Endeavour Mining Corporation

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:

• Improved Margin profile: The company commands a higher margin than its peers, which is an indication of 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 39.8% and 27%, respectively. Moreover, the net margin stood at 19.2% in the quarter, higher than the industry median of 13.3%.
• Improved cash conversion period: In Q3FY21, the company reported a strong operational metrics and posted its cash conversion period of 33.8 days, as compared to the industry median of 56 days, which indicates that the organization is takes lower time to convert its inventory to cash flow.
• Strong Exploration results: The company has a strong exploration history and reported 8.5Moz discovered from mid-2016 to 2020, which is mentioned worthy. For, FY21, the company expects to reach an exploration target of 1.5 to 2.5Moz, which is higher than 2.2 Moz in FY20. Notably, during Q4FY21, and FY22, the group would continue to focus on expanding its exploration programs across Mambo, Vindaloo South and the intersection between Kari Gap and Kari Center. Moreover, the group would focus on advance higher-grade targets such as Sia Sianikoui and Dohoum through additional drilling program.

Source: Company Presentation

Risks: Volatility in the international gold prices are likely to dampen the company’s income, cash flows and margins.

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, soared from USD 63.584 million in Q3FY20.

Q3FY21 Income Statement Highlights (Source: Company Report)

Valuation Methodology (Illustrative): Price to Cash flow based.

Stock Recommendation:

For 9MFY21, the company reported a higher Operating cash flows of USD 311.906 million, v/s USD 181.996 million in pcp. Moreover, Adjusted EBITDA stood higher at USD 369.602 million in 9MFY21, as compared to USD 225.427 million in pcp. We have valued the stock using the P/CF-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, Silvercorp Metals Inc etc . Considering the aforesaid facts, we recommend a ‘Buy’ rating on the stock of EDV at the current market price of CAD 27.07 at 10:02 am Toronto time on December 29, 2021.

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

Technical Summary Analysis

One-Year Technical Price Chart (as on December 29, 2021). Analysis by Kalkine Group

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

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