Endeavour Mining Corp (TSX: EDV) is a leading global gold producer and the largest gold miner in West Africa, which is engaged in operating four mines in West Africa. Besides, it is also having project development and exploration assets.

Key highlights

• Healthy production along flat AISC: With the limited impact of the rainy season in Q3-2021 and stronger diversification across assets and countries, the company increased its production by 138Koz to 382Koz with a AISC of USD 904/oz against 244 Koz in Q3 2020 with an AISC od USD 904/oz. While year to date production stood at 1,138koz at an AISC of USD 875/oz positions the group well to beat the top end of its FY-2021 production guidance of 1,365-1,495koz at an AISC within its guidance of USD 850-900/oz, which would be a key positive.
• Robust cash flow from operations: On the back of strong production the group clocked higher cash flow from operations before change in working capital at USD 326 million against USD 195 million in Q3 2020. Furthermore, given this strong performance the company expect to generate well in excess of USD 1 billion in operating cash flow for the full year, which has already significantly improved its balance sheet strength.
• Unlocking significant additional value: The company is continuously demonstrating exploration success and is on track to delineate over 2.5 million ounces of Indicated resources in 2021, significantly more than the expected annual depletion. Looking forward, it expects to unlock significant additional value by delivering on the recently published 5-year exploration strategy targeting the discovery of 15 to 20 million ounces of Indicated resources. Moreover, its growth pipeline continues to develop with the Sabodala-Massawa phase 1 expansion on track for completion in Q4-2021.
• Industry Beating Margins: The Company's resilient business helped them leaping the industry median margins on many fronts in Q3 2021, which is a key positive. The chart below gives a glimpse of this.
  

 Financial overview of Q3 2021

Source: Company

• In Q3 2021, the company reported higher revenue of USD 691.7 million, compared to USD 434.8 million in Q3 2020. The increase in revenue is driven by the higher realized gold price and the acquisition of the Wahgnion and Sabodala-Massawa mines.

• Earnings from operations increased to USD 211.1 million, against USD 90.7 million in pcp. Higher revenue helped the company to post healthy earnings, partially offset by higher operating expenses, depreciation, and exploration cost.
• In Q3 2021, the group reported its consolidated net profit at USD 132.2 million, against a net profit of USD 70.1 million in pcp.
  

Risks associated with investment

The Company’s financial performance is mostly dependent on gold price, which directly affects its profitability and cash flow. The price of gold is subject to volatile price movements. It is affected by numerous factors, such as the US dollar's strength, supply and demand, interest rates, and inflation rates. 

Valuation Methodology (Illustrative): Price to Cash Flow 

Stock recommendation

Following a strong third quarter performance, the company is on track to achieve a record year. Even it is well positioned to beat the top end of its 1.5Moz full year production guidance at an AISC within the guided range and expect to generate well in excess of USD 1 billion in operating cash flow for the full year, which has already significantly improved the balance sheet strength which is a key positive. Therefore, based on the above rationale and valuation done using the above methodology, we have given a “Hold” rating at the closing price of CAD 26.55 as on December 13, 2021, with a lower single-digit upside potential.

1Year Price Chart (as on December 13, 2021). Source: REFINITIV, Analysis by Kalkine Group

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

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