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

• Elevated production: Q1-2022 production from continuing operations amounted to 357,089 ounces, an increase of 44,400 ounces or 14% compared to Q1-2021. Group production increased due to the full quarter inclusion of Sabodala-Massawa and Wahgnion mines which were acquired on 10 February 2021, partially offset by lower production at Boungou.

• Robust guidance for FY2022: The company began the year with a strong increase in production; it also anticipates an increase in consolidated output in FY 2022, compared to 2021, and would generate 1315 to 1400 koz of metal in 2022, with AISC cost projections ranging from USD 880 to USD 930 per ounce.

Source: Company Filing

• Strong Operating Cash Flows: The company achieved strong operating cash flows before changes in working capital of USD 370 million, which increased by 41% from USD 263 million in pcp. This cash generation is due to a strong operational performance, supported by higher realization cost of metal.

Source: Company Filing

• Sequentially improving margins: On the back of strong production in Q1 2022 and higher realization price of the metal at USD 1911 per oz against USD 1762 per oz in pcp, the company lifted its EBITDA margin and operating margin in the reported period. On top of this it managed to leap an industry margin in the same period, which is a key positive.

   Source: REFINITIV, Analysis by Kalkine Group 

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. 

Financial overview of Q1 2022 (In mn of USD)

Source: Company Filing 

• In Q1 2022, the company reported higher revenue of USD 686.2 million, compared to USD 601.0 million in Q1 2021. The increase in revenue is driven by the higher realized gold price and the inclusion of Sabodala-Massawa and Wahgnion mines.

• Earnings from operations increased to USD 246.7 million, against USD 146.6 million in pcp. Higher revenue helped the company to post healthy earnings, partially offset by higher depreciation cost.
• In Q1 2022, the group reported its consolidated net loss attributable to shareholders at USD 56.7 million, against a net profit of USD 84.6 million in pcp, mainly due to losses on financial instruments at USD 178.8 million.
  

Valuation Methodology (Illustrative): Price to Cash Flow

Analysis by Kalkine Group 

Stock recommendation

This performance of the company has resulted in significant cash flow generation throughout the quarter which, in line with its capital allocation policy, was utilized to further strengthen the balance sheet. The net cash position has increased by USD 90 million to USD 167 million at the end of the first quarter of 2022. Furthermore, the organization is committed to enhancing its business resilience by boosting portfolio quality through attractive organic growth possibilities and optimization activities.

Therefore, based on the above rationale and valuation done using the above methodology, we have given a “Hold” rating at the last closing price of CAD 32.68 as on May 6, 2022, with a single-digit upside potential. 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 May 6, 2022). Source: REFINITIV, Analysis by Kalkine Group

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

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