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Endeavour closed a strong FY22 with production of 1,400koz, achieving the top end of the guided 1,315–1,400koz range, while all-in sustaining costs (AISC) amounted to c US$928/oz, within the guided range of $880–930/oz. This marks the 10th consecutive year in which the company has either achieved or exceeded both its production and AISC cost guidance. In light of its positive performance, Endeavour boasted adjusted net earnings of US$65m, or US$0.26/share in Q422, totalling US$405m, or US$1.63/share for FY22. The company looks set to reinvest in organic growth throughout FY23 via the Sabodala-Massawa expansion and Lafigué greenfield project construction, while committing to various exploration projects. FY22 results follow recent announcements about FY23 production guidance, which is broadly comparable to FY22 at 1,325–1,425koz, AISC of US$940–995/oz and H222 dividend payments of US$100m confirming a total dividend of $200m in FY22, 33% above its minimum committed level of US$150m.
Endeavour Mining |
Pursuing growth opportunities in 2023 |
FY22 results |
Metals and mining |
17 March 2023 |
Share price performance
Business description
Next events
Analysts
Endeavour Mining is a research client of Edison Investment Research Limited |
Endeavour closed a strong FY22 with production of 1,400koz, achieving the top end of the guided 1,315–1,400koz range, while all-in sustaining costs (AISC) amounted to c US$928/oz, within the guided range of $880–930/oz. This marks the 10th consecutive year in which the company has either achieved or exceeded both its production and AISC cost guidance. In light of its positive performance, Endeavour boasted adjusted net earnings of US$65m, or US$0.26/share in Q422, totalling US$405m, or US$1.63/share for FY22. The company looks set to reinvest in organic growth throughout FY23 via the Sabodala-Massawa expansion and Lafigué greenfield project construction, while committing to various exploration projects. FY22 results follow recent announcements about FY23 production guidance, which is broadly comparable to FY22 at 1,325–1,425koz, AISC of US$940–995/oz and H222 dividend payments of US$100m confirming a total dividend of $200m in FY22, 33% above its minimum committed level of US$150m.
Year |
Revenue |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/21 |
2,903.8 |
756.5 |
2.05 |
56 |
10.5 |
2.6 |
12/22 |
2,508.1 |
527.2 |
1.28 |
81 |
16.8 |
3.8 |
12/23e |
2,493.8 |
545.4 |
1.30 |
75 |
16.6 |
3.5 |
12/24e |
2,235.7 |
708.5 |
1.91 |
88 |
11.3 |
4.1 |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payment.
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 expansion of Sabodala-Massawa, which remains on budget and is set for completion in Q224 with US$158.3m of the total growth capital committed to date; second, the Lafigué greenfield project construction, 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, with key focus on the new Tanda-Iguela discovery, where a maiden resource was defined in Q422.
Valuation: FY22 results as expected post prelims
We broadly maintain our valuation methodology in light of the FY22 results, whereby we discount back five years of cash flows then apply an ex-growth, ad infinitum multiple to steady-state terminal cash flows in FY26. This implies a present valuation for Endeavour of US$36.92 (C$50.93 or £30.65), previously US$35.07 per share if performed using a 10% discount rate or US$58.99 (C$81.38 or £48.97) per share (cf US$57.32, previously) if performed using a CAPM-derived (real) discount rate of 6.56% (based on inflation expectations of 2.29% derived from US 30-year break-evens). 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).
FY22 operational and financial performance
Endeavour ended an impressive FY22 with production from continuing operations of 1,400koz, in line with our prior estimates of 1,410koz, which included 10.2koz produced from Karma in Q122 (adjusting for this, our forecast was exactly in line with the production results), achieving the top end of the guided 1,315–1,400koz range, while AISC amounted to c US$928/oz, within a guided range of $880–930/oz. Strong production performance was largely related to the Houndé and Ity assets, which benefited from higher than planned throughput, and the Mana mine, where higher than expected open pit mining tonnages were extracted from the Wona open pit prior to its depletion. Although industry-wide inflationary pressures have typically affected costing, in Endeavour’s case they were partially offset by favourable FX movements as the euro declined against the dollar, as well as group-wide optimisation initiatives. This performance resulted in adjusted net earnings of US$65m, or US$0.26/share in Q422, totalling US$405m, or US$1.63/share for FY22.
Q422 results
As well as producing strong Q4 and FY22 results, Endeavour's realised gold in Q422 (US$1,758/oz) was higher than the average gold price recorded during the period (US$1,731/oz), albeit Endeavour's realised gold price now includes realised gains from its revenue protection programme. We believe this gold price fed through to strong Q4 revenues (US$617m cf US$570 in Q322, an 8% increase), aided further by higher gold sales from the Sabodala-Massawa, Ity and Wahgnion mines. Operating expenses also recorded a marginal decrease of US$6m (c 2.5% q-o-q). However, these realised gains were somewhat affected by the increase in depreciation and depletion of reserves from US$151m (Q322) to US$173m (Q422), mainly owing to increases at the Sabodala-Massawa, Ity and Wahgnion mines. Increases at the Sabodala-Massawa mine followed the commencement of mining at the Bambaraya deposit, while the increase at Ity resulted from high production during the period and at Wahgnion from a decrease in the reserve base.
During Q422, Endeavour updated the life-of-mine plans at Wahgnion and Boungou, which included revised estimates of the reserves and resources and increased operating costs. This was recognised as a non-cash impairment of US$360.3m in relation to the mining interest at Wahgnion (US$197.0m) and Boungou (US$163.3m). Additionally, financial instruments decreased from a gain of US$60.1m (Q322) to a loss of US$10.4m (Q422), primarily due to the impact of unrealised losses on gold forwards and collars of US$62.9m, which were partially offset by FX gains of US$43.9m. In Exhibits 1 and 2, other expenses are excluded from operating expenses due to their nature, consisting of non-standard costs (disturbance costs, impairment of receivables and provisions for legal claims).
FY23 guidance
As mentioned in our previous note published on 1 February, FY23 production guidance is broadly comparable to FY22 at 1,325–1,425koz (cf 1,315-1,400koz), with AISC remaining consistent with recent quarters at US$940–995/oz. Additionally, Endeavour states that it expects production to be more heavily weighted towards H223 because of increased production at Boungou, Houndé, Mana and Wahgnion. It expects capital expenditure to be consistent with FY22 at US$370m, consisting of US$165m for sustaining capital expenditure and US$205m for non-sustaining capital expenditure.
Positive dividend
On 23 January 2023, Endeavour announced a strong H222 interim dividend of US$100m (approximately US$0.41 per share), resulting in a total dividend for the year of US$200m (c US$0.81/share). This represents a US$50m or 33% uplift relative to the base dividend commitment for the year.
The ex-dividend date for the H222 interims was on the 23 February and record date the 24 February, with the payment being paid to shareholders on or around 28 March 2023. Shareholder returns were also being supplemented through the company’s share buyback programme, of which a total of US$98.7m (or 4.6m shares) was repurchased during the year. Alongside its robust dividend results, Endeavour ended the year with a net cash position of US$121.1m, which represents an increase of US$118.6m relative to the prior quarter and US$44.9m over the prior year.
Organic growth opportunities
Endeavour continues to enjoy organic growth, with management aiming to expand current projects and delineate resources further rather than identifying new assets. This is demonstrated by the company’s three key ventures. Firstly, the expansion of Sabodala-Massawa, which remains on budget and is set for completion in Q224, with US$158.3m of the total growth capital committed to date. Growth capital expenditure guidance for FY23 at Sabodala-Massawa is US$170.0m, primarily related to process plant and power plant construction activities. Second is the Lafigué greenfield project construction, in conjunction with the results of a robust DFS. The salient features of the DFS were as follows (see our previous note for more details):
■
An average of 203koz pa of production from processing c 4Mtpa of ore at an average grade of 1.69g/t over 13 years at an average cash cost of US$721/oz, average AISC of US$871/oz and an upfront capital cost of US$448m.
■
A pre-tax internal rate of return of 25% and a post-tax NPV5 of US$477m (US$1.93/share) at a gold price of US$1,500/oz.
Lastly, Endeavour will continue its companywide exploration programme with a US$70m budget for FY23, with key focus at the new Tanda-Iguela discovery where a maiden resource was defined in Q422. Approximately US$22m is available for greenfield exploration like Tanda-Iguela. In FY22, group measured and indicated resources remained flat y-o-y at 27.3Moz, while proven and probable reserves decreased by 1.0Moz to 16.8Moz as near mine exploration partially replaced depletion.
Exhibit 1: Endeavour Mining FY22 forecasts/actuals, by quarter
US$000s (unless otherwise indicated) |
Q122 |
Q222 |
Q322 |
Q422e |
Q422a |
FY22a*** |
FY22e |
Houndé production (koz) |
73.1 |
87.0 |
72.3 |
62.5 |
62.6 |
295.0 |
294.9 |
Karma production (koz) |
10.2 |
0.0 |
0.0 |
0.0 |
0.0 |
10.2 |
10.2 |
Ity production (koz) |
72.4 |
76.9 |
80.9 |
82.5 |
82.3 |
312.5 |
312.7 |
Boungou production (koz) |
33.8 |
27.0 |
29.3 |
25.5 |
25.6 |
115.8 |
115.6 |
Mana production (koz) |
52.6 |
54.8 |
41.7 |
45.5 |
45.9 |
194.9 |
194.5 |
Sabodala-Massawa |
96.3 |
72.9 |
86.3 |
103.0 |
102.8 |
358.3 |
358.5 |
Wahgnion |
28.9 |
26.5 |
32.3 |
36.0 |
35.9 |
123.6 |
123.7 |
Total gold produced (koz) |
357.1 |
345.1 |
342.7 |
354.9 |
355.1 |
1,410.3** |
1,410.1** |
Total gold sold (koz) |
359.1 |
343.7 |
338.1 |
352.0 |
352.2 |
1,403.2** |
1,403.0** |
Gold price (US$/oz) |
1,911 |
1,832 |
1,679 |
1,718 |
1758 |
1,793 |
1,785 |
Mine level cash costs (US$/oz)* |
609 |
713 |
733 |
732 |
720 |
697 |
701 |
Mine level AISC (US$/oz) |
809 |
934 |
921 |
907 |
911 |
897 |
896 |
Revenue |
|||||||
– Gold revenue |
686,200 |
629,600 |
567,633 |
604,704 |
617,000 |
2,508,000 |
2,504,889 |
Cost of sales |
|||||||
– Operating expenses |
217,500 |
251,200 |
247,923 |
257,861 |
250,000 |
972,300 |
987,914 |
– Royalties |
41,000 |
38,100 |
35,300 |
37,085 |
39,000 |
153,400 |
153,185 |
Gross profit |
427,700 |
340,300 |
278,700 |
309,757 |
328,000 |
1,382,300 |
1,356,457 |
Depreciation |
(152,000) |
(139,800) |
(151,200) |
(163,637) |
(173,000) |
(616,000) |
(606,637) |
Expenses |
|||||||
– Corporate costs |
(14,000) |
(6,800) |
(12,400) |
(16,432) |
(15,000) |
(47,700) |
(49,632) |
– Impairments |
0 |
0 |
0 |
0 |
(360,000) |
(360,300) |
|
– Acquisition etc costs |
(200) |
(1,300) |
(1,000) |
0 |
0 |
0 |
(2,500) |
– Share based compensation |
(7,700) |
(3,100) |
(4,200) |
(7,082) |
(18,000) |
(32,800) |
(22,082) |
– Exploration costs |
(7,100) |
(8,000) |
(11,800) |
(5,000) |
(7,000) |
(33,900) |
(31,900) |
Total expenses |
(29,000) |
(19,200) |
(29,400) |
(28,514) |
(400,000) |
(474,700) |
(106,114) |
Earnings from operations |
246,700 |
181,300 |
98,100 |
117,606 |
(245,000) |
285,000 |
643,706 |
Interest income |
|||||||
Interest expense |
(15,200) |
(16,500) |
(18,600) |
(15,681) |
(16,000) |
(66,200) |
(65,981) |
Net interest |
(15,200) |
(16,500) |
(18,600) |
(15,681) |
(16,000) |
(66,200) |
(65,981) |
Profit/(loss) on financial instruments |
(178,800) |
106,800 |
60,100 |
11,910 |
(10,000) |
(22,300) |
10 |
Other expenses |
(2,000) |
(10,600) |
(7,400) |
0 |
(29,000) |
(51,900) |
(20,000) |
Profit before tax |
50,700 |
261,000 |
132,200 |
113,835 |
(299,000) |
144,600 |
557,735 |
Current income tax |
74,700 |
64,700 |
77,000 |
35,747 |
57,000 |
273,300 |
252,147 |
Deferred income tax |
11,200 |
(8,200) |
(11,900) |
0 |
(89,000) |
(97,700) |
(8,900) |
Total tax |
85,900 |
56,500 |
65,100 |
35,747 |
(32,000) |
175,600 |
243,247 |
Effective tax rate (%) |
169.4 |
21.6 |
49.2 |
31.4 |
10.7 |
121.4 |
43.6 |
Profit after tax |
(35,200) |
204,500 |
67,100 |
78,088 |
(267,000) |
(31,000) |
314,488 |
Net profit from discontinued ops. |
14,800 |
0 |
0 |
0 |
(5,700) |
9,100 |
14,800 |
Total net and comprehensive income |
(20,400) |
204,500 |
67,100 |
78,088 |
(272,700) |
(21,900) |
329,288 |
Minority interest |
21,800 |
15,100 |
9,500 |
13,667 |
(11,000) |
35,100 |
60,067 |
Minority interest (%) |
(106.9) |
7.4 |
14.2 |
17.5 |
4.0 |
(160.3) |
18.2 |
Profit attributable to shareholders |
(42,200) |
189,400 |
57,600 |
64,421 |
(261,700) |
(57,000) |
269,221 |
Basic EPS from continuing ops (US$) |
(0.23) |
0.76 |
0.232 |
0.261 |
(1.048) |
(0.267) |
1.027 |
Diluted EPS from continuing ops (US$) |
(0.23) |
0.76 |
0.232 |
0.261 |
(1.034) |
(0.262) |
1.025 |
Basic EPS (US$) |
(0.17) |
0.76 |
0.232 |
0.261 |
(1.061) |
(0.230) |
1.087 |
Diluted EPS (US$) |
(0.17) |
0.76 |
0.232 |
0.261 |
(1.057) |
(0.226) |
1.085 |
Norm. basic EPS from cont. ops (US$) |
0.49 |
0.34 |
(0.006) |
0.213 |
0.462 |
1.277 |
1.037 |
Norm. diluted EPS from cont. ops (US$) |
0.49 |
0.34 |
(0.006) |
0.212 |
0.461 |
1.254 |
1.035 |
Adj net earnings attributable (US$000s) |
122,300 |
111,300 |
55,600 |
54,595 |
64,000 |
405,000 |
324,695 |
Adj net EPS from continuing ops (US$) |
0.493 |
0.448 |
0.224 |
0.221 |
0.255 |
1.630 |
1.310 |
Source: Endeavour Mining, Edison Investment Research. As reported. Note: *Excludes royalty costs. **Includes 10.2koz produced and 10.1koz sold from Karma in Q122. ***Following multiple quarterly restatements, FY22a total figures may not equal quarterly figures.
Please note that in Q420 Endeavour changed its definition of cash costs to include royalties. The decision was made so that the company will be more consistent in reporting in the context of its peer group. However, for reasons of comparability with past results, as well as ease of forecasting (given royalties are reported as a standalone item distinct from operating expenses), we are continuing to calculate total cash costs in Exhibits 1 and 2 excluding royalties.
FY23 forecasts
As previously stated in our most recent update on Endeavour, FY23 guidance indicated comparable operational performance with FY22 in production of 1,325–1,425koz (vs 1,400koz in FY22) and AISC of US$940–995/oz (vs US$928oz in FY22). In light of this guidance and updated FY22 financials, we have updated our FY23 forecasts. It is helpful to discuss the impact of the gold price on our FY23 estimates. At the point of our last note, the gold spot price was US$1,934/oz, compared with US$1,818/oz (Bloomberg: 9 March 2023). This drop in price has resulted in new adjusted net EPS from continuing operations of US$1.296/share vs US$1.504/share previously.
Exhibit 2: Endeavour Mining FY23 forecasts, by quarter
US$000s (unless otherwise indicated) |
Q123e |
Q223e |
Q323e |
Q423e |
FY23e |
FY23e |
FY22a*** |
Houndé production (koz) |
55.1 |
55.1 |
79.3 |
87.9 |
277.5 |
277.5 |
295.0 |
Karma production (koz) |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
10.2 |
Ity production (koz) |
73.2 |
71.0 |
65.4 |
75.4 |
285.0 |
285.0 |
312.5 |
Boungou production (koz) |
28.0 |
28.0 |
29.5 |
29.5 |
114.9 |
114.9 |
115.8 |
Mana production (koz) |
52.5 |
52.5 |
52.5 |
52.5 |
209.9 |
209.9 |
194.9 |
Sabodala-Massawa |
78.8 |
78.8 |
77.3 |
86.3 |
321.3 |
321.3 |
358.3 |
Wahgnion |
37.9 |
38.9 |
42.2 |
43.7 |
162.7 |
162.7 |
123.6 |
Total gold produced (koz) |
325.5 |
324.2 |
346.2 |
375.3 |
1,371 |
1,371 |
1,410.3** |
Total gold sold (koz) |
325.5 |
324.2 |
346.2 |
375.3 |
1,371 |
1,371 |
1,403.2** |
Gold price (US$/oz) |
1,849 |
1,809 |
1,810 |
1,809 |
1,819 |
1,922 |
1,793 |
Mine level cash costs (US$/oz)* |
725 |
773 |
718 |
650 |
714 |
712 |
697 |
Mine level AISC (US$/oz) |
968 |
1,014 |
954 |
876 |
950 |
952 |
897 |
Revenue |
|||||||
– Gold revenue |
601,720 |
586,486 |
626,457 |
679,137 |
2,493,800 |
2,635,757 |
2,508,000 |
Cost of sales |
|||||||
– Operating expenses |
236,044 |
250,676 |
248,724 |
244,015 |
979,459 |
976,625 |
972,300 |
– Royalties |
37,869 |
36,943 |
40,195 |
43,557 |
158,564 |
163,930 |
153,400 |
Gross profit |
327,807 |
298,868 |
337,537 |
391,566 |
1,355,778 |
1,495,202 |
1,382,300 |
Depreciation |
(140,624)0 |
(144,597) |
(158,508) |
(172,724) |
(616,454) |
(694,871) |
(616,000) |
Expenses |
|||||||
– Corporate costs |
(15,000) |
(15,000) |
(15,000) |
(15,000) |
(60,000) |
(60,000) |
(47,700) |
– Impairments |
0 |
0 |
0 |
0 |
0 |
0 |
(360,300) |
– Acquisition etc costs |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
– Share based compensation |
(6,453) |
(6,453) |
(6,453) |
(6,453) |
(25,814) |
(25,814) |
(32,800) |
– Exploration costs |
(8,750) |
(8,750) |
(8,750) |
(8,750) |
(35,000) |
(35,000) |
(33,900) |
Total expenses |
(30,203) |
(30,203) |
(30,203) |
(30,203) |
(120,814) |
(120,814) |
(474,700) |
Earnings from operations |
156,979 |
124,067 |
148,826 |
188,638 |
618,511 |
679,518 |
285,000 |
Interest income |
|||||||
Interest expense |
(17,842) |
(19,603) |
(18,853) |
(17,090) |
(73,387) |
(58,586) |
(66,200) |
Net interest |
(17,842) |
(19,603) |
(18,853) |
(17,090) |
(73,387) |
(58,586) |
(66,200) |
Profit/(loss) on financial instruments |
(901) |
300 |
300 |
300 |
(1) |
(12,408) |
(22,300) |
Other expenses |
0 |
0 |
0 |
0 |
0 |
0 |
(51,900) |
Profit before tax |
138,236 |
104,790 |
130,326 |
171,926 |
545,277 |
608,524 |
144,600 |
Current income tax |
40,896 |
34,138 |
37,611 |
46,031 |
158,676 |
174,750 |
273,300 |
Deferred income tax |
0 |
0 |
0 |
0 |
0 |
0 |
(97,700) |
Total tax |
40,896 |
34,138 |
37,611 |
46,031 |
158,676 |
174,750 |
175,600 |
Effective tax rate (%) |
29.6 |
32.6 |
28.9 |
26.8 |
29.1 |
28.7 |
121.4 |
Profit after tax |
97,340 |
70,651 |
92,715 |
125,895 |
386,602 |
433,774 |
(31,000) |
Net profit from discontinued ops. |
0 |
0 |
0 |
0 |
0 |
0 |
9,100 |
Total net and comprehensive income |
97,340 |
70,651 |
92,715 |
125,895 |
386,602 |
433,774 |
(21,900) |
Minority interest |
17,205 |
14,297 |
16,132 |
19,869 |
67,503 |
73,994 |
35,100 |
Minority interest (%) |
17.7 |
20.2 |
17.4 |
15.8 |
17.5 |
17.1 |
(160.3) |
Profit attributable to shareholders |
80,135 |
56,355 |
76,583 |
106,027 |
319,099 |
359,780 |
(57,000) |
(57,000) |
|||||||
Basic EPS from continuing ops (US$) |
0.326 |
0.229 |
0.311 |
0.431 |
1.296 |
1.462 |
(0.267) |
Diluted EPS from continuing ops (US$) |
0.324 |
0.228 |
0.310 |
0.429 |
1.292 |
1.459 |
(0.262) |
Basic EPS (US$) |
0.326 |
0.229 |
0.311 |
0.431 |
1.296 |
1.462 |
(0.230) |
Diluted EPS (US$) |
0.324 |
0.228 |
0.310 |
0.429 |
1.292 |
1.459 |
(0.226) |
Norm. basic EPS from cont. ops (US$) |
0.329 |
0.228 |
0.310 |
0.430 |
1.296 |
1.512 |
1.277 |
Norm. diluted EPS from cont. ops (US$) |
0.328 |
0.227 |
0.309 |
0.428 |
1.292 |
1.509 |
1.254 |
Adj net earnings attributable (US$000s) |
80,877 |
56,115 |
76,335 |
105,774 |
319,101 |
370,041 |
405,000 |
Adj net EPS from continuing ops (US$) |
0.329 |
0.228 |
0.310 |
0.430 |
1.296 |
1.504 |
1.630 |
Source: Endeavour Mining, Edison Investment Research. As reported. Note: *Excludes royalty costs. **Includes 10.2koz produced and 10.1koz sold from Karma in Q122. ***Following multiple quarterly restatements, FY22a total figures may not equal quarterly figures.
A comparison between our quarterly and full-year forecast and consensus forecasts for FY23 adjusted net EPS is as follows:
Exhibit 3: Edison-adjusted net EPS from continuing operations estimates and consensus FY23 by quarter
(US$/share) |
Q123e |
Q223e |
Q323e |
Q423e |
Sum Q1–Q423e |
FY23e |
Edison |
0.329 |
0.228 |
0.310 |
0.430 |
1.296 |
1.296 |
Mean consensus forecast |
0.310 |
0.300 |
0.390 |
0.380 |
1.380 |
1.520 |
High consensus forecast |
0.360 |
0.350 |
0.460 |
0.500 |
1.670 |
2.280 |
Low consensus forecast |
0.250 |
0.270 |
0.270 |
0.220 |
1.010 |
1.060 |
Source: Refinitiv, Edison Investment Research. Note: Consensus at 13 March 2023.
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 FY22, for Endeavour we have opted to discount five years of forecast cash flows in FY22–26 back to FY22, 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. 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, we included it because it was a critical component of ongoing business performance in the company’s ability to continually expand and extend the lives of its mines.
In the wake of FY22 results, our estimate of cash flows remains consistent in FY26 at US$4.28/share (cf US$4.26/share previously), which implies a terminal valuation of Endeavour at end-FY26 of US$42.79/share if calculated using a discount rate of 10%. In conjunction with our forecast intervening cash flows, this terminal valuation then discounts back to a present valuation of US$36.92/share at the start of FY23, as shown in Exhibit 4 below.
Exhibit 4: Endeavour forecast valuation and cash flow per share, FY23–26e (US$/share) |
Source: Edison Investment Research |
Given its elevation into the ranks of the world’s foremost producers of gold, however, we believe Endeavour can increasingly attract lower-cost finance and, as such, we may also consider a CAPM-derived valuation. In this case, long-term nominal equity returns have been 9% and 30-year break-evens indicate an inflation rate of 2.2853% (source Bloomberg, 13 March) versus 2.3339% previously. These two measures imply an expected real equity return of 6.56% (1.09/1.022853) and applying this to our forecast cash flows would imply a terminal valuation for Endeavour of US$65.18/share (US$65.35/share previously) and a current valuation of US$58.99/share (US$57.32/share previously).
Endeavour peer valuation
On a series of commonly used measures relative to a selection of gold mining majors (the ranks of which it has now joined since its takeover of SEMAFO and Teranga), Endeavour’s valuation is as follows:
Exhibit 5: Endeavour’s valuation relative to peers
Company |
Ticker |
Price/cash flow (x) |
EV/EBITDA (x) |
Yield (%) |
||||||
Year 1 |
Year 2 |
Year 3 |
Year 1 |
Year 2 |
Year 3 |
Year 1 |
Year 2 |
Year 3 |
||
Endeavour (Edison) |
EDV |
4.5 |
4.7 |
4.2 |
3.9 |
4.0 |
3.6 |
3.7 |
4.4 |
6.0 |
Endeavour (consensus) |
EDV |
4.6 |
4.3 |
4.0 |
4.4 |
4.1 |
3.8 |
4.4 |
4.3 |
4.7 |
Majors |
||||||||||
Barrick |
ABX |
6.9 |
6.5 |
6.1 |
6.8 |
6.0 |
5.9 |
2.6 |
3.9 |
4.3 |
Newmont |
NEM |
8.6 |
8.0 |
8.3 |
7.1 |
6.5 |
6.2 |
4.3 |
4.1 |
4.2 |
Newcrest |
NCM AU |
9.5 |
8.6 |
8.6 |
7.4 |
7.6 |
7.2 |
2.6 |
1.5 |
1.6 |
Kinross |
K |
3.6 |
3.6 |
3.8 |
4.8 |
4.8 |
4.5 |
3.4 |
3.4 |
3.4 |
Agnico-Eagle |
AEM |
9.1 |
8.6 |
8.7 |
7.4 |
6.8 |
6.1 |
3.7 |
4.0 |
4.4 |
Eldorado |
ELD |
5.2 |
4.5 |
3.7 |
4.8 |
4.1 |
3.3 |
0.0 |
0.0 |
0.0 |
Average |
|
7.2 |
6.6 |
6.6 |
6.4 |
5.9 |
5.5 |
2.8 |
2.8 |
3.0 |
Implied EDV share price (US$) |
29.50 |
29.75 |
28.14 |
33.15 |
30.34 |
28.73 |
29.12 |
26.74 |
29.48 |
|
Implied EDV share price (C$) |
40.78 |
41.12 |
38.89 |
45.82 |
41.94 |
39.71 |
40.25 |
36.96 |
40.75 |
Source: Edison Investment Research, Refinitiv. Note: Consensus and peers priced at 13 March 2023.
Of note is that, without exception, Endeavour’s valuation is materially lower than the averages of two of the three the measures shown in Exhibit 5, 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 46 out of 54 (85%) 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$29.44, or C$40.69 (or £24.60) per share.
Financials
According to its Q422 balance sheet, Endeavour had net cash of US$79.3m (including leases) as at end-December, after US$24.2m in share repurchases during the quarter. This net cash figure compares with net cash and debt figures at the end of recent, comparable quarters as follows:
Exhibit 6: Endeavour Mining net cash/(debt)*
Q121 |
Q221 |
Q321 |
Q421 |
Q122 |
Q222 |
Q322 |
Q422 |
|
Net cash/(debt) (US$m) |
(220.2) |
(147.6) |
(143.6) |
13.2 |
82.7 |
162.1 |
(48.1) |
79.3 |
Change (US$m) |
(176.9) |
72.6 |
4.0 |
156.8 |
69.5 |
79.4 |
(210.2) |
127.4 |
Dividends paid (US$m) |
60.0 |
69.9 |
69.3 |
97.3 |
||||
Minority dividends paid (US$m) |
29.9 |
57.2 |
||||||
Share buybacks (US$m) |
59.5 |
34.6 |
43.9 |
31.1 |
6.7 |
36.7 |
24.2 |
|
Underlying net cash/(debt) change pre-shareholder returns (US$m) |
(116.9) |
132.1 |
138.4 |
200.7 |
169.9 |
86.1 |
(19.0) |
151.6 |
Comment |
Post-Teranga acquisition |
Source: Endeavour Mining, Edison Investment Research. Note: *As per reported balance sheet.
The net cash figure of US$79.3m includes lease liabilities of US$47.1m and an option premium of US$4.3m which, if excluded, would result in an adjusted net cash position of US$130.7m. This is equivalent to, but differs slightly from, the US$121.1m net cash figure calculated by Endeavour and quoted in its announcements owing to discounting, variously, certain committed future payments to present value. It also excludes US$39.5m held in the form of ‘restricted cash’ and US$40.0m in shares of Allied Gold received as consideration for the sale of Agbaou, both held in ‘non-current other financial assets’.
Note that, for the purposes of our financial modelling in Exhibit 7 and for simplicity’s sake, 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). As such, on a pro forma basis, we estimate that Endeavour would have had US$323.1m in net debt on its balance sheet at end-FY20, which we calculate would have equated to a gearing (net debt/equity) ratio of just 8.8% and a leverage (net debt/[net debt+equity]) ratio of 8.1% on the group’s enlarged equity base.
Exhibit 7: Financial summary
US$'000s |
2019 |
2020 |
2021 |
2022 |
2023e |
2024e |
||
December |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
||
PROFIT & LOSS |
||||||||
Revenue |
|
|
1,362,121 |
1,847,894 |
2,903,756 |
2,508,100 |
2,493,800 |
2,235,703 |
Cost of Sales |
(884,869) |
(1,061,891) |
(1,675,393) |
(1,607,100) |
(1,258,836) |
(1,007,684) |
||
Gross Profit |
477,252 |
786,003 |
1,228,363 |
901,000 |
1,234,964 |
1,228,019 |
||
EBITDA |
|
|
618,443 |
910,295 |
1,517,263 |
1,261,300 |
1,234,964 |
1,228,019 |
Operating Profit (before amort. and except.) |
|
281,400 |
(201,532) |
546,072 |
651,200 |
645,300 |
618,511 |
|
Intangible Amortisation |
0 |
0 |
0 |
0 |
0 |
0 |
||
Exceptionals |
(199,159) |
(201,532) |
(266,000) |
(382,600) |
(1) |
0 |
||
Other |
(9,392) |
8,886 |
(32,263) |
(51,900) |
0 |
0 |
||
Operating Profit |
72,849 |
353,426 |
561,146 |
210,800 |
618,509 |
707,316 |
||
Net Interest |
(51,607) |
(53,774) |
(70,623) |
(66,200) |
(73,150) |
1,155 |
||
Profit Before Tax (norm) |
|
|
220,401 |
501,184 |
756,523 |
527,200 |
545,361 |
708,472 |
Profit Before Tax (FRS 3) |
|
|
21,242 |
299,652 |
490,523 |
144,600 |
545,360 |
708,472 |
Tax |
(97,253) |
(158,466) |
(178,253) |
(175,600) |
(158,676) |
(149,734) |
||
Profit After Tax (norm) |
123,148 |
342,718 |
578,270 |
351,600 |
386,685 |
558,738 |
||
Profit After Tax (FRS 3) |
(76,011) |
141,186 |
312,270 |
(31,000) |
386,684 |
558,738 |
||
Net loss from discontinued operations |
(4,394) |
0 |
0 |
9,100 |
0 |
0 |
||
Minority interests |
33,126 |
44,719 |
64,486 |
35,100 |
67,503 |
88,338 |
||
Net profit |
(80,405) |
141,186 |
312,270 |
(21,900) |
386,684 |
558,738 |
||
Net attrib. to shareholders contg. businesses (norm) |
90,022 |
297,998 |
513,784 |
325,000 |
317,400 |
316,500 |
||
Net attrib.to shareholders contg. businesses |
(109,137) |
96,466 |
247,784 |
(59,400) |
(66,100) |
319,181 |
||
Average number of shares outstanding (m) |
157.4 |
160.8 |
250.7 |
247.8 |
246.0 |
245.9 |
||
EPS - normalised (c) |
|
57.20 |
185.34 |
204.95 |
127.71 |
129.77 |
191.28 |
|
EPS - normalised fully diluted (c) |
|
56.95 |
181.51 |
203.21 |
125.44 |
127.45 |
187.85 |
|
EPS - (IFRS) ($) |
|
(0.72) |
0.60 |
0.99 |
(0.23) |
1.30 |
1.91 |
|
Dividend per share (c) |
0 |
37 |
56 |
81 |
75 |
88 |
||
Gross Margin (%) |
35.0 |
42.5 |
42.3 |
35.9 |
49.5 |
54.9 |
||
EBITDA Margin (%) |
45.4 |
49.3 |
52.3 |
50.3 |
49.5 |
54.9 |
||
Operating Margin (before GW and except.) (%) |
20.7 |
20.7 |
29.6 |
26.0 |
25.7 |
24.8 |
||
BALANCE SHEET |
||||||||
Fixed Assets |
|
|
2,330,033 |
5,093,409 |
5,404,900 |
4,968,300 |
5,116,846 |
5,250,321 |
Intangible Assets |
5,498 |
24,851 |
10,000 |
0 |
0 |
0 |
||
Tangible Assets |
2,254,476 |
3,968,746 |
4,980,200 |
4,517,000 |
4,665,546 |
4,799,021 |
||
Investments |
70,059 |
1,099,812 |
414,700 |
451,300 |
451,300 |
451,300 |
||
Current Assets |
|
|
652,871 |
1,168,382 |
1,366,000 |
1,446,400 |
1,571,738 |
1,665,285 |
Stocks |
266,451 |
305,075 |
311,300 |
320,700 |
311,725 |
279,463 |
||
Debtors |
83,836 |
104,545 |
139,900 |
163,400 |
261,470 |
240,256 |
||
Cash |
288,186 |
751,563 |
906,200 |
951,100 |
987,344 |
1,134,367 |
||
Other |
14,398 |
7,199 |
8,600 |
11,200 |
11,199 |
11,199 |
||
Current Liabilities |
|
|
(354,931) |
(661,171) |
(567,100) |
(1,045,600) |
(1,136,452) |
(1,061,861) |
Creditors |
(312,427) |
(612,862) |
(552,700) |
(690,800) |
(781,652) |
(707,061) |
||
Short term borrowings |
(42,504) |
(48,309) |
(14,400) |
(354,800) |
(354,800) |
(354,800) |
||
Long Term Liabilities |
|
|
(963,736) |
(1,647,799) |
(1,818,100) |
(1,281,800) |
(1,281,800) |
(1,281,800) |
Long term borrowings |
(770,902) |
(1,026,337) |
(878,600) |
(517,000) |
(517,000) |
(517,000) |
||
Other long term liabilities |
(192,834) |
(621,462) |
(939,500) |
(764,800) |
(764,800) |
(764,800) |
||
Net Assets |
|
|
1,664,237 |
3,952,821 |
4,385,700 |
4,087,300 |
4,270,332 |
4,571,944 |
CASH FLOW |
||||||||
Operating Cash Flow |
|
|
628,617 |
1,046,370 |
1,415,306 |
1,211,200 |
1,262,535 |
1,206,904 |
Net Interest |
(35,413) |
(53,774) |
(26,900) |
(66,200) |
(73,150) |
1,155 |
||
Tax |
(109,494) |
(186,332) |
(205,573) |
(189,200) |
(158,676) |
(149,734) |
||
Capex |
(401,227) |
(335,599) |
(587,496) |
(534,300) |
(765,000) |
(654,178) |
||
Acquisitions/disposals |
3,654 |
(19,000) |
(4,700) |
12,900 |
5,000 |
0 |
||
Financing |
2,402 |
100,000 |
(89,400) |
(101,200) |
(10,666) |
0 |
||
Dividends |
(6,154) |
(88,288) |
(159,800) |
(223,800) |
(223,800) |
(257,125) |
||
Net Cash Flow |
82,385 |
463,377 |
341,437 |
109,400 |
36,244 |
147,022 |
||
Opening net debt/(cash) |
|
|
518,607 |
525,220 |
323,083 |
(13,200) |
(79,300) |
(115,544) |
HP finance leases initiated |
0 |
0 |
0 |
0 |
0 |
0 |
||
Other |
(88,998) |
(261,240) |
(5,154) |
(43,300) |
0 |
(0) |
||
Closing net debt/(cash)* |
|
|
525,220 |
323,083 |
(13,200) |
(79,300) |
(115,544) |
(262,567) |
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.
|
|
Research: Metals & Mining
On 13 March, Pan African Resources (PAF) announced the completion of the final component in its funding package for its Mintails dump retreatment project outside Johannesburg. The funding is in the form of an innovative transaction with Rand Merchant Bank (RMB) in the style of a synthetic forward sale agreement, whereby Pan African will sell 4,846oz of gold per month to RMB for 24 months, commencing in March at a fixed price of ZAR1,025,000/kg (US$1,750/oz at the prevailing forex rate), in return for an upfront premium of ZAR400m (US$22.0m). Including the upfront premium, the effective price at which the group will sell these ounces (representing c 30% of annual group production) will be ZAR1,135,604/kg (US$1,938/oz at prevailing rates) over the full 24-month period.
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