AngloGold Ashanti has put $2.5bn (R44.8bn) on the table for the takeover of Centamin, owner of Egypt’s largest gold mine, in one of the biggest mining deals of the year as mergers and acquisition (M&A) activity in the industry heats up.
The transaction will involve a stock and cash deal whereby Centamin shareholders will receive 0.06983 AngloGold shares and $0.125 in cash for each Centamin share they hold.
After the acquisition, AngloGold shareholders will own about 83.6% of the group’s enlarged issued share capital, while Centamin will own 16.4%.
The implied 163p per share that AngloGold agreed to pay London-listed Centamin shareholders represents a premium of 36.7% to Centamin’s Monday closing price of 120p, the companies said in a statement.
AngloGold CEO Alberto Calderon said: “We are delighted to be announcing today’s transaction, which will add a tier-1 asset to our portfolio.
“The transaction is free cash flow accretive in the first full year of production and [net asset value] accretive from day one.
“It will also offer additional upsides as we leverage our corporate infrastructure and our core competencies in exploration, operations and asset optimisation.”
The Centamin board, advised by Merrill Lynch International and BMO Capital Markets, considers the transaction terms to be fair and reasonable and intends to unanimously recommend that Centamin shareholders vote in favour of the deal.
Terming the deal “highly compelling”, AngloGold chair Jochen Tilk said the acquisition offered “enormous geological potential” that the company was well placed to develop.
Peter Major, mining director at Modern Corporate Solutions, said the generous offer could make AngloGold more vulnerable to a downturn in gold prices.
“AngloGold is willing to pay 37% more than what you or I could have paid yesterday [for Centamin], so they are going to have to work that much harder to make that up,” he told Business Day.
“The only way you are going to justify this deal is if gold prices go up. If the gold price goes up, AngloGold will look like geniuses. But if the gold price goes down, then they threw away a bunch of money.”
Flagship
The acquisition will see AngloGold taking over Centamin’s flagship asset, the Sukari gold mine in Egypt. AngloGold said the mine had attractive development potential, as well as a compelling cost profile — with total cash costs of $970/oz and all-in sustaining costs of $1,196/oz in 2023. Sukari is one of the world’s highest-output mines, having produced more than 5.9-million ounces since starting production in 2009.
The inclusion of Sukari in AngloGold’s profile will increase the group’s annual gold production by about 450,000oz, to more than 3-million ounces for the year.
It will immediately reduce the combined unit total cash costs and all-in sustaining costs.
Anchor Capital investment analyst Seleho Tsatsi cautioned that the new acquisition might unintentionally signal to investors that gold was nearing some sort of peak in its cycle, with a decline in price on the horizon.
“A large M&A can make investors nervous because sometimes it indicates that we are in more bullish, optimistic parts of the cycle,” Tsatsi said. “For example, with hindsight, the pursuit of Royal Bafokeng Platinum by Northam Platinum and Impala Platinum turned out to be relatively close to the higher end of the PGM cycle.”
There has been a flurry of deal activity in the gold mining sector over the past few years. Last year saw the world’s top gold producer, Newmont, buying Australia’s Newcrest Mining for $16.8bn. Earlier this year, the BHP Group tried unsuccessfully to take over Anglo American for $49bn. The group abandoned its takeover plan after its last-ditch request for more time was rejected.
Valuation gap
In line with AngloGold’s ambition to close the valuation gap with Newmont and Barrick Gold, it has taken considerable action to improve the quality of its portfolio in recent years.
In 2020, the group sold its remaining SA mining assets to Harmony Gold for about R4.4bn. In 2022, it acquired US-based Corvus Gold for $365m.
At the time the group outlined its plans to close the valuation gap between it and Canadian, US and Australian majors. In March last year it was worth less than R160bn on the JSE, with the stock now worth R224bn on the bourse and $12bn (R215bn) on the New York Stock Exchange.
Newmont, the world’s largest gold mining group, is worth over $50bn, Barrick Gold $33bn, leaving AngloGold far behind in its ambition to close the gap within three years.
AngloGold said it expected to be a well-suited operator of Centamin’s portfolio, given its “significant breadth of experience and long track record in Africa operating similar large-scale open-pit and underground mines”. With Reuters
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