West African gold mining specialist Endeavour Mining (LSE:EDV) recently received the blessing of its shareholders for a buyback programme of TSX shares, working with Stifel Nicolaus Europe. Revenue for the last quarter was $686m, which is up from the $601m it reported 12 months ago. Here we take our first look at this established gold play with a diverse portfolio of African mines. Make sure you sign up to our newsletter for more detailed analysis coming soon.
Endeavour Mining, the largest listed pure gold company on the London Stock Exchange, has six gold mines and is also the largest producer of gold in West Africa. Its annual gold production already ranks it among top gold miners globally. Notably, when it comes to free cash flow yield, it looks very impressive indeed, beating the likes of B2 Gold, Kinross and AngloGold (2021 numbers).
The fastest growing gold producing region in the world
West Africa is the fastest-growing gold producing region in the world: production has increased in the region by 90% over the last decade, considerably more than the overall growth in global gold production. This is also a region that is seeing a LOT of exploration focus and which has ranked first in terms of new discoveries over the last decade (79m oz of new gold discovered during this time period).
Endeavour Mining’s objective is to build and sustain a high quality portfolio of operating gold mines with an all-in sustaining cost of less than $900/oz with over 10 years of production visibility from its operating assets. It remains the largest producer of gold in each of the West African countries in which it operates – this means it can leverage operational synergies across the region when it comes to keeping the mines running.
Pipeline of new projects and exploration activity
While Endeavour Mining has its six mines already operating, it has a significant pipeline of new projects, including six with +20% projected after tax IRR at $1300/oz gold price (at time of writing the gold price was $1813/oz). It should also be noted that the company is very active in exploration, discovering 11.5m ounces of indicated resources from mid-2016 through to last year. The discovery cost was three times lower than the industry average.
All this gives Endeavour a very healthy looking production outlook (see below).
Solid numbers underpin competitiveness vs peers
Investors looking for yield should also be aware of Endeavour’s shareholder returns policy. This provides dividend visibility during growth phases with dividends payable semi-annually if the gold price remains over $1500/oz. This remains in place for 2023. Supplementary to that, there is also the potential to continue to pay a higher dividend and also buy shares back if leverage within the company is below 0.5x net debt / EBITDA.
The company’s last set of numbers support some pretty strong metrics, especially when compared to close peers. Its book value factor measures up well and we also see strong revenue efficiency and EBITDA, along with an overall impressively positive income statement. Endeavour is headed in the right direction regarding EBITDA, exhibiting efficient capital controls and strong overall financial performance. It measures up well against the likes of Barrick Gold and Teck Resources (although Teck is always tough to beat on free cashflow growth).
Large scale mining property portfolio
We should also stress here the sheer scale of Endeavour’s existing tenement holdings in West Africa. The company has a strategic foothold in two of West Africa’s most prospective belts – 60% of the Birmian Greenstone Belt lies in Burkina Faso and Ivory Coast but it is still relatively under-explored.
All six of Endeavour’s operating mines currently sit inside this belt along with its development projects at Kalana and Lafigue. Endeavour controls the full 125km of the Ity Birminian Belt on the border between Liberia and Ivory Coast. It has been granted exploration permits for most of its length and has mining permits around Ity itself. Endeavour also has the largest foothold on the Hounde Belt. These are very considerable mining tenements with some extremely interesting prospects.
Endeavour is rated a buy or outperform by most of the analysts covering the stock. In terms of the LSE sterling shares, price targets published range between £13.16 (Liberum) and £27.70 (Stifel). Its largest shareholder is La Mancha, with 19.4% and BlackRock Investment Management owns a further 12.3%.