March 23, 2020 / 10:55 AM / in 5 days

UPDATE 3-Endeavour Mining swoops on Semafo to create top Burkina Faso gold miner

    * Deal values Semafo at $691 million
    * Combined group to produce 1 mln ounces of gold a year
    * Semafo shares down 50% since Nov 2019 attack
    * Endeavour CEO says Burkina president supports deal

 (Adds details, context, quotes)
    By Helen Reid
    JOHANNESBURG, March 23 (Reuters) - Endeavour Mining
said on Monday it will acquire Toronto-listed Semafo in
a C$1 billion ($690.7 million) deal to create the biggest gold
producer in Burkina Faso, increasing its focus on the country
despite rising insecurity.
    The combined group will produce 1 million ounces of gold a
year, Endeavour Chief Executive Sebastien de Montessus said,
making it larger than Newmont Goldcorp, Barrick, and Goldfields
in West Africa. 
    Endeavour shareholders will own about 70% of the combined
company, with the rest going to Semafo shareholders. The deal
represents a premium of 54.7% to Semafo's Friday close,
Endeavour said in a statement.
    Endeavour shares fell 7.9% at the open, while Semafo jumped
31.2%. 
    Semafo shares have halved in value since the start of
November last year, when a convoy of employees was attacked near
its Boungou mine in eastern Burkina Faso, causing 39 deaths and
halting operations at the facility.
    "After the attack, I think Semafo probably felt that two
mines in a consolidating market was not enough, and that teaming
up with Endeavour was a good way to grow," said de Montessus.
    Semafo's CEO Benoit Desormeaux was set to become president
of the combined group, while its chief financial officer Martin
Millette will become the group CFO.
    "We are very excited about this announcement," Desormeaux
said on a call with investors. 
    "For Semafo shareholders this transaction offers the
benefits of both an immediate premium, and the chance for a
significant re-rating within a combined entity."
    The deal is set to close in June, and de Montessus said the
coronavirus pandemic was unlikely to disrupt the planned
takeover. 
    Endeavour last week reported an employee at its Hounde mine
tested positive for the coronavirus, though the facility
continued operating.
    Mining shares have plummeted due to the coronavirus
pandemic, making dealmaking more attractive. Global miner BHP
 said earlier this month it is in "good shape" to act if
disruption from the virus brings M&A openings.
    But de Montessus said the deal's timing was not linked to
the virus and discussions with Semafo have been ongoing for 14
months.
    The combined group would have a production cost per ounce of
around $900, in the bottom third of the industry cost curve, de
Montessus said, and a leverage ratio of 0.7x net debt to
earnings before interest, tax, depreciation and amortisation
(EBITDA). 
    Gold stood at $1,520 an ounce by 1336 GMT.  
    The group's cash position will be helped by a $100 million
cash injection from Endeavour's top shareholder, private gold
investment firm La Mancha. Due to a redistribution of equity as
part of deal, however, La Mancha's stake will drop from 31% to
25%.

    SECURITY CONCERNS
    Semafo said last month it expects to restart mining at
Boungou in the fourth quarter. De Montessus said he is
"confident" the mine can restart before then. 
    "Despite the dramatic security issue back in November,
Boungou is a great asset on which Semafo has done limited
exploration so far," he told Reuters in a call.
    Endeavour has been looking at the new security plan for
Boungou, de Montessus added, without giving details. He said he
informed Burkina Faso's president about the transaction, and
that he was "very happy" and "supportive".
    "I believe the combination of the two groups will help
reinforce the overall security around our different mine sites,"
said de Montessus.
    However, investors are likely to balk at the increased
Burkina Faso exposure Endeavour is buying into, analysts at
Berenberg said.
    "Safety of people is vital and we think that this will be a
key question for Endeavour’s management," they wrote in a note.
 
 
 
    
 (Reporting by Helen Reid and Arathy Nair; Editing by Louise
Heavens, Nick Zieminski and Jan Harvey)
  
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