Endeavour Mining Corp

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 

• Record Q4 2020 preliminary results: The company managed to achieve the top end of its production guidance and witnessed the production of 344koz, a 41% increase in Q4 2020, over Q3-2020, while AISC decreased by 15% to USD770/oz. The FY2020 consolidated output stood at 908koz, a 39% increase over FY2019, where AISC increased by 5% to USD860/oz. Furthermore, the company reported a net cash position of USD 70 million at year-end and reduced net debt by USD 245 million during Q4 2020 and USD 600 million during FY2020.

• Acquires Teranga Gold Corporation: The company has completed the acquisition of Teranga Gold Corporation. The combination creates a new top ten senior gold producer with an average annual production of more than 1.5Moz per year with industry-low production costs. Through this acquisition, the company would be Leveraging off its strategic position as the largest gold producer in West Africa.

Source: Company

• Reaffirmed 2021 production guidance: Despite the challenges, the company achieved its annual production guidance for the eighth consecutive year. For 2FY2021, the company's focus would be on integrating Teranga assets and progressing the organic growth pipeline. Furthermore, the management reaffirms its 2021 production guidance to produce to 1.4 - 1.5 million ounces along with an increased exploration budget by 40% to USD 70-90 million with a strong focus on newly acquired assets and greenfield properties.

Source: Company 

Financial overview

Source: Company 

• In Q3 2020, the company reported higher revenue of USD 481.6 million, compared to USD 267.3 million in Q3 2019. The increase in revenue is driven by the higher realized gold price and the two recently acquired operating mines, Mana and Boungou.

• Earnings from operations stood at USD 101.5 million, against USD 68.4 million in pcp. Higher revenue helped the company to post healthy earnings, partially offset by higher operating expenses, depreciation and restructuring cost.

• In Q3 2020, the group reported a complete turnaround as its consolidated net profit stood at USD 68 million, against a net loss of USD23.5 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

Note: All forecasted figures and peers have been taken from Thomson Reuters 

Stock recommendation 

Despite the challenges presented by the global pandemic, the Company posted robust numbers and achieved its annual production guidance for the eighth consecutive year. For FY2021, the Company’s focus would be on integrating Teranga assets and progressing organic growth pipeline. The management also reaffirmed its 2021 production guidance to 1.4 - 1.5 million ounces. Furthermore, the consolidated FY2020 production stood at 908koz, a 39% increase over FY2019 and a reported net cash position of USD 70 million at year-end with reduced net debt by USD 245 million in Q4-2020, and USD 600 million during FY-2020. Therefore, based on the above rationale and valuation, we recommend a “Buy” rating at the closing price of CAD 24.51 on February 26, 2021. We have considered B2Gold Corp, Yamana Gold Inc, Roxgold Inc, etc. as the peer group for the comparison.

Source: Refinitiv (Thomson Reuters)

Pretium Resources Inc.

Pretium Resources Inc. (TSX: PVG) is engaged in the acquisition, exploration, development and operation of precious metal resource properties in America. The Company’s assets include Brucejack mine, Bowser Claims and the Porphyry Potential Deep Drilling (PPDD) Project.

Key highlights 

• Higher guidance for 2021: The management shared higher guidance for 2021, assuming there is no new significant impact on the Brucejack Mine operations. The gold production is expected to be in a range of 325,000 to 365,000 ounces. Furthermore, they expect the free cash flow in the range of USD 120.0 - 170.0 million, at a gold price of USD 1,700 per ounce.

Source: Company

• Repaid debts:The company Repaid USD 226.7 million of debt, including a discretionary payment of USD 160.0 million using the cash generated from operations and proceeds from the sale of Snowfield. 

• Strong Free Cash Flows:On the back of robust operations coupled with a high realized price of gold, the company posted healthy cash generated from operations, which stood at USD 317.3 million compared to USD 225 million in FY 2019. Free cash flow came in at USD 369.2 million, exceeding the revised free cash flow forecasted range of USD 205.0 - 275.0 million, based on an average realized gold price of USD 1,800 per ounce.

Source: Company 

• Rising cash and cash equivalents: On December 31, 2020, the company reported total cash and cash equivalents of USD 174.7 million, increasing by USD 151.5 million from USD 23.1 million against the previous corresponding period. The increase in cash and cash equivalents was primarily due to the rise in cash flows generated from the Brucejack Mine operations and proceeds from the sale of Snowfield.

Source: Company 

Financial overview of FY2020

Source: Company

• For the year ended December 31, 2020, the company generated revenue of USD 617.5 million, against USD 484.5 million in the previous corresponding period. The increase in revenue was the result of higher gold prices realized on ounces sold in the period.
• The Company reported a higher operating income at USD 200 million, against USD 132.7 million in FY2019. The rise was primarily due to higher revenue and lower cost of sales as % to revenue, which came to 64.1% Vs 68.7% in pcp.
• The Company posted a net loss of USD 38.4 million in FY2020, against a profit of USD 40.9 million, as they booked a loss on exploration and evaluation asset sales coupled with higher income tax expense.

Risks associated with investment

The Company’s financial performance is mostly dependent on the gold price, which directly affects its profitability, margins and cash flows. Any volatility in price or demand could impact their financial performance.

Valuation Methodology (Illustrative): Price to Cash Flow

Note: All forecasted figures and peers have been taken from Thomson Reuters 

Stock recommendation

For the company, FY2020 proved to be an exceptionally challenging year, yet they achieved financial and production guidance; for the first time in history. The company also improved the mineral reserve reconciliation compared to previous years, which is appreciable. Furthermore, the company ended 2020 with higher cash and cash equivalents of USD174.7 million, increased by USD151.5 million against 2019, and repaid USD 226.7 million of debt. The management also shared higher guidance numbers for 2021, where they expect gold production to be in a range of 325,000 to 365,000 ounces which would help them generate free cash flow in the range of USD120.0 - 170.0 million. Hence, based on the rationales discussed above and valuation, we recommend a “Buy” rating at the closing price of CAD 12.38 on February 26, 2021. We have considered Premier Gold Mines Ltd, First Quantum Minerals Ltd, Lundin Mining Corp etc. as the peer group for the comparison.

Source: Refinitiv (Thomson Reuters)

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