The preliminary proposal for a potential all-share combination between Africa-focused miners Centamin and Endeavour Mining has failed to impress the directors of Centamin, with the board unanimously rejecting the proposal.

In a statement on Wednesday, the Centamin board said that the proposal not only “materially undervalued” the miner, which owns and operates the 500 000 oz/y Sukari mine, in Egypt, but was also skewed in favour of Endeavour shareholders.

“The proposal would result in Centamin’s shareholders exchanging 100% direct exposure to a world-class asset, for a reduced 47% exposure to the same asset within a broader portfolio of lower quality, higher risk assets.”

Endeavour owns the Hounde mine, in Burkina Faso and the Ity mine, in Côte d'Ivoire. About 44% of the potential suitor’s attributable resources are in Burkina Faso, where the security risks have come to the fore in recent months.

While Centamin’s shareholders would own only 47% of the shares of the enlarged company, they would contribute 100% of the first half of 2019 free cash flow, 100% of 2018 free cash flow, 100% of dividend distribution, 57% of measured and indicated resources and 69% of inferred resources, the statement noted.

With Endeavour’s gross debt and financial obligations of $729-million and net debt of $599-million at September 30, Centamin also warned that a significant portion of cash flows would not accrue to shareholders.

Centamin had cash and liquid assets at September 30 of $289-million and no debt.

Shareholders were also being asked to exchange their more liquid, London-listed Centamin shares for less liquid, TSX-listed Endeavour shares, the statement said, noting that based on the last six months average daily value traded, Centamin's shares were 1.8x[6] more traded than Endeavour's shares.

"The board strongly believes that Endeavour's proposal significantly increases financial and operating risk without any material benefits to our shareholders. Centamin's stated strategy has always been to maximise returns for all of its shareholders, having returned approximately $500-million to shareholders since 2014,” said chairperson Josef El-Raghy.

Responding to claims that Centamin refused to engage with Endeavour, El-Raghy said that the TSX-listed company had “refused to enter into a customary non-disclosure agreement to allow the board to further assess the proposal”.

Meanwhile, Endeavour’s largest shareholder, La Mancha, which is owned by the Sawiris family in Egypt, has urged the board of Centamin to engage on the merits of the merger.

“We have long argued that there is scope for further consolidation within the industry. Moreover, we can add significant value in Egypt, which is opening up its mining sector through a new, more supportive mining code, and increase the potential for further expansion in the country," said chairperson Naguib Sawiris.

Endeavour proposes an exchange ratio of 0.0846 Endeavour shares for each Centamin share representing a 5% premium to the 30-day volume-weighted average prices of Endeavour and Centamin and a 13.1% premium to the closing price of Endeavour and Centamin on December 2.

Based on the proposed exchange ratio of 0.0846 Endeavour shares for each Centamin share, Endeavour shareholders would own about 52.9% and Centamin shareholders would own about 47.1% of the combined group’s share capital.

Endeavour’s share price fell 4% in Toronto on Tuesday, trading at an intraday low of C$24.49 a share and closed at C$24.89 a share.

Centamin’s stock rose 15% in London on Tuesday to 129.44p a share. On Wednesday morning, the company traded at 127.90p a share.