CA - Endeavour Mining: Solid West African Gold Producer

2023-03-17 11:53:42 ET

Summary

• Endeavour Mining plc revenues for 4Q22 were $624.7 million, with a net loss of $262.1 million. Adjusted earnings were $65 million or $0.26 per share.
• Gold production for the fourth quarter of 2022 was 355,225 Au ounces, and sold 352,448 Au ounces at an AISC of approximately $954/oz.
• Endeavour Mining is paying a semi-annual dividend of approximately $0.41 per share or a dividend yield of 3.8%.
• I recommend buying Endeavour Mining plc stock between $19.8 and $19.5 with potential lower support at $18.25.

Introduction

The London-based Endeavour Mining plc ( EDV:CA , LSE: EDV, [[EDVMF]]) is one of the largest gold producers in West Africa, with six operating assets across Senegal, Cote d'Ivoire, and Burkina Faso and a strong portfolio of advanced development projects and exploration assets in the Birimian Greenstone Belt across West Africa.

Important note: This article is an update of my article published on January 30, 2023. I have been following EDVMF on Seeking Alpha since 2021.

1 - 4Q22 Results Snapshot

On March 9, 2023, Endeavour Mining announced that gold production for the fourth quarter of 2022 was 355,225 Au ounces and sold 352,448 Au ounces at an AISC of approximately $954/oz.

For the full-year 2022, the company announced a gold production of 1,410,407 Au ounces at an AISC of $928 per ounce, beating guidance of 1,315-1,400koz at an AISC within the guided $880-930/oz range.

Revenues for 4Q22 were $624.7 million, with a net loss of $262.1 million. Adjusted earnings were $65 million or $0.26 per share.

Finally, Endeavour Mining is paying a semi-annual dividend of approximately $0.41 per share or a dividend yield of 3.8%.

Sabodala-Massawa expansion and Lafigué greenfield project construction are on budget and scheduled for production in 2Q24 and 3Q24.

CEO Sebastien De Montessus said in the conference call:

2022 was another very successful year for Endeavour, and of course it was another very busy year. We are extremely proud of what we have accomplished as we delivered against our strategic objectives despite the changes in the macro and geopolitical environment. To summarize the year, one of our proudest achievements was meeting guidance for the 10th year in a row.

2 - Investment Thesis

Endeavour Mining plc has an excellent financial profile despite mining exclusively in West Africa, which is not considered a safe jurisdiction compared to North America, and for good reasons. Endeavour has no net debt and total cash of $962.3 million. The company has been generating great positive free cash flow since 4Q21.

Another positive component: Endeavour Mining has well-diversified assets and is financing new projects (brownfield and greenfield) that will produce in 2024.

Finally, Endeavour Mining is paying a semi-annual dividend of $0.81 per share in 2022 and has an ongoing buyback program.

Note: The minimum dividend could be supplemented with additional dividends and buyback, assuming the gold price remains above $1,500 per ounce, and net leverage debt to adjusted EBITDA remains below 0.5x.

The share buyback program continued with $99 million worth of shares repurchased in 2022.

One crucial component for Endeavour is primarily the price of gold. Gold has recovered significantly since October and is now back to the same level as last year. The market has been shaken by bank failures recently, and the FED could turn dovish in 2023. This situation is considered favorable for gold bullion. However, gold stocks are not doing as well lately and seem disconnected from gold bullion. It is only temporary, and the gold mining industry may turn bullish in H2 2023.

Thus, the best way to profit from such a volatile market is to trade short-term LIFO of 30%-40% of your total position and use your short-term gain to increase your core long-term position for a much higher target when the market decides to turn bullish on gold again.

3 - Stock Performance

EDVMF has dropped from its high in March-April and is down 12% on a one-year basis. However, Endeavour is outperforming most of its peers.

Endeavour Mining - 4Q22 Balance Sheet And Trend - The Raw Numbers

Source: Company releases M&A . Fun Trading files.

Analysis: Revenues, Free Cash Flow, Debt, And Gold Production

1 - Quarterly Revenues for the Fourth Quarter of 2022

2 - Quarterly Free Cash Flow History

Note: Free cash flow is the Cash from operations minus CapEx.

The company's free cash flow for the fourth quarter was $139.4 million, and the trailing 12-month free cash flow was $503.7 million.

3 - Debt Situation in 4Q22; No Net Debt and Total Cash of $962.3 million.

4 - Quarterly Gold Production Analysis

4.1 - Gold Production

4Q22 gold production from continuing operations was 355,225 Au ounces, slightly increasing over 3Q22. Production was up 3.6% sequentially.

4.2 - Gold production per mine. Comparison between 4Q21 and 4Q22

Production for 4Q22 decreased significantly compared with 4Q21, mainly because the company sold its Karma mine.

4.3 - Quarterly Gold price realized and AISC

AISC for all operations decreased slightly this quarter to approximately $954 per ounce, which is still excellent but higher than 4Q21 due to inflationary pressures.

6 - Sabodala-Massawa project expansion and the new 80%-owned Lafigué Project:

Production is expected to be between 315K to 340K Au ounce in 2023, with an AISC between $760 and $810 per ounce.

P&P reserve is 4.44 Moz with M&I resources of 6.877 Moz. However, the BIOX expansion will be completed in H1 2024 (first gold).

Also, the new project Lafigué in Côte d'Ivoire has started and will be completed in 2024. The 80%-owned Lafigué project construction decision was announced the 17 October 2022.

Sebastien de Montessus, President and CEO, said in the conference call:

Given this strong operational performance and our healthy balance sheet, we were able to launch the Sabodala-Massawa brownfield expansion and construction of our next mine, the greenfield Lafigué project which will further increase the quality of our portfolio.

7 - 2023 Guidance - 1.325-1.425 Moz with AISC of $940-$995 per ounce.

Commentary And Technical Analysis

Note: The chart is adjusted for dividends.

EDVMF forms a descending triangle pattern, with resistance at $21.5 and support at $19.7.

The descending triangle pattern is a bearish formation that usually forms during a downtrend as a continuation pattern. However, if gold turns bullish due to a more dovish FED's action on interest rates, we could experience a possible breakout.

The trading strategy I suggest is to gradually sell about 30%-40% of your EDVMF position between $21.5 and $21.75 with possible higher resistance at $22.15 and accumulate between $19.8 and $19.5 with potential lower support at $18.25.

The gold price is moving nicely and should help the stock in 2023. However, volatility in this industry is notorious.

Thus, the best-adapted approach is to sell short-term LIFO while keeping a core long-term position for a much higher final target. It is what I am suggesting in my marketplace, "The Gold and Oil Corner."

Watch the gold price like a hawk.

Warning: The TA chart must be updated frequently to be relevant. It is what I am doing in my stock tracker. The chart above has a possible validity of about a week. Remember, the TA chart is a tool only to help you adopt the right strategy. It is not a way to foresee the future. No one and nothing can.

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