Endeavour Mining: A Look At The Q4 Results
Summary
- Endeavour Mining reported its FY-2019 results this week, missing production guidance and narrowly beating out its cost guidance.
- The company produced just over 650,000 ounces of gold in FY-2019, and expects to see annual gold production of over 700,000 ounces in FY-2020.
- Based on an underwhelming year, I have moved the company out of my top 3 producers in Africa, and I see B2Gold and Teranga Gold as more attractive on dips.
We're now more than 90% of the way through the gold miners' Q4 earnings season, with just over 60% of companies beating estimates, and projected FY-2020 EPS growth for the group of over 40%. The most recent name to report earnings in the sector is Endeavour Mining (OTCQX:EDVMF), an African miner that missed guidance slightly for the year on the production side. While Endeavour's all-in sustaining costs came in right at the mid-point of guidance, annual production came in at only 651,000 ounces, more than 3% below the mid-point.
Although Endeavour Mining offers a stable production profile and industry-leading cash costs, the guidance miss is a little disappointing, considering that peers like B2Gold (BTG) and Teranga Gold (OTCQX:TGCDF) smashed guidance in nearly every area. Based on this, while I view Endeavour Mining as a Hold, I see B2Gold and Teranga Gold as more attractive African producers after a slightly underwhelming year for Endeavour Mining.
(Source: Author's Table)
Endeavour Mining is the most recent name to report its Q4 and FY-2019 results, and we saw a somewhat mixed year from the company. The company managed to narrowly beat the mid-point of its cost guidance of $820/oz, but annual gold production missed the mark by quite a bit, 3% below the guidance mid-point. For the full year, Endeavour Mining reported annual gold production of 651,000 ounces at all-in sustaining costs of $818/oz. As the chart shows below, the company has noted that guidance was met for its 7th straight year, but this year was much more underwhelming compared to prior years for where guidance came in.
As we can see, gold production in previous years was at or above the mid-point, whereas this year, it came in just 1,000 ounces above the low end of this range. While I wouldn't call this a huge disappointment, it certainly isn't ideal from a relative standpoint when a few other African peers trounced guidance, managing to under-promise and over-deliver for FY-2019. Let's dig into the company's primary operations a little deeper below:
(Source: Company Presentation)
Beginning with Endeavour's newest mine, Ity CIL, the mine achieved commercial production in Q2 2019 and managed to beat the guidance mid-point of 180,000 ounces for FY-2019 easily. The mine produced 190,000 ounces of gold at all-in sustaining costs of $616/oz, with the mine producing four months ahead of schedule. While the all-in sustaining costs at Ity CIL came in above guidance of $558/oz, it was a relatively strong year overall for the mine's first year in production.
The company successfully completed the processing plant upgrade to 5 million tonnes per annum, and we should see significantly higher annual production in FY-2020. As reported in the FY-2019 results, Endeavour's FY-2020 guidance midpoint is 245,000 ounces of gold production at all-in sustaining costs of $653/oz. This is a slight increase in costs year-over-year, but it's worth noting that these costs are still well below the industry average.
(Source: Company Presentation)
The bonus at the company's Ity mine is that the permitting processing is underway for the Le Plaque deposit, which has a much higher-grade resource than the Ity reserve grade. Endeavour's goal is to get this deposit into production as soon as possible to displace lower grade production. Le Plaque's recent resource update came in at 476,000 ounces at 3.20 grams per tonne gold. This figure is more than double the average reserve grade at the Ity mine currently of 1.57 grams per tonne gold. Therefore, Le Plaque should have a significant impact on costs once it's in production.
Moving over to Hounde, we saw production decrease year-over-year to 223,000 ounces of gold at all-in costs of $862/oz. This decrease in production was in line with plans due to mine sequencing, which called for lower grade stockpiles supplementing mill feed and a shift to harder fresh ore in FY-2019. The 2018 costs of $564/oz at Hounde benefited substantially from a much lower strip ratio with higher-grade and softer oxide ore. Unfortunately, the minor hiccup that led to slightly lower than expected production despite the ore shift was a slower than expected ramp-up at the Bouere deposit. These delays were due to a much harsher than average rainy season in Q3.
(Source: Company Presentation)
If we look ahead to FY-2020, production at Hounde is expected to increase to 240,000 ounces for the year at all-in sustaining costs of $880/oz. This would translate to a roughly 7% jump in production at costs that are 2% higher than last year. The good news is that Endeavour expects to get its high-grade Kari Pump mining approvals in the second half of 2020. Similar to the plan for Le Plaque at the Ity mine, the Kari Pump deposit is being fast-tracked to deliver high-grade ounces vs. the lower grade of the reserve base for Hounde. The company hopes to see production from Kari Pump in the back half of the year.
(Source: Company Presentation)
Finally, at the company's Agbaou mine, we saw FY-2019 gold production of 138,000 ounces, which was roughly flat year-over-year. All-in sustaining costs came in at $796/oz, approximately 10% below the guidance mid-point of $875/oz. If we look ahead to FY-2020 at Agbaou, the current guidance calls for 120,000 ounces of gold production at all-in sustaining costs of $965/oz, translating to 10% lower output at much higher costs than 2019. This was due to a shift to harder ore being mined for the year.
(Source: Company Presentation)
In terms of the company's consolidated FY-2020 guidance, Endeavour expects 710,000 ounces of annual gold production at all-in sustaining costs of $870/oz. The company has noted that production will likely be back-end weighted a little due to the commissioning of the Kari Pump later in the year. Based on this guidance forecast, Endeavour is expecting to see just over 10% production growth year-over-year, but at 6% higher costs. Ideally, investors are going to want to see the company trounce FY-2020 guidance estimates as this forecast is a little underwhelming after a mediocre year in 2019.
The good news last year was that there was immense progress made on the de-leveraging side of things for Endeavour, as the company reduced net debt by $80 million in Q4 alone. This is a significant improvement on a net debt/adjusted EBITDA ratio, as the current ratio sits at 1.48, down from 2.75 at the end of Q2 2019. If the company can benefit from a gold price that holds above $1,500/oz for the remainder of 2020, we should see net debt fall to below $360 million to finish the year. As of the end of Q4 2019, net debt stood at $528 million, down from $660 million at the peak of the company's investment phase.
(Source: Company Presentation)
While Endeavour Mining didn't have a bad year in 2019, it certainly didn't deliver a blow-out year like a couple of other African peers like B2Gold and Teranga Gold managed to. Based on slightly underwhelming guidance for FY-2020, Endeavour will need to put up a strong year to move back into the top 3 ranks among African gold producers. It's possible that a further correction towards C$22.00 will provide a buying opportunity on Endeavour Mining, but I see B2Gold and Teranga Gold as more attractive ideas among the African names assuming the miners continue to correct.
This article was written by
Analyst’s Disclosure: I am/we are long GLD. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Disclaimer: Taylor Dart is not a Registered Investment Advisor or Financial Planner. This writing is for informational purposes only. It does not constitute an offer to sell, a solicitation to buy, or a recommendation regarding any securities transaction. The information contained in this writing should not be construed as financial or investment advice on any subject matter. Taylor Dart expressly disclaims all liability in respect to actions taken based on any or all of the information on this writing.
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Comments (16)
Whole sector is getting killed due to overall market carnage lately. I only am long 2-3 miners currently across my portfolios as fundamentals have gone out the windows for most names.
