Endeavour Mining Plc. (TSX: EDV) is a major gold producer in West Africa, with operating assets across Senegal, Cote d'Ivoire, and Burkina Faso.

Key highlights  

• Improved gold production: For FY21, the total gold production increased by 69% to 1,536 Koz (Koz= thousand ounces) as compared to 908 Koz in FY20. The major contributors for the gold production increase were from the Hounde mine, which reported 293 Koz of gold produced in FY21 vs 277 Koz in the pcp. Further, the Boungou mine has reported an increased in gold production of 174 Koz from 94 Koz during. Below is the graphical presentation of the total production from the mines from FY21 vs FY20.

Source: Company presentation, Analysis by Kalkine Group

• AISC from continuing operations: For FY21, the All-in sustaining costs stood at USD 880 per ounce as compared to USD 853 per ounce in FY20. The rise in cost was in the account of an increase in the production quantity especially coming from the Sabodala- Massawa, Waghnion mines.

• Improving profitability margins:For Q3FY21, the EBITDA margins were 58.6% as compared to the industry median of 39.2%. For the reported period, its Operating margin stood at 30.5% vs the industry median of 26.8%. On the Net margins front, the company outperformed by achieving 19.2% for the Q3FY21 vs the industry median of 15.3%.

Source: Refinitiv, Analysis by Kalkine Group 

Risks associated with investment

The company is currently exposed to the volatility of the gold prices along with its demand and operations restrictions. Further challenges included the hedging cost and foreign exchange volatility which could also impact the financials of the company. 

Financial overview of Q3FY21 & 9MFY21 (Expressed in thousands USD)

Source: Company Filing 

• For Q3FY21, the company reported an increase in the revenues to USD 691.70 million from the USD 434.83 million in pcp. similarly, while looking at a broader picture, the revenues increased to USD 2.08 billion vs USD 0.87 billion in pcp. The rise in 9MFY21 was primarily from the increased quantity of gold sold to 1.17 million oz at an average realized price of USD 1,768 per ounce vs 0.50 million oz at an average realized price of USD 1,713 per ounce in a similar comparable period.

• The group reported improved earnings from mining operations for the Q3FY21 at USD 235.11 million when compared with USD 123.23 million in pcp. For 9MFY21 the earnings from mine operations rose to USD 714.70 million as compared to USD 270.99 million in pcp. There was an increase in operating expenses of USD 788.5 million for a similar period to USD 345.59 million in pcp, which impacted the earnings slightly in 9MFY21.

• The Earnings before taxes (EBT) for the Q3FY21 was USD 173.09 million vs USD 75.64 million in Q3FY20. While comparing the EBT for the recent 9MFY21, the company reported its EBT at USD 553.09 million vs USD 98.20 million in the previous comparable period. 

• The company reported Net Comprehensive earnings for Q3FY21 at USD 132.54 million when compared to USD 70.16 million in the pcp. Looking at a bigger picture, the 9MFY21 earnings stood at USD 388.72 million for 9MFY21 vs USD 83.01 million in 9MFY20.
  

Valuation Methodology (Illustrative): EV to Sales multiples Based

Analysis by Kalkine Group 

Stock recommendation 

The company reported a strong increase in revenues for 9MFY21 at USD 2.08 billion and clocked more than 3.5x growth in Net Income to USD 388.72 million for a similar period. The current macro environment of rising inflation along with the rise in gold prices is boosting the demand for gold across the world, which will act as a catalyst for the company to report a strong set of numbers in the coming quarters. On the valuation front, the stock is measured on the EV to sales basis, and we have considered Pan American Silver Corp, Yamana Gold Inc., B2Gold Corp., etc as the peer group for the comparison.

Therefore, based on the above rationale and valuation, we recommend a “Hold” rating at the closing market price of CAD 33.53 on March 10, 2022. Additionally, the markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

One-Year Technical Price Chart (as on March 10, 2022). Source: REFINITIV, Analysis by Kalkine Group

Disclaimer

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