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Endeavour Mining: DEEP DIVE

Endeavour Mining gears up for significant revenue growth from West African gold mines

The growth profile for Endeavour Mining has never looked better
Endeavour Mining gears up for significant revenue growth from West African gold mines
OVERVIEW: EDV The Big Picture
Production and cash flow are set to rise significantly

According to research put together by Edison, shares in Endeavour Mining (EDV:TSE) could be worth as much as C$38.81 or US$29.76, an increase of around 86% on where the price sits today.

The prediction is based on the growth pattern that Endeavour has now established, as revenues and profits continue to increase.

According to Edison, Endeavour is likely to deliver revenue of US$762.1mln in the full year to December 2019, up significantly on the US$709.1mln predicted for this year.

That in itself will be a significant increase on the number delivered in 2017, and marks continuation of a pattern of growth established when a new management team took over the company in 2015.

This new management team set about renovating the company’s portfolio of assets, divesting older less efficient ones and building newer, longer-life mines with better margins. The company is also building a strong track record of delivering new projects on time and on budget.

Backed by an Egyptian billionaire and now run by a team of experienced mine-finders and mine-builders, Endeavour’s current production portfolio consists of five mines in West Africa. Two, Ity and Agbaou, are in Côte d’Ivoire, two, Houndé and Karma, are in Burkina Faso, and one, Tabokoto, is in Mali, although this latter one is being sold.

The combined production of these mines, excluding Tabokoto, is expected to be 463,000 ounces for the year to December 2018. All-in sustaining costs will run at a very healthy US$790 per ounce, leaving plenty of margin on the gold price, which is now pushing through the US$1,230 mark.

According to Edison’s calculations, profits this year will ring in at US$49.4mln, rising to US$156.2mln next year.

Much of this forecast boost to profits will be accounted for by the contribution of the new Ity carbon-in-leach project, in Côte d’Ivoire. Ity is being completed ahead of schedule and on budget, and is expected to contribute 2.46mln ounces of gold and 4.94m ounces of gold over a 15 year mine life.

The cost of Ity is likely to result in debt on the balance sheet of around US$304mln at the end of 2018, but that debt should be cleared by 2021, according to Edison, at which point the company could well start paying a dividend.

By that time, Endeavour’s three stated objectives ought to be well established. The company has said it wants to provide over 10 years of production visibility, that it wants production to be running at or in excess of 800,000 ounces per year, and that group-wide all-in costs should be at US$800.

Part of the bumper exploration budget will go towards delivering more ounces at Agbaou and Karma to support this production aspiration, and an additional boost could come from an additional new project at Kalana, which will become the focus of development attention once Ity is complete, and which current studies estimate will produce 101,000 ounces per year.

The company sees plenty of organic growth opportunities ahead, driven by exploration and discovery in West Africa, and by a judicious husbanding of the best performing assets and a discarding of the worst performing ones.

This focus on quality means that shareholders will not have to worry about the tendency of some miners to chase size over margin.

Edison reckons that by 2022 Endeavour will be generating US$3.38 in cash flow per share. On a discounted basis that works out at a valuation per share of US$26.32 per Endeavour share, well above the C$20.90 level that it’s currently at.

Commentary from Edison can be found here.

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