One Mid Cap Mining Stock to Bet on – EDV

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

Key Highlights: 

• Encouraging FY21 production: The company reported its FY21 production of 1,536 koz from all operations, beating the top end of the FY21 guidance 1,365 to 1,495 koz. The strong performance was driven by out-performance at the Houndé, Ity, Sabodala-Massawa and Mana mines.

                    Source: Company Report

• Sale of Karma Mine: On March 11, 2022, the company reported the sale of its 90% stake in its non-core Karma mine in Burkina Faso to Néré Mining at a price consideration of ~USD 25 million along with a 2.5% Net Smelter Return royalty. As per the management, this was in line with the company’s strategy as it is focusing on high margin and long-life mining assets. This is expected to strengthen the company’s overall liquidity.
  

• Management Update: Recently, the company reported the appointment of Srinivasan Venkatakrishnan as an Independent Non-Executive Director and Chair of the Board and Ian Cockerill as the Senior Independent Non-Executive Director with effective from May 24, 2022.

• Rise in cash flows: In FY21, the company reported its cash from operations of USD 1,166.1 million, which is significantly higher than USD 748.9 million in FY20, supported by higher net profit. Moreover, this is likely to support the company’s overall liquidity, which is a key positive.

Risk Associated with the investment:

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

FY21 Financial highlights:

FY21 Income Statement Highlights (Source: Company Report)

• EDV announced its full-year result, wherein the company posted its revenue of USD 2,778.1 million, stood significantly higher than USD 1,424.1 million in FY20. The growth was primarily driven by higher gold sales of 1,566,758 ounces in FY21, as compared to 808,806 ounces in FY20.
• Earnings from mine operations stood at USD 890.8 million, surged from USD 489.4 million in FY20, supported by higher income, partially offset by an increased cost of sales.
• Corporate costs, Impairment of mining interests and goodwill and Share-based compensation costs stood higher than the previous year. However, due to elevated earnings from mine operations, the company reported higher earnings from operations of USD 483.3 million from USD 337.7 million in FY20.
• Net comprehensive earnings from continuing operations stood at USD 279.5 million, rose from USD 134.3 million in FY20. This was primarily due to higher earnings from operations, partially offset by higher finance costs and an increase in income tax expense.

Valuation Methodology (Illustrative): EV to Sales based.

Analysis by Kalkine Group

Stock Recommendation:

For FY22, the company expects its group production of 1,315 to 1,400 koz, while its AISC is expected in between USD 880 to 930/ oz. From mid-2016 to 2021, the group showcased a strong track record of exploration of 11.5Moz, while targeting discovery of more than 2x production depletion in between 2021-2025 period. This is encouraging and is expected to support the company’s mineral reserve. 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 K92 Mining Inc, First Majestic Silver Corp etc.  Considering the aforesaid facts, we recommend a ‘Buy’ rating on the stock of EDV at the last closing price of CAD 30.64 on March 29, 2022.

One-Year Technical Price Chart (as on March 29, 2022). Analysis by Kalkine Group

  Technical Analysis Summary:

Disclaimer

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