Endeavour Mining eyes dual listing after Semafo acquisition

Endeavour Mining (TSX: EDV), a Toronto-listed gold mining company with assets in West Africa, is assessing whether to dual list on either the London or New York exchanges as it looks to attract new investors following its recent acquisition of Semafo (TSX: SMF), its smaller rival in the region.

“We are going to move to one or the other,” Sébastien de Montessus, Endeavour’s director and CEO, said in an interview with The Financial Times on Aug. 11. “We are currently assessing which is the most relevant and attractive given our portfolio and locations and also the fit in terms of governance and liquidity.”

During a conference call with analysts a few days earlier, James Andrew Keith, mining analyst at RBC Capital Markets, asked de Montessus whether an additional listing looks more attractive given the company’s increase in market capital liquidity following the acquisition of Semafo.

“The objective for us was first to close the transaction with Semafo and progress on the integration,” de Montessus replied. “I believe that things are now in the right place. And we always said that at the right time, we would consider a secondary listing.”

He added that the company is currently assessing the pros and cons of a London listing or a New York listing.

“As you know, management is based in London, and I do believe that London would be a natural landing for us. But New York has also some interest,” de Montessus said. “We’ve been sharing yesterday with our board, our thoughts on the options between the two.”

He said a formal recommendation to Endeavour’s board would be made over the next two to three months.

Gold miners consider additional listings

The London Stock Exchange (LSE) lost its largest and most successful gold mining company last year after Randgold Resources was delisted following its acquisition by Barrick Gold (TSX: ABX).

However, other Canadian-based miners are currently eyeing opportunities to list on additional exchanges.

On July 20, Yamana Gold (TSX: YRI; NYSE: AUY), one of Canada’s biggest gold producers, outlined its plan to list on the main market of the LSE.

The day before the announcement, Peter Marrone, Yamana’s founder and chairman, told The Financial Times that “our due diligence tells us that there is billions of dollars of capital available in London that we should be exploiting.”

“This is an ideal time to be joining,” he added.

South Africa’s AngloGold Ashanti (NYSE: AU) had been expected to move to London but the plans have been shelved for now following the departure of its chief executive officer, Kevin Dushnisky.

Toronto-based Barrick also signalled its intention to join the S&P 500 Index in the United States, opening up the giant miner to an even larger pool of investors, including large institutional investors such as index funds.

“That’s something that’s always been of interest to me, because if we got on the S&P, the index demand would increase substantially,” said Mark Bristow, Barrick’s chief executive, said in an interview with The Globe and Mail on Aug. 10.

The $1 billion acquisition of Montreal-based Semafo has placed Endeavour in the top 15 global gold producers, with a $5.3-billion market capitalization.

A listing on the LSE would make it one of the most valuable precious metals companies currently on the exchange, joining the likes of Russian duo Polyus (LSE: PLZL) and Polymetal International (LSE: POLY), Mexico-focused Fresnillo (LSE: FRES), and the incoming Yamana, all of whom have a market value higher than US$4.5 billion.

Largest gold producer in West Africa

In 2019, Endeavour and Semafo began talks to evaluate the benefits of combining the businesses but could not reach a deal at the time. Discussions, however, resumed earlier this year.

De Montessus said the merger has created the largest gold producer in West Africa and brings together six mines producing with strong cash flows operating across Burkina Faso, Mali and Cote d’Ivoire into one portfolio.

“The Semafo assets are also performing well and are on track,” de Montessus said in the Aug. 5 conference call. “We have, therefore, maintained both Endeavour’s and Semafo’s guidance figures and aggregated them to obtain our pro forma guidance.”

The combined entity, he added, will produce over 1 million oz. gold at below US$900 per oz. all-in sustaining costs this year, placing it within the bottom third of the industry cost curve.

Endeavour had long been considering a consolidation of the gold mining sector in West Africa, which is divided among a number of small to mid-tier mining companies. By acquiring Semafo, the company is able to expand its operations in Burkina Faso.

In November last year, an attack by Islamist insurgents on workers travelling to Semafo’s Boungou mine in southeastern Burkina Faso left 39 dead and 60 wounded.

It was the third attack in the last 15 months targeting employees of Semafo, which has another gold mine, Mana, in the west of the country.

Deal or no deal

After the merger of the two companies, 70% of the combined entity is owned by Endeavour shareholders, with the rest held by Semafo shareholders.

Endeavour’s largest shareholder, Egyptian billionaire Naguib Sawiris, also invested an additional $136 million in support of the acquisition.

The investment, completed on July 3, was made through La Mancha Holding, a private holding company owned by the Sawiris family, that now owns a 24.1% stake in the company.

In May, the Canadian government decided to more closely scrutinize the acquisition, citing concerns over national security.

Although all foreign takeovers are screened for possible issues over national security, it is rare for the government to conduct a more thorough review, especially given that both companies are based in Canada.

Ottawa invoked Section 25.3 (1) of the Investment Canada Act, which allows for a review of Canada’s significant investments by non-Canadians that could be injurious to Canada’s national security.

In a May 13 conference call with analysts, de Montessus noted that the company had received a notice from the Director of Investments under the Investment Canada Act, indicating that the Ministry of Innovation, Science, and Economic Development was considering whether to order a national security review of the transaction.

“This ties back to the Canadian government announcing enhanced review measures under the Investment Canada Act in response to Covid-19,” he said. “As we do not have assets in Canada, and we do not produce anything national security related, we don’t expect that this will be an issue and expect to close this transaction sometime in June.”

However, in an article in The Globe and Mail on May 24, a senior government official asserted that Sawiris’ business connections in Russia had prompted Ottawa’s unusual move.

In 2011, Sawiris sold telecom assets to Russian company VimpelCom (now Veon), the unidentified official added.

The deal, worth US$6.6 billion, was passed at a special meeting of VimpelCom investors in Amsterdam and created the world’s fifth-largest mobile operator (at the time).

Two years later, the Canadian government blocked Accelero Capital Holdings, an investment company co-founded by Sawiris, from buying MTS Allstream, a national fibreoptic network, from Manitoba Telecom Services, citing national-security concerns.

The official also noted that Orascom Investment Holdings, a conglomerate chaired by Sawiris that operates the Koryolink mobile network in North Korea, was also another red flag for Ottawa.

On May 28, shareholders for the two gold miners overwhelmingly approved the merger.

The following day, the Superior Court of Quebec issued a final order approving the transaction, allowing the companies to proceed with filing the articles of arrangement for the transaction.

The Minister of Innovation, Science and Economic Development had until the until June 25 to consider whether to order a review of the acquisition. However, no such order was issued.

On July 2, the transaction was closed and Semafo became a wholly-owned subsidiary of Endeavour.