Endeavour Mining — Pursuing growth opportunities in 2023

Endeavour Mining (LSE: EDV)

Last close As at 21/06/2024

1,415.00

3.00 (0.21%)

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3,465m

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Research: Metals & Mining

Endeavour Mining — Pursuing growth opportunities in 2023

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.

Tom Batho

Written by

Tom Batho

Analyst

Endeavour-Mining_resized

Metals & Mining

Endeavour Mining

Pursuing growth opportunities in 2023

FY22 results

Metals and mining

17 March 2023

Price

1,770p

Market cap

£4,337m

C$1.3689/US$, US$ 1.2074/£

Net cash (US$m) at end-December

121

Shares in issue

248.4m

Free float

73.2%

Code

EDV

Primary exchange

LSE

Secondary exchange

TSX, USOTC

Share price performance

%

1m

3m

12m

Abs

(3.3)

1.3

(8.6)

Rel (local)

4.5

0.3

(8.1)

52-week high/low

2,068p

1,461p

Business description

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

Next events

Dividend payment

28 March 2023

Q1 results

June 2023

Sabodala-Massawa processing facility

Q224

Analysts

Thomas Batho

+44 (0)20 3077 5700

Lord Ashbourne

+44 (0)20 3077 5700

Endeavour Mining is a research client of Edison Investment Research Limited

Endeavour 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
end

Revenue
(US$m)

PBT*
(US$m)

EPS*
(c)

DPS
(c)

P/E
(x)

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
(prior)

Q422a

FY22a***

FY22e
(prior)

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
(prior)

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.


General disclaimer and copyright

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

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

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

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

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

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

Australia

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

New Zealand

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

United Kingdom

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

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

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

United States

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

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

General disclaimer and copyright

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

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

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

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

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

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

Australia

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

New Zealand

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

United Kingdom

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

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

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

United States

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

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

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Pan African Resources — Innovative funding avoids dilution

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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