Endeavour in Teranga merger talks as West African mining deals hot up

TORONTO (Reuters) - Endeavour Mining EDV.TO said it is in talks with smaller West African-focused miner Teranga Gold TGZ.TO over a merger which if it proceeds would mark the latest in a series of deals involving the gold-rich region.

Teranga’s shares rose 4.3% in Toronto on Tuesday, while Endeavour’s were down 5.5% at 1718 GMT, signalling potential investor doubts about the benefits of a combination.

Endeavour, which is 24.12% owned by Egypt’s Sawiris family, has been on the acquisition trail this year as gold prices have gained on the back of global stimulus.

Further consolidation in West Africa brings with it the possibility of economies of scale which could help miners manage increasing security costs, especially in the unstable Sahel.

“The combination of Endeavour and Teranga would further solidify Endeavour as West Africa’s leading gold producer - though a low premium offer for Teranga would leave too much value on the table,” Raymond James analyst Craig Stanley said.

In March Endeavour acquired Semafo to become Burkina Faso’s biggest gold producer, increasing its focus there despite rising insecurity.

Endeavour had a market capitalisation of C$5.23 billion ($4 billion) as of Monday’s close, while Teranga was valued at C$2.2 billion.

A deal with Teranga, if completed, would add another operating mine – Wahgnion – to Endeavour’s four existing mines in Burkina Faso, and also give it exposure to Senegal.

Teranga last year bought Barrick Gold's ABX.TO 90% stake in Senegal's Massawa project.

The CEO of Barrick Gold, which operates Mali’s biggest gold mine, has been among the loudest industry voices calling for consolidation.

But with gold prices - and company valuations - at eye-watering levels, mining executives have been trying to reassure investors that they are not going on buying sprees or paying hefty premiums.

($1 = 1.3022 Canadian dollars)

Reporting by Arundhati Sarkar in Bengaluru; Additional reporting by Jeff Lewis in Toronto and Helen Reid in Johannesburg; Editing by Sriraj Kalluvila, Saumyadeb Chakrabarty, Pravin Char, Emelia Sithole-Matarise and Alexander Smith