Endeavour Mining Corporation (TSX: EDV) is a gold mining company and operates through four mines in West Africa, in addition to having project development and exploration assets.

Key Updates:

• Attained highest annual discoveries of Inferred Resources: In FY21, the company reported total discoveries of 3.0 Moz of Measured and Indicated M&I resources, which stood higher than the initial guidance of 2.5 Moz. The growth was supported by the stellar performance from its flagship mine namely, Ity, Hound é and Sabodala. The company’s performance stood in line with the long-term goal of 5-year discovery of 10-15 Moz.

• Improved Margin profile: The company commands a higher margin than the industry median, which implies an improved cost structure. EBITDA margin and operating margin stood at 58.6% and 30.5%, respectively, in Q3FY21, higher than the industry median of 42.1% and 27.8%, respectively. Moreover, the net margin stood at 19.2% in the quarter, higher than the industry median of 14.2%.
  

• Higher Y-T-D production: The company reported a strong production growth of 1.125 moz in 9MFY21, which is significantly higher than 0.487 moz. The growth was driven by increased throughput and higher average processed grades from Houndé, Ity, Sabodala-Massawa and Mana mines. The company is confident to reach the higher end of its production guidance of 1.5 moz in FY21, which is a key positive.

Risks: Volatility in the international gold prices are likely to dampen the company’s income, cash flows and margins. The company reported higher input costs during Q3FY21, and continuation of the above trend might dampen the margins and profitability.

Q3FY21 Financial Highlights:

• EDV impresses with its quarterly results, wherein the group reported its revenue of USD 691.707 million, jumped from USD 434.839 million in the previous corresponding period (pcp). The surge was driven by higher gold sales (392.432 koz v/s 236.292 koz in pcp), partially offset by lower realization price of (USD 1,763/oz v/s USD 1,840/oz in pcp)
• Earnings from mine operations stood at USD 235.114 million, significantly higher than USD 123.231 million, considerably higher from the previous corresponding period (pcp). The increase was driven by elevated topline, partially offset by higher operating expenses due to comparatively higher production.
• The group reported earnings from operations of USD 211.184 million, higher than USD 90.777 million in pcp. During the quarter, the group reported a surge in input costs like corporate cost and exploration costs.
• Net comprehensive earnings stood at USD 132.543 million, grew from USD 63.584 million in Q3FY20.

Q3FY21 Income Statement Highlights (Source: Company Report) 

Valuation Methodology (Illustrative): EV to Sales based.

Stock Recommendation:

During the 9MFY21, the group reported its gold sales of 1.176 moz, which is significantly higher than 508,184 oz in pcp. Adjusted EBITDA stood significantly higher at USD 1,075.799 million, grew 149% on y-o-y basis. The company is progressing well with the Definitive Feasibility Studies for the Sabodala-Massawa Phase 2 expansion, the Fetekro and Kalana projects. We have valued the stock using the EV to Sales-based relative valuation method and have arrived at a double-digit upside (in percentage terms). For the said purposes, we have considered peers like Kirkland Lake Gold Ltd, Yamana Gold Inc etc . Considering the aforesaid facts, we recommend a ‘Buy’ rating on the stock of EDV at the closing price of CAD 27.60 on January 17, 2022.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached

Technical Analysis Summary

One-Year Technical Price Chart (as on January 17, 2022). Analysis by Kalkine Group

*The reference data in this report has been partly sourced from REFINITIV.

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