Endeavour Mining — On track to hit top end of production guidance

Endeavour Mining (LSE: EDV)

Last close As at 23/11/2024

1,415.00

3.00 (0.21%)

Market capitalisation

3,465m

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Research: Metals & Mining

Endeavour Mining — On track to hit top end of production guidance

Endeavour’s Q322 results released this morning put it solidly on track to meet the top end of its guidance for the year of 1,315–1,400koz of production at an all-in sustaining cost (AISC) of US$880–930/oz. Production in the quarter was 9.2% above our prior expectation, at 342.7koz (1,370.8koz annualised), while AISC was 8.5% below it, at US$960/oz (US$920/oz year to date), driven by continued strong performances at Endeavour’s Ity and Houndé flagships, in particular, and despite the typical impact of the rainy season. Cash costs (including royalties) amounted to US$839/oz (cf our estimate of US$836/oz).

Lord Ashbourne

Written by

Lord Ashbourne

Director of Content, Mining

Metals & Mining

Endeavour Mining

On track to hit top end of production guidance

Q322 results

Metals and mining

10 November 2022

Price

1,653p

Market cap

£4,068m

US$1.1391/£

Net cash (US$m) at end-September 2022, excludes lease liabilities and restricted cash

2.6

Shares in issue

246.1m

Free float

75.2%

Code

EDV

Primary exchange

LSE

Secondary exchange

TSX, USOTC

Share price performance

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.

Analyst

Lord Ashbourne

+44 (0)20 3077 5724

Endeavour Mining is a research client of Edison Investment Research Limited

Endeavour’s Q322 results released this morning put it solidly on track to meet the top end of its guidance for the year of 1,315–1,400koz of production at an all-in sustaining cost (AISC) of US$880–930/oz. Production in the quarter was 9.2% above our prior expectation, at 342.7koz (1,370.8koz annualised), while AISC was 8.5% below it, at US$960/oz (US$920/oz year to date), driven by continued strong performances at Endeavour’s Ity and Houndé flagships, in particular, and despite the typical impact of the rainy season. Cash costs (including royalties) amounted to US$839/oz (cf our estimate of US$836/oz).

Year

end

Revenue
(US$m)

EBITDA
(US$m)

PBT*
(US$m)

Operating cash flow per share (US$)

DPS
(c)

Yield
(%)

12/20

1,847.9

910.3

501.2

5.35

37

2.0

12/21

2,903.8

1,517.3

756.5

4.83

56

3.0

12/22e

2,410.9

1,241.7

572.7

4.51

81

4.3

12/23e

2,219.0

1,223.2

763.8

3.76

84

4.5

Note: *PBT is normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

In financial terms, total net and comprehensive income was 5.6% above our forecast, albeit this included an exceptional US$60.1m gain on financial instruments and a tax charge inflated by an unusually large US$48m withholding tax payment linked to the upstreaming of cash to redeem the company’s convertible bond in February 2023, which increased Endeavour’s effective tax rate during the quarter to a preternaturally high 49.2%. Stripping out the effect of the financial gain (but including the realised gains on gold hedges of US$19.7m among other items), adjusted net EPS from continuing operations amounted to US$0.23/share (cf our prior forecast of US$0.21/share). Similarly, underlying adjusted EBITDA (including realised gold hedging gains) amounted to US$275.4m (cf our prior estimate of US$250.6m). In the meantime, Endeavour has continued with its shareholder returns programme, buying back an additional US$37m in shares during the quarter. So far, it has returned $513m to shareholders in the form of dividends and buybacks since early 2021 (US$175m year to date), which appear set to continue indefinitely into the future. The third quarter of any particular financial year is almost inevitably Endeavour’s worst on account of the seasonal rains in West Africa. By contrast, the fourth quarter is almost invariably its best. At this stage, however, we do not anticipate any material changes to our forecasts in the wake of Q3 results.

In our last note on the company, using an absolute valuation methodology, whereby we discounted back five years of cash flows and then applied an ex-growth, ad infinitum multiple to steady-state terminal cash flows in FY26, we calculated a present valuation for Endeavour of US$35.46/share if performed using a 10% discount rate or US$55.63/share if performed using a CAPM-derived (real) discount rate of 6.75% (calculated from expected long-term equity returns of 9% and inflation expectations of 2.11%, as measured by US 30-year break-evens). Both are subject to revisions relating to Endeavour’s development of the Lafigué project (which will be included in our formal results note). In the meantime, Endeavour remains the largest premium LSE-listed pure gold producer in the UK 100 index and at a discount to the average multiples of its peers on at least 79% of common valuation measures.

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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

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United States of America

Sydney +61 (0)2 8249 8342

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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

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 2022 Edison Investment Research Limited (Edison).

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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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