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Mar 23, 2020

Endeavour stock slides, Semafo soars, after $1-billion buyout announced

A worker stacks 12.5 kilogram gold bullion bars at the Valcambi SA precious metal refinery in Balerna, Switzerland, on Tuesday, April 24, 2018. Gold's haven qualities have come back in focus this year as President Donald Trump’s administration picks a series of trade fights with friends and foes, and investors fret about equity market wobbles that started on Wall Street and echoed around the world. Photographer: Stefan Wermuth/Bloomberg

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MONTREAL -- A $1-billion deal to combine two Montreal companies with West African gold mining operations was met with sharply divergent reactions from their shareholders on Monday.

Stock in Endeavour Mining Corp. closed at $20.05, down $1.60 or 7.4 per cent, on the Toronto Stock Exchange after it announced the deal to acquire Semafo Inc. -- the stock traded as low as $17.50, down 19.2 per cent, earlier in the day.

In contrast, Semafo closed 39.2 per cent or 78 cents higher at $2.77.

The acquisition includes Semafo's Boungou gold mine in Burkina Faso which was shut down in November after gunmen attacked a bus convoy of 241 workers on the road to the operation, killing 39 people and injuring at least 60 others.

Work to process stockpiles at the Boungou plant was restarted in February with employees and contractors transported by air and lodged on site, but a plan to return to mining in the fourth quarter is conditional on improvements to security on the public road and in the surrounding region.

Meanwhile, Endeavour CEO Sebastien de Montessus reported on a Monday morning conference call, two of his company's employees in Africa have contracted the COVID-19 virus, leading to quarantine of those people and anyone they had come in contact with.

"Many of you may be wondering why we are pressing forward with this transaction when there is so much uncertainty across the world due to this pandemic," said de Montessus.

"This transaction announcement is very much part of our objective to build a sustainable business. And whilst the world is currently facing challenging times, we continue to be optimistic about the long-term opportunities ahead of us, including this one."

The two companies believe they will be stronger together and better able to manage risk, he said.

The Endeavour employees who tested positive for COVID-19 were stationed at its Hounde mine in Burkina Faso and the Ity mine in Cote d'Ivoire, a company spokesman said.

The companies say the all-stock transaction will create the largest gold producer in West Africa with six mining operations and more than one million ounces of gold production in 2020.

On the joint call, Semafo CEO Benoit Desormeaux said it's expected that negotiations with contractors to restart mining at Boungou will not be affected by the change in ownership.

De Montessus added he visited Boungou about a month ago and is confident that the restart later this year is achievable. He said he spoke with the president of Burkina Faso on Monday morning and was told he supports the transaction.

The two companies came close to striking a deal in early 2019 and went through a "detailed mutual due diligence process," said de Montessus, but couldn't agree on terms.

Early this year, discussions began anew with updated due diligence, including a comprehensive assessment of security, operation and exploration, he said.

Under the deal, Semafo shareholders will receive 0.1422 of an Endeavour share for each Semafo share they hold. Existing Endeavour and Semafo shareholders will own approximately 70 per cent and 30 per cent, respectively, of the combined company.

La Mancha Holding, which holds a 31 per cent stake in Endeavour, has also agreed to invest $100 million in the combined company.

Its interest is expected to slip to about 25 per cent once the deal is completed.

The agreement requires approval by a simple majority of the votes cast by Endeavour shareholders and a two-thirds majority vote by Semafo shareholders.