A UK analyst was quoted to have said that the possible combination of Acacia Mining with Endeavour Mining Corporation would be one of those “win-wins” for both companies, and establish a strong gold business in the country.
On paper, however, it’s likely that it’ll be Endeavour calling the shots on the transaction, especially as it has the forward momentum on growth despite a good operating period in 2016 for Acacia.
While Acacia speaks of exploration targets, Endeavour is nailing down new production. Gold output is expected to be about 610,000 ounces for 2016, but its ambition is to reach 900,000 oz/year by 2020.
Bankrolled by Naguib Sawiris, the Egyptian billionaire, Endeavour is set to approve the $307m Ity project in Côte d’Ivoire this year which will have average gold production of 165,000 oz/year for the first five years.
First though, the firm is attempting to increase its ownership in the project from 55% to as much as 85% if shareholders – the government and former Chelsea footballer Didier Drogba – can be persuaded to sell their shares.
It was the reversal of this project, and some $60m in finance, into Endeavour through Sawiris’ La Mancha, a Canadian gold development firm, that gave Sawiris a 30% stake in Endeavour. It was soon after this that La Mancha’s MD, Sébastien de Montessus, a former AREVA executive, was appointed CEO, replacing Endeavour’s founding CEO, Neil Woodyer.
Then there’s the $328m Houndé project in development that will extend Endeavour’s west African footprint to Burkina Faso and add an average of 190,000 oz/year to total group production.
For its part, Acacia, which mines solely in Tanzania, is on course to better the 2016 production guidance of up to 280,000 oz despite milling problems at Bulyanhulu, and thanks to stand-out performances at Bugwazi, where production was hedged in January 2016, and North Mara.
Brad Gordon, the firm’s CEO, said the firm would “reap the benefits” of a transitional 2015 and this has proved true with some 15% to 30% of free cash flow being pumped into dividends; the interim dividend was 43% higher, for instance. Acacia’s exploration budget has also been hiked 30% to $25m for 2017.
The single geography is something of a risk for Acacia, however.
A tax dispute with the Tanzanian government, which led to a $70m provision in Acacia’s books, hints at potential trouble ahead as John ‘bulldozer’ Magafuli, Tanzania’s confrontational president, asks miners to build smelters and list their shares on his country’s stock exchange.
Endeavour said on January 13 that it was in “preliminary discussions” with Acacia, a UK-listed business in which Barrick Gold has a 63.9% stake.
Endeavour Mining added that it “routinely evaluates business development opportunities” and that its “strategic focus is the organic prospects” in its own possession.
It’s an open secret that Barrick Gold has been seeking to exit from its investment in Acacia Mining. A number of South African firms, including Sibanye Gold and Harmony Gold, said last year they had considered buying the shares, but before declining to take the transaction forward.
In terms of potential deal structure, a merger would enable Barrick to reduce its stake in Acacia to about 30%, according to Bloomberg News citing a person familiar with the proposals.
It could be structured as a reverse takeover with Acacia buying Endeavour, and the combined company keeping its listing in London, the person said. The plans are not concrete and the structure may change, the person told Bloomberg News.