Canada’s Endeavour Gold will seek a London listing after agreeing a $1.86bn all-stock deal to merge with rival Teranga Gold in a move that could pave the way to entering the FTSE 100 index.
The west Africa-focused miner, whose largest shareholder is Egyptian telecoms billionaire Naguib Sawiris, said the new company would become London’s largest listed gold miner.
“The combined entity will become a new senior gold producer and enjoy an improved capital markets profile, underpinned by a healthy balance sheet and strong cash flow capabilities to support a sustainable dividend,” Sébastien de Montessus, chief executive of Endeavour, said in a statement on Monday.
The gold industry is seen as ripe for consolidation. Apart from market leaders Barrick and Newmont, the sector remains fragmented among hundreds of small and medium-sized companies.
The FTSE 100 lost a big gold miner last year when Randgold delisted after its acquisition by Barrick Gold. The sector’s largest remaining companies in the index are Russia’s Polymetal and Mexico-based Fresnillo.
The combination of Endeavour and Teranga will produce more than 1.5m ounces of gold a year, equal to Polymetal’s 2020 target.
Endeavour said it would pay 0.47 of its own shares for each Teranga share, a 9.4 per cent premium to Teranga’s Friday closing price on the Toronto stock exchange.
Existing Endeavour and Teranga shareholders will own 64 per cent and 36 per cent of the combined company respectively.
Endeavour said it had arranged up to $800m in financing from banks including Citigroup, HSBC, and ING which would be used to consolidate the debts of Endeavour and Teranga.
The deal will add a mine in Burkina Faso to the three Endeavour already operates in the country, as well as the Massawa mine in Senegal, which Teranga bought from Barrick this year and combined with its existing Sabodala operation.
Analysts at Berenberg said the merger would “further embed Endeavour as the largest gold miner in west Africa while adding long-term production from a lower-risk jurisdiction [Senegal] to provide some balance against the group’s relatively heavy weighting towards Burkina Faso”.
The deal was supported by Mr Sawiris’s investment vehicle La Mancha, as well as Endeavour shareholders Tablo and Barrick, the world’s second-largest gold miner, it said.
Mr Sawiris, who is investing $200m in the new group, will own 19 per cent after the deal.