NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, IN WHOLE OR IN PART, IN OR INTO OR FROM ANY JURISDICTION WHERE TO DO SO WOULD CONSTITUTE A VIOLATION OF THE RELEVANT LAWS OF SUCH JURISDICTION.
THIS IS AN ANNOUNCEMENT OF A POSSIBLE OFFER PURSUANT TO RULE 2.4 OF THE CITY CODE ON TAKEOVERS AND MERGERS (THE “CODE”). IT DOES NOT REPRESENT A FIRM INTENTION TO MAKE AN OFFER UNDER RULE 2.7 OF THE CODE. ACCORDINGLY, THERE CAN BE NO CERTAINTY THAT ANY OFFER WILL ULTIMATELY BE MADE.
FOR IMMEDIATE RELEASE.
ENDEAVOUR SEEKS ENGAGEMENT WITH CENTAMIN TO CREATE LONG TERM VALUE THROUGH PROPOSED MERGER
George Town, December 3, 2019 – Endeavour Mining Corporation (TSX:EDV) (OTCQX:EDVMF) (“Endeavour”) announces that it is seeking to engage with the Centamin Board with the intention of reaching an agreement on the terms of a recommended all-share merger between Endeavour and Centamin plc (“Centamin”) (“Merger”). Endeavour believes that this potential combination would strongly benefit both sets of shareholders due to the compelling long-term value creation opportunity.
After several unsuccessful attempts to engage with the Board of Directors of Centamin, initially in October 2018 and then again on November 11, 2019 regarding the prospects for a Merger (please see “Background to the Proposal” below), Endeavour then submitted a formal proposal to Centamin (the “Proposal”) on November 25, 2019, regarding such combination. As meaningful engagement has still not been forthcoming, Endeavour is today announcing the terms set out in its Proposal in an effort to encourage the Centamin Board to engage in discussions.
Commenting on today’s announcement, Michael Beckett, Chairman of the Board of Directors of Endeavour,
“We firmly believe that the proposed combination between Endeavour and Centamin provides a compelling value creation opportunity for both sets of shareholders which is superior to what can be achieved by each company on a standalone basis. Despite repeated good faith attempts to engage with Centamin, our efforts have been frustrated by their refusal to entertain any discussions about a Merger before entering into a standstill agreement. A standstill would have the effect of precluding us from taking the Proposal to shareholders if the Proposal was not seriously considered by Centamin. We have therefore decided that, due to the strong merits of the Merger and its potential to create value, it is necessary to make public our proposal so that the voices of shareholders are heard.
Our management team has demonstrated a disciplined approach to business development opportunities and the Endeavour Board will continue to be prudent allocators of capital to opportunities that it believes are aligned with its long-term strategic objectives, and that create value for shareholders.”
Sébastien de Montessus, President & CEO of Endeavour said:
“After having completed the turnaround of our asset portfolio, we are well-positioned to focus management efforts on a new phase in our growth strategy. We believe that the Centamin’s shareholders are currently disadvantaged by the Sukari mine being managed within a single-asset portfolio, by the recent operational challenges and the ongoing leadership transition at Centamin. There would be immediate potential benefits from integrating Sukari into a multi-asset portfolio that is managed with a long-term value focus and with La Mancha as a key cornerstone shareholder. 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.”
STRATEGIC RATIONALE FOR THE MERGER
An all-share merger would create a diversified gold producer (the “Combined Entity”) with a high-quality portfolio of assets having the following benefits:
• Diversified high quality portfolio with potential for improved operating efficiencies ?Geographic diversification with three flagship assets (Sukari, Houndé, Ity) across three different countries in Africa.
?Operational diversification with increased optionality across the asset portfolio with high quality production, a pipeline of advanced stage projects and one of the largest exploration portfolios in Africa to deliver long-term sustainable production.
?Ability to more efficiently manage the Sukari mine as Endeavour believes that the mine has recently suffered from being managed within a single-asset company focused too heavily on the short-term to the detriment of long-term value.
?Improved operating efficiencies with the ability to realize meaningful synergies, which are expected to include reduced corporate G&A, procurement, logistics and supply chain management, mine planning capabilities based on multi-asset portfolio approach.
• Combined management team with proven track record and cornerstone investor ?The Combined Entity is expected to benefit from Endeavour’s proven expertise in delivering operational excellence, developing new projects and achieving exploration success. Since the current Endeavour management team took over the business in late 2015, the Endeavour share price has increased by over 320%1.
?Highly supportive cornerstone investor in La Mancha (the wholly-owned mining investment vehicle of the Egyptian Sawiris family) who has strongly supported Endeavour’s growth by injecting over USD230m into the business since September 2015, and who has a long track record of investing successfully in the region, notably in Egypt.
• Enhanced capital market profile with growth and ability to fund dividends ?Stable, diversified and sustained cash flow profile and strong access to liquidity sources, underpinning balance sheet strength.
?The Combined Entity offers attractive optionality to pursue future organic growth while focusing on returning capital to shareholders.
?The Combined Entity would benefit from an enhanced capital market profile with the ability to meet investment hurdles of larger funds.
OUTLINE TERMS OF ENDEAVOUR’S PROPOSAL
In the Proposal, sent to Centamin on November 25, 2019, Endeavour proposed an exchange ratio of 0.0846 Endeavour shares for each Centamin share representing a 5% premium to the 30-day volume-weighted average prices (“VWAPs”) of Endeavour and Centamin (ending November 22, 2019 the last practicable date before making the Proposal) and a 13.1% premium to the closing price of Endeavour and Centamin on December 2, 2019, being the last practicable date prior to the publication of this announcement.
Based on the proposed exchange ratio of 0.0846 Endeavour shares for each Centamin share Endeavour shareholders would own approximately 52.9% and Centamin shareholders would own approximately 47.1% of the combined group’s share capital. The Proposal values the entire issued share capital of Centamin at approximately CAD2,522 million or GBP1,467 million, based on Endeavour’s share price on December 2, 2019, and CAD:GBP exchange rate of 1.72.
Endeavour’s Proposal envisaged that the Board and management of the combined group would be selected with representation from both Endeavour and Centamin, reflecting the spirit of a merger.
COMPELLING COMBINED ENTITY
Endeavour believes that the Combined Entity will be a compelling investment proposition for both Centamin’s and Endeavour’s shareholders, noting that there is significant overlap between their shareholder registers, as well as an attractive investment opportunity for the broader investor community due to its enhanced capital markets profile.
On a pro-forma basis, a combined Endeavour and Centamin would have:
•1.2 Moz2 of gold production in 2019 (based on current company guidance), placing it among the top 15 gold producers globally3
•All-In Sustaining Costs of USD875/oz Au4 (based on current company guidance), placing it within the bottom half of the industry cost curve5
•15.9 Moz of gold in Reserves and 31.9 Moz of gold in M&I Resources (inclusive of reserves based on the most recent published figures from both companies), plus an additional 6.1 Moz of gold in Inferred Resources6
•Net debt to LTM Adjusted EBITDA ratio7 of 0.6x and access to liquidity sources8 of USD530 million, according to the most recent publicly available information
BENEFITS TO CENTAMIN SHAREHOLDERS
•Diversifies single asset and single country risk, thereby increasing ability to maintain a sustained dividend policy
•Provides exposure to Endeavour’s high-quality portfolio of production assets, development pipeline, and exploration strategy
•Benefit from Endeavour management team’s proven track record to improve the efficiency of the Sukari mine and deliver its inherent long-term value
•Introduce a highly supportive Egyptian cornerstone shareholder with a strong track record of successful businesses in Egypt
•Enhances capital markets profile
BENEFITS TO ENDEAVOUR SHAREHOLDERS
•Provides further diversification with a third flagship asset in a third jurisdiction
•Gain exposure to optimizing the long-life Sukari mine
•Gain exposure to attractive exploration upside in a major geological trend (Nubian Shield) where we can leverage the experience of our highly successful exploration team in the Birimian Greenstone Belt
•Enhances free cash flow generation, accelerates deleveraging and return of capital to shareholders through dividends
•Enhances capital markets profile: size, relevance for large generalist investors, increased stock liquidity
BACKGROUND TO THE PROPOSAL
Endeavour initially wrote to the Centamin Chairman and Chief Executive Officer in October 2018, proposing an all-share merger between the companies, but its proposal was unequivocally rejected within 24 hours. Endeavour subsequently wrote to the Centamin Board again on November 11, 2019, proposing an all-share merger. Centamin’s response to that proposal, received on November 20, 2019, was to refuse to discuss the prospects for a Merger or its terms prior to the execution of a standstill agreement and non-disclosure agreement. Several calls were made to the Chairman and the Senior Independent Director of Centamin in an effort to better understand the precise reasons for the reluctance to engage unless a standstill agreement was executed, but those efforts were also unsuccessful in opening a wider discussion about the prospects for a Merger. On November 25, 2019, Endeavour set-out further details of its Proposal, including an exchange ratio of 0.0846 Endeavour shares for each Centamin share, which represented a 5% premium to the 30-day VWAPs of Endeavour and Centamin at the time of the Proposal. On November 28, 2019, Centamin responded to the Proposal with a continued refusal to discuss the prospects for a merger or its terms prior to the execution of a standstill agreement and non-disclosure agreement.
Mindful of Centamin’s response to Endeavour’s proposal in October 2018, Endeavour believes that Centamin’s insistence on a standstill agreement as a pre-condition to discussing the prospects for the Merger, or even preliminary terms which would be subject to reciprocal due diligence, risks denying Centamin shareholders a voice in the compelling strategic merits of a combination, or an opportunity to express their views on the attractiveness of the Merger terms. Having regard to Centamin’s continued insistence on a standstill, in the absence of any meaningful discussion on prospects or terms, Endeavour does not believe it is appropriate to restrict its ability to seek the opinions of shareholders on the Proposal.
Endeavour is therefore today announcing the terms of its Proposal in order to allow Centamin shareholders the opportunity to consider the Proposal and encourage the Centamin Board to engage with Endeavour on the prospects for a friendly recommended merger.
FURTHER TERMS OF ENDEAVOUR’S PROPOSAL
Endeavour anticipates that the Merger would be implemented by way of a scheme of arrangement of Centamin under Jersey law. However, Endeavour remains open to discuss with Centamin the optimal structure for the Merger, bearing in mind the possible benefits of retaining a London listing for the Combined Entity. The making of a firm offer by Endeavour is conditional upon the satisfaction or waiver by Endeavour of the following pre-conditions:
•satisfactory completion of due diligence on Centamin;
•confirmation being received from the Board of Centamin that it will provide a unanimous recommendation to Centamin shareholders to vote in favour of the Merger; and
•each member of the Centamin Board giving irrevocable undertakings to vote in favour of the Merger in respect of all their Centamin shares.
Endeavour reserves the right to make an offer on less favourable terms than those set out in its Proposal if:
•the board of Centamin agrees;
•a third party announces a possible offer or a firm intention to make an offer for Centamin; or
•Centamin announces a whitewash transaction pursuant to the Code.
Endeavour reserves the right to reduce the Merger consideration by the amount of any dividend (or other distribution) which is paid or becomes payable by Centamin to its shareholders following the date of this announcement. Further, Endeavour also reserves the right to vary the form and/or mix of consideration set out in its Proposal and/or introduce other forms of consideration.
In accordance with Rule 2.6(a) of the Code, Endeavour is required, by not later than 5.00 p.m. on December 31, 2019, either to announce a firm intention to make an offer in accordance with Rule 2.7 of the Code or to announce that it does not intend to make an offer, in which case the announcement will be treated as a statement to which Rule 2.8 of the Code applies. This deadline can be extended with the consent of the Takeover Panel in accordance with Rule 2.6(c) of the Code.
There can be no certainty that a transaction will occur from Endeavour’s Proposal. A further statement will be made as appropriate.
SOURCES AND BASES
•Unless otherwise stated, financial and other information concerning Endeavour and Centamin has been extracted from published sources.
•The value attributed to Centamin’s issued share capital is based upon 1,155,955,384 Centamin ordinary shares in issue, as announced by Centamin pursuant to the FCA’s Disclosure Guidance and Transparency Rules on May 31, 2019.
•Pro forma percentage holdings in the Combined Entity by Endeavour and Centamin shareholders are based upon 1,155,955,384 Centamin ordinary shares in issue, as announced by Centamin pursuant to the FCA’s Disclosure Guidance and Transparency Rules on May 31, 2019 and 109,927,097 Endeavour shares issued and outstanding, as announced on November 5, 2019 by Endeavour pursuant to Endeavour’s Q3 2019 Management Discussion & Analysis.
•The 5% premium represented by the Endeavour proposal of November 25, 2019 is based on the 30-day VWAPs (sourced from FactSet) of Endeavour and Centamin of CAD23.82 and GBP1.13, respectively, for the 30 trading days from and including October 14, 2019 to and including November 22, 2019. The implied CAD:GBP exchange rate (sourced from FactSet) of 1.69 is from and including October 14, 2019 to and including November 22, 2019.
•The 13.1% premium is based on December 2, 2019 market close prices of Endeavour and Centamin of CAD25.79 and GBP1.12, and CAD:GBP exchange rate of 1.72.
Martino De Ciccio
VP – Strategy & Investor Relations
+44 (0) 203 011 2719
email@example.com Brunswick Group LLP in London
Carole Cable, David Litterick
+44 (0) 20 7404 5959