Endeavour Mining — Entering a new phase

Endeavour Mining (LSE: EDV)

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Research: Metals & Mining

Endeavour Mining — Entering a new phase

Since our last note, Endeavour has achieved six major milestones, including the sale of its interest in Agbaou, the completion of its acquisition of Teranga, Q4/FY20 results, positive pre-feasibility study results for both Fetekro and Kalana, updated cost and production guidance for the group for FY21 (including the mines acquired with Teranga) and a share buyback programme. By its own admission, it has also entered a new phase in which it will be self-funding and corporate activity will be ‘off the table’. This note updates for all six developments.

Lord Ashbourne

Written by

Lord Ashbourne

Director of Content, Mining

Metals & Mining

Endeavour Mining

Entering a new phase

Q420/FY20 results, Fetekro & Kalana and Teranga

Metals & mining

25 March 2021

Price

C$23.92

Market cap

C$5,813m

C$1.2528/US$

Net debt (US$m) at end-Dec 2020*

5.8

*Excludes convertible premium.

Shares in issue (000s)

243,007

Free float

75.2%

Code

EDV

Primary exchange

TSX

Secondary exchange

US OTC

Share price performance

%

1m

3m

12m

Abs

(4.3)

(17.7)

3.8

Rel (local)

(5.1)

(22.2)

(29.9)

52-week high/low

C$38.85

C$20.01

Business description

Following its acquisitions of SEMAFO and Teranga, Endeavour has become one of the top 10 major gold producers globally, with seven 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

Afema maiden resource

H121

LSE listing

Q221

Sabodala-Massawa DFS

Q421

Fetekro DFS

Q421

Analyst

Charles Gibson

+44 (0)20 3077 5724

Endeavour Mining is a research client of Edison Investment Research Limited

Since our last note, Endeavour has achieved six major milestones, including the sale of its interest in Agbaou, the completion of its acquisition of Teranga, Q4/FY20 results, positive pre-feasibility study results for both Fetekro and Kalana, updated cost and production guidance for the group for FY21 (including the mines acquired with Teranga) and a share buyback programme. By its own admission, it has also entered a new phase in which it will be self-funding and corporate activity will be ‘off the table’. This note updates for all six developments.

Year end

Revenue (US$m)

EBITDA (US$m)

PBT*
(US$m)

Operating cash flow
per share (US$)

DPS
(c)

Yield
(%)

12/19

1,362.1

618.4

220.4

3.30

0

N/A

12/20

1,847.9

910.3

501.2

5.35

37

1.9

12/21e

2,579.0

1,369.8

919.8

3.56

37

1.9

12/22e

2,495.1

1,421.5

978.1

4.83

282**

14.8

Note: Pro forma basis. *PBT is normalised, excluding amortisation of acquired intangibles and exceptional items. **Maximum possible.

Teranga, Fetekro and Kalana add value

Pre-Teranga, Endeavour’s net debt at end-FY20 was, to all intents and purposes, extinguished. Teranga will bring US$242.6m in net debt to Endeavour’s balance sheet (pro forma as at end-FY20 – Edison estimate), but will be offset by a US$200m equity injection into the enlarged entity by La Mancha and c 467.5koz of consolidated production in FY21 at an all-in sustaining cost of c US$772/oz. At the same time, updated pre-feasibility studies at Fetekro and Kalana have added US$342m (US$1.086/share attributable, fully diluted) in value to Endeavour.

Q420 outperformance all round

All of Endeavour’s mines outperformed Edison’s expectations in Q420, with the single exception of Agbaou (which was subsequently sold to Allied Gold), which resulted in adjusted net earnings materially ahead of our prior forecasts (see Exhibit 2), notwithstanding a number of highly technical accounting adjustments.

Valuation: At least US$27.00; potentially US$55.70/sh

Based on the average multiples of its peers, we estimate a valuation for Endeavour of US$27.00, or C$33.80, per share, implying the potential for its shares to appreciate 41.4% from their current level. By contrast, an absolute valuation methodology, whereby we discount back six years of cash flow and then apply an ex-growth, ad infinitum multiple of 10x to steady-state terminal cash flows in FY26 (consistent with using a standardised discount rate of 10%), implies a terminal valuation of US$39.92/share. This (in conjunction with forecast intervening cash flows) discounts back to a current valuation of US$35.98 (C$45.08) per share at the start of FY21 (cf US$45.32 previously), implying the potential for the share price to appreciate by 88.5% from its current level. Alternatively, applying the same methodology, but using a CAPM-derived discount rate of 6.7% (still conservative, but arguably more appropriate) implies a terminal valuation of US$59.99/share and a current valuation of US$55.70/share, implying 191.8% appreciation potential.

Investment summary – multiple milestones achieved

Since our last note on the company (see New senior gold major looking to join FTSE 100, published on 17 December 2020), Endeavour has made six major announcements:

On 22 January, it announced the sale of Agbaou for a consideration of up to US$80m (US$20m in cash, US$40m in counterparty (Allied Gold) shares and US$20m contingent upon the gold price exceeding US$1,900/oz in FY21 plus a variable net smelter royalty on ounces produced in excess of Agbaou’s end-December 2019 reserves).

On 25 January, it provided preliminary results for Q420 and production and cost guidance for FY21.

On 10 February, it announced the successful closing of its acquisition of Teranga to create a new, top 10 global gold producer.

On 23 February, it reported positive pre-feasibility study (PFS) results for both its development projects, Fetekro and Kalana.

On 25 February, it updated its production guidance for FY21 to include its newly acquired Teranga assets, Sabodala-Massawa and Wahgnion.

On 18 March, it announced final Q4/FY20 financial results, including a newly instigated share buyback programme.

This note seeks to update our estimates and valuation of Endeavour to incorporate all of the above.

Fetekro and Kalana

On 23 February, Endeavour reported positive PFS results for both its development projects, Fetekro and Kalana. Full details of the announcement are available on Endeavour’s website. However, below is a brief summary of the results of the outcomes of both studies relative to the most recent studies conducted beforehand:

Exhibit 1: Fetekro and Kalana PFS results cf previous study

Project

Fetekro

Kalana

2021 PFS

2020 PEA

Change

(*%)

2021 PFS

2016 DFS

Change

(*%)

Capacity (Mtpa)

3.0

1.5

+100.0

3.0

1.2

+150.0

Initial capex (US$m)

338

268

+26.1

297

196

+51.5

Mine life (years)

9.5

8.0

+1.5yrs

11

18

-7yrs

Stripping ratio

10.3

7.4

+39.2

6.7

10.2

-34.3

Tonnes processed (Mt)

31.9

13.1

+143.5

35.6

21.8

+63.3

Grade processed (g/t)

2.05

2.38

-13.9

1.60

2.81

-43.1

Contained gold processed (Moz)

2.1

1.0

+110.0

1.8

2.0

-10.0

Average recovery rate (%)

95

95

u/c

90

93

-3pp

Gold production (Moz)

2.0

1.0

+100.0

1.7

1.8

-5.6

Average annual gold production (koz pa)

209

119

+75.6

150

101

+48.5

Cash costs (US$/oz

684

592

+15.5

785

695

+12.9

AISC (US$/oz)

838

697

+20.2

901

784

+14.9

Post-tax NPV5% (US$m)

479

272

+76.1

331

**196

+68.9

Do. attributable (US$m)

383

265

Do. per share (US$/share)

1.521

1.051

Post-tax IRR (%)

33

32

+1pp

49

38

+28.9

Payback (years)

2.7

1.8

+0.9yrs

1.1

1.2

-0.1yrs

Source: Endeavour Mining, Edison Investment Research, Avnel Gold. Note: *Unless otherwise indicated; **8% discount rate applied; pp=percentage point.

Readers are cautioned in making direct comparison between the economic results of the 2021 PFS for Kalana and its 2016 DFS, given that the prior study was conducted at a gold price of US$1,200/oz and used an 8% discount rate (cf US$1,500/oz and 5% in the updated study, respectively). Otherwise, in the case of Fetekro, it can be seen that the plant size has doubled, tonnes processed over the mine life have more than doubled and gold production has doubled for only an incremental increase in both capex and opex. In the case of Kalana, the plant size has similarly more than doubled; however, it will produce approximately the same amount of gold over the life of the mine, albeit at a higher rate over a shorter period of time, similarly for only an incremental increase in capex and opex.

Detailed mine schedules and costings for each project were provided in Endeavour’s announcement of 25 February and these have now been incorporated into Edison’s financial model. In the meantime, definitive feasibility studies (DFS) on both will commence. In the case of Fetekro, its DFS is anticipated to be completed in Q421. In the case of Kalana, it is expected to be completed in Q122. For the purposes of its financial modelling, Edison has assumed that 2022 will be occupied with final adjustments and mine plan optimisations and financing arrangements before a final investment decision is made later in the year. We then assume that initial capex will be expended in FY23 and FY24, with first production and the last of initial capex to occur in FY25.

EDV Q420/FY20 results

In its preliminary announcement of 25 January (full FY20 results were later published on 18 March), Endeavour revealed record Q420 production of 344koz (which represented a 41% increase cf Q320) at an all-in sustaining cost (AISC) of c US$770/oz. The company also reported record consolidated FY20 production of 908koz and a net cash position of c US$70m at year-end (NB this does not match the net cash/debt position shown in our ‘Financial summary’ table – Exhibit 10 – at the end of this report, which we have shown as consolidated with Teranga as at end-FY20). More detail on the financial effects of the Teranga acquisition are provided below.

Full details of the performance of each of Endeavour’s mines is provided in its announcement. In summary however, it is probably sufficient to say that all mines outperformed our expectations in terms of both production and costs for the period with the single exception of Agbaou (which was subsequently sold to Allied Gold).

In financial terms, Endeavour’s revenue for Q420 of US$604.1m was US$54.4m (9.9%) above our prior expectation of US$549.7m (see the columns entitled ‘Q420e’ and ‘Est Q420a’, below). However, this is exactly in line with the additional production and sales recorded during the quarter relative to our forecasts. At first glance, this was counteracted by operating expenses, which were US$71.8m (37.8%) above our forecast of US$189.7m; however, this measure of costs excludes the reversal of the fair value adjustment of inventory on hand at the SEMAFO acquisition date for both Mana and Boungou and also the write down of gold-in-circuit pertaining to historically stacked ore that has now been deemed to be unrecoverable at Karma. If these adjustments are excluded, then operating expenses were only 3.3% above our prior forecast, allowing the US$54.4m in additional revenue to feed through almost directly to a US$53.4m (60.3%) positive variance in adjusted net earnings for the period relative to our prior forecast (US$142.0m vs US$88.6m). Readers should note that, while these cost adjustments are excluded from Endeavour’s income statement, they are included in its calculations of both adjusted net earnings attributable to shareholders and also total cash costs and all-in sustaining costs.

In addition, Agbaou was pre-emptively deconsolidated from Endeavour’s group accounts and held as an asset for sale for both Q420 and FY20. In the following table, we have attempted to reconsolidate Agbaou into Endeavour’s accounts (see columns marked ‘Est Q420a’ and ‘Est FY20a’ in contrast to ‘Reported Q420a’ and ‘Reported FY20a’, respectively), so that a more direct comparison may be made between the actual results as reported for both Q420 and FY20 and previous periods, as well as our prior forecasts (although readers should note that the cost adjustments, which were made for both Q320 and Q420 and which have been alluded to above, have been jointly loaded into Q420 for the purposes of our reconsolidations, below – which accounts for the majority of the difference between Edison’s ‘Est Q420a’ adjusted net earnings attributable number of US$141,985k and Endeavour’s US$163,602k).

One further characteristic of the results was a sharp drop in the depreciation charge, overall, and at Boungou and Mana, in particular. This was something of a surprise, given that Endeavour calculates depreciation on a units of production basis and production in Q420 was materially higher than in Q320 (even in the reported case in which Agbaou was deconsolidated). This apparent anomaly may be explained by the decision to retrospectively recognise goodwill in Endeavour’s acquisition of SEMAFO to be treated separately from the depreciation of the underlying assets (as had been the case in Q320).

Finally, Endeavour changed its definition of cash costs during the course of the quarter to include royalties. The decision was made for Endeavour to be more consistent in reporting within the context of its peer group. However, readers should note that, for reasons of comparability with past results, we (at least for the moment) continue to show our own calculations of total cash costs excluding royalties unless specifically indicated otherwise (eg in Exhibit 2, below). We can confirm that, barring this one difference, our own calculations of total cash costs reconcile with those of Endeavour exactly. Otherwise, readers wishing to see calculations of total cash costs including royalties are directed to Endeavour’s management discussion and analysis (MD&A) and integrated financials.

Exhibit 2: Endeavour Mining FY20 earnings forecasts, by quarter

US$000s (unless otherwise indicated)

Pre-acquisition basis

Pro forma (EDV+SFO) basis

Est
FY20a

Reported
FY20a

Q120

Q220

Est Q120

Est Q220

Q320

Q420e

Est Q420a

Reported
Q420a

Houndé production (koz)

55.9

57.4

55.9

57.4

62.0

74.7

101.4

101.4

276.7

276.7

Agbaou production (koz)

27.5

24.4

27.5

24.4

24.8

41.4

28.4

-

105.1

-

Karma production (koz)

27.6

20.3

27.6

20.3

22.4

21.8

27.9

27.9

98.3

98.3

Ity production (koz)

61.0

46.8

61.0

46.8

44.5

57.1

60.5

60.5

212.8

212.8

Boungou production (koz)

32.0

31.1

30.2

47.9

63.9

63.9

94.1

94.1

Mana production (koz)

49.9

47.5

59.7

55.7

61.4

61.4

121.1

121.1

Total gold produced (koz)

171.9

149.0

253.8

227.5

243.6

298.7

343.6

315.2

908.1

803.0

Total gold sold (koz)

174.6

149.8

251.4

217.5

261.6

298.7

327.8

300.6

913.7

808.0

Gold price (US$/oz)

*1,581

*1,689

*1,644

*1,697

*1,841

1,865

*1,843

1,841

*1,760

*1,761

Mine level cash costs (US$/oz)

661

675

661

697

685

635

598

**699

647

**749

Mine level AISC (US$/oz)

870

939

867

979

886

941

777

779

847

853

Revenue

– Gold revenue

269,902

253,084

393,113

369,167

481,561

549,686

604,053

553,370

1,608,598

1,424,111

Cost of sales

– Operating expenses

114,403

103,308

160,064

153,925

180,057

189,712

261,462

203,717

659,715

574,791

– Royalties

17,452

17,771

23,956

24,236

32,713

37,925

41,140

38,272

109,077

98,722

Gross profit

138,047

132,005

209,093

191,006

268,791

322,049

301,451

311,381

839,806

750,598

Depreciation

(52,529)

(43,760)

(84,061)

(75,796)

(134,795)

(160,993)

(69,572)

(91,224)

(298,896)

(260,562)

Expenses

– Corporate costs

(5,231)

(5,049)

(9,954)

(9,772)

(5,101)

(8,276)

(8,366)

(8,366)

(23,747)

(23,747)

– Impairments

0

0

0

0

0

0

(84,447)

(64,506)

(84,447)

(64,506)

– Acquisition etc costs

(4,330)

(2,589)

(4,330)

(2,589)

(19,336)

0

(13,590)

(13,590)

(39,845)

(39,845)

– Share based compensation

(1,623)

(4,942)

(3,197)

(6,516)

(7,117)

(6,907)

(5,085)

(5,085)

(18,767)

(18,767)

– Exploration costs

(1,333)

(1,796)

(1,333)

(1,796)

(900)

(2,750)

(908)

(908)

(4,937)

(4,937)

Total expenses

(12,517)

(14,376)

(18,814)

(20,673)

(32,454)

(17,933)

(112,396)

(92,455)

(171,743)

(151,802)

Earnings from operations

73.001

73,869

106,218

94,537

101,542

143,123

119,483

127,702

369,167

338,234

Interest income

0

452

452

0

0

0

0

Interest expense

(11,662)

(11,982)

(14,458)

(14,778)

(12,143)

(11,384)

(13,299)

(13,299)

(48,832)

(48,832)

Net interest

(11,662)

(11,982)

(14,006)

(14,326)

(12,143)

(11,384)

(13,299)

(13,299)

(48,832)

(48,832)

Loss on financial instruments

(3,492)

(71,931)

(3,492)

(71,931)

(24,268)

0

22,451

22,451

(78,690)

(78,690)

Other expenses

1,935

(1,791)

(231)

(1,791)

23,089

0

(12,181)

(13,976)

12,089

9,257

Profit before tax

59,782

(11,835)

88,489

6,489

88,220

131,739

116,454

122,878

253,734

219,969

Current income tax

23,699

2,313

27,040

7,142

68,134

33,902

84,016

50,677

178,162

122,594

Deferred income tax

620

8,468

9,323

8,468

(47,962)

0

2,305

(2,305)

(36,497)

(36,497)

Total tax

24,319

10,781

36,363

15,610

20,172

33,902

86,321

48,372

141,665

86,097

Effective tax rate (%)

40.7

(91.1)

41.1

240.6

22.9

25.7

74.1

39.4

55.8

39.1

Profit after tax

35,463

(22,616)

52,126

(9,121)

68,048

97,836

30,133

74,506

112,069

133,872

Net profit from discontinued ops.

0

0

0

0

0

0

0

(44,265)

0

(21,803)

Total net and comprehensive income

35,463

(22,616)

52,126

(9,121)

68,048

97,836

30,133

30,241

112,069

112,069

Minority interest

9,465

14,613

12,062

16,889

8,920

15,095

6,848

39,846

39,846

Minority interest (%)

26.7

(64.6)

23.1

(185.2)

13.1

15.4

22.7

35.6

35.6

Profit attributable to shareholders

25,998

(37,229)

40,064

(26,010)

59,128

82,741

23,285

72,223

72,223

Basic EPS from continuing ops (US$)

0.235

(0.335)

0.253

(0.164)

0.363

0.508

0.143

0.527

0.69

Diluted EPS from continuing ops (US$)

0.235

(0.335)

0.243

(0.158)

0.363

0.497

0.140

0.527

0.69

Basic EPS (US$)

0.235

(0.335)

0.253

(0.164)

0.363

0.508

0.143

0.527

0.53

Diluted EPS (US$)

0.235

(0.335)

0.243

(0.158)

0.363

0.497

0.140

0.527

0.53

Norm. basic EPS from continuing ops (US$)

0.306

0.336

0.302

0.306

0.630

0.508

0.606

2.008

2.022

Norm. diluted EPS from continuing ops (US$)

0.306

0.336

0.291

0.294

0.630

0.497

0.594

2.008

2.022

Adj net earnings attributable (US$000s)

33,517

52,793

54,310

65,320

72,405

88,582

141,985

163,602

307,681

312,375

Adj net EPS from continuing ops (US$)

0.303

0.476

0.343

0.412

0.444

0.543

0.871

1.00

2.245

2.28

Source: Endeavour Mining, Edison Investment Research. Note: Company reported basis; columns marked ‘Est Q420a’ and ‘Est FY20a’ show Edison estimate of accounts with Agbaou reconsolidated *Includes adjustment for Karma stream. **As reported (includes royalty payments).

Items included in the reconciliation between adjusted net earnings attributable and total net and comprehensive earnings are losses from discontinued operations, deferred income tax effects, gains/losses on financial instruments, other expenses, share-based compensation and acquisition costs (all shown independently in the table above), plus the tax impact of adjusting items, non-cash and other adjustments and the minority interest attributable to the adjusting items (not shown independently).

A comparison between Endeavour’s actual Q420 and FY20 adjusted net EPS and analysts’ expectations immediately prior to its results’ announcement is as follows:

Exhibit 3: Edison adjusted net EPS from continuing operations estimates vs consensus FY20 by quarter (US$)

(US$/share)

Pre-SFO acquisition

Post-SFO acquisition

Q120

Q220

Q320

Q420e

FY20e

Actual

0.34

0.48

0.44

1.00

2.28

Mean consensus forecast

0.88

2.10

High consensus forecast

1.05

2.41

Low consensus forecast

0.50

1.72

Source: Refinitiv, Edison Investment Research. Note: Consensus priced 12 March 2021.

Integrating Teranga

On 10 February, Endeavour announced the completion of its acquisition of Teranga Gold to create a new, top 10 global gold producer.

The acquisition had originally been announced on 16 November, with Endeavour confirming that it had entered into a definitive agreement with Teranga, whereby Endeavour was to acquire all of the issued and outstanding securities of Teranga by way of a Plan of Arrangement under the Canada Business Corporations Act. Under the terms of the agreement, Endeavour was to pay 0.47 shares for each Teranga common share, resulting in the issuance of an additional 78.8m shares (cf 163.0m in issue at the time). As with its SEMAFO acquisition in FY20, Endeavour’s principal investor, La Mancha, committed to invest US$200m into the combined entity to provide for a larger free float and greater stock liquidity and both sets of board of directors unanimously approved the transaction.

Edison has now completed its consolidation of Endeavour’s and Teranga’s accounts (see Exhibit 10). For the purposes of financial modelling (and for making valid subsequent comparisons), we have assumed that the two balance sheets were consolidated as at end-December 2020. At the time, we estimated Teranga’s net assets attributable to shareholders to have been US$870.8m and its net debt to have been US$242.6m. As at 10 February (the date on which the acquisition closed), Endeavour’s share price was US$21.34 making its bid worth US$1,680.5m in equity and resulting in the creation therefore of US$809.7m in goodwill at the moment of consolidation (Edison estimate).

Finally, on 25 February, Endeavour announced updated guidance for the company for FY21, including the assets of the former Teranga. Full details of the updated guidance are available on Endeavour’s website. In summary, guidance for its other six mines was left unchanged in terms of both production and costs. However, guidance of the following was added for Teranga’s assets:

Exhibit 4: Endeavour updated production guidance for FY21 (including Teranga assets)

Entity

Production

(koz)

All-in sustaining costs

(US$/oz)

Endeavour pre-Teranga

915–1,010

900–950

Sabodala-Massawa

310–330

690–740

Wahgnion

140–155

940–990

Group total (post-Teranga)

1,365–1,495

850–900

Source: Endeavour Mining

Readers should note that this guidance is consolidated in that it includes Sabodala-Massawa and Wahgnion guidance from 10 February onwards. For the full-year (which forms the basis of our pro forma estimates, below), we estimate production from Sabodala-Massawa of 349.1koz and from Wahgnion of 166.8koz. Production from Sabodala-Massawa is also notable for the fact that its head grade is expected to increase materially in H221 as higher grades are mined at the Sofia pits. In addition, the Phase 1 upgrades scheduled to occur throughout the year will assist in debottlenecking the plant and thereby improve its production capability and efficiencies for processing Massawa’s high-grade oxide ore. Otherwise, the effect of COVID-19 on Endeavour’s operations in West Africa has proven to be negligible to date and is expected to remain so. Nevertheless, Endeavour has mitigated future risks as far as possible by both setting itself up to operate under Level 2 COVID-19 restrictions (see our note, New senior gold major looking to join FTSE 100, published on 17 December 2020) and also by preparing multiple different levels in its pits from which to produce.

Readers should note that, for the purposes of our forecasts, below, we have left Agbaou fully consolidated into Endeavour’s accounts. However, we have also provided our forecast of its individual income statement as an adjunct to our group Q121 forecasts (in Exhibit 5, below), for those who wish to individually deconsolidate it. In the meantime, we understand that it is not Endeavour’s intention, at least for the time being, to reflect Karma as an asset held for sale (despite the fact that it has now been classified as ‘non-core’).

Exhibit 5: Endeavour Mining FY21 earnings forecasts, by quarter

US$000s (unless otherwise indicated)

Q121e

(reported)

Pro-forma (EDV+TGZ) basis

FY21e

(reported)

Q121e

Agbaou Q121e

Q221e

Q321e

Q421e

FY21e

Houndé production (koz)

56.2

56.2

56.8

58.3

78.0

249.3

249.3

Agbaou production (koz)

16.7

16.7

16.7

0.0

0.0

0.0

16.7

16.7

Karma production (koz)

17.3

17.3

18.8

20.2

44.1

100.4

100.4

Ity production (koz)

51.2

51.2

55.4

57.9

76.6

241.0

241.0

Boungou production (koz)

42.2

42.2

42.2

45.3

53.9

183.5

183.5

Mana production (koz)

43.6

43.6

43.6

41.6

49.2

178.0

178.0

Sabodala-Massawa

43.4

80.7

80.7

93.9

93.9

349.1

311.9

Wahgnion

22.4

41.7

41.7

41.7

41.7

166.8

147.5

Total gold produced (koz)

293.1

349.6

339.2

358.9

437.2

1,484.9

1,428.4

Total gold sold (koz)

293.1

349.6

339.2

358.9

437.2

1,484.9

1,428.4

Gold price (US$/oz)

*1,768

*1,772

1,726

1,726

1,726

*1,737

*1,735

Mine level cash costs (US$/oz)

693

683

670

603

606

638

638

Mine level AISC (US$/oz)

979

956

899

823

803

866

867

Revenue

– Gold revenue

518,302

619,558

29,980

585,489

619,418

754,556

2,579,021

2,477,764

Cost of sales

– Operating expenses

203,147

238,839

15,478

227,342

216,383

264,829

947,394

911,702

– Royalties

34,276

40,201

1,709

38,443

40,338

50,562

169,544

163,619

Gross profit

280,879

340,518

12,793

319,705

362,696

439,164

1,462,083

1,402,444

Depreciation

(92,030)

(107,875)

(6,522)

(103,390)

(106,804)

(136,313)

(454,381)

(438,536)

Expenses

– Corporate costs

(9,833)

(11,168)

(11,168)

(8,276)

(8,276)

(38,888)

(37,553)

– Impairments

0

0

0

0

0

0

0

– Acquisition etc costs

0

0

0

0

0

0

0

– Share based compensation

(8,657)

(10,157)

(6,907)

(6,907)

(6,907)

(30,878)

(29,378)

– Exploration costs

(5,625)

(5,625)

(5,625)

(5,625)

(5,625)

(22,500)

(22,500)

Total expenses

(24,115)

(26,950)

(23,700)

(20,808)

(20,808)

(92,266)

(89,431)

Earnings from operations

164,733

205,693

6,271

192,615

235,084

282,043

915,436

874,476

Interest income

0

0

Interest expense

(14,829)

(14,829)

955

5,873

12,376

**4,374

(966)

Net interest

(14,829)

(14,829)

955

5,873

12,376

**4,374

(966)

Loss on financial instruments

0

0

Other expenses

0

0

Profit before tax

149,904

190,864

6,271

193,569

240,957

294,419

919,810

873,510

Current income tax

45,286

58,886

1,568

54,964

62,495

72,354

248,699

235,099

Deferred income tax

0

0

0

0

0

0

0

0

Total tax

45,286

58,886

1,568

54,964

62,495

72,354

248,699

235,099

Effective tax rate (%)

30.2

30.9

25.0

28.4

25.9

24.6

27.0

26.9

Profit after tax

104,618

131,978

4,703

138,606

178,462

222,065

671,111

638,410

Net profit from discontinued ops.

0

0

0

0

0

0

0

Total net and comprehensive income

104,618

131,978

4,703

138,606

178,462

222,065

671,111

638,410

Minority interest

18,032

22,636

705

21,405

24,595

29,343

97,980

93,376

Minority interest (%)

17.2

17.2

15.0

15.4

13.8

13.2

14.6

14.6

Profit attributable to shareholders

86,586

109,342

3,997

117,201

153,867

192,722

573,131

545,035

Basic EPS from continuing ops (US$)

0.421

0.434

0.016

0.465

0.611

0.765

2.275

2.268

Diluted EPS from continuing ops (US$)

0.415

0.428

0.016

0.459

0.603

0.755

2.245

2.237

Basic EPS (US$)

0.421

0.434

0.016

0.465

0.611

0.765

2.275

2.268

Diluted EPS (US$)

0.415

0.428

0.016

0.459

0.603

0.755

2.245

2.237

Norm. basic EPS from continuing ops (US$)

0.421

0.434

0.016

0.465

0.611

0.765

2.275

2.268

Norm. diluted EPS from continuing ops (US$)

0.415

0.428

0.016

0.459

0.603

0.755

2.245

2.237

Adj net earnings attributable (US$000s)

93,751

117,757

3,997

123,041

159,822

198,716

599,336

569,958

Adj net EPS from continuing ops (US$)

0.456

0.467

0.016

0.488

0.634

0.789

2.379

2.372

Source: Endeavour Mining, Edison Investment Research. Note: Company reported basis. *Includes adjustment for Karma stream. **Interest expense amounts differ between pro forma and reported FY21 estimates given cash balance differences of EDV and TGZ.

As before, items included in the reconciliation between adjusted net earnings attributable and total net and comprehensive earnings are losses from discontinued operations, deferred income tax effects, gains/losses on financial instruments, other expenses, share-based compensation and acquisition costs (all shown independently in the table above), plus the tax impact of adjusting items, non-cash and other adjustments and the minority interest attributable to the adjusting items (not shown independently).

Within this context, readers should note that one risk to our forecasts (above) arises from potential acquisition costs regarding the Teranga transaction. These we have not attempted to forecast but could be of the same order of magnitude in FY21 as the costs relating to the SEMAFO transaction earlier in FY20 (see Exhibit 2). Such costs will not affect our forecasts for adjusted net earnings per share attributable to shareholders, but could, inevitably, affect our basic EPS forecasts.

Notwithstanding the detailed appearance of our forecasts, readers are cautioned that forecasting on a quarterly basis is prone to large variations between actual and forecast numbers. As such, the exhibits both above and below should be regarded as indicative, rather than prescriptive, particularly with respect to individual quarters. With this caveat, a comparison between Edison’s FY21 adjusted net EPS from continuing operations estimates and consensus estimates, by quarter, is as follows:

Exhibit 6: Edison adjusted net EPS from continuing operations estimates vs consensus FY21 by quarter (US$)

(US$/share)

As reported

Pro forma

Q121e

Q221e

Q321e

Q421e

Sum Q1-Q421e

FY21e

Edison forecast*

0.456

0.488

0.634

0.789

2.378

2.379

Mean consensus forecast

0.430

0.650

0.710

0.820

2.610

2.450

High consensus forecast

0.620

0.780

0.920

1.210

3.530

3.200

Low consensus forecast

0.240

0.500

0.560

0.640

1.940

1.540

Source: Refinitiv, Edison Investment Research. Note: *As per Exhibit 5 on a pro forma basis (except Q121e). Consensus priced 24 March 2021.

While we recognise that our FY21 adjusted EPS forecast is low within the context of the analysts’ consensus, anecdotally we believe that the mean realised price used by analysts in generating their full-year earnings forecasts may be in excess of US$1,900/oz (cf Edison’s US$1,737/oz), which may go some way towards explaining this disparity.

In the longer term and based on the results of the Sabodala-Massawa preliminary feasibility study, a separate refractory ore treatment (ROT) plant using bacterial oxidation (BIOX) technology is expected to be installed parallel to the existing plant to create a second processing stream. The ROT design will increase capacity by 1.2Mtpa and allow for the processing of Massawa's refractory ore, which is expected to begin in 2023.

Agbaou sale

Endeavour announced the sale of Agbaou to Allied Gold on 22 January. The total consideration for its 85% interest amounted to up to US$80m, being US$20m in cash, US$40m in Allied Gold shares (with an option for Endeavour to re-sell the shares back to Allied Gold at the issue price until 31 December 2022) and US$20m contingent upon the gold price exceeding US$1,900/oz in FY21 plus a variable net smelter royalty on ounces produced in excess of Agbaou’s end-December 2019 reserves. As at end-FY20, Agbaou had US$69.7m in cash on its balance sheet; however, this was largely balanced by US$66.2m in payables (with minimal receivables).

In FY20, we estimate that Agbaou (underlying – ie excluding impairments) earnings were negative (not least owing to a very large tax charge in Q420 and FY20 relating, among other things, to withholding taxes), but that it contributed a net US$10.2m in cash flow to the group (on a 100% basis). However, we estimate that the mine also only had two years of formal life ahead of it (being FY21 and FY22), albeit it potentially has four years ahead of it (ie to end-FY24) if all resources are converted into reserves and duly mined.

The consideration of US$80m for its 85% interest in the mine therefore equates to:

A P/E ratio of 2.3x (based on FY18 results) or 5.3x (based on FY19 results).

An historical price/cash flow ratio of 9.2x, based on FY20 estimated cash flow (although note that we estimate that cash flow generated by Agbaou was US$27.1m in FY18 and US$28.8m in FY19).

US$169.27 per resource ounce (as at end-December 2019).

US$181.34 per measured and indicated resource ounce.

US$293.20 per reserve (proven and probable) ounce.

For the purposes of Edison’s financial modelling, we have assumed that Endeavour will receive US$20m in cash in FY21 and US$40m in cash in FY22. We have not, at this stage, ascribed any value to the contingent payments in the event that the gold price exceeds US$1,900/oz or to its net smelter royalty.

Endeavour valuation considerations (including TGZ)

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 and Tabakoto in FY18 and the acquisition of SEMAFO in FY20). Historically, rather than our customary method of discounting maximum potential dividends over the life of operations back to FY21, in the case of Endeavour, we have instead opted to discount potential cash flows back to the start of FY21 and then to apply an ex-growth terminal multiple of 10x (consistent with using a standardised discount rate of 10%) to forecast cash flows in (most recently) FY22. In the normal course of events, exploration expenditure would have been excluded from such a calculation on the basis that it is an investment. In the case of Endeavour, however, it was included in our estimate of FY22 cash flows on the grounds that it was a critical component of ongoing business performance in its ability to continually expand and extend the lives of its mines.

However, Endeavour’s acquisition of Teranga as well as its advancement of Fetekro and Kalana, in particular, has rendered this method of deriving an absolute valuation of the company unreliable. Where before all of Endeavour’s mines were approximately in-phase in the sense that they were in ‘harvest’ mode, its acquisition of Teranga has introduced Sabodala-Massawa into its portfolio, with the potential for US$219m in capex relating to Phase 2 of its ROT treatment plant from 2022, while Fetekro and Kalana potentially add a further combined US$635m in capex in the period FY23–25. As such, an effective ‘second distinct wave’ of capex has been added to Endeavour’s cash flow profile, albeit, with the advantage that this will generate additional free cash flow in the period from FY25 and beyond. Apart from La Mancha’s injection of US$200m in equity into the combined Endeavour-Teranga entity (anticipated imminently), and given that it otherwise has immaterial levels of net debt, there is no reason why this capex should not be funded internally.

Suffice it to say that in the absence of all of these factors, our valuation would otherwise remain very little changed relative to our previous one of US$45.32/share at the start of FY21 plus US$1.08/share (fully diluted) for Fetekro, as depicted in the graph below:

Exhibit 7: Endeavour prior* forecast valuation and cash flow per share, FY20–22e (US$/share)

Source: Edison Investment Research. Note: *See Endeavour Mining: New senior gold major looking to join FTSE 100, published on 17 December 2020.

If we were to apply exactly the same methodology to our valuation of Endeavour in the aftermath of its acquisition of Teranga and development of Fetekro and Kalana, we would discount cash flows from FY21–26 and then apply an ex-growth terminal multiple of 10x (consistent with using a standardised discount rate of 10%) to forecast cash flows in FY26. In this case, our terminal valuation of the company at end-FY26 would be US$39.92/share, which (in conjunction with forecast intervening cash flows) would discount back to a valuation of US$35.98/share at the start of FY21, as shown in the graph below:

Exhibit 8: Endeavour current forecast valuation and cash flow per share, FY20–26e (US$/share)

Source: Edison Investment Research

While this absolute valuation of US$35.98/share in FY21 is 22.5% lower than our previous valuation (35.98/(45.32+1.08)), it is nevertheless still materially above Endeavour’s share price of C$23.92, or US$19.09. Within this context, however, it should be noted that the decline in valuation arises only as a consequence of the assumption of additional (discretionary) capex in pre-financing cash flows in the period FY21–25 and the baleful effect of discounting on more chronologically distant cash flows – especially at a rate as high as 10%.

However, given its elevation into the ranks of the world’s foremost producers of gold, Endeavour can increasingly attract lower cost finance and, as such, a CAPM-derived WACC can also be considered (as we also discussed in our February 2021 initiation of Newmont Corporation). Long-term nominal equity returns have been 9% and 30-year break-evens are currently expecting 2.2% inflation. These two measures alone would imply a real equity return of 6.7% (1.09/1.022) and applying this to our forecast cash flows would imply a terminal valuation for Endeavour of US$59.99/`share and a current valuation of US$55.70/share. Readers should note that, given its beta of 0.66 (source: Refinitiv, 15 March 2021), even this (real) discount rate of 6.7% is likely to prove conservative.

In the meantime, Endeavour’s valuation remains at a material discount to those of its newly acquired peer group, as shown in Exhibit 9, below.

Relative Endeavour 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 now joined since its takeovers of SEMAFO and Teranga have been completed), is as follows:

Exhibit 9: Endeavour 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

4.0

5.0

*3.7

*3.2

*4.2

1.9

14.8

12.2

Endeavour (consensus)

EDV

4.0

3.6

4.6

3.5

3.3

4.0

2.0

2.6

1.8

Majors

Barrick

ABX

6.2

6.2

6.5

6.1

6.3

6.3

2.5

1.8

2.3

Newmont

NEM

8.2

8.3

9.6

6.6

6.6

7.4

3.8

3.6

3.3

Newcrest

NCM AU

8.1

8.7

8.7

6.6

6.7

6.9

1.6

1.7

1.8

Kinross

K

4.5

3.5

3.7

4.0

3.2

3.2

1.8

1.8

1.8

Agnico-Eagle

AEM

8.1

7.3

7.7

3.7

3.6

3.7

2.4

2.4

2.4

Eldorado

ELD

5.1

4.8

4.0

4.1

4.0

3.0

0.0

0.0

0.0

Average

 

6.7

6.4

6.7

5.2

5.1

5.1

2.0

1.9

1.9

Implied EDV share price (US$)

23.8

31.1

31.6

28.1

28.6

27.3

18.5

N/A

N/A

Implied EDV share price (C$)

29.8

39.0

39.6

35.3

35.8

34.2

23.1

N/A

N/A

Source: Edison Investment Research, Refinitiv. Note: *Forecast EV. Consensus and peers priced at 12 March 2021.

Of note is the fact that Endeavour’s valuation is materially cheaper than the averages of the majors on at least seven of the nine measures shown in Exhibit 9, regardless of whether Edison or consensus forecasts are used. On an individual basis, it is cheaper than the majors on at least 38 out of 54 (70%) of 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$27.00, or C$33.80 per share.

Readers should note that Edison’s forecast dividend yield in year 1 and year 2 (FY22 and FY23) is notional. When it declared its maiden dividend of US$0.37/share for FY20 in November, Endeavour announced a policy of declaring future dividends on a semi-annual basis with the aim of maintaining an approximate dividend yield of 1.6% until it has reached a targeted net cash position of c US$250m (note: by the end of FY21 according to Edison’s updated estimates). Thereupon, it will re-assess its capital allocation priorities, which may include augmenting its shareholder return programme. Since November, Endeavour’s share price has fallen, implying, all other things being equal, that its FY21 dividend should also fall in order to maintain a yield of 1.6%. This we believe to be unlikely and that a held dividend is a much more likely scenario in FY21, or a higher dividend in the event that its share price appreciates above US$23.13, or C$28.97 (being US$0.37/0.016). Given that we have no more information than this however, our dividend ‘forecast’ for FY22 and FY23 therefore shows the maximum that we estimate Endeavour could distribute in order to retain a net cash position of US$250m on its balance sheet. This we believe to be equally unlikely in practice. However, it does indicate that, all other things being equal, Endeavour has plenty of scope to increase dividend distributions to shareholders into the foreseeable future.

Share buyback programme

In tandem with its results, on 18 March, Endeavour announced a normal course issuer bid (NCIB), or share buyback programme in order to supplement its policy of augmenting shareholder returns. The NCIB commenced on 22 March and will end on 21 March 2022 and will allow Endeavour to buy up to 12.2m ordinary shares, or approximately 5% of its total issued and outstanding ordinary shares at the time of the announcement, whereupon the purchased shares will be cancelled. At Endeavour’s current share price of C$23.92 (US$19.09), the NCIB is worth c US$232.4m and compares extremely favourably with its FY20 dividend payout of US$60.3m and its forecast US$93.4m payout in FY21. Combined, the NCIB and FY21e dividend distribution together represent c US$325.8m in aggregate returns to shareholders – equivalent to a dividend yield of 6.8% – in FY21. Note, however that, owing to the inherent uncertainty surrounding whether purchases are made and at what price under the NCIB, Edison has not attempted to include share buybacks in its financial forecasts in Exhibit 10, below.

Financials

According to its results announcement, Endeavour had net debt on its balance sheet of US$43.3m as at end-FY20. However, this excluded lease liabilities of US$37.2m and included an option premium of US$74.6m. Including the former, but excluding the latter results in a net debt position of US$5.8m – immaterial within the context of the company’s balance sheet equity of US$2,057.0m at the same point in time.

As from 10 February, however, Endeavour will consolidate Teranga into its accounts. For the purposes of our financial modelling (see Exhibit 10, below), we have assumed that this will occur retrospectively on 31 December 2020. In this case, we estimate that Endeavour will consolidate c US$242.6m in net debt onto its balance sheet and c US$349.2m in gross debt as a consequence of its Teranga acquisition. As such, on a pro forma basis, we estimate that Endeavour would have had US$323.1m in net debt on its balance sheet as at end-FY20 (43.3+37.2+242.6), 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 (note: all stated prior to La Mancha’s injection of US$200m into the enlarged company).

Exhibit 10: Financial summary

US$'000s

2018

2019

2020

2021e

2022e

2023e

December

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

1,048,636

1,362,121

1,847,894

2,579,021

2,495,073

2,384,441

Cost of Sales

(669,719)

(884,869)

(1,061,891)

(1,209,204)

(1,073,599)

(1,029,829)

Gross Profit

378,917

477,252

786,003

1,369,817

1,421,474

1,354,612

EBITDA

 

 

378,917

618,443

910,295

1,369,817

1,421,474

1,354,612

Operating Profit (before amort. and except.)

 

106,090

281,400

546,072

915,436

976,168

972,156

Intangible Amortisation

0

0

0

0

0

0

Exceptionals

8,035

(199,159)

(201,532)

0

0

0

Other

(3,171)

(9,392)

8,886

0

0

0

Operating Profit

110,954

72,849

353,426

915,436

976,168

972,156

Net Interest

(27,110)

(51,607)

(53,774)

4,374

1,912

2,500

Profit Before Tax (norm)

 

 

75,809

220,401

501,184

919,810

978,080

974,656

Profit Before Tax (FRS 3)

 

 

83,844

21,242

299,652

919,810

978,080

974,656

Tax

(73,637)

(97,253)

(158,466)

(248,699)

(187,665)

(179,942)

Profit After Tax (norm)

2,172

123,148

342,718

671,111

790,415

794,714

Profit After Tax (FRS 3)

10,207

(76,011)

141,186

671,111

790,415

794,714

Net loss from discontinued operations

(154,795)

(4,394)

0

0

0

0

Minority interests

8,460

33,126

44,719

97,980

113,639

112,641

Net profit

(144,588)

(80,405)

141,186

671,111

790,415

794,714

Net attrib. to shareholders contg. businesses (norm)

(16,292)

90,022

297,998

573,131

676,776

682,073

Net attrib.to shareholders contg. businesses

(8,257)

(109,137)

96,466

573,131

676,776

682,073

Average Number of Shares Outstanding (m)

155.3

157.4

160.8

251.9

251.9

251.9

EPS - normalised ($)

 

 

(0.10)

0.57

1.85

2.28

2.69

2.71

EPS - normalised and fully diluted ($)

 

 

(0.10)

0.57

1.82

2.24

2.65

2.67

EPS - (IFRS) ($)

 

 

(0.99)

(0.72)

0.60

2.28

2.69

2.71

Dividend per share (c)

0

0

37

37

282

286

Gross Margin (%)

36.1

35.0

42.5

53.1

57.0

56.8

EBITDA Margin (%)

36.1

45.4

49.3

53.1

57.0

56.8

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

10.1

20.7

29.6

35.5

39.1

40.8

BALANCE SHEET

Fixed Assets

 

 

1,594,202

2,330,033

5,093,409

5,137,255

5,061,948

5,032,159

Intangible Assets

4,186

5,498

24,851

24,851

24,851

24,851

Tangible Assets

1,543,842

2,254,476

3,968,746

4,012,592

3,937,286

3,907,497

Investments

46,174

70,059

1,099,812

1,099,812

1,099,812

1,099,812

Current Assets

 

 

327,841

652,871

1,168,382

2,006,562

2,042,285

2,011,917

Stocks

126,353

266,451

305,075

495,965

479,822

458,546

Debtors

74,757

83,836

104,545

237,518

230,619

221,525

Cash

124,022

288,186

751,563

1,265,879

1,324,646

1,324,646

Other

2,709

14,398

7,199

7,199

7,199

7,199

Current Liabilities

 

 

(248,420)

(354,931)

(661,171)

(730,559)

(689,808)

(674,892)

Creditors

(224,386)

(312,427)

(612,862)

(682,250)

(641,499)

(626,583)

Short term borrowings

(24,034)

(42,504)

(48,309)

(48,309)

(48,309)

(48,309)

Long Term Liabilities

 

 

(729,290)

(963,736)

(1,647,799)

(1,647,799)

(1,647,799)

(1,647,799)

Long term borrowings

(618,595)

(770,902)

(1,026,337)

(1,026,337)

(1,026,337)

(1,026,337)

Other long term liabilities

(110,695)

(192,834)

(621,462)

(621,462)

(621,462)

(621,462)

Net Assets

 

 

944,333

1,664,237

3,952,821

4,765,459

4,766,627

4,721,385

CASH FLOW

Operating Cash Flow

 

 

394,984

628,617

1,046,370

1,146,218

1,403,767

1,370,064

Net Interest

(26,734)

(35,413)

(53,774)

4,374

1,912

2,500

Tax

(36,140)

(109,494)

(186,332)

(248,699)

(187,665)

(179,942)

Capex

(689,469)

(401,227)

(335,599)

(498,227)

(370,000)

(352,667)

Acquisitions/disposals

33,179

3,654

(19,000)

20,000

40,000

0

Financing

(7,820)

2,402

100,000

200,000

0

0

Dividends

(1,956)

(6,154)

(88,288)

(109,350)

(829,248)

(839,955)

Net Cash Flow

(333,956)

82,385

463,377

514,316

58,767

0

Opening net debt/(cash)*

 

 

218,140

518,607

525,220

323,083

(191,233)

(250,000)

HP finance leases initiated

0

0

0

0

0

0

Other

33,489

(88,998)

(261,240)

0

0

0

Closing net debt/(cash)*

 

 

518,607

525,220

323,083

(191,234)

(250,000)

(250,000)

Source: Company sources, Edison Investment Research. Note: Presented on pro forma basis including SEMAFO from FY18 balance sheet and Teranga from FY20 balance sheet. EPS normalised from 2018 to reflect continuing business only. *Excludes restricted cash.


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 £49,500 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 2021 Edison Investment Research Limited (Edison).

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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

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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.

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Frankfurt +49 (0)69 78 8076 960

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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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 £49,500 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 2021 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.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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