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Endeavour Mining proposes all-share merger with UK-listed Centamin

Under the terms of the offer, investors will receive 0.0846 shares in Endeavour for each Centamin share owned

Endeavour Mining Corp - Endeavour Mining proposes merger with Centamin
Centamin's Sukari gold mine in Egypt

Endeavour Mining Corp (TSE:EDV) (OTCMKTS:EDVMF) has lodged a bid for an all-share merger with UK-listed Egyptian gold miner Centamin PLC (LON:CEY).

In a statement on Tuesday, the Canadian group said that the combination with the FTSE 250-listed firm would “strongly benefit both sets of shareholders due to the compelling long-term value creation opportunity”.

READ: Endeavour Mining eyeing extension of Houndé mine life as it lifts indicated resource by 32%

Under the terms of the proposed offer, investors will receive 0.0846 shares in Endeavour for each one they hold in Centamin, a deal which the Canadian group says represents a 13.1% premium to the closing price of both companies on Monday at an exchange rate of C$1.72 to the pound.

If accepted, the new entity will be 52.9% owned by Endeavour's investors, while Centamin shareholders will own the remaining 47.1%.

Endeavour said it has made “several unsuccessful attempts” to engage with Centamin’s board and is now setting out its stall publicly to encourage the company to enter discussions.

Sébastien de Montessus, Endeavour’s president and chief executive, said Centamin’s shareholders were “currently disadvantaged” by the company’s Sukari gold mine being managed within a single-asset portfolio and that the merger will provide “immediate potential benefits from integrating Sukari into a multi-asset portfolio that is managed with a long-term value focus”.

“Building on our operational track record, we believe that with the combined management team, we would be ideally positioned to improve the efficiency of Sukari and deliver stronger value to both sets of shareholders”, he added.

Frosty reception from Centamin’s board but share price jumps

The announcement of Endeavour’s proposal was given a frosty reception by Centamin’s board, which strongly advised investors “to take no action” in respect of the proposal.

After reviewing the offer, the firm said the proposed new ownership structure will “not adequately reflect the contribution that Centamin would make to the merged entity and that Centamin is better positioned to deliver shareholder returns than the combined entity”.

“As a result the board has unanimously rejected the proposal,” it added.

Centamin’s shareholders, however, responded positively to the offer as the shares jumped 7.5% higher to 120.6p in morning trade in London, although that was still lower than the implied premium of 13.1% from Endeavour’s offer.

Merger will provide “management and operational direction”, says broker

Analysts at broker Peel Hunt, which currently rate Centamin at ‘hold’ with a target price of 120p, were also positive on the merger, saying a tie-up with Endeavour will “provide the management and operational direction [that the company] has lacked for the past two years”.

“The combination is a positive for CEY shares and would make a good combined business model in our view. We believe CEY has needed direction for some time and we like the EDV management team market approach as well as its business model”, the Peel Hunt analysts said.

They added that they believe Endeavour’s operational team “should be much better equipped to run Sukari on a sustainable basis than CEY has delivered over the past two years”.

But deal may need to be sweetened

 Meanwhile, AJ Bell investment director Russ Mould pointed out that the merger, it if goes ahead, will create “a much bigger company with numerous projects and geographical diversity – something which investors would no doubt be hungry to back”.

“Centamin is an obvious takeover target as its share price has been through a few weak patches in recent years due to operational issues. Its Sukari project in Egypt is one of the biggest gold deposits among any listed miner and is considered to be a prized asset,” he added.

However, Mould noted that a key sticking point was likely to be the price offered by Endeavour.

“Centamin probably has the view that its recent sluggish share price isn’t indicative of the true value of the company when taking a long-term view. Endeavour may have to rummage deeper in its pockets to see if it can find a few more nuggets to sweeten the terms of the proposed deal”, he concluded.

Endeavour Mining shares closed trade in Toronto on Monday at C$25.79 eacg.

Quick facts: Endeavour Mining Corp

Price: 25.44 CAD

TSX:EDV
Market: TSX
Market Cap: $2.8 billion
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