Endeavour Mining Corporation (TSX:EDV) (OTCQX:EDVMF) and SEMAFO Inc. (TSX:SMF) (OMX: SMF) are pleased to announce that they have entered into a definitive agreement whereby Endeavour will acquire all of the issued and outstanding securities of SEMAFO by way of a Plan of Arrangement under the Business Corporations Act (Québec). The Transaction will create a top 15 global gold producer and the largest in West Africa with six operations and an attractive growth pipeline.
Due to the strong strategic rationale for local consolidation, both sets of Board of Directors have unanimously approved the Transaction.
On a pro-forma basis, a combined Endeavour and SEMAFO would have:
Pursuant to the Plan of Arrangement, SEMAFO common shares will be exchanged at a ratio of 0.1422 Endeavour ordinary shares for each one SEMAFO common share (the “Exchange Ratio”). The Exchange Ratio represents a premium of 27.2% based on the 20-day volume weighted average price of both companies for the period ended March 20, 2020 and a premium of 54.7% based on the closing price of Endeavour and SEMAFO’s shares on the TSX on March 20, 2020. The implied equity value for SEMAFO is equal to C$1.0 billion based on Endeavour’s closing price on March 20, 2020. Existing Endeavour and SEMAFO shareholders will own approximately 70% and 30%, respectively, of the combined company on a fully-diluted in-the-money basis.
Michael Beckett, Chairman of Endeavour, stated:
“This combination will create one of the leading gold companies, with the largest portfolio of operating assets located entirely in West Africa. In addition to being immediately accretive on all key metrics, this transaction will enhance our scale as well as providing improved trading liquidity, greater asset diversification and a reduced risk profile for all shareholders.
We will also continue to benefit from having La Mancha as a cornerstone shareholder, who will invest $100 million into to the combined entity and hold a 25 per cent interest on a pro forma basis.”
Sébastien de Montessus, President & CEO of Endeavour, stated:
“This combination offers a rare opportunity to bring together two leading West African mine operators with a shared strategic vision, complementary assets, and management teams with a proven track record. We believe this transaction represents a compelling value equation for both sets of shareholders with the potential for a meaningful re-rating, whilst providing increased asset diversification and enhancing our ability to manage risks within the business.
Together, we will create a leading West African gold company with production of more than 1 million ounces of gold annually, supported by a robust pipeline of development projects and a significantly enhanced exploration portfolio focused on the highly prospective Birimian Greenstone Belt.
With both companies having recently completed build-out phases and mine ramp-ups, the combined business is well positioned for a sustained period of strong cash flows. Our enhanced capital markets profile should provide added trading liquidity, free float and size, characteristics that investors are seeking in today’s market environment, and we will continue to allocate capital in a disciplined and efficient manner with a focus on maximizing shareholder returns.”
Benoit Desormeaux, President and CEO of SEMAFO, stated:
“This transaction has received strong support from our key shareholders who recognize it as an exciting value creating opportunity to bring together two companies with common values and shared cultures built on decades of successful West African experience. For our shareholders, this transaction offers the benefits of both an upfront premium and a significant re-rating opportunity within a stronger merged company.
Our team, and I, are thrilled to be joining forces with Endeavour and we look forward to the opportunity to leverage our combined skill sets to create value for all shareholders. We will leverage our expertise in Montreal to build a technical hub to realize operational, technical and exploration synergies, while advancing studies on our enhanced project pipeline.”
Strong Benefits to Both Sets of Shareholders
Background to the Transaction
For the past several years, Endeavour and SEMAFO have worked as industry partners to consider shared issues common to companies operating in West Africa. In early 2019, both companies engaged in a mutual dialogue in order to evaluate the merits of a business combination. The dialogue included extensive mutual due diligence as well as discussion of potential terms of a transaction, with a final proposal in May 2019. At that time, it was not possible to agree on terms which appropriately shared the risks and rewards of a combination.
In early 2020, discussions between Endeavour and SEMAFO recommenced. Endeavour’s management team completed on-site due diligence at SEMAFO’s operations in Burkina Faso during February 2020, including a comprehensive assessment of security, operations and exploration. Both companies also re-opened data rooms for mutual confirmatory due diligence, including visits and, following collaborative discussions, confirmed their shared strategic vision and desire to complete a combination subject to negotiation of agreeable terms. Negotiations proceeded, culminating in agreement on the terms of the Transaction detailed in this announcement.
Board of Directors’ Recommendations
SEMAFO appointed a special committee of independent directors to consider and make a recommendation with respect to the Transaction. The Arrangement Agreement has been unanimously approved by the Board of Directors of SEMAFO. The Arrangement Agreement has also been unanimously approved by the Board of Directors of Endeavour. Both Boards of Directors recommend that their respective shareholders vote in favour of the Transaction.
Maxit Capital LP and National Bank Financial Inc. have provided fairness opinions to, respectively, the Board of Directors and Special Committee of SEMAFO. Each fairness opinion stated that, as of the date thereof and, based upon and subject to the assumptions, limitations, and qualifications stated in such opinion, the exchange ratio is fair, from a financial point of view, to SEMAFO shareholders. BMO Capital Markets has provided a fairness opinion to the Board of Directors of Endeavour stating that, as of the date thereof and, based upon and subject to the assumptions, limitations, and qualifications stated in such opinion, the Exchange Ratio is fair, from a financial point of view, to Endeavour.
Mr. Naguib Sawiris, Chairman of the Advisory Board of La Mancha Holding S.à.r.l, abstained from voting as a director of Endeavour on the $100 million investment by La Mancha.
For Endeavour, pursuant to the rules of the TSX, the Transaction will require approval by a simple majority of the votes cast by its shareholders. In addition, shareholders of Endeavour will be asked to approve the issuance of Endeavour ordinary shares to La Mancha Holding S.a.r.l., (“La Mancha”) pursuant to the terms of a binding investment commitment term sheet entered into between Endeavour and La Mancha dated March 23, 2020. Such resolution will require the approval of a simple majority of votes cast by Endeavour shareholders.
For SEMAFO, the Transaction will require the approval of 66 2/3% of votes cast by shareholders of SEMAFO.
La Mancha, along with officers and directors of Endeavour, who together control approximately 31.8% of the outstanding shares of Endeavour, have entered into voting support agreements pursuant to which they have agreed to vote their ordinary shares in favor of the Transaction. Officers and directors of SEMAFO have entered into voting support agreements pursuant to which they have agreed to vote their common shares in favor of the Transaction. In addition to shareholder and court approvals, the Transaction is subject to applicable regulatory approvals including TSX approval and the satisfaction of certain other closing conditions customary in transactions of this nature.
The Arrangement Agreement includes customary provisions including non-solicitation provisions, a right to match any superior proposal, a $20 million termination fee payable to SEMAFO under certain circumstances and a $20 million termination fee payable to Endeavour under certain circumstances.
La Mancha Commits to Invest $100 million in Support of Transaction
La Mancha is strongly supportive of the Transaction and has committed to invest $100 million in the pro-forma group. This investment will strengthen the balance sheet of the combined entity and increase available liquidity.
On completion of the investment, La Mancha will hold an interest of approximately 25% in the combined entity (calculated on a pro forma basis using current share prices), a reduction from its current approximately 31% interest in Endeavour. This will provide for a larger free float and greater liquidity in the stock of the combined entity.
The placement is subject to TSX and other regulatory approvals. The price of the placement shares is to be agreed, and completion of the investment shall occur within 45 days following closing of the Transaction.
La Mancha will retain its anti-dilution and other rights under the Investor Rights Agreement between Endeavour and La Mancha.
The investment by La Mancha is considered to be a “related party transaction” for purposes of Multilateral Instrument 61-101 – Protection of Minority Security Holders in Special Transactions. Endeavour is exempt from the formal valuation and minority shareholder approval requirements of MI 61-101, respectively, in reliance on sections 5.5(a) and 5.7(b) of MI 61-101, respectively, as the fair market value of the investment is not more than the 25% of Endeavour’s market capitalization. As part of the commitment, Endeavour has agreed to file a shelf prospectus.
Management Team and Board of Directors
The senior executive team and the Board of Directors of Endeavour will be enhanced by the new appointees from SEMAFO all of whom have a wealth of knowledge and experience to support the newly combined entity.
The combined entity will continue to have its headquarters in London while leveraging the existing expertise in Montreal to build a technical hub to realize operational, technical and exploration synergies, and advance studies. Detailed integration plans will be finalized over the next few months.
Sébastien de Montessus will continue as CEO of the combined entity. Benoit Desormeaux will become President and will oversee operational performance. Upon closing of the transaction, Martin Milette will be appointed Executive Vice President and Chief Financial Officer of the combined entity and will relocate to London, England, replacing Louis Irvine.
SEMAFO’s Montreal office will become the primary support office to the operations.
The new Board of Directors will be comprised of ten directors, seven of whom will be nominated by Endeavour and three of whom will be nominated by SEMAFO.
Full details of the Transaction will be included in the joint management information circular of Endeavour and SEMAFO and are expected to be mailed to each company’s respective shareholders at the end of April or early May 2020. It is anticipated that both shareholder meetings and the closing of the Transaction will take place in the second quarter of 2020.
Advisor and Counsel
Gleacher Shacklock LLP is acting as financial advisor to Endeavour with McCarthy Tétrault LLP acting as Endeavour’s legal advisor.
Maxit Capital LP is acting as financial advisor to SEMAFO with Davies Ward Phillips & Vineberg LLP acting as SEMAFO’s legal advisor.
Norton Rose Fulbright Canada LLP is acting as La Mancha’s legal advisor.
Endeavour Mining Corporation is a TSX listed intermediate African gold producer with a solid track record of operational excellence, project development and exploration in the highly prospective Birimian greenstone belt in West Africa. Endeavour is focused on offering both near-term and long-term growth opportunities with its project pipeline and its exploration strategy, while generating immediate cash flow from its operations.
Endeavour operates four mines across Côte d’Ivoire (Agbaou and Ity) and Burkina Faso (Houndé, Karma).
SEMAFO Inc. is a Canadian-based intermediate gold producer with over twenty years’ experience building and operating mines in West Africa. SEMAFO Inc. operates two mines, the Mana and Boungou Mines in Burkina Faso. SEMAFO Inc. is committed to building value through responsible mining of its quality assets and leveraging its development pipeline.
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