golden opportunity Endeavour has made it out to be. It rejected the bid, urging shareholders to take no further action on the grounds that the merger undervalues the company and has a merger ratio which favours Endeavour shareholders. Chairman Josef El-Raghy stated ‘The Board strongly believes that Endeavour's proposal significantly increases financial and operating risk without any material benefits to our shareholders.’ On 4 December 2019 Centamin issued a more formal rejection of the bid in which it expanded on the reasons it originally gave.

Gold is often a safe haven for investors when other securities are falling in price, because its value does not change with other assets such as shares and bonds. Demand for the precious metal surged in the aftermath of the 2008/9 recession, and gold prices have been rising amid recent political and economic uncertainty from £839.5 to £983.2 per troy ounce in June 2016, reaching a peak of £1278.0 in September 2019.

There is evidence of increased consolidation in the gold sector. On 1 December 2019 Chinese state-backed company Zijin Mining agreed a $1 billion (£769 million) acquisition of Continental Gold, a company focused on mining in Columbia. On 25 November 2019 Kirkland Lake Gold had made an offer for its Canadian rival Detour Gold. However, investor sentiment is changing, evidenced by the price of gold falling consistently for the last three months to £1138.48 in early December 2019, and this transaction comes as the gold rush which had gripped the market seems to be coming to an end.

Market Tracker will continue to monitor this transaction as it develops.

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