Gold Price Analysis – Endeavour pivots to exploration to shake ‘M&A junkie’ image after deal spree
JOHANNESBURG/TORONTO (Reuters) – Canadian gold firm Endeavour Mining, which is preparing for a London listing late next quarter, is switching its focus to integrating new mines after a $2.7 billion acquisition spree in West Africa last year spooked some investors.
The group, whose share price has underperformed a wider index of gold mining stocks to slide nearly 30% since mid-2020, is hitting the brakes on new purchases after buying mining firms Semafo and Teranga Gold in the last year.
Chief Executive Sebastien de Montessus said his priority now is to show shareholders he is committed to organic growth in six core gold mines across Ivory Coast, Senegal, and Burkina Faso.
“Some people say, ‘he did two M&A deals, this is an M&A junkie’. No. I’m just trying to do the right thing for our shareholders,” de Montessus, who took over the CEO role in 2016, told Reuters.
While Endeavour’s deal to buy Semafo created the biggest gold producer in Burkina Faso, the company’s overall valuation on a 12-month forward price-to-earnings basis has fallen since the acquisition closed last July, Datastream I/B/E/S estimates show.
Its later purchase of Teranga, which added a large mine in Senegal and a bigger footprint in Ivory Coast, came partly from a desire to boost its valuation ahead of its London listing by diversifying its portfolio into other countries.
But Endeavour shares fell in the months after the Teranga deal was announced, partly reflecting investor unease about an acquisition at a time high gold prices were inflating valuations across the sector.
The deal was “a step too far for a lot of shareholders”, said portfolio manager Jon Case at Sentry Investments in Toronto, adding investors had wanted Endeavour to integrate Semafo first. “For a lot of people, it was too soon.”
Karim Nasr, CEO of top Endeavour investor La Mancha, which will hold a 19% stake in the company after a new $200 million investment closes this quarter, said there is “no need” for more M&A at the group.
“As shareholders we would like to see the company delivering on cashflows and starting to produce good capital returns.”
De Montessus said that growth from here will be driven by assets the company already owns, with management targeting output of 1.4 million-1.5 million ounces this year – more than double 2019’s level.
Endeavour has forecast exploration spending will climb 40% to $70 million-$90 million this year, and remain at that level. It aims for one major discovery this year, the CEO said, and hopes to launch a new mine in Mali or Ivory Coast in 2022.
The company will shed some non-core operations as it pushes to consolidate its assets. It has previously received informal approaches for its Karma mine in Burkina Faso, de Montessus said, though no official sales process is underway.
Security in Burkina Faso – where 39 workers were killed in a 2019 ambush of a Semafo transport convoy, and where a conflict between government forces and Islamist insurgents is worsening – is a priority for the group.
De Montessus said Endeavour has increased spending on security “significantly”, investing $6 million to $10 million across its Burkina Faso mines.
The group has a dedicated security unit led by ex-French military personnel, and has drones above each site watching for potential threats. Endeavour is also building an airstrip at the Wahgnion mine it acquired from Teranga in Burkina Faso, de Montessus said, as part of its policy of avoiding employees travelling on roads.
Vincent Rouget, analyst at Control Risks, said attacks on the mining industry have tended to occur in transit, as it is easier to stage a roadside ambush than an assault on a mine site.
“The challenge is how to protect your operations from external threats while at the same time not shutting yourself off from the community completely,” said Rouget.
Endeavour has set itself apart from peers in West Africa by having most of its technical team in Abidjan and executives spending more time on-site, a banker who declined to be named said.
“There’s a lot of lifestyle gold companies in West Africa,” he said, referring to well-paid executives based far from operations. “Companies like Endeavour are shaking that up.”
With mining executives working on the ground in “sometimes very difficult environments”, de Montessus said complaints from some investors that executives in the sector are overpaid were “nonsense”.
Shareholders have consistently approved his pay, which is reviewed against the peer group and decided by the board, he said.
Reporting by Helen Reid in Johannesburg and Jeff Lewis in Toronto; Editing by Amran Abocar and Jan Harvey