Endeavour Mining — A strong year ahead

Endeavour Mining (LSE: EDV)

Last close As at 22/05/2024

1,415.00

3.00 (0.21%)

Market capitalisation

3,465m

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Research: Metals & Mining

Endeavour Mining — A strong year ahead

Endeavour Mining’s Q123 financial results were materially ahead of both the market and our expectations, on a headline and an underlying basis. Endeavour remains on track to achieve its FY23 production guidance of 1,325–1,425koz (with Q123 production of 301koz) at an AISC of $940–995/oz. Its performance is set to be weighted towards H223 as previously guided, with strong production at Ity and Wahgnion complementing opportunistic development across other assets in Q123. Endeavour continues to enjoy organic growth, and management is aiming to expand current projects (BIOX expansion and Lafigué) and delineate resources further, with a focus on key assets such as Tanda-Iguela (an updated resource estimate is expected in H223). In the light of Q123 results and recent moves in the gold price, we have upgraded our adjusted net attributable earnings forecasts for the full year by 14.6%. Looking ahead, MSCI has announced Endeavour will be added to its Global Standard UK Index on 31 May 2023, indicating this could represent up to 11.0m shares of inflows (roughly 4.5%) of Endeavour’s outstanding shares.

Tom Batho

Written by

Tom Batho

Analyst

Metals & Mining

Endeavour Mining

A strong year ahead

Q123 results and updated FY23 estimates

Metals and mining

17 May 2023

Price

2,044p

Market cap

£5,049m

C$1.3615/US$, US$1.2564/£

Net debt (US$m) at end-March 2023, excludes lease liabilities, option premium and restricted cash

44.3

Shares in issue

247.0m

Free float

73.2%

Code

EDV

Primary exchange

LSE

Secondary exchanges

TSX, US OTC

Share price performance

%

1m

3m

12m

Abs

(4.5)

15.0

10.3

Rel (local)

(3.3)

19.2

7.6

52-week high/low

2,184p

1,461p

Business description

Following its acquisitions of SEMAFO and Teranga, Endeavour Mining has become one of the top 10 major gold producers globally, with six mines in Côte d’Ivoire, Burkina Faso and Senegal plus a portfolio of development projects, all in the West African Birimian greenstone belt.

Next events

Endeavour added to the Global Standard UK Index

31 May 2023

Sustainability report

May 2023

H123 dividend announcement

August 2023

Analysts

Thomas Batho

+44 (0)20 3077 5700

Lord Ashbourne

+44 (0)20 3077 5700

Endeavour Mining is a research client of Edison Investment Research Limited

Endeavour Mining’s Q123 financial results were materially ahead of both the market and our expectations, on a headline and an underlying basis. Endeavour remains on track to achieve its FY23 production guidance of 1,325–1,425koz (with Q123 production of 301koz) at an AISC of $940–995/oz. Its performance is set to be weighted towards H223 as previously guided, with strong production at Ity and Wahgnion complementing opportunistic development across other assets in Q123. Endeavour continues to enjoy organic growth, and management is aiming to expand current projects (BIOX expansion and Lafigué) and delineate resources further, with a focus on key assets such as Tanda-Iguela (an updated resource estimate is expected in H223). In the light of Q123 results and recent moves in the gold price, we have upgraded our adjusted net attributable earnings forecasts for the full year by 14.6%. Looking ahead, MSCI has announced Endeavour will be added to its Global Standard UK Index on 31 May 2023, indicating this could represent up to 11.0m shares of inflows (roughly 4.5%) of Endeavour’s outstanding shares.

Year end

Revenue (US$m)

EBITDA (US$m)

PBT*
(US$m)

Operating cash flow per share** (US$)

DPS
(c)

Yield
(%)

12/21

2,903.8

1,517.3

756.5

4.83

56

2.2

12/22

2,508.1

1,261.3

527.2

4.12

81

4.0

12/23e

2,709.7

1,378.4

668.7

4.43

81

3.2

12/24e

2,235.7

1,228.0

704.6

4.37

98

3.8

Note: *PBT is normalised, excluding amortisation of acquired intangibles and exceptional items. **Operating cash flow per share is calculated after cash tax paid.

Focusing on shareholder returns

Endeavour paid its H222 dividend of US$100m or US$0.40 per share on 28 March 2023, totalling US$200m (c US$0.81/share) for FY22. The company has since confirmed the minimum dividend commitment for FY23 at US$175m, up US$25m from FY22’s base level, and the continuation of the returns programme, which in Q123 saw 0.4m shares repurchased for US$10.9m.

Valuation: Consistency continues in Q123

Using an absolute valuation methodology, whereby we discount back four years of cash flows and then apply a perpetual ex-growth multiple to steady-state terminal cash flows in FY26, implies a present valuation for Endeavour of US$36.73 (C$50.01 or £29.23) per share if performed using a 10% discount rate or US$58.15 (C$78.21 or £46.09) per share if performed using a CAPM-derived (real) discount rate of 6.62% (based on inflation expectations of 2.21% derived from US 30-year break-even rates). These compare to valuations of US$35.59 and US$57.02, respectively, at the time of our last note in April. To these valuations a further US$4.30–7.45/share may be added to reflect the value of Endeavour’s five-year exploration programme (see The second five-year plan, published on 20 October 2021). In the meantime, we note that that Endeavour is trading at a discount to its peers on at least 89% of common valuation measures, regardless of whether Edison or consensus forecasts are used. Reverse engineered, the average valuation measures of its peers imply an average share price for Endeavour of US$39.04 (C$53.15 or £31.07) per share.

FY23 operational performance on track

Endeavour remains on track to achieve its FY23 production guidance of 1,325–1,425koz at an all-in sustaining cost (AISC) of US$940–995/oz. After Q1 production of 301koz, output, as previously guided, is set to be weighted towards H223. This is due to Endeavour focusing on development over production in H123 (primarily Q123) as lower grades are processed at Sabodala in preparation for in-pit tailings deposition and development of the new Massawa North Zone satellite pit. Similarly, both Houndé and Boungou focused on higher stripping activity in Q123, allowing access to higher-grade mining areas in H223. However, strong production at both Ity and Mana (91.2koz cf 83.6koz and 44.1koz cf 39.5koz expected, respectively) compensated for the reduced production at Boungou, in particular, during the quarter. Unit costs were somewhat affected by lower production figures and increased sustaining capital during Q123 (AISC US$978/oz cf US$911/oz in Q422). However, this was partly offset by lower aggregate costs and the aforementioned pre-stripping and waste stripping activities at Boungou, Sabodala-Massawa and Houndé to result in a 21.9%, or US$34m, increase in earnings from mine operations quarter-on-quarter to US$189m in Q123. We expect the trend of improving earnings from mining operations to continue throughout the year, as a result of increased gold production in H223 and the prevailing gold price.

Reaffirming the dividend policy

As discussed in our prior note, Endeavour completed a strong FY22 dividend programme totalling US$200m (c US$0.81/share). This represents a US$50m or 33% uplift relative to the base dividend commitment for the year. Endeavour paid its H222 dividend of US$100.0m or US$0.40 per share on 28 March 2023. The company has reaffirmed its shareholder returns programme comprising a minimum progressive dividend subject to additional dividends and share buybacks, provided the prevailing gold price remains above US$1,500/oz, and that Endeavour’s leverage remains below 0.5x net debt/adjusted EBITDA. Endeavour has set the minimum dividend commitment for FY23 at US$175m, up US$25m from FY22’s base level.

Shareholder returns were supplemented through the company’s share buyback programme in FY22 to the sum of US$98.7m, or 4.6m shares. We note the continuation of this returns programme, with US$10.9m or 0.4m shares repurchased in Q123.

Sustainability update

Endeavour’s 2022 sustainability report was released on 16 May 2023. The company calculates that its total economic contribution to host countries was more than US$1.9bn in 2022 and reports that 81% of total procurement was in country, supporting more than 1,600 national and local businesses. Endeavour’s 2022 CO2/oz emissions intensity of 640kg CO2/oz was ahead of its targeted <670kg CO2/oz for the year. 2022 also saw a 57% success rate for water reused and recycled and management has set an ambitious target of 70% for 2023. 2023 ESG targets (including safety, diversity and climate change) represent 30% of executive short-term and 15% of long-term incentive compensation. Additionally, Endeavour has reaffirmed its target of achieving a 30% reduction in its carbon emissions intensity by 2030 and net zero by 2050.

Progressing growth opportunities

Endeavour continues to enjoy organic growth, with management aiming to expand current projects and delineate resources further. This is shown across three key ventures: first, the BIOX expansion, which remains on budget and is set for completion in Q224 with US$203m (or 70%) of the total growth capital committed to date; second, the Lafigué greenfield project construction, with US$205m or 46% of the total budget committed following the results of a robust definitive feasibility study (DFS); and third, Endeavour will continue its company-wide exploration programme with a US$70m budget for FY23 (US$22m spent in Q123), with a key focus on the new Tanda-Iguela discovery, where an updated resource estimate is expected in H223.

Q123 results exceeding estimates

Endeavour’s Q123 financial results were materially ahead of our expectations, both on a headline and underlying basis. They were also ahead of the market, with adjusted net earnings from continuing operations attributable to shareholders of US$0.283/share compared to a prior consensus expectation of US$0.23/share, within a range of US$0.13–0.33/share. Exhibit 1, below, analyses the company’s results with respect to both our prior forecasts (see our note Rising gold prices begin to feed through, published on 18 April) and the results of the prior quarter (Q422). Considering Endeavour’s underlying results (stripping out adjusting items), in general terms its outperformance could be attributed to it producing 8.0koz (2.7%) more gold than we had forecast during the quarter and selling 16.0koz more (ie 8.0koz more than it produced), which gave rise to a positive variance of US$39.4m in revenue relative to our prior expectations. This was augmented by depreciation, which was US$23.5m lower to result in a positive pre-tax variance of US$63.2m, partially offset by tax that was US$19.0m higher (albeit the effective tax rate was 4.3 percentage points lower) to result in earnings that were US$37.3m (or US$0.145/share) ahead of our forecasts.

Exhibit 1: Endeavour Mining Q123 results cf prior expectations and Q422

US$000s (unless otherwise indicated)

Q422

Q123e

Q123

Q123
(underlying)

Change
(%)

Variance*
(%)

Variance*
(units)

Houndé production (koz)

62.6

42.6

46.6

46.6

-25.6

9.4

4.0

Karma production (koz)

0.0

0.0

0.0

0.0

N/A

N/A

0.0

Ity production (koz)

82.3

83.6

91.2

91.2

10.8

9.1

7.6

Boungou production (koz)

25.6

22.1

19.0

19.0

-25.8

-14.0

-3.1

Mana production (koz)

45.9

39.5

44.1

44.1

-3.9

11.6

4.6

Sabodala-Massawa

102.8

63.5

61.5

61.5

-40.2

-3.1

-2.0

Wahgnion

35.9

37.9

38.5

38.5

7.2

1.6

0.6

Total gold produced (koz)

355.1

292.8

300.8

300.8

-15.3

2.7

8.0

Total gold sold (koz)

352.2

292.8

308.8

308.8

-12.3

5.5

16.0

Gold price (US$/oz)

**1,758

**1,883

**1,886

**1,886

7.3

0.2

3

Mine level cash costs (US$/oz)***

720

828

759

759

+5.4

-8.3

-69

Mine level AISC (US$/oz)

911

1,102

978

978

7.4

-11.3

-124

Revenue

– Gold revenue

617,000

551,230

590,600

590,600

-4.3

7.1

39,370

Cost of sales

 

– Operating expenses

250,000

242,456

234,300

234,300

-6.3

-3.4

-8,156

– Royalties

39,000

34,603

36,900

36,900

-5.4

6.6

2,297

Gross profit

328,000

274,171

319,400

319,400

-2.6

16.5

45,229

Depreciation

(173,000)

(153,872)

(130,400)

(130,400)

-24.6

-15.3

23,472

Expenses

 

– Corporate costs

(15,000)

(15,000)

(13,500)

(13,500)

-10.0

-10.0

1,500

– Impairments

(360,000)

0

0

0

-100.0

N/A

0

– Acquisition etc costs

0

0

0

0

N/A

N/A

0

– Share based compensation

(18,000)

(8,584)

(8,400)

(8,400)

-53.3

-2.1

184

– Exploration costs

(7,000)

(10,800)

(12,500)

(12,500)

78.6

15.7

-1,700

Total expenses

(400,000)

(34,384)

(34,400)

(34,400)

-91.4

0.0

-16

Earnings from operations

(245,000)

85,915

154,600

154,600

-163.1

79.9

68,685

Interest income

 

Interest expense

(16,000)

(14,407)

(16,000)

(16,000)

0.0

11.1

-1,593

Net interest

(16,000)

(14,407)

(16,000)

(16,000)

0.0

11.1

-1,593

Profit/(loss) on financial instruments

(10,000)

(1,890)

(72,900)

(5,800)

-42.0

206.9

-3,910

Other expenses

(29,000)

(5,700)

0

-100.0

N/A

0

Profit before tax

(299,000)

69,618

60,000

132,800

-144.4

90.8

63,182

Current income tax

57,000

26,803

49,800

55,600

-2.5

107.4

28,797

Deferred income tax

(89,000)

0

(10,200)

(10,200)

-88.5

N/A

-10,200

Total tax

(32,000)

26,803

39,600

45,400

-241.9

69.4

18,597

Effective tax rate (%)

10.7

38.5

66.0

34.2

219.5

-11.2

-4.3

Profit after tax

(267,000)

42,815

20,400

87,400

-132.7

104.1

44,585

Net profit from discontinued ops.

(5,700)

0

0

0

-100.0

N/A

0

Total net and comprehensive income

(272,700)

42,815

20,400

87,400

-132.0

104.1

44,585

Minority interest

(11,000)

10,190

16,600

17,500

-259.1

71.7

7,310

Minority interest (%)

4.0

23.8

31.4

20.0

400.6

-15.9

-3.8

Profit attributable to shareholders

(261,700)

32,625

3,800

69,900

-126.7

114.3

37,275

 

Basic EPS from continuing ops (US$)

(1.048)

0.132

0.015

0.283

-127.0

114.4

0.151

Diluted EPS from continuing ops (US$)

(1.034)

0.132

0.015

0.283

-127.4

114.4

0.151

Basic EPS (US$)

(1.061)

0.132

0.015

0.283

-126.7

114.4

0.151

Diluted EPS (US$)

(1.057)

0.132

0.015

0.283

-126.8

114.4

0.151

Norm. basic EPS from cont. ops (US$)

0.462

0.140

0.310

0.283

-38.7

102.1

0.143

Norm. diluted EPS from cont. ops (US$)

0.461

0.139

0.310

0.283

-38.6

103.6

0.144

Adj net earnings attributable (US$000s)

64,000

34,065

69,900

69,900

9.2

105.2

35,835

Adj net EPS from continuing ops (US$)

0.255

0.138

0.283

0.283

11.0

105.1

0.145

Source: Endeavour Mining, Edison Investment Research. Note: *Q123 (underlying) cf Q123e. **Includes Sabodala-Massawa streams. ***Excludes royalty costs.

Note that Endeavour changed its definition of cash costs in Q420 to include royalties. The decision was made so that Endeavour could be more consistent in reporting in the context of its peer group. For reasons of comparability with past results, however, as well as ease of forecasting (given royalties are reported as a standalone item distinct from operating expenses), we are continuing to present total cash costs in Exhibits 1 and 2 excluding royalties.

FY23 forecasts

Following Q123 results, we have updated our FY23 financial forecasts, which continue to be consistent with Endeavour’s operational guidance of production estimated at 1,325–1,425koz and an AISC of US$940–995/oz. We have also, in recognition of recent metals price moves, increased our gold price forecast for the remainder of the year, from US$1,962/oz previously to US$2,003/oz. Note that, apart from this, our longer-term gold price forecasts remain unchanged (although we are working on updating our long-term forecast). Of note, increased gold prices, coupled with the higher production moving into H223 and the decrease in depreciation (attributable to the combination of lower production volumes in Q123 and the lower depreciable base following the Q422 impairment charge, discussed in our prior note) lead us to increase our estimated adjusted net earnings from continuing operations by 14.6% for the full year to US$395.5m. Our updated forecasts are as follows:

Exhibit 2: Endeavour Mining FY23 forecasts, by quarter

US$000s (unless otherwise indicated)

Q123

Q223e
(prior)

Q223e

Q323e
(prior)

Q323e

Q423e
(prior)

Q423

FY23e

FY23e
(prior)

Houndé production (koz)

46.6

71.1

71.1

80.0

80.0

80.0

80.0

277.7

277.2

Karma production (koz)

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Ity production (koz)

91.2

74.4

76.9

74.4

76.9

74.4

76.9

321.9

306.9

Boungou production (koz)

19.0

25.2

25.2

29.5

29.5

29.5

29.5

103.1

106.2

Mana production (koz)

44.1

44.7

45.2

52.5

53.0

52.5

53.0

195.4

189.1

Sabodala-Massawa

61.5

78.8

78.8

77.3

77.3

86.3

86.3

304.0

306.0

Wahgnion

38.5

38.9

38.5

42.2

41.7

43.7

43.3

162.0

162.7

Total gold produced (koz)

300.8

333.1

335.6

355.8

358.4

366.4

369.0

1,364

1,348

Total gold sold (koz)

308.8

333.1

335.6

355.8

358.4

366.4

369.0

1,372

1,348

Gold price (US$/oz)*

1,886

1,952

1,993

1,953

1,994

1,952

1,993

1,972

1,937

Mine level cash costs (US$/oz)**

759

791

823

702

733

651

681

747

738

Mine level AISC (US$/oz)

978

1,052

1,086

931

964

877

909

984

983

Revenue

– Gold revenue

590,600

650,330

669,011

694,938

714,648

715,344

735,446

2,709,706

2,611,842

Cost of sales

– Operating expenses

234,300

263,492

276,112

249,917

262,537

238,545

251,165

1,024,113

994,410

– Royalties

36,900

41,358

42,866

44,406

46,025

45,604

47,283

173,074

165,971

Gross profit

319,400

345,479

350,033

400,615

406,086

431,195

436,999

1,512,518

1,451,460

Depreciation

(130,400)

(159,994)

(157,585)

(173,287)

(170,896)

(185,239)

(182,157)

(641,038)

(672,392)

Expenses

– Corporate costs

(13,500)

(15,000)

(15,000)

(15,000)

(15,000)

(15,000)

(15,000)

(58,500)

(60,000)

– Impairments

0

0

0

0

0

0

– Acquisition etc costs

0

0

0

0

0

0

– Share based compensation

(8,400)

(7,957)

(7,644)

(7,315)

(7,315)

(7,315)

(7,315)

(30,674)

(31,171)

– Exploration costs

(12,500)

(10,800)

(10,800)

(10,800)

(10,800)

(10,800)

(10,800)

(44,900)

(43,200)

Total expenses

(34,400)

(33,757)

(33,444)

(33,115)

(33,115)

(33,115)

(33,115)

(134,074)

(134,371)

Earnings from operations

154,600

151,729

155,005

194,213

202,076

212,840

221,726

737,407

644,698

Interest income

0

0

Interest expense

(16,000)

(15,370)

(16,058)

(14,655)

(15,512)

(14,439)

(15,440)

(63,030)

(58,871)

Net interest

(16,000)

(15,370)

(16,058)

(14,655)

(15,512)

(14,439)

(15,440)

(63,030)

(58,871)

Loss on financial instruments

(72,900)

(4,020)

(5,250)

(4,020)

(5,250)

(4,020)

(5,250)

(88,649)

(13,950)

Other expenses

(5,700)

(5,700)

0

Profit before tax

60,000

132,339

137,697

175,538

181,314

194,382

201,037

580,028

571,876

Current income tax

49,800

41,687

43,682

47,618

49,875

51,376

53,918

197,274

167,484

Deferred income tax

(10,200)

0

0

0

0

0

0

(10,200)

0

Total tax

39,600

41,687

43,682

47,618

49,875

51,376

53,918

187,074

167,484

Effective tax rate (%)

66.0

31.5

31.7

27.1

27.5

26.4

26.8

32.3

29.3

Profit after tax

20,400

90,651

94,015

127,920

131,439

143,005

147,119

392,953

404,392

Net profit from discontinued ops.

0

0

0

0

0

0

0

0

0

Total net and comprehensive income

20,400

90,651

94,015

127,920

131,439

143,005

147,119

392,953

404,392

Minority interest

16,600

17,239

17,180

20,801

20,669

22,407

22,328

76,777

70,637

Minority interest (%)

31.4

19.0

18.3

16.3

15.7

15.7

15.2

19.5

17.5

Profit attributable to shareholders

3,800

73,412

76,835

107,119

110,770

120,599

124,791

316,176

333,755

Basic EPS from continuing ops (US$)

0.015

0.297

0.310

0.433

0.448

0.487

0.504

1.278

1.349

Diluted EPS from continuing ops (US$)

0.015

0.296

0.310

0.431

0.447

0.486

0.504

1.278

1.345

Basic EPS (US$)

0.015

0.297

0.310

0.433

0.448

0.487

0.504

1.278

1.349

Diluted EPS (US$)

0.015

0.296

0.310

0.431

0.447

0.486

0.504

1.278

1.345

Norm. basic EPS from cont. ops (US$)

0.310

0.313

0.332

0.449

0.469

0.504

0.525

1.636

1.406

Norm. diluted EPS from cont. ops (US$)

0.310

0.312

0.332

0.448

0.469

0.502

0.525

1.636

1.401

Adj net earnings attributable (US$000s)

69,900

76,668

81,125

110,485

115,195

123,989

129,244

395,464

345,207

Adj net EPS from continuing ops (US$)

0.283

0.310

0.328

0.446

0.465

0.501

0.522

1.598

1.396

Source: Endeavour Mining, Edison Investment Research. Note: *Average realised price (including Sabodala-Massawa stream). **Excludes royalty costs

Valuation

Endeavour is a multi-asset company that has shown a willingness and desire to trade assets to maintain production, reduce costs and maximise returns to shareholders (eg the sale of Youga in FY16, Nzema in FY17, Tabakoto in FY18, Agbaou in FY20 and Karma in FY22, and the acquisition of SEMAFO in FY20 and Teranga in FY21). Historically, rather than our customary method of discounting maximum potential dividends over the life of operations back to FY23, for Endeavour we have opted to discount four years of forecast cash flows in FY23–26 back to FY23, then apply an ex-growth terminal multiple of 10x (consistent with using a standardised discount rate of 10%) to forecast cash flows in that year (ie FY26). We would normally exclude exploration expenditure from such a calculation on the basis that it is an investment. In the case of Endeavour, however, we include it because it is a critical component of the company’s ability to continually expand and extend the lives of its mines.

Our estimate of cash flows remains consistent in FY26 at US$4.25/share (cf US$4.25/share previously), which implies a terminal valuation of Endeavour at end-FY26 of US$42.48/share, calculated using a discount rate of 10%. With our forecast intervening cash flows, this terminal valuation then discounts back to a present valuation of US$36.73/share (cf US$35.59/share, previously) at the start of FY23, as shown in Exhibit 3 below.

Exhibit 3: Endeavour forecast valuation and cash flow per share, FY23–26e (US$/share)

Source: Edison Investment Research

Now that Endeavour is one of the world’s most important producers of gold, we believe it can increasingly attract lower-cost finance, which leads us to also consider a capital asset pricing model (CAPM) derived valuation. Long-term nominal equity returns have been 9% and 30-year break-evens indicate an inflation rate of 2.2345% (source Bloomberg, 5 May 2023) versus 2.2399% previously. These two measures imply an expected real equity return of 6.62% (1.09/1.022345) and applying this to our forecast cash flows would imply a terminal valuation for Endeavour of US$64.20/share (US$64.25/share previously) and a current valuation of US$58.15/share (US$57.02/share previously).

Endeavour peer valuation

Endeavour’s valuation on a series of commonly used measures relative to a selection of gold mining majors (the ranks of which it has joined since its takeover of SEMAFO and Teranga) is as follows:

Exhibit 4: Endeavour’s valuation relative to peers

Company

Ticker

Price/cash flow (x)

EV/EBITDA (x)

Yield (%)

Year 1

Year 2

Year 3

Year 1

Year 2

Year 3

Year 1

Year 2

Year 3

Endeavour (Edison)

EDV

5.4

5.9

5.4

4.6

5.1

4.7

3.1

3.8

5.1

Endeavour (consensus)

EDV

5.6

5.2

5.0

4.7

4.7

4.5

3.6

2.7

4.1

Majors

Barrick

ABX

8.3

7.7

7.4

8.3

7.1

6.8

2.0

2.5

3.3

Newmont

NEM

8.9

8.4

8.4

7.8

6.9

7.0

3.4

3.4

3.4

Newcrest

NCM AU

11.4

10.0

10.1

8.9

8.3

8.0

2.2

1.3

1.4

Kinross

K

5.2

5.1

5.4

6.1

6.1

6.0

2.4

2.4

2.4

Agnico-Eagle

AEM

10.9

10.6

11.7

9.3

9.0

9.3

2.8

2.9

2.7

Eldorado

ELD

6.2

5.7

4.7

5.6

5.0

4.2

0.0

0.0

0.0

Average

 

8.5

7.9

7.9

7.7

7.0

6.9

2.1

2.1

2.2

Implied EDV share price (US$)

40.53

37.83

37.97

42.86

39.44

38.53

38.09

39.10

37.02

Implied EDV share price (C$)

55.19

51.51

51.69

58.36

53.69

52.45

51.86

53.23

50.40

Source: Edison Investment Research, Refinitiv. Note: Prices as at 5 May 2023.

Of note is the fact that, without exception, Endeavour’s valuation is materially cheaper than the averages of all nine of the measures shown in Exhibit 4, regardless of whether Edison or consensus forecasts are used. On an individual basis, it is lower than its senior gold mining peers on at least 47 out of 54 (87%) valuation measures if Edison forecasts are used and 48 out of 54 (89%) valuation measures if consensus forecasts are used. Reverse engineered, the average valuation measures of its peers imply an average share price for Endeavour of US$39.04 (C$53.15 or £31.07) per share. The current LSE share price is £21.09, equivalent to US$26.60 at an exchange rate of $1.2564//£.

Financials

According to its Q123 balance sheet, Endeavour had net debt of US$85.8m (including leases) as at end-March. This compares with net cash/debt figures at the end of previous comparable quarters as follows:

Exhibit 5: Endeavour Mining net cash/(debt)*

(US$m)

Q221

Q321

Q421

Q122

Q222

Q322

Q422

Q123

Net cash/(debt)

(147.6)

(143.6)

13.2

82.7

162.1

(48.1)

79.3

(85.8)

Change

72.6

4.0

156.8

69.5

79.4

(210.2)

127.4

(165.1)

Dividends paid

69.9

69.3

97.3

101.4

Minority dividends paid

29.9

57.2

6.7

Share buybacks

59.5

34.6

43.9

31.1

6.7

36.7

24.2

10.9

Underlying net cash/(debt) change pre-shareholder returns

132.1

138.4

200.7

169.9

86.1

(19.0)

151.6

(46.1)

Comment

Post-Teranga acquisition

Source: Endeavour Mining, Edison Investment Research. Note: *As per reported balance sheet.

The net debt figure of US$85.8m includes lease liabilities of US$41.5m, which, if excluded, would result in an adjusted net debt position of US$44.3m. This is equivalent to, but differs slightly from, the US$50.3m net debt figure calculated by Endeavour and quoted in its announcements owing to discounting certain committed future payments to present value on Endeavour’s balance sheet. It also excludes US$38.3m held in the form of ‘restricted cash’ and US$40.0m in shares of Allied Gold received as consideration for the sale of Agbaou (agreed on 22 January 2021), both held in ‘non-current other financial assets’ on the company’s balance sheet. The end March net debt of US$85.8m was a swing from end December net cash of US$79.3m. Key cash movements in Q123 included:

1.

US$206m operating cash flow,

2.

US$200m spent on investing activities (included US$33m of sustaining capital, US$92m of non-sustaining capital, and US$72m of growth capital), and

3.

US$150m cash outflow from financing activities, including the US$330m repayment of Endeavour’s convertible bond in February, US$108m in dividends and a US$46m payment to Barrick related to the Teranga transaction.

Historical note: for the purposes of our financial modelling in Exhibit 6 and for simplicity, we have assumed that the consolidation of Endeavour’s and Teranga’s balance sheets took place retrospectively on 31 December 2020. In this case, we estimate Endeavour would have consolidated c US$242.6m in net debt on its balance sheet and c US$349.2m in gross debt as a consequence of its Teranga acquisition (as at end-December 2020). As such, on a pro forma basis, we estimate that Endeavour would have had US$323.1m in net debt on its balance sheet at end-FY20, which we calculate would have equated to a gearing (net debt/equity) ratio of just 8.8% and a leverage (net debt/[net debt+equity]) ratio of 8.1% on the group’s enlarged equity base.

Exhibit 6: Financial summary

US$'000s

2019

2020

2021

2022

2023e

2024e

2025e

Year end 31 December

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

1,362,121

1,847,894

2,903,756

2,508,100

2,709,706

2,235,703

2,497,482

Cost of Sales

(884,869)

(1,061,891)

(1,675,393)

(1,607,100)

(1,331,261)

(1,007,684)

(1,154,374)

Gross Profit

477,252

786,003

1,228,363

901,000

1,378,445

1,228,019

1,343,107

EBITDA

 

 

618,443

910,295

1,517,263

1,261,300

1,378,445

1,228,019

1,343,107

Operating Profit (before amort. and except.)

 

281,400

546,072

859,409

645,300

737,407

707,316

766,293

Exceptionals

(199,159)

(201,532)

(266,000)

(382,600)

(88,649)

0

0

Other

(9,392)

8,886

(32,263)

(51,900)

(5,700)

0

0

Operating Profit

72,849

353,426

561,146

210,800

643,058

707,316

766,293

Net Interest

(51,607)

(53,774)

(70,623)

(66,200)

(63,030)

(2,733)

1,093

Profit Before Tax (norm)

 

 

220,401

501,184

756,523

527,200

668,677

704,584

767,386

Profit Before Tax (FRS 3)

 

 

21,242

299,652

490,523

144,600

580,028

704,584

767,386

Tax

(97,253)

(158,466)

(178,253)

(175,600)

(187,074)

(149,734)

(161,588)

Profit After Tax (norm)

123,148

342,718

578,270

351,600

481,602

554,850

605,798

Profit After Tax (FRS 3)

(76,011)

141,186

312,270

(31,000)

392,953

554,850

605,798

Net loss from discontinued operations

(4,394)

0

0

9,100

0

0

0

Minority interests

33,126

44,719

64,486

35,400

76,777

88,338

105,690

Net profit

(80,405)

141,186

312,270

(21,900)

392,953

554,850

605,798

Net attrib. to shareholders contg. businesses (norm)

90,022

297,998

513,784

316,200

404,845

469,851

404,825

Net attrib.to shareholders contg. businesses

(109,137)

96,466

247,784

(66,400)

316,196

316,176

466,512

Average Number of Shares Outstanding (m)

157.4

160.8

250.7

247.8

247.4

247.5

247.5

EPS - normalised (c)

 

 

57.20

185.34

204.95

127.59

163.65

188.52

202.10

EPS - normalised fully diluted (c)

 

 

56.95

181.51

203.21

125.32

161.42

185.95

199.35

EPS - (IFRS) ($)

 

 

(0.72)

0.60

0.99

(0.23)

1.28

1.89

2.02

Dividend per share (c)

0

37

56

81

81

98

134

Gross Margin (%)

35.0

42.5

42.3

35.9

50.9

54.9

53.8

EBITDA Margin (%)

45.4

49.3

52.3

50.3

50.9

54.9

53.8

Operating Margin (before GW and except.) (%)

20.7

29.6

29.6

25.7

27.2

31.6

30.7

BALANCE SHEET

Fixed Assets

 

 

2,330,033

5,093,409

5,404,900

4,968,300

5,161,537

5,295,012

5,109,042

Intangible Assets

5,498

24,851

10,000

0

0

0

0

Tangible Assets

2,254,476

3,968,746

4,980,200

4,517,000

4,710,237

4,843,712

4,657,742

Other**

70,059

1,099,812

414,700

451,300

451,300

451,300

451,300

Current Assets

 

 

652,871

1,168,382

1,366,000

1,446,400

1,513,802

1,552,201

2,004,525

Stocks

266,451

305,075

311,300

320,700

338,713

279,463

312,185

Debtors

83,836

104,545

139,900

163,400

279,216

240,256

261,772

Cash

288,186

751,563

906,200

951,100

874,473

1,011,081

1,409,167

Other

14,398

7,199

8,600

11,200

21,400

21,400

24.000

Current Liabilities

 

 

(354,931)

(661,171)

(567,100)

(1,045,600)

(826,761)

(731,861)

(793,917)

Creditors

(312,427)

(612,862)

(552,700)

(690,800)

(801,961)

(707,061)

(769,117)

Short term borrowings

(42,504)

(48,309)

(14,400)

(354,800)

(24,800)

(24,800)

(24,800)

Long Term Liabilities

 

 

(963,736)

(1,647,799)

(1,818,100)

(1,281,800)

(1,595,500)

(1,595,500)

(1,595,500)

Long term borrowings

(770,902)

(1,026,337)

(878,600)

(517,000)

(877,000)

(877,000)

(877,000)

Other long term liabilities

(192,834)

(621,462)

(939,500)

(764,800)

(718,500)

(718,500)

(718,500)

Net Assets

 

 

1,664,237

3,952,821

4,385,700

4,087,300

4,253,078

4,519,851

4,724,150

CASH FLOW

Operating Cash Flow

 

 

628,617

1,046,370

1,415,306

1,211,200

1,292,102

1,231,329

1,350,924

Net Interest

(35,413)

(53,774)

(26,900)

(66,200)

(63,030)

(2,733)

1,093

Tax

(109,494)

(186,332)

(205,573)

(189,200)

(197,274)

(149,734)

(161,588)

Capex

(401,227)

(335,599)

(587,496)

(534,300)

(880,575)

(654,178)

(390,844)

Acquisitions/disposals

3,654

(19,000)

(4,700)

12,900

5,000

0

0

Financing

2,402

100,000

(89,400)

(101,200)

(13,695)

0

0

Dividends

(6,154)

(88,288)

(159,800)

(223,800)

(249,154)

(288,077)

(401,499)

Net Cash Flow

82,385

463,377

341,437

109,400

(106,627)

136,608

398,086

Opening net debt/(cash)*

 

 

518,607

525,220

323,083

(13,200)

(79,300)

27,327

(109,281)

Other

(88,998)

(261,240)

(5,154)

(43,300)

0

0

0

Closing net debt/(cash)*

 

 

525,220

323,083

(13,200)

(79,300)

27,327

(109,281)

(507,367)

Source: Company sources, Edison Investment Research. Note: Presented on a pro forma basis with SEMAFO fully consolidated (income statement, balance sheet and cash flow statement) from FY18 balance sheet and Teranga from FY20 balance sheet. EPS normalised from FY18 to reflect continuing business only. *Excludes restricted cash. **Includes restricted cash and investments.


General disclaimer and copyright

This report has been commissioned by Endeavour Mining and prepared and issued by Edison, in consideration of a fee payable by Endeavour Mining. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2023 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

General disclaimer and copyright

This report has been commissioned by Endeavour Mining and prepared and issued by Edison, in consideration of a fee payable by Endeavour Mining. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2023 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

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Greggs — Continuation of strong trading in FY23

Greggs’ strong sales performance in the first 19 weeks of the year is in line with management’s expectations and therefore its profit expectations for the year are unchanged, as are our forecasts. Greggs continues to benefit from underlying volume growth despite the squeeze on household budgets and high industry-wide selling price inflation, which is testament to its ongoing product innovation and initiatives to drive growth. Our discounted cash flow (DCF)-based valuation of £30.50/share is unchanged.

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