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Endeavour Mining
(TSX: EDV, ASX: EVR) [Shares: 92M issued, 95M fully diluted at 11 July 2016] |
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16th January 2017, Weekly Update (Stock price: C$22.83) | Rumours emerged late last week that London-listed Acacia Mining (ACA.L), a company that produces gold at the rate of around 800K ounces/year from mines in Tanzania, is in merger discussions with Endeavour Mining (EDV.TO). The companies acknowledged that discussions had taken place, but that no deal was currently in the works. We won't be surprised if the merger happens, because it appears to make sense. Assuming it was carried out as a merger of equals (meaning: no takeover premium) it would, we think, be slightly positive for EDV. It would be very positive in terms of in-ground resources, slightly positive in terms of balance sheet, neutral in terms of production and slightly negative in terms of production cost (ACA's production cost is higher than EDV's). If it happens, the combined company will be a senior gold producer with a market cap in the US$4B-$5B range and annual production of around 1.5M ounces. All of the production would come from Africa -- about half from the west side and half from the east side. Although the merger might not happen and would probably be slightly positive for EDV if it did, this news has prompted us to remove EDV from the TSI List. One reason is that the company is getting too big with too many 'moving parts', making it time-consuming to closely follow (we cover a lot of ground in the TSI commentaries and therefore need to limit the amount of time we devote to any one stock). A second reason is that we expect EDV to move in line with the overall gold-mining sector from here on, that is, the dramatic outperformance that EDV provided last year is unlikely to occur in the future. For example, if GDX were to rise by 10-15% over the coming month then EDV would probably do the same. Last Friday's closing price of C$22.83 for EDV is almost identical to the (split-adjusted) price at which the stock was added to the List 5 years ago, so the long-term EDV trade will go into the record books as a break-even result. However, the majority of our buy suggestions over the years occurred when the stock was trading at $4-$8, so most long-term TSI readers who traded the stock probably did very well. EDV could return to the TSI List in the future, but probably only as a short-term trading position. |
14th November 2016, Weekly Update (Stock price: C$20.86) | Endeavour Mining (EDV.TO) published a maiden resource estimate for the recent Bakatouo and Colline Sud discoveries at its 55%-owned Ity gold mine in Ivory Coast, West Africa. The "Indicated" resource is 515K ounces at a very attractive grade (for an open-pit mine) of almost 3-g/t. EDV also published the FS results for a proposed CIL (carbon-in-leach) plant at its Ity gold mine. The mine is presently a heap leach operation, but it is envisaged that utilising a CIL processing plant will enable more efficient gold recovery in the future. According to the FS, the CIL Project would produce an average of 114K ounces of gold per year over a 14-year life at an AISC of only US$603/oz. The initial capex would be about US$300M and at a gold price of $1250/oz the NPV(5%) and IRR would be US$411M and 36%, respectively. Considering the positive economics and EDV's ability to fund the development using its existing financial resources, it's a good bet that the CIL project will enter the construction phase during the first half of 2017 and be in production by early-2019. Ity is one of EDV's two operating mines in Ivory Coast. The company also has mines in Ghana, Burkina Faso and Mali. Ivory Coast appears to contain huge potential, not just for EDV but for gold miners in general. This is due to the geology and the fact that up until now the country has been subject to minimal exploration using modern techniques. There is a lot of relatively high-grade close-to-the-surface ore to be found, but the country risk is also relatively high. The main problem with country risk is that when it materialises it tends to do so suddenly and without warning. One day everything seems fine, the next day something happens (for example, a military coup) that dramatically reduces the market value of all investments. Due to the nature of the risk we wouldn't want to invest in a company that had all of its eggs in the Ivory Coast basket, but due to the reward potential it is reasonable for a gold-mining company to have some exposure to this country. |
7th November 2016, Weekly Update (Stock price: C$24.25) | Endeavour Mining (EDV.TO) reported very good financial performance for the September quarter. By comparing its balance sheet at 30th September with its balance sheet at 30th June we find that there was a US$106M improvement over the 3-month period. The one black mark is that the company is not properly accounting for the streaming deal associated with the Karma project obtained via the acquisition of True Gold Mining during the second quarter of this year. This streaming deal constitutes an obligation to sell 20K ounces of gold per year at an 80% discount to the spot gold price. We estimate that it is a roughly US$100M liability at the current gold price, but this liability is nowhere to be found in the "Liabilities" section of the balance sheet. We view EDV as fully valued at the current gold price, but it offers much better value than most other 500K-1000K oz/year gold producers. We expect that it will trade in line with the gold-mining ETFs. |
19th September 2016, Weekly Update (Stock price: C$23.96) | Endeavour Mining (EDV.TO) announced that it has discovered a new gold deposit next to deposits that are currently being mined at the Ity gold project in Cote d'Ivoire. This discovery will almost certainly give a significant boost to the Ity mine's life-of-mine production. EDV currently has 5 operating gold mines in West Africa -- 2 in Cote d'Ivoire (Ity and Agbaou), 1 in Mali (Tabakoto), 1 in Ghana (Nzema) and 1 in Burkina Faso (Karma). Its 6th West African gold mine (the Hounde project in Burkina Faso) is scheduled to go into production next year. Although it has a low probability of becoming an issue within the next 6 months, one of the biggest risks facing EDV is another Ebola outbreak in West Africa. The possibility of an Ebola re-emergence should not be viewed as a deal-breaker, but it is something that could adversely affect ALL of the countries in which EDV operates and should therefore be taken into account. |
1st August 2016, Weekly Update (Stock price: C$25.37) | Endeavour Mining (EDV.TO) published its quarterly report for the June quarter. EDV's latest quarterly results show the benefit of not being reliant on any single or even any two mining operations, as lower-than-expected output from two mines (Nzema and Tabakoto) and teething problems associated with the startup of the Karma gold mine (Burkina Faso) were offset by better-than-expected performance from two other mines (Agbaou and Ity). Overall, it was an in-line production result that keeps the company on track to achieve its upwardly-revised (due to the acquisition of True Gold Mining) 2016 guidance of 590K-600K ounces. EDV's balance sheet has undergone a large and very positive transformation over the past year. After having well in excess of US$200M of net debt a year ago, including the recently-completed equity financing the net debt figure has dropped to only US$24M. EDV is now conservatively geared and well positioned to complete the construction of its Hounde mine in Burkina Faso over the coming 12 months. Despite the tripling of its stock price since the beginning of this year, EDV still offers reasonable long-term value in absolute terms and good value relative to many of its peers. However, regardless of how high the stock price moves over the next few weeks an opportunity to buy the shares at a much lower price will probably arrive in the midst of a sector-wide correction during September-October. |
6th July 2016, Interim Update (Stock price: C$24.42) | For our own accounts we've been responding to the continuing extraordinary strength in the gold-mining sector by partially or fully replacing large positions in relatively liquid/low-risk gold stocks with much smaller positions in relatively illiquid/high-risk gold stocks. For example, on Wednesday of this week we exited the final 30% of our Endeavour Mining position (at C$24.30) and added a much smaller/higher-risk gold stock using 25% of the proceeds of the EDV sale. This process raises cash and reduces the risk of suffering a large portfolio draw-down while maintaining significant exposure to further strength. |
4th July 2016, Weekly Update (Stock price: C$21.93) | Endeavour Mining (EDV.TO) announced that it held a ground-breaking ceremony at the Hounde project site in Burkina Faso. The ceremony was attended by senior members of the Burkina Faso government, including the president and the prime minister. Hounde is on schedule to begin production in the final quarter of 2017, which probably means that it will reach commercial production during the first quarter of 2018. The project is expected to deliver average annual gold production of 190K ounces at an AISC of US$709/oz over its initial 10-year mine life and to deliver annual production of 235K ounces at a very low AISC of US$610/oz during its first four years of operation. |
20th June 2016, Weekly Update (Stock price: C$20.49) | Endeavour Mining (EDV.TO) is raising C$125M via a "bought deal" equity financing priced at C$20/share. Given the huge run-up in the company's share price over the past few months, this is a sensible move. Issuing new shares at a relatively high price (in this case within 10% of the 3-year high reached earlier in the week) is a relatively-low-cost way of financing a business. |
13th June 2016, Weekly Update (Stock price: C$21.67) | This stock has been a stellar performer since last July and especially since the start of this year. Year-to-date it is up by 184% in C$ terms, which means that it has done twice as well as GDXJ. EDV still offers good value relative to comparable-size gold producers such as B2Gold (BTG) and New Gold (NGD), but in absolute terms it is probably fully valued and is certainly very 'overbought'. We sold some more of our EDV shares near C$20 and as a result have exited about 60% of our holding over the past few months. However, the stock has done so well and it was such a large position to begin with that it is still one of our three largest positions. There is long-term resistance defined by the 2011-2012 highs at C$24-$26. Our current plan is to make a complete exit from EDV if this price range is attained within the coming few weeks. |
16th May 2016, Weekly Update (Stock price: C$18.53) | Endeavour Mining (EDV.TO) announced a senior management change that was first signaled last September as part of the deal that made La Mancha, a company owned by Egyptian billionaire Naguib Sawiris, a major EDV shareholder. As noted in the discussion of the deal in our 28th September-2015 report: "Sebastien de Montessus, the former CEO of Areva Mining and the current CEO of La Mancha, will be joining Endeavour as President and resigning from his current La Mancha position. It is envisaged that he will transition to the CEO role over the next two years and that Neil Woodyer, EDV's current CEO, will transition to the role of Executive Chairman." The transition has happened, although Woodyer's new title will be Non-Executive Chairman rather than Executive Chairman. We view this news as neutral. Woodyer achieved good results as CEO over the past few years, but Montessus appears to have the right experience and Woodyer will still be involved at a high level. |
9th May 2016, Weekly Update (Stock price: C$18.00) | Endeavour Mining (EDV.TO) issued its quarterly report for the March quarter. The report indicated on-plan production (132K ounces) and costs (AISC of US$890/oz) for the quarter, although the plan will have to be updated due to the recently-completed acquisition of True Gold Mining (TGM). Updated production guidance to incorporate TGM's Karma gold mine will apparently be issued in July. We expect that the new 2016 guidance will be for production of around 600K ounces at an AISC of US$850-$900/oz, versus current guidance of 535K-560K ounces at an AISC of $870-$920/oz. As a result of the TGM acquisition and an associated placement of shares to a major shareholder, EDV's balance sheet will now be very different to the balance sheet included with the March quarterly report. Assuming that the company doesn't make additional acquisitions or strategic changes over the next few months, the balance sheet included with the June quarterly report will be the first clear look at the financial situation of the new EDV. For information purposes, we exited about half of the EDV shares in our own accounts during the remarkable price run-up of the past three months, but EDV is still one of our three largest positions. We have no plans to buy or sell the stock at this time, although we would probably view a short-term rise to around C$20 as an opportunity to sell some more. |
25th April 2016, Market Update (Stock price: C$15.20) | The shareholders of Endeavour Mining (EDV.TO) and True Gold Mining (TGM.V) have approved TGM's takeover by EDV. The newly-commissioned Karma gold project in Burkina Faso is therefore now part of the EDV portfolio. Unfortunately, so is the associated "gold streaming" liability. |
18th April 2016, Market Update (Stock price: C$14.04) | Endeavour Mining (EDV.TO) announced that it has commenced mine construction at the Hounde gold project in Burkina Faso. The Hounde Project is expected to deliver average production of 190K-oz per year over a 10-year mine life at an AISC of US$709/oz, and the initial capital cost is estimated at US$328M. Production is scheduled to begin late next year. The initial capex will be funded by EDV's existing cash and the cash it expects to generate over the coming 18 months. To ensure that its existing mines generate sufficient cash to fully fund the construction of the Hounde mine, the company has established a hedging program covering 50% (400K ounces) of its production during the 15-month period from April-2016 through to June-2017. The hedging program guarantees a minimum gold price of US$1200/oz and a maximum gold price of US$1400/oz for EDV's production during this period. With the recent acquisition of True Gold Mining (TGM) and the decision to move the Hounde project into production, EDV can now be likened to a West Africa gold-mining ETF. When Hounde goes into production the company will have two operating gold mines in Burkina Faso (Karma and Hounde), two operating gold mines in Ivory Coast (Agbaou and Ity), an operating gold mine in Mali (Tabakoto) and an operating gold mine in Ghana (Nzema). We roughly estimate EDV's value to be C$15/share at a gold price of US$1200/oz and C$20/share at a gold price of US$1300/oz. It's time we did an updated, detailed valuation for this stock, but we are holding off because the company is so active at the moment that any estimate would quickly become obsolete. |
7th March 2016 Weekly Update (Stock price: C$11.25) | Endeavour Mining (EDV.TO) made four noteworthy announcements last week. First, it announced its year-end reserves and resources. There were substantial increases, but these were almost entirely due to the purchase of the Ity mine in Cote d'Ivoire. Resources and reserves were roughly unchanged across EDV's other mines, which means that the company replenished what it produced. Second, it announced that it has sold its Youga mine (Burkina Faso) to a private Turkish company for about US$25M in cash and a 1.8% Net Smelter Return (NSR) royalty on future production. The Youga mine is forecast to produce about 40K ounces of gold in 2016 and is in the final two years of its expected life. We would have preferred that EDV had expanded Youga's life via exploration or acquisition instead of selling the operation. However, the NSR royalty allows the company to retain some exposure to the potential extension of Youga's life and the cash injection further strengthens EDV's balance sheet. With the improvement in the gold price and the strengthening of its balance sheet it's likely that EDV will soon announce that it is moving the Hounde gold project, which is also in Burkina Faso, into the construction phase. Hounde is expected to have average annual production of 190K ounces at a low AISC of around US$720/oz and an after-tax IRR of 31.4% at $1250/oz. The initial capital cost is estimated at US$325M. Assuming that a construction decision is made within the next couple of months, Hounde could be in production by the end of next year. EDV's third announcement for the week was its 2015 financial results and updated guidance. Most of the salient financial numbers had been reported in January, but the new information included a net profit of US$0.99 (C$1.34) per share. Due to the sale of the Youga mine, 2016 production guidance was reduced from 575K-600K ounces to 535K-560K ounces. The AISC is expected to be about US$900/oz. We have previously estimated fair value for EDV to be around C$15/share at a gold price of US$1200/oz. Some quick calculations reveal that the estimated fair value rises to around C$20/share at a gold price of US$1300/oz and a C$/US$ exchange rate of 0.74, but these calculations were made prior to the news contained in EDV's fourth announcement of the week. We haven't yet had time to assess the effect on EDV's valuation of the news discussed below, although we suspect that the effect will be slightly negative. EDV's final and also most important announcement of the week came prior to the start of trading on Friday 4th March. The announcement was EDV's agreement to purchase True Gold Mining (TGM.V) in an all-stock deal (0.044 shares of EDV for each share of TGM). For two reasons, this deal is a little irksome for us. The first reason is that although TGM's newly-constructed Karma gold mine in Burkina Faso is a good asset and probably worth what EDV has agreed to pay, TGM comes with significant financial baggage in the form of a streaming deal. Gold streaming deals are like debt that becomes more burdensome as the gold price rises. They reduce the earnings leverage to the gold price. The second reason we were irked by Friday's news is that TGM was removed from the TSI Stocks List only a few weeks ago and had originally been added to the List partly to mitigate the risk that EDV would buy it. We thought that if TGM were going to be bought, it would have happened well before now. We were obviously wrong. Due to the "streaming" liability we currently view the takeover of TGM unfavourably, but it isn't a deal-breaker for us and probably won't cause significant weakness in the stock price beyond last Friday's sharp pullback. Our guess is that EDV will hold at former long-term resistance (now major support) at C$9.50-$10.00 during the coming sector-wide correction and make its way up to C$15-C$20 later this year. |
15th February 2016 Weekly Update (Stock price: C$10.49) | Endeavour Mining (EDV.TO) had a good week, or at least its shareholders did. Thanks to a very sharp rise in the gold price, the stock managed to break above long-term resistance at C$10 and traded at its highest level in more than 2.5 years. We continue to be bullish on the intermediate-term prospects for EDV's stock price, but it is important to keep in mind the risks associated with the region in which EDV operates. The risks of operating in West Africa are summarised in the article linked HERE.
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8th February 2016, Market Alert #251 (Stock price: C$9.82) | With regard to members of the TSI Stocks List, short-term selling opportunities are becoming more obvious and prevalent. The selling opportunities are mostly still the subjective type (refer to http://tsi-blog.com/2015/11/objective-and-subjective-selling-opportunities/), but even though the year has just begun there are two stocks that are already nearing our 12-month valuation-related price targets. We are referring to Evolution Mining (EVN.AX), which we think would be fully valued at around A$2.00/share, and Ramelius Resources (RMS.AX), which we think would be fully valued at around A$0.40/share. At the time of writing EVN is in the mid-A$1.80s and RMS is in the high-A$0.30s. Endeavour Mining (EDV.TO) has risen to test major resistance at C$10.00 and could now be a reasonable short-term selling candidate (we sold about 20% of our EDV position on Monday), even though it still offers very good relative and absolute value. |
3rd February 2016, Interim Update (Stock price: C$9.05) | Endeavour Mining (EDV.TO) is nearing long-term resistance defined by its 2014 'double top' at C$10.00. A sustained break above this resistance would suggest an intermediate-term chart-based target of $15-$16, which is a price level that would easily be justified by the stock's valuation at a gold price of at least US$1200. Due to the obviousness of the resistance at $10 and the fact that it coincides with a 2.5-year price high, we expect that sellers will become more numerous and eager as the resistance is approached. Consequently, we don't expect it to be sustainably breached on the first attempt. |
1st February 2016, Weekly Update (Stock price: C$8.56) | In the email sent to subscribers after the close of trading last Tuesday and in last week's Interim Update, we said that for TSI record purposes we would exit the short-term position in EDV.TO if the stock traded at C$9.50 and exit the long-term position in MUX if the stock traded at US$1.23 by the end of the week. MUX traded at (and closed at) US$1.23 on Friday and has therefore been removed from the TSI List. The result, based on our February-2015 entry at US$1.23, was a gain of 19%. This is a reasonable outcome considering that GDX (the Gold Miners ETF) fell 33% over the same period. The plan to exit the short-term EDV position at C$9.50 will be extended by two weeks. That is, the short-term EDV position will be removed from the TSI List if the stock trades at C$9.50 this week or next week. The long-term position will remain, because despite its recent outperformance EDV still offers good absolute and relative value. |
26th January 2016 Market Alert #249 (Stock price: C$8.48) | The prices of most gold-mining stocks are at very depressed levels and a long way from creating decent short-term selling opportunities, but there are a few standout performers that are now approaching prices at which some selling could be appropriate The main reason for this email is to mention that either a pre-FOMC or a post-FOMC surge in the gold price could create short-term selling opportunities in Endeavour Mining (EDV.TO) and McEwen Mining (MUX). EDV offers excellent value in both absolute terms and relative to most other 500K+ ounce/year gold producers, but it is now a little 'overbought' and is within about 15% of long-term resistance. Taking some money off the table could therefore make sense if the stock soon rises to the C$9.00-C$10.00 range. For its part, MUX is now a relatively expensive stock thanks to its recent strength. For TSI record purposes, MUX will be exited (removed from the Stock Selections List) if it trades at US$1.23 this week. Also, there is a short-term EDV trading position in the TSI List that will be exited if the stock trades at C$9.50 this week. The long-term EDV position will remain. |
18th January 2016 Weekly Update (Stock price: C$7.14) | Endeavour Mining (EDV.TO) announced that it produced 517K ounces of gold in 2015 at an AISC of less than US$930/oz. Both the production amount and the cost were slightly better than guidance, so this constitutes another good result from EDV. Also, the company announced that net debt fell from $254M at the start of last year to $143M at the end of the year, which means that 2015 was a year of balance-sheet improvement for EDV. 2016 guidance is for production of 575K-600K ounces at an AISC of around US$900/oz. The production increase over 2015 is due to the acquisition of the Ity gold mine (Ivory Coast) that was completed a few months ago. Although we assess fair value for EDV shares to be in the C$9-$10 range at the current gold price, it would take only a moderate increase in the gold price -- to, say, $1200/oz -- to boost our assessment of fair value to more than C$15/share. Based on our outlook for gold, our 12-month target for EDV is C$15/share (roughly double the current share price). |
27th December 2015 Email Update (Stock price: C$7.88) | Chart 5 shows Endeavour Mining (EDV.TO), which is up by about 90% YTD and at a 12-month high. EDV is short-term 'overbought' and, like AAU, is currently not an ideal candidate for new buying. |
22nd December 2015 Email Update (Stock price: C$7.47) | Endeavour Mining (EDV.TO) held onto all of the gains it made late last week on the back of the GDXJ rebalancing and made a marginal new 12-month high on Tuesday. It ended Tuesday's session at C$7.47 and has short-term resistance at C$7.50. A rise to the C$9-$10 range would create a short-term selling opportunity. |
21st December 2015, Weekly Update (Stock price: C$7.10) | Last week we mentioned that EDV would be a significant beneficiary of the GDXJ rebalancing that was due to happen after the close of trading on 18th December. It turned out that the effect of the rebalancing enabled EDV to gain about 6% during a week when GDXJ was down by about 2% and the HUI was down by about 6%, with almost all of the rebalance-related buying of EDV shares occurring on Friday. Unless there's a big sector-wide rally, at least part of EDV's 18th December gain will probably be given back on Monday. |
7th December 2015, Weekly Update (Stock price: C$6.75) | Endeavour Mining (EDV.TO, EVR.AX) has completed its 1-for-10 share consolidation (or reverse share split). There are now 1/10th as many shares and each share is worth 10-times more. The price chart doesn't change, because historical prices are adjusted for the consolidation. Also, Endeavour announced the timetable for its de-listing from the Australian Stock Exchange (ASX) and the choices to be made by the current holders of the ASX-listed shares (called CHESS Depository Interests, or CDIs). The details can be read HERE and in a letter that the company has sent to all affected shareholders. 4th January 2016 will be the final day of trading on the ASX and there are four options for current holders of EVR.AX shares. The first option is probably the one that we will choose (our Endeavour shares are spread across three accounts, one of which is in Australia) and involves converting the CDIs (EVR.AX) into the underlying Endeavour Mining shares listed on the TSX (EDV.TO) on a 1:1 basis. If you choose this option then the paperwork would be handled by your stockbroker, but bear in mind that the request to do the conversion must be received by Computershare by March 17, 2016. The other three options involve selling the shares -- either on the ASX by 4th January 2016 or via a share sale facility put in place by the company that will operate between 18th January and 21st April next year. |
30th November 2015, Weekly Update (Stock price: C$0.60) | Endeavour Mining (EDV.TO) announced that the La Mancha transaction is complete and that the approved 1-for-10 share consolidation will become effective this week (most likely on Wednesday). The share consolidation results in the same pie being cut into a smaller number of pieces and has no effect on the fundamental value of any shareholder's stake. |
16th November 2015, Weekly Update (Stock price: C$0.67) | Endeavour Mining (EDV.TO, EVR.AX) reported its financial results for the September quarter. The results were satisfactory in absolute terms and very good compared to what most other gold-mining companies have been reporting. EDV made a profit of US$7M during the September quarter, bringing its 9-month profit to US$57M (about US$0.11/share). However, the profit didn't alter the balance sheet, as net debt remained at US$223M. |
9th November 2015, Weekly Update (Stock price: C$0.61) | Endeavour Mining (EDV.TO) announced that its shareholders had approved the La Mancha transaction. This transaction reduces EDV's per-share value as it involves giving up 30% of the company in exchange for US$63M of cash and a project that will increase the company's gold production by only 10%. However, it has the benefit of reducing risk by strengthening the balance sheet and bringing on board a financially-supportive major shareholder. We thought that the perception of reduced financing risk would help the stock price in the short term. This was the case until last Friday, in that EDV broke out to the upside from an intermediate-term basing pattern in October and held its breakout during the gold-sector drubbing that occurred over the first four days of last week. However, EDV succumbed to the sector-wide downward pressure on Friday and ended the day below its breakout level. EDV's shareholders have also approved a 1-for-10 rollback of the company's shares. The effect is that for every 10,000 pre-rollback shares you currently own you will end up with 1,000 post-rollback shares with a 10-times greater per-share market price. The rollback 'cleans up' the company's share structure and should pave the way for both a future NYSE listing and greater institutional support of the shares (some mutual funds are prohibited from buying shares that trade at less than $5). It is expected that the La Mancha transaction and the share rollback will be completed around 12th November. |
2nd November 2015, Weekly Update (Stock price: C$0.68) | Endeavour Mining (EDV.TO) advised that drilling at its Agbaou gold mine in Cote d'Ivoire (West Africa) had extended the mine's oxide mineralisation. This is obviously good news, especially since Agbaou is EDV's lowest-cost operation. |
19th October 2015, Weekly Update (Stock price: C$0.73) | Endeavour Mining (EDV.TO) announced that it had gold production of 125K ounces during the third quarter, bringing its year-to-date production up to around 380K ounces. This means that the company remains on target to reach or exceed the top end of its 475K-500K-oz production guidance for this year. This was another good operational performance from EDV. Furthermore, it underlined the advantage of having multiple mines, in that a rain-related disruption to production at one mine was counteracted by higher production from other mines. EDV's stock price broke out to the upside from a 12-month base last week (see chart below). C$0.90-$1.00 will remain a viable short-term target as long as it holds at or above former resistance (now support) at C$0.65 during pullbacks. |
12th October 2015, Weekly Update (Stock price: C$0.64) | The Endeavour Mining (EDV.TO) stock price has risen to the top of a long-term basing pattern. The top of the pattern extends from C$0.64-$0.66. This hasn't created a short-term selling opportunity, but it makes new buying a little more risky. A solid break above C$0.66 would suggest a short-term target of C$0.90-$1.00, which is where some selling probably would make sense. |
28th September 2015, Weekly Update (Stock price: C$0.59) | Endeavour Mining (EDV.TO) announced a complicated deal with La Mancha, a company owned by Egyptian billionaire Naguib Sawiris. Here are the salient aspects of the deal: 1) Endeavour will get US$63M of cash plus La Mancha's 55% interest in the operating Ity Gold Mine in Cote d'Ivoire plus various regional exploration properties. The 55% interest in the Ity mine equates to 1.6M ounces of M&I resources and annual low-cost gold production of 44K ounces using the 2014 annual result or 50K ounces using the rate of production achieved during the first half of this year. Considering that EDV is currently producing at the rate of about 500K ounces/year, the deal will inject $63M of cash and increase production by about 10%. (Note: The figures quoted in EDV's press release are based on consolidating 100% of the Ity mine, but the company's beneficial interest will only be 55%.) 2) Endeavour will also get an in-principle commitment of up to US$75M in additional funding, which could potentially be used to develop the Hounde gold project in Burkina Faso (construction decision expected in early-2016). 2) La Mancha will get 177M Endeavour ordinary shares, representing 30% of the enlarged share capital. La Mancha has agreed to a two year lock-up on these shares. 3) Sebastien de Montessus, the former CEO of Areva Mining and the current CEO of La Mancha, will be joining Endeavour as President and resigning from his current La Mancha position. It is envisaged that he will transition to the CEO role over the next two years and that Neil Woodyer, EDV's current CEO, will transition to the role of Executive Chairman. 4) After the deal is complete, EDV's share count will be a cumbersome 590M. The plan is to reduce the share count to 59M via a 1-for-10 consolidation. 5) The deal requires the approval of EDV shareholders at a meeting to be scheduled for early-November. This isn't a bad deal for EDV, but we'd prefer that it hadn't happened. There are some non-quantifiable benefits to having La Mancha as a supportive major shareholder, including the assurance that the construction of a mine at the Hounde project will be able to commence in early-2016, but in our opinion the cost of the deal (30% of the company) is too high. We would prefer that EDV had delayed the start of construction at Hounde by an additional 6-12 months while it paid down its debt using cash flow from its four existing mines. However, we suspect that although the stock market didn't react at all to the news, a consequence of the deal will be better stock-market performance over the next few months than would otherwise have been the case. The reason is that risk has been reduced due to the infusion of cash, the addition of a fifth producing mine and the coming-on-board of a financially-supportive major shareholder. It isn't directly related to the La Mancha deal, but in the same press release EDV also advised that it was planning to de-list its shares from the Australian Stock Exchange due to lack of trading volume. The company will be publishing a separate press release to explain the de-listing process. |
21st September 2015, Weekly Update (Stock price: C$0.60) | Endeavour Mining (EDV.TO) ended last week a few percent below the top of a 12-month basing pattern. A break above C$0.65 would complete the base and suggest a short-term target of C$0.90-C$1.00. |
17th August 2015, Weekly Update (Stock price: C$0.59) | Endeavour Mining (EDV.TO, EVR.AX) reported drilling results from its Agbaou gold project in Ivory Coast, West Africa. Numerous significant intercepts were reported, including 16.47 g/t over 8.3 metres and 12.15 g/t over 9.4 metres. The results suggest that the project's reserves are going to expand and that the mine-life is going to be extended. This is very good news, because Agbaou is EDV's highest-margin operation. |
3rd August 2015, Weekly Update (Stock price: C$0.51) | Endeavour Mining (EDV.TO, EVR.AX) reported its financial results for the June quarter. The results were excellent and mean that the company is on track to do better than its 2015 guidance. Record quarterly production of 131K ounces was achieved at a low AISC of US$898/oz. More importantly, at a time when the majority of gold-mining companies are struggling to break-even EDV achieved a net quarterly profit of US$33M (C$0.10 per share). Most importantly, there was a US$29M improvement in the balance sheet. These results confirm that EDV is one of the best buys in the beaten-down gold-mining sector. |
13th July 2015, Interim Update (Stock price: C$0.61) | Endeavour Mining (EDV.TO, EVR.AX) announced that it had record gold production of 131,165 ounces during the second quarter and half-year production of about 255K ounces. This means that the company is on target to reach the top end of its 475K-500K-oz production guidance for this year. EDV also announced that it had paid another $20M off its debt. EDV continues to achieve good operational performance, quarter after quarter after quarter. |
27th May 2015, Interim Update (Stock price: C$0.61) | Endeavour Mining (EDV.TO, EVR.AX): The best value in the world of gold producers with more than 400K ounces/year of current production. The main company-specific risk is the fact that all of the EDV's mines are located in West Africa. |
4th May 2015, Weekly Update (Stock price: C$0.61) | Endeavour Mining (EDV.TO, EVR.AX) issued its financial statements for the March quarter. During the quarter the company produced 124K ounces of gold at an AISC of US$946/oz. This was good enough to generate a US$13M improvement in its balance sheet. Although EDV's company-wide costs are now low enough that it can add cash to the balance sheet at a gold price of around $1200/oz, it seems that serious cash-flow generation will require a significantly higher gold price. We estimate that at $1300/oz the company would be profitable enough to justify a stock price of over C$1.50/share, but that at around $1200/oz the stock would be fully valued at C$1.00/share. Of course, C$1.00 is still well above the current market price. |
13th April 2015, Weekly Update (Stock price: C$0.63) | Endeavour Mining (EDV.TO, EVR.AX) reported that it produced 124K ounces of gold during the first quarter of this year. This is near the top end of its guidance. The per-ounce AISC hasn't been finalised but is likely to be near the middle of the company's US$930-$980 guidance range. Production-wise, EDV is therefore off to a good start in 2015. The following chart shows that EDV's stock price has substantial resistance (including the 200-day MA) at C$0.65-$0.70. Getting through this resistance would suggest a short-term target of C$0.90-$1.00. At the current gold price, 'fair value' for EDV is around C$1.00/share. Our estimate of fair value would naturally be higher at a higher gold price. |
16th March 2015, Weekly Update (Stock price: C$0.53) | Endeavour Mining (EDV.TO, EVR.AX) advised that it has extended its $350M revolving credit facility (RCF), $300M of which is currently drawn. The date for the first repayment has been pushed out from January-2016 to September-2018 and the final payment has been pushed out from 2018 to 2020. This is good news, because it gives the company greater financial flexibility. |
2nd March 2015, Weekly Update (Stock price: C$0.60) | Endeavour Mining (EDV.TO, EVR.AX) reported unexpectedly bad financial results for the final quarter of 2014. We are referring to the reported deterioration in its net-debt position (long-term debt plus cash-related liabilities minus working capital), not the large impairment charge associated with the accounting values of its mining assets. The impairment charge is mostly the result of a lowered gold price assumption. EDV reported a $70M deterioration in its net debt position for the final quarter of last year. This was unexpectedly bad, in that based on the excellent Q4 production results that were reported in January we had expected to see an improvement in the balance sheet. $23M of the deterioration was due to a tax payment that we should have expected, but most of it was due to large capital expenditures at the Tabakoto project (Mali). According to the company, the growth-related capital spending program is now compete and non-sustaining capital expenditure will be only $20M during 2015, which is about $100M less than it was in 2014. Based on other information provided by EDV, at a gold price of $1200/oz this should allow the company to add US$50M-US$80M to its balance sheet in 2015. At a gold price of $1300-$1350/oz, which is where we currently expect the 2015 average to be, the net cash addition would likely be in the $100M-$150M range. Based on its balance sheet and forecast 2015 production details, we think that EDV would be fully valued at around C$1.00/share assuming a gold price $1200/oz. In other words, we perceive 65%-70% valuation-related upside potential in EDV assuming no change in the gold price. At a significantly higher gold price assumption, the valuation-related upside potential would be much greater. For example, we estimate that an increase in the gold price from $1200/oz to $1350/oz would increase EDV's valuation from C$1.00/share to C$1.50/share. |
23rd February 2015, Weekly Update (Stock price: C$0.58) | Endeavour Mining (EDV.TO, EVR.AX) provided updated information on the economics of the Hounde gold project in Burkina Faso. Based on the FS completed in November of 2013, the Hounde project would be economically viable, but not robust, at a gold price of $1300/oz. However, according to the updated information provided last week, exploration success has resulted in a 34% increase in the project's gold reserves, which, in turn, has greatly improved the economics. The project is now estimated to be more profitable at $1200/oz than it was previously estimated to be at $1300/oz, which is obviously very good news. At $1200/oz, Hounde is now estimated to have an IRR and NPV(5%) of 28% and US$302M, respectively. The initial capital cost is expected to be US$325M. Based on the figures reported last week and the earlier receipt of a mining permit, it clearly makes sense for EDV to move the Hounde project into the construction phase if, and only if, it can arrange reasonable-cost financing. Separately, EDV announced a net increase of 400K ounces in its company-wide reserves over the course of 2014. The net increase stems from 850K ounces of new reserves less 450K ounces of mining depletion. |
9th February 2015, Weekly Update (Stock price: C$0.59) | Endeavour Mining (EDV.TO, EVR.AX) announced that it has received the final signed mining permit to develop and operate the Hounde gold project in Burkina Faso. Based on the FS completed in November of 2013, if the Hounde project were developed into a mine it would add about 180K ounces to EDV's annual production. The FS indicated that the Hounde project would be economically viable, but not robust, at a gold price of $1300/oz. According to EDV, updated details on the economics of the project will be provided in the near future. |
19th January 2015, Weekly Update (Stock price: C$0.59) | Endeavour Mining (EDV.TO, EVR.AX) announced excellent production results for the final quarter of last year and the full year. Q4 production was 120K ounces of gold, which took the full-year production to 466K ounces. 2014 production guidance was 400K-440K ounces, so EDV's actual production was well above the top end of its guidance. The AISC during Q4 is expected to be similar to the Q3 figure, or about $990/oz. 2015 guidance is for production of 475K to 500K ounces at an AISC of $930-$980/oz. EDV was free-cash-flow positive during the final two quarters of 2014 and should be free-cash-flow positive this year if the gold price averages more than $1200/oz. In support of this statement, EDV's management estimates that the company will have an all-in sustaining margin of $120M in 2015 assuming $1200/oz for gold. Allowing $20M for growth-related capex and something for other costs (G&A, taxes), this suggests to us that the company will add $50M-$80M to its balance sheet this year if gold averages $1200/oz. At the current gold price the cash addition to the balance sheet would likely be much greater. Considering the stock's extremely low valuation, Friday's 9% gain (to C$0.59/share) in EDV's price was a big under-reaction to the Q4 production results. At the current gold price, we think that 'fair' value for EDV is north of C$1.00/share. |
10th November 2014, Weekly Update (Stock price: C$0.48) | Endeavour Mining (EDV.TO, EVR.AX) published its financial results for the September quarter. The company had an AISC of $991/oz during the quarter, which was about $30/oz better than expected. It managed a small bottom-line profit and improved its balance sheet by about $11M. Operationally, EDV continues to perform as well as could reasonably be expected. However, with its current cost structure it will need a gold price of at least $1300 to generate good returns for shareholders in terms of profits and free cash-flow. |
3rd November 2014, Weekly Update (Stock price: C$0.48) | Burkina Faso
In a case of "when it rains, it pours",
hundreds of thousands of people have taken to the streets in
Ouagadougou, the capital city of Burkina Faso in West Africa, with the
aim of bringing about political change. The protests were spurred by the
attempts of the country's president (Blaise Compaore) to amend the
Constitution to enable him to remain in power (his final term was
supposed to end next year). The president has since resigned, but the
protestors aren't satisfied because an unpopular general decided to make
himself the new head of state. Further complicating matters, a
lower-ranking soldier (a lieutenant colonel) also decided to make
himself the new head of state and appears to have gained the upper hand. |
20th October 2014, Weekly Update (Stock price: C$0.64) | Endeavour Mining (EDV.TO, EVR.AX) reported that it produced 117.6K ounces of gold during Q3-2014 from its four mines in West Africa. This is another above-plan production result from EDV. Based on the amount of gold produced over the first three quarters of this year, 2014 production is likely to be at least 460K ounces. This compares to 2014 guidance of 400K-440K ounces. Actual 2014 production is therefore likely to come in well above the top of the company's guidance range, which obviously represents a very good operating performance. The AISC during the third quarter will be reported in mid-November, but is expected to be about the same as it was during the preceding quarter. That is, the AISC is expected to be about US$1021/oz. At the current gold price EDV is only marginally profitable. This puts it in a better position than most gold producers, but it will need a higher gold price to generate good returns. |
13th October 2014, Weekly Update (Stock price: C$0.62) | Endeavour Mining (EDV.TO) reported results from exploration drilling at its Agbaou gold mine in Cote d'Ivoire. The results included many near-surface intercepts of economic grades over good widths, and suggest that EDV will be able to expand the reserve base and extend the mine life at Agbaou. The areas being drilled are immediately adjacent to the North and West pits and therefore represent similar haulage distances for any reserve that may be identified in these areas. If the political situation in Cote d'Ivoire remains stable, Agbaou should be a "cash cow" for EDV for many years to come. |
18th August 2014, Weekly Update (Stock price: C$0.89) | Endeavour Mining (EDV.TO, EVR.AX) published its financial results for the June quarter. Despite having an excellent quarter in production terms, EDV did no better than break even in bottom-line profit terms and suffered a small ($6M) deterioration in its balance sheet. Clearly, EDV can fully cover its costs at $1300/oz, which is more than many other gold producers are capable of doing. However, it will need a gold price of at least $1400/oz to become genuinely and meaningfully profitable. |
21st July 2014, Weekly Update (Stock price: C$0.95) | Endeavour Mining (EDV.TO, EVR.AX) reported gold production of 122.5K ounces during the June quarter. This is well above plan and makes it likely that the company will exceed the top end of its 400K-440K-oz 2014 production guidance. This is simply an excellent result. We suspect that EDV will break above major resistance at C$1.00 (the top of its long-term base) within the next month. |
30th June 2014, Weekly Update (Stock price: C$0.75) | The top of EDV's basing pattern lies at C$0.90-C$1.00. An upside breakout would suggest a target of C$1.60-$1.80. ------------------------------------------------------------------------------ Endeavour Mining (EDV.TO, EVR.AX)
reported that production has commenced at the Segala underground mine in
Mali. The Segala mine will provide relatively high-grade feed for the
Tabakoto mill and should help to lower overall production costs for the
Tabakoto operation. |
18th June 2014, Interim Update (Stock price: C$0.80) | The TSI Stocks List has a lot of exposure to West Africa. Specifically, the TSI List includes six gold stocks that have their most important assets in West Africa -- three producers (EDV.TO, GSS and RSG.AX) and three explorers/developers (AKG, ORE.TO and TGM.V). As noted above, the latter (the explorers/developers) are the flavour of the month. This popularity is evidenced by the fact that all three are close to 9-month price highs. For details, refer to the charts displayed below. The stocks of our three West African gold producers aren't yet doing much. In EDV's case there are two likely reasons. One is a lowering of the stock's weighting within GDXJ that will take effect at the end of this week. In this regard EDV.TO is in a similar position to EVN.AX, which is discussed below. The other is that EDV is perceived to be a potential acquirer rather than a potential acquiree. This perception is correct, although we doubt that it is on the acquisition track at this time. We think that the combination of EDV's extreme under-valuation, profitability and organic growth profile will cause the stock to be a relatively strong performer over the months ahead. |
16th June 2014, Weekly Update (Stock price: C$0.81) | EDV.TO has been a relatively strong gold stock since the beginning of this year (actually, EDV's relative strength began almost 12 months ago). It signaled that its correction is probably over when it closed above C$0.80 last Thursday. |
26th May 2014, Weekly Update (Stock price: C$0.78) | Endeavour Mining (EDV.TO) received 2.5M shares of Legend Gold (LGN.V) as part payment for an early-stage non-core project in Mali. EDV now has 7.3M LGN shares and will have almost 10M when the final payment is made. EDV's investment in LGN is currently not financially significant, although it could eventually be significant if LGN's exploration is successful. |
12th May 2014, Weekly Update (Stock price: C$0.79) | Endeavour Mining (EDV.TO, EVR.AX) published its financial results for the first quarter of this year. The financial statements revealed that the company had net debt of around $200M at the end of March. This constitutes a $9M improvement during the quarter. Assuming that the gold price doesn't tank, the pace of balance-sheet improvement should accelerate over the remainder of this year. Gold production during the quarter was 105K ounces at an AISC of $1059/oz. This was in accordance with the company's plan. Quarterly production is expected to remain at around 105K ounces over the course of this year, with costs trending downward due to the increasing contribution of the low-cost Agbaou mine and the conversion to owner-operated mining at the Tabakoto project. EDV is marginally profitable at the current gold price and should become very profitable after gold returns to $1400/oz. It is one of the best candidates for new buying at this time. |
5th May 2014, Weekly Update (Stock price: C$0.81) | This is a good time to establish some additional short-term gold-stock trading positions, because the recent price action increases the probability that the gold sector's correction is over and more clearly defines the risk management parameters. We have therefore added short-term positions in Endeavour Mining (EDV.TO) and Evolution Mining (EVN.AX) to the TSI List at last Friday's closing prices of C$0.81 and A$0.81, respectively. These stocks were already in the TSI List as longer-term positions, so they now appear in both the "Gold and Silver" part of the List and the "Trading Positions" part of the List. We have selected EDV.TO and EVN.TO for short-term (1-3 month expected holding period) trades for two main reasons. First, as profitable producers with solid balance sheets and multiple mines they have relatively low risk. Second, their charts (see below) suggest that large basing patterns are close to being completed. Both stocks have resistance at $1.00 and support at around $0.75. In each case $1.50 would be the chart-related price objective created by a break above $1.00, but we would probably take profits in the $1.20s. Both positions would be 'stopped out' by a daily HUI close below 215. |
24th March 2014, Weekly Update (Stock price: C$0.94) | Endeavour Mining (EDV.TO, EVR.AX) issued its mandatory reports (financial statements and MD&A) for the quarter and year ended 31st December 2013. A lot of the salient information in these reports, including 2013 production results and 2014 guidance, had been provided in earlier press releases. With regard to the new information of note, the financial statements revealed that the company had net debt of around $209M at the end of last year. This constitutes an $82M increase during the final quarter due to accelerated spending on the construction/commissioning of the new Agbaou gold mine and the purchase of new mining equipment at the Tabakoto operation as part of the conversion from contractor mining to owner mining. Like most gold-mining companies, the lower gold price prompted EDV to substantially reduce the accounting value of its assets. The total after-tax impairment was $362M. After this impairment, EDV's shareholder equity was C$1.94/share. With the bulk of its growth-related capital expenditure behind it, EDV should now be adding cash to its balance sheet. |
10th March 2014, Weekly Update (Stock price: C$0.93) | Endeavour Mining (EDV.TO, EVR.AX) announced that its newly-commissioned Agbaou gold mine in Cote d'Ivoire produced 33% more gold than planned during its first two months of operation. New gold mines usually experience 'teething problems' that cause production to be lower than planned during the first few months of operation, whereas the best mines begin producing on plan from the 'get go'. It is almost unprecedented in this industry for a new mine to immediately begin producing gold at above its design capacity. Obviously, this is very good news for EDV. The stock price reacted well, but a lot intermediate-term upside potential remains. ---------------------------------------------------------------------------------------------- We have exited the short-term trading position in EDV.TO at C$0.93. The result was a profit of 69.1%. |
17th February 2014, Weekly Update (Stock price: C$0.83) | Endeavour Mining (EDV) has intermediate-term resistance at C$0.85-$1.00, after which there is no chart-related resistance until the C$1.80s. Depending on current exposure, it could make sense to do a small amount of selling within the lower resistance range. |
3rd February 2014, Weekly Update (Stock price: C$0.67) | Endeavour Mining (EDV.TO, EVR.AX) announced that it has achieved commercial production at its Agbaou gold mine in Cote d'Ivoire, on time and slightly under budget. So far so good, as EDV's management continues to execute according to plan. The company now has four operating gold mines in West Africa -- one in Ghana, one in Burkina Faso, one in Mali and one in Cote d'Ivoire. If Agbaou achieves its design parameters it will be a low-cost 100K-ounce/year operation and will reduce EDV's average per-ounce production cost. Specifically, Agbaou's AISC is expected to be about $800/oz, which should help bring the AISC/ounce for the overall company down from around $1100 to around $1000. Separately, EDV reported its final production result for 2013 and provided 2014 guidance. 2013 gold production came in at 324K ounces, which means that the company produced 86K ounces during the December quarter. The December quarter's production included 6K ounces from the new Agbaou mine, so the three existing mines produced a total of 80K ounces. This is about 10% less than the preceding quarter, but the amount of gold produced for the full year was in the top half of the company's guidance and the AISC/oz was also according to plan. 2014 production is expected to be around 420K ounces at an AISC of around $1000/oz, with the increase (from 324K ounces in 2013) being due to the new Agbaou mine and a full year's contribution from the expanded mill at the Tabakoto project (Mali). At an average gold price of $1250/oz, EDV's management expects that the company would have 2014 sustaining cash flow of $95M. Considering the amount that will be spent on growth-related projects and exploration, this would result in almost no free cash flow. In other words, if the gold price stays near its current level over the next 12 months then EDV's business will probably do little more than tread water. We expect the gold price to average well over $1250/oz this year, enabling EDV to add plenty of cash to its balance sheet. |
27th January 2014, Weekly Update (Stock price: C$0.68) | Endeavour Mining (EDV.TO): The EDV C$2.50 warrants expire on 4th February and will be delisted from the TSX on that date. With the stock price a long way below the warrant exercise price, the warrants will expire worthless. The EDV warrant position in the TSI List was one of many failed trading ideas during the 2011-2013 bear market. On the plus side, we've learned some valuable lessons. |
22nd January 2014, Interim Update (Stock price: C$0.63) | The breakout isn't yet definitive, but Endeavour Mining (EDV.TO) has moved above the top of its short-term channel. The stock has significant resistance at C$0.90-C$1.00, after which it is 'clear sailing' until C$1.80. |
2nd December 2013, Weekly Update (Stock price: C$0.57) | Endeavour Mining (EDV.TO, EVR.AX) announced that the commissioning of its Agbaou gold mine in Cote d'Ivoire is progressing ahead of schedule. The first gold pour has just been made and commercial production is expected during the first quarter of next year. With an expected AISC of around $800/oz, Agbaou will be a relatively low-cost mine and will reduce EDV's overall cost per ounce if it achieves its design parameters. |
18th November 2013, Weekly Update (Stock price: C$0.61) | Endeavour Mining (EDV.TO, EVR.AX) published its results for the September quarter. Production during the quarter was 88K ounces (a record-high) at an AISC of $1,057/oz. This means that EDV is now producing gold at the rate of about 350K ounces/year, which is at the upper end of the company's guidance. The production rate is expected to increase to more than 400K ounces/year in Q1-2014 due to the start-up of the Agbaou mine. The financial statements showed that working capital was ample at $164M and that net debt (long-term debt plus long-term derivative liabilities minus working capital) increased from $118M at the end of June to $144M at the end of September, or by $26M. The increase in net debt was more than fully explained by the $43M that was spent on growth-related projects (primarily: the new Agbaou mine). EDV's cash-flow performance was markedly better than its earnings performance during the latest quarter. This was mainly due to the fact that there was an amount of about $22M for "depreciation and depletion" charged against earnings, but the company only spent about $5M on sustaining capital. This continues a pattern seen over the past few quarters. For example, over the first 9 months of this year the company's earnings were reduced by about $70M due to accounting entries for "depreciation and depletion", but only about $11M was spent on sustaining capital over the same 9-month period. This bears watching closely, as it could mean that EDV will have to ramp-up capital and exploration spending at its existing operations over the next couple of years. All in all, it was an OK quarterly performance by EDV. EDV has the lowest stock market valuation that we know of among the financially-strong 100K-500K oz/year gold producers. |
11th November 2013, Weekly Update (Stock price: C$0.61) | Endeavour Mining (EDV.TO, EVR.AX) published the results of a PEA for its Hounde gold project (Burkina Faso) in January of this year. It then immediately commenced work on the project's FS. The results of the Hounde FS were published last week. In an unusual turn of events for the gold mining industry, the numbers in the FS are actually a little better than the numbers in the PEA. Of particular note, the estimated initial capex has fallen from $345M to $315M despite an increase in the average annual production rate from 160K ounces to 178K ounces. Moreover, whereas the PEA estimated an IRR of 34% at a gold price of $1650/oz, the FS estimates that the same IRR could be achieved at a gold price of $1500/oz. The Hounde project appears to be viable, although not robust, at the current gold price. Specifically, the FS indicates that the NPV(5%) and IRR would be $230M and 22.4% at a gold price of $1300/oz. Our view is that the Hounde project provides EDV with valuable in-house growth potential, but that it will make sense to wait for clear-cut evidence that a new cyclical advance has begun in the gold market before proceeding with mine construction. Right now we think it would make more sense for EDV to use its financial resources to acquire another company, because the stock market is currently offering some phenomenal deals on gold-mining assets. |
4th November 2013, Weekly Update (Stock price: C$0.61) | Endeavour Mining (EDV.TO) advised that it has been paid $16M cash by Resolute Mining for a non-core exploration-stage gold asset in Mali. An additional $3M is due on completion of the sale. |
21st October 2013, Weekly Update (Stock price: C$0.63) | Endeavour Mining (EDV.TO, EVR.AX) announced that the construction of its Agbaou gold mine in Cote d'Ivoire is 90% complete. The project remains on budget and on track for initial production during the first quarter of 2014. |
26th August 2013, Weekly Update (Stock price: C$0.89) | As well as a long-term position in EDV.TO, the TSI Stocks List contains a short-term EDV position that was added two months ago in anticipation of a rebound to around C$1.00. For TSI record purposes, this short-term position will be exited if the stock trades at C$0.97. It ended last week at C$0.89. |
19th August 2013, Weekly Update (Stock price: C$0.80) | Endeavour Mining (EDV.TO/EVR.AX) reported its financial results for the quarter ended 30th June 2013. There were no surprises. The all-in sustaining production cost during the quarter was $1,038/oz, which is about 20% below the industry average. EDV's management expects the cost to fall to $1,000/oz in 2014 due to cost-reduction measures and the start-up of the low-cost Agbaou mine. EDV's liquidity position remains strong, in that the company had about $100M of working capital at the end of June and recently added another $100M by drawing down a long-term credit facility. It should only need to invest another $30M-$35M to bring Agbaou into production and its other projects should be cash-flow positive as long as the gold price is above $1250/oz, meaning that the company should have more than enough cash to fund its current operations and its growth. ----------------------------------------------------------------------------------------------- Endeavour Mining (EDV.TO): EDV is testing minor resistance at C$0.80. A break above C$0.80 will create near-term targets of C$1.00 and C$1.20, although EDV won't encounter major chart-based resistance until it reaches C$1.80. C$1.80 should be viewed as an extreme upside target as far as the remainder of this year is concerned, but as a reasonable upside target with regard to the coming 12 months. |
12th August 2013, Weekly Update (Stock price: C$0.62) | Endeavour Mining (EDV.TO) announced that its Agbaou gold mine in Cote d'Ivoire remains on track for initial production in Q1-2014. The mine construction is apparently now 81% complete. |
29th July 2013, Weekly Update (Stock price: C$0.72) | Endeavour Mining (EDV.TO, EVR.AX) updated the market on its progress and plans. The company produced 75.4K ounces of gold during the June quarter and reiterated its full-year guidance of 310K-345K ounces at a cash cost of $840-$880/oz. The production run-rate is expected to increase from 300K oz/year during the first half of this year to 330K-360K oz/year during the second half of this year and to well over 400K oz/year in 2014. The increase in the second half of this year will be due to the Tabakoto mill expansion and next year's further increase will be due to the Agbaou mine coming into production. Agbaou will be EDV's fourth operating mine in West Africa. Next year's all-in cost of production is expected to be around $1000/oz, which means that EDV should be strongly cash-flow positive over the next 12 months at any gold price above $1200/oz. Also worth noting is that EDV has negotiated an increase in its revolving credit facility from $200M to $350M. This should ensure that the company will have plenty of financial breathing room even if the market environment remains difficult. At an operating level EDV continues to perform as well as or better than expected. In our opinion, at current prices EDV is the best candidate for new buying within the gold sector. |
1st July 2013, Weekly Update (Stock price: C$0.56) | Endeavour Mining (EDV.TO) advised that the mill expansion at its Tabakoto mine (Mali) was completed on time and on budget, enabling this mine's annual rate of production to increase by about 30K ounces to around 150K ounces. The combination of the Tabakoto mill expansion and the new Agbaou mine in Cote d'Ivoire is expected to result in the company's total gold production rising from 325K ounces in 2013 to 450K ounces in 2014. As far as we can tell, at current prices there is no better buy than EDV. |
24th June 2013, Weekly Update (Stock price: C$0.55) | The other change to the TSI Stocks List is the addition of a short-term trading position in Endeavour Mining (EDV.TO). The TSI List already contains long-term exposure to EDV, but the short-term risk/reward is now extremely attractive as a result of last week's price action. As is the case with RIO, there is a potential stock-specific short-term catalyst for an EDV price rebound. We are referring to the gold hedges that EDV still holds as a result of its takeovers of Adamus and Avion. Based on the most recent financial statements, EDV has a total of 114K ounces of gold committed via forward sales and call options. It also has 27K ounces of gold bullion, leaving a net hedging position of 87K ounces. At the current gold price the value of this hedging position would be about $26M higher than the value included in the 31st March financial statements. This opens up the possibility that EDV will report a significant boost to its balance sheet when the next set of financial statements is issued in early-August. Ideally, EDV's management will take advantage of the current weakness in the gold market to close out the remaining hedges. We have added a short-term trading position in EDV at Friday's closing price of C$0.55. The goal is to exit this position following a rebound to around C$1.00. |
17th June 2013, Weekly Update (Stock price: C$0.78) | Endeavour Mining (EDV.TO) provided an update on the progress of its construction-stage Agbaou gold mine in Cote d'Ivoire. The bottom line is that the project remains on track to commence production in early-2014. The Agbaou mine has been designed and built to have annual production of 100K ounces. |
20th May 2013, Weekly Update (Stock price: C$0.88) | Endeavour Mining (EDV.TO, EVR.AX) published its results for the March quarter and provided a corporate update. Production during the March quarter was 74K ounces at an "all-in" cost of $1083/oz, creating an "all-in" margin of $39M. This was a good result. Working capital fell from $177M to $150M during the quarter due to the money spent on the development of the Agbaou mine in Cote d'Ivoire. Agbaou remains on budget and on schedule to deliver its first gold production in Q1-2014. EDV is maintaining its 2013 production and cost guidance of 310K-345K ounces of gold at an all-in cost of about $1100/oz. The less-important "cash cost" is expected to be about $860/oz. These cost figures are roughly in line with those expected to be achieved by Agnico Eagle, Barrick and Newmont. EDV continues to fire on all cylinders. We live in hope that one day the stock market will notice. |
6th May 2013, Weekly Update (Stock price: C$0.99) | Endeavour Mining (EDV.TO, EVR.AX) announced that it sold its stake in Namibia Rare Earths (NRE.TO), a non-core asset, for $5.3M in cash. This is a plus, but obviously not a big deal for a company of EDV's size. |
29th April 2013, Weekly Update (Stock price: C$1.04) | Endeavour Mining (EDV.TO, EVR.AX) announced that construction of its 100K-oz/yr Agbaou mine in Cote d'Ivoire was on budget and on track to be complete at the end of this year, with the first gold to be poured early in 2014. Bringing Agbaou into production is expected to result in total 2014 production -- from four operating gold mines in West Africa -- of around 450K ounces. |
1st April 2013, Weekly Update (Stock price: C$1.50) | Endeavour Mining (EDV.TO, EVR.AX) reported its financial results for the year ended 31st December 2012 and provided updated guidance for 2013. Comparisons with previous periods were difficult because Avion Gold was merged into EDV at the beginning of last year's fourth quarter. However, it seems that EDV finished the year on a strong note. The balance sheet was a little weaker at the end of December than at the end of September, but this was due to the inclusion of Avion's derivative liabilities (gold 'hedges'). The Avion liabilities and other derivative liabilities taken on by EDV due to its earlier acquisition of Adamus Resources have been reduced/mitigated by closing out the gold forward sales that would have lessened cash flow during 2013 and by holding 27,000 ounces of gold bullion as a current asset (instead of selling the gold and holding cash) to partially offset the 96,000 ounces of gold forward sales scheduled for 2014-2016. In line with the new trend in the gold mining industry, EDV now reports an all-in cost of production. For 2012 the all-in cost was $1,077/oz and for 2013 the all-in cost is expected to be about $1,100/oz. This is similar to the 2013 all-in cost forecasts of Agnico Eagle and Barrick Gold. 2013 production is expected to be about 325K ounces, which constitutes an increase of about 105K ounces over 2012's production. The increase is almost totally due to the acquisition of Avion Gold. (Note: If Avion Gold had been part of EDV for the entire 2012 then last year's production would have been 310K ounces.) The annual production rate is then expected to jump by about 100K ounces in Q1-2014 due to the Agbaou mine coming into operation. Assuming an all-in cost of $1100/oz and an average gold price of $1600/oz, EDV should generate about $160M of cash this year. Applying a conservative multiple of eight to this cash flow gives us a rough valuation of $1280M ($3.10/share) for EDV's in-production assets. Allowing for the Agbaou project, which is due to begin production in early-2014, and the Hounde project, which will potentially go into production in 2016, takes the overall valuation up to at least $4/share. At current prices, EDV is one of the best candidates for new buying in the gold sector. |
18th March 2013, Weekly Update (Stock price: C$1.64) | Endeavour Mining (EDV.TO, EVR.AX) had two pieces of good news. First, the final results of in-fill drilling at the company's development-stage Hounde project in Burkina Faso had numerous good intercepts, including 73.9m of 5.26 g/t gold and 38.0m of 5.93 g/t gold. These drilling results probably won't significantly increase the overall project resource, but they demonstrate continuity of the mineralisation and should improve the project's economics by enabling Inferred resources to be upgraded to the M&I category. The next important milestone for the Hounde project is the completion of the FS, which is scheduled for late this year. The other piece of good news was the announcement that the construction of EDV's Agbaou Gold Mine in Cote d'Ivoire is on-budget and on-schedule. Initial production is scheduled for Q1-2014. Although you would never know it by looking at the stock price, EDV continues to operate very well. Eventually the stock market will notice. |
6th March 2013, Interim Update (Stock price: C$1.65) | The TSI gold stocks that we think have the highest quality, where highest quality means the most favourable combination of balance sheet, location, mining assets and management, are (in alphabetical order) Almaden Minerals (AAU), Endeavour Mining (EDV.TO, EVR.AX), Evolution Mining (EVN.AX), Pretium Resource (PVG), and Sabina Gold and Silver (SBB.TO). Charts are presented below. Along the lines of what we've been talking about, these five stocks have recently been among the worst performers. We increased our exposure to each of these stocks during the first half of this week, with new purchases mostly funded by sales elsewhere. 1) Almaden Minerals (AAU), a prospect generator, traded as low as US$1.85 during the first two days of this week. There is strong support at $1.70-$1.80 and initial resistance at $2.40-$2.50. In a more normal market, the decline from the January peak would have ended at $2.40-$2.50. 2) Endeavour Mining (EDV.TO, EVR.AX), a profitable 330K-oz/yr producer with operations in West Africa, traded as low as A$1.34 in Australia and C$1.45 in Canada earlier this week, creating an exceptional buying opportunity. Initial resistance lies at C$1.90. 3) Evolution Mining (EVN.AX), a profitable 400K-oz/yr producer with operations in Australia, has possibly just completed a successful test of its July-2012 and February-2013 lows in the A$1.25-A$1.30 range. 4) Pretium Resource (PVG), an exploration-stage miner with a very high-grade 10M-ounce gold deposit in British Colombia, was pummeled on the stock market over the past two months despite no negative company-specific developments. Initial resistance is a long way above the current price. 5) Sabina Gold and Silver (SBB.TO), an exploration-stage miner with a high-grade gold resource and a potentially-valuable silver royalty in Canada's far north, has possibly just completed a successful test of its 2012 lows. |
11th February 2013, Weekly Update (Stock price: C$2.06) | According to the article posted HERE, the "windfall" profits tax that the government of Cote d'Ivoire was planning to implement is now 'off the table'. This is good news for Endeavour Mining (EDV.TO, EVR.AX), which is building a new gold mine in Cote d'Ivoire, as the new tax would have substantially worsened the economics of mining gold in that West African country. |
28th January 2013, Weekly Update (Stock price: C$2.22) | Endeavour Mining (EDV.TO, EDR.AX) reported its production results for 2012 and its guidance for 2013. Total production from its three operating gold mines (Youga in Burkina Faso, Nzema in Ghana and Tabakoto in Mali) came in at 311K ounces in 2012, which was slightly better than forecast. The company didn't advise the cost of production other than to say that it was within the guidance range. This probably means that the average cash cost was around $680/oz. 2013 guidance is for production of 310K-345K ounces of gold at a cash cost of $790-$830/oz. The annual production rate should then increase by about 100K ounces in 2014 due to a new mine (the Agbaou mine in Cote d'Ivoire) coming into operation. The 2013 and 2014 guidance from EDV is consistent with what we've been assuming when valuing the stock. Our valuation is based on a gold price of $1600/oz and remains at around C$4.00/share. EDV also reported the results of a PEA for the Hounde project in Burkina Faso. The Hounde project was part of Avion Gold, the company that EDV acquired last October. The PEA suggests the potential for Hounde to be developed into a 160K-oz/year gold mine by 2016, taking EDV's total annual production to 550K-600K. The economics look good: Post-tax NPV(5%) and IRR of $584M and 34% at a gold price of $1650/oz. The total initial start-up capital is estimated to be $345M, an amount that could be funded by EDV's cash reserve, existing credit facility and cash flow from its operating mines. Work has commenced on the Hounde project's FS. The EDV story continues to evolve in a positive way. The company is meeting its targets on the production front and taking prudent steps to grow its business over the next few years. The stock rallied last week on the back of the positive news releases and would have rallied a lot more if not for the pronounced sector-wide weakness. If the sector-wide sell-off continues then EDV could again become available in the low-C$2.00 area. If so, anyone without a full position should view it as a buying opportunity. |
24th December 2012, Weekly Update (Stock price: C$2.09) | The most speculative gold mining stocks generally held up quite well last week in the face of sector-wide selling pressure, perhaps because they were already 'sold out'. However, the stocks of some highly-profitable and relatively-low-risk gold producers were hammered late last week for no apparent reason other than irrational fear. This has created better-than-expected opportunities to buy these profitable companies. The one that we are going to highlight is Evolution Mining (EVN.AX). This is a very profitable 400K-oz/yr gold producer with a solid balance sheet and multiple projects in the best country for gold mining (Australia). It was knocked down by around 10% last week on no news despite already offering good value at the beginning of the week. Although it held its ground in Canadian trading last week, Endeavour Mining (EDV.TO, EVR.AX) dropped about 5% in Australian trading last Friday and also warrants another favourable mention at this time. It is riskier than EVN due to having its projects in West Africa, but the additional country risk is offset by a lower valuation. Like EVN, Endeavour is a very profitable 300K-400K-oz/yr gold producer with a solid balance sheet. |
17th December 2012, Weekly Update | Endeavour Mining (EDV.TO. EVR.AX) is affected by a tax increase just approved by the government in the West African nation of Cote d'Ivoire. EDV has commenced the construction of the 100K-oz/yr Agbaou mine in Cote d'Ivoire, but should now seriously consider putting the project on hold pending a more favourable tax regime. Putting this project on hold would not have a big effect on our valuation of EDV. |
19th November 2012, Weekly Update (Stock price: C$2.20) | Endeavour Mining (EDV.TO, EVR.AX) continues to fire on all cylinders. The company reported last week that its operations in Ghana and Burkina Faso generated about $41M of cash during the September quarter and are on track to produce 200K ounces of gold this year at a cash cost of $670-$690/oz. The stock is trading at about 6-times this year's cash flow and cash flow is set to increase substantially in 2013 and again in 2014. The stock is a buy below C$2.20. |
14th November 2012, Interim Update (Stock price: C$2.17) | Even though it could be argued that JAG's decline over the past few days is way overdone, there is some logic to it due to the company's weak balance sheet and the fact that its business is still cash-flow negative. However, some stocks have been hammered over the past few days for no company-specific reason. Endeavour Mining (EDV.TO) is a good example. EDV is a very profitable gold miner with a strong balance sheet, but thanks to the mini market-wide panic it has again become available below C$2.20. It is a buy at this level. Another example is Golden Star Resources (GSS). GSS is not as profitable or financially solid as EDV.TO, but its turnaround is progressing well and it should no longer be classed as high risk. And yet, at its current price in the low-US$1.60s it is being priced as if it were still high-risk. |
31st October 2012, Interim Update (Stock price: C$2.30, warrant price: C$0.48) | The risk/reward of a company's stock warrants is often very different from the risk/reward of the same company's stock. This is partly due to the leverage provided by the warrants (there is generally a lot more upside potential and downside risk associated with the warrants) and partly due to the tendency for warrants to be over-valued or under-valued relative to the stock. Consequently, stock warrants must be analysed separately from the underlying stock. The warrants aren't necessarily a good buy just because the stock is a good buy, and vice versa. For the first time in quite a while we are highlighting the EDV A-series warrants as a speculative buy. They are slightly over-valued relative to the stock, but the warrants' current risk/reward is attractive due to the possibility that a sizeable gain in the stock price over the months ahead will lead to a much larger percentage gain in the warrant price. The warrants are much riskier than the stock and would therefore not be suitable for everyone. The risk can be explained by pointing out that if the stock price were to go nowhere over the next 15 months then the warrants would expire worthless, handing a 100% loss to anyone who bought now and held to expiry. The reason the warrants could be of interest to risk-tolerant speculators is that a 50% gain in the stock price within the next eight months, which looks very achievable, would probably create an opportunity to sell the warrants for a profit of around 200%. With the stock near its current level in the C$2.30s the warrants should ideally be purchased for C$0.48 or less and should not be purchased for more than C$0.50. |
29th October 2012, Weekly Update (Stock price: C$2.42) | EDV has substantial valuation-related upside potential. The chart (see below) also suggests the potential for large gains. There is resistance at C$2.50 and at C$3.00, but after that there is no chart-related resistance until C$5.00. |
15th October 2012, Weekly Update | Avion Gold (AVR.TO) reported that Q3 gold production at its Tabakoto Mine in Mali was 32K ounces -- a good result. Production costs haven't yet been published, but the recent production performance suggests that the company is generating plenty of cash. This is a plus for Endeavour Mining (EDV.TO, EVR.AX), a TSI stock selection, because AVR is about to become part of EDV. In separate meetings last Friday, shareholders of AVR and EDV approved the merger of the two companies. AVR should therefore become part of EDV on or around 18th October. |
8th October 2012, Weekly Update (Stock price: C$2.37) | Endeavour Mining (EDV.TO, EVR.AX) announced that two independent proxy firms have recommended that Endeavour shareholders vote for the resolution approving the issuance of Endeavour shares in connection with the acquisition of Avion Gold (AVR.TO). A special meeting of EDV shareholders to consider/approve the AVR takeover has been scheduled for Friday October 12. As previously explained, we don't view the AVR takeover as a bad deal. We wouldn't vote against it, although we would prefer that it hadn't happened. We think the deal increases the stock's risk by more than it increases the potential upside. At the current stock price EDV's risk/reward is attractive, although its value isn't quite as good now as it was 5 weeks ago when it was trading below $2 and was described in these pages as one of the best buys in the gold sector. |
17th September 2012, Weekly Update | There are a lot of interesting gold-mining companies operating in West Africa. This part of the world still seems to have an abundance of untapped exploration potential and in many cases the stocks of West-Africa-based gold miners appear to be very under-valued. That's why the TSI Stocks List now contains several West-Africa-focused gold mining companies. We are referring to Endeavour Mining (EDV.TO, EVR.AX), Golden Star Resources (GSS), Keegan Resources (KGN), Resolute Mining (RSG.AX) and Volta Resources (VTR.TO). There are good reasons to be bullish on each of these stocks at their current prices, but it's not good that our list of stock selections has so much exposure to a single moderately-risky region that appears to be headed in the wrong direction on the risk scale. There are two main reasons for our view that West Africa is headed in the wrong direction on the risk scale. First, this year's events in Mali (a military coup, a civil war, inroads being made by well-armed Islamic fundamentalists) suggest that democratically elected governments in that part of the world have a tenuous hold on power. After all, prior to this year Mali was generally thought to be one of the most politically stable of West Africa's nation states. Second, governments in West Africa are becoming increasingly aggressive in their efforts to take a bigger share of the profits earned by gold mining companies. For one example, in its 2012 budget the government of Ghana increased the corporate tax rate on miners from 25% to 35% and introduced a 10% windfall profits tax. The windfall tax has since been delayed and could ultimately be abandoned, but it is clear that tax policy in Ghana, which is reputedly the best country in West Africa to operate a gold mining business, is being driven by the belief that the miners are rolling in money and that "the people" deserve more of this money. If only the miners really were rolling in money. For a second example, a spokesman for the Cote d'Ivoire government said last week that a windfall profits tax on gold miners would be put in place "to ensure the country benefits from higher world prices for the precious metal". These governments don't understand that if they implement windfall profit taxes then investment in the mining industry will dry-up and overall tax revenues will end up declining. Mining is a very cyclical business. If the opportunity to earn a lot of money near the peak of the cycle is taken away then so is the incentive to invest. At this stage we plan to maintain significant exposure to West Africa via gold stocks that have attractive risk/reward ratios (taking into account the increasing political risk), but our short-term goal is to reduce the number of West-Africa-focused stocks in the TSI List from 5 to 3. We are going to start immediately by exiting Resolute Mining (RSX.AX), a long-time inclusion in the TSI List. We have made numerous suggestions to buy RSG shares and numerous suggestions to take partial profits on RSG shares over the years, but this one will go into the books as a profit of 106% based on its price when it first appeared in the TSI List (March of 2005) and last Friday's closing price of A$1.88. We have chosen to exit RSG because its flagship Syama project is in Mali, which has turned out to be one of the riskiest countries in the region. EDV.TO will also have significant exposure to Mali after it completes its takeover of Avion Gold, but with EDV's current production coming from three separate West-African countries it is less vulnerable to a major problem in any one country. In a market and political environment in which everything went well for RSG, EDV would also do very well. And in terms of valuation and growth potential, RSG and EDV look quite similar. The bottom line is that with EDV picking up significant Mali exposure via its Avion purchase, it doesn't make sense for us to have both EDV and RSG in the TSI List. RSG is the one to go because its stable of assets is less diverse and riskier. |
10th September 2012, Weekly Update | Endeavour Mining (EDV.TO, EVR.AX) reported that construction work at its Agbaou mine in Cote d'Ivoire was on track (production is scheduled to commence in Q1-2014) and that the results of new exploration drilling at this project would likely allow for an extension of the mine life. The current estimate for Agbaou's gold resource comprises 1.2M ounces in the M&I category. A new estimate will be done once all assays from the current drilling program are received. |
3rd September 2012, Weekly Update (Stock price: C$1.98) | Endeavour Mining (EDV.TO, EVR.AX) reported good drilling results from a project that we haven't, up until now, included in our valuation for this company. The drilling results are from the Ouare gold project in Burkina Faso, which is about 40km from EDV's 80K-oz/yr Youga gold mine. They included 8.8m of 14.2-g/t gold from infill drilling and 18m of 3.7-g/t gold from step-out drilling. The Ouare project currently has an Inferred resource of 323K ounces and is scheduled to have a completed PEA (Preliminary Economic Assessment) by year-end. That this interesting little project hasn't been included in our EDV valuation to date indicates the extent of this company's organic growth potential. At current prices EDV.TO/EVR.AX is one of the best buys in the gold sector. |
27th August 2012, Weekly Update (Stock price: C$2.00) | EDV's stock price plunged a couple of weeks ago in reaction to news that the company had agreed to buy Avion Gold (AVR.TO) in an all-stock deal. We aren't keen on the deal, because at the current gold price it adds more risk than potential reward. However, it's important to put things in perspective. This is not a Tye Burt (former Kinross CEO) style asset purchase that wipes out a lot of shareholder value in one fell swoop due to an absurdly high price, it is the purchase of a relatively risky asset at a fairly low price. The continued downward pressure on EDV shares due to the AVR takeover news combined with the recent gains in other gold mining stocks has led to EDV becoming one of the gold sector's best candidates for new buying. |
13th August 2012, Weekly Update | Endeavour Mining (EDV.TO, EVR.AX) reported its financial results for the June quarter. Production and costs for the quarter had been reported in mid July, so last week's report didn't contain much in the way of significant new information. That being said, the company generated a lot more cash during the quarter than we were expecting, which is obviously a plus. Also, included with the financial results was a note that the company has been granted the permit it needs to start the construction of its 100K-oz/yr Agbaou mine in Cote d'Ivoire. We suspect that these results would have boosted EDV's stock price by 5%-10% if not for the AVR acquisition announced at the same time. The AVR acquisition news temporarily trumped all other considerations and caused the stock price to plunge 17% during the ensuing trading day. |
8th August 2012, Interim Update (Stock price: C$1.99, Warrant price: C$0.44) | EDV is buying Avion Gold (AVR.TO) in an all-stock transaction: 0.365 EDV shares for each AVR share. Based on EDV's closing price on 7th August (the price when the deal was announced), the bid values AVR at C$0.88/share. This is a 56% premium to the 7th August closing price of AVR and amounts to about $390M for the entire company. AVR is currently producing gold at the rate of about 100K ounces per year at its operations in Mali (West Africa), and the annual production rate is expected to increase to about 150K ounces over the months ahead due to a mill expansion. So, for its money EDV will be getting an extra 100K ounces/year of current production and an extra 50K ounces/year of baked-in future production growth. EDV will also be getting a 50% boost to its in-ground M&I gold resource. At the agreed share exchange ratio the acquired assets are being valued similarly to EDV's existing assets. This leaves our assessment of EDV's upside potential unchanged. Specifically, the $3.93/share valuation and $4.50/share upside target explained in the 23rd July 2012 Weekly Update remain applicable. However, the risk is now much higher because at least one-third of EDV's expected future production of 450K ounces/year will come from Mali (a relatively high-risk country thanks to this year's political instability (military coup) and the on-going violent conflict in the north). Due to the greater risk associated with EDV as a result of this deal we will be quicker to exit this stock in the future than would otherwise have been the case. To be a little more specific, rather than waiting for our upside price target to be reached we will possibly view a future rise to C$3.00-$3.50 as a good selling opportunity. As things currently stand, however, EDV is clearly a buy due to the stock market's extreme over-reaction to the takeover news. Note that the AVR deal doesn't alter the risk/reward equation for the EDV C$2.50 warrants (TSX: EDV.WT.A). The downside risk associated with these out-of-the-money warrants was 100% prior to the AVR deal and is still 100%. The upside potential is still at least 300%. EDV's management is clearly trying to grow the company rapidly via acquisitions in West Africa. We won't be surprised if its next takeover target -- after it beds down the AVR purchase -- is either Keegan Resources (KGN) or Volta Resources (VTR.TO), both of which have advanced exploration-stage projects in West Africa. |
23rd July 2012, Weekly Update (Stock price: C$2.18, Warrant price: C$0.45) | EDV is expected to produce a combined total of about 200K ounces of gold this year and next from its Youga and Nzema mines in Burkina Faso and Ghana. The annual production rate is then expected to increase to about 300K ounces due to completion of the Agbaou mine in Cote d'Ivoire, but for valuation purposes we will assume a steady state production of 200K ounces/year. We will also assume a gold price of $1500/oz and a cash operating cost of $700/oz (versus the $680/oz cost achieved during the first half of this year). 200K ounces/year with a per-ounce margin of $800/oz ($1500 - $700) yields an annual cash margin of $160M. In the first quarter of this year EDV's reported cash flow was 84% of its cash margin, but to be conservative we will assume that 70% of its cash margin becomes operating cash flow. This gives us an estimate of $112M for annual operating cash flow. Applying an eight multiple to this annual cash flow leads to an estimated value of $896M for EDV's operating mines. To value the construction-stage Agbaou project we will rely on a technical report completed last month by Senet, a third party engineering firm. Using figures included in the Senet report we calculate that Agbaou has an after-tax NPV(5%) of around $330M at $1500/oz. Applying a 50% discount to reflect the fact that the project is about 18 months away from production gives us an estimated current value of $165M. Adding $165M for Agbaou to the $896M figure mentioned above for EDV's operating mines results in a total estimated value of $1061M for EDV's portfolio of gold mining assets. Turning to EDV's balance sheet, there is $165M of working capital that is almost totally offset by long-term debt and a derivative liability. The derivative liability stems from the hedge book that was inherited when EDV purchased the Nzema gold mine. As at 31st March 2012 it encompassed 113K ounces of gold forward sales at the low price of $1061/oz, to be delivered as per the following schedule: - 7K over the remainder of 2012 - 10K in 2013 - 32K in each of 2014, 2015 and 2016 This hedge book reduces EDV's leverage to gold, but not by much because it amounts to only 5% of expected production in 2012-2013 and 10% of expected production in 2014-2016. With liabilities approximately offsetting liquid assets on the balance sheet, we'll use $1061M for our valuation of the company. This equates to $3.93/share (assuming a share count of 270M), which in our opinion is conservative because it is based on a gold price that's $100 lower than the current gold price and a few hundred dollars lower than where we expect the gold price to be 12 months from now. Our price target of $4.50/share allows for some gold price appreciation. EDV is a buy in the C$2.20s or lower, and for more aggressive speculators the EDV C$2.50 Feb-2014 warrants (TSX: EDV.WT.A) are a buy near their current price of C$0.45. |
9th May 2012, Interim Update (Stock price: C$2.02, Warrant price: C$0.53) | EDV has been comparatively resilient over the past few weeks, meaning that it has been hammered more gently than most other junior gold mining stocks. This is probably because it is generating lots of cash. As per the results announced this week, EDV had per-share cash flow and earnings of $0.14 and $0.07 during the first quarter of this year. When these figures are annualised they imply that EDV is presently trading at 3.6-times cash flow and 7-times earnings. |
19th March 2012, Weekly Update (Stock price: C$2.38, Warrant price: C$0.70) | Fast-growing West-Africa-based gold miner with producing mines in Burkina Faso and Ghana and development-stage projects in Cote d'Ivoire and Mali. It is under-valued considering only its current production, meaning that the market is currently allowing nothing for the company's planned growth. |
15th February 2012, Interim Update (Stock price: C$2.29, Warrant price: C$0.69) | Most TSI readers will be familiar with EDV, because we have written about this company many times over the years. The TSI Stocks List currently has some exposure to EDV via the EDV Feb-2014 C$2.50 warrants (TSX: EDV.WT.A), but the stock hasn't been part of the List since we took profits at C$2.70 back in September of 2010. At least, it hasn't been part of the List until today. When we removed EDV from the List in 2010 it was producing gold from its Youga mine at the rate of about 80K ounces/year, but more than half of its net asset value was a huge cash reserve. This cash reserve meant that the risk was low, but it also meant that the stock didn't offer significant leverage to the gold price. The lack of leverage was the main reason for our decision to exit. As a result of developments over the intervening period, EDV now offers much greater leverage to the gold price and has a more clearly defined growth path. It is currently producing gold at the rate of around 180K ounces per year from two mines -- the Youga mine in Burkina Faso and the Nzema mine in Ghana. Also, it plans to develop the Agbaou project in Cote d'Ivoire into a mine that produces gold at the rate of 70K-100K ounces/year by the end of 2013, and has additional growth potential due to its 40% stake in the exploration-stage Mali-based Finkolo project managed by Resolute Mining. Moreover, the stock is now trading about 15% lower than our earlier exit price despite the gold price being 30% higher. The company expects to generate about US$150M of cash in 2012. This cash flow, along with its current cash hoard and credit facility, should be more than enough to take Agbaou through to production without needing to arrange additional financing. We have returned EDV to the List at Wednesday's closing price of C$2.29, a price that is just above an area of good support (refer to the following chart for details). We have a 12-month target of C$4.50 in mind. The target was determined by applying an 8 multiple to this year's expected cash flow and allows nothing for the growth potential provided by Agbaou and Finkolo. By the way, in addition to trading in Canada under the symbol EDV, Endeavour Mining also trades in Australia under the symbol EVR. With today's addition of EDV there is now too much exposure to West Africa in the TSI Stocks List (GSS, KGN and RSG.AX also have their main assets in West Africa). We hope to be able to address this imbalance by exiting RSG.AX within the next few months at around A$2.50. |
9th November 2011, Interim Update (Stock price: C$2.35, Warrant price: C$0.64) | EDV moved quickly up to chart resistance on Monday of this week. The sudden emergence of strength was possibly due to anticipation of the good quarterly financial results that were announced on Tuesday. There was more news on Wednesday, with the company announcing that it had agreed to sell its Advisory Business for staged payments totaling $20M. The sale of the Advisory Business is neutral at best from a financial perspective, but it does mean that the company is now almost 100% focused on its gold mining operations in West Africa. These operations will have current production of 185K ounces/year once the merger with Adamus Resources (ASX: ADU) is complete, and are expected to have production of 250K ounces/year by the end of 2013 due to development of an existing Feasibility-Stage project. Due to its relatively low post-merger cash cost of around $600/oz, EDV should generate a lot of cash over the next 12 months if the gold price averages at least $1500/oz (which it almost certainly will). The stock's relatively low valuation suggests that this cash flow generation is not factored into the current stock price, and, therefore, that the stock has a lot of upside potential. At the same time, downside risk is mitigated by the company's strong balance sheet. In the TSI Stocks List there is exposure to EDV via the February-2014 C$2.50 warrants (TSX: EDV.WT.A). We think that the stock and the warrants are good candidates for new buying near their current prices in the low-C$2.30s and the low-C$0.60s, respectively. The warrants are a lot riskier than the stock, but have a lot more upside potential. |
24th August 2011, Interim Update (Stock price: C$2.40, Warrant price: C$0.71) | In the TSI Stocks List we have exposure to Endeavour Mining (TSX: EDV) via the C$2.50 warrants expiring in 2014 (TSX: EDV.WT.A). EDV has finally found a way to put its large cash hoard to work. It will be merging with Adamus Resources (ASX: ADU) in an all-stock deal (0.285 shares of EDV for each share of ADU) and will be using its cash to a) pay off ADU's $60M of project debt and b) reduce ADU's hedge liability. We previously looked at ADU as a potential speculation and TSI stock selection, but decided against it due primarily to the company's debt and hedge liabilities (ADU forward-sold 290K ounces of gold at $1,075/oz last year, 270K ounces of which remain and are scheduled to be delivered over the next 5 years). Accounting for the hedge liability, ADU appears to be fully valued at its current market cap of around A$320M (454M shares at A$0.70/share). Despite ADU's so-so valuation, we like this deal because it solves a problem for both of the companies involved. From ADU's perspective, it removes the financial constraints imposed by a weak balance sheet and an ill-conceived gold forward-sales book. From EDV's perspective, it greatly increases the leverage to gold and gives the company a good asset in a low-risk jurisdiction. Specifically, EDV gets the Nzema project in Ghana, which is currently producing gold at the rate of 100K ounces/year at a cash cost of around US$575/oz. The combined company should produce around 180K ounces of gold over the next 12 months. Based on an expected total post-merger share count of 254M, the production is currently being valued by the market at around US$3,400/oz. This is cheap considering today's gold price and the expected cash operating cost of around US$600/oz, but is not cheap relative to several other 100K-400K-oz producers that we track. EDV is a candidate for new buying near its current price of C$2.40, but we aren't going to add it to the TSI List at this time. We'll stick with the warrants. |
23rd May 2011, Weekly Update (Stock price: C$2.19, Warrant price: C$0.64) | There is exposure to EDV in the TSI List via the February-2014 C$2.50 warrants (TSX: EDV.WT.A). EDV is sitting on a large pile of cash, which limits the stock's downside risk but also limits its upside potential by reducing its leverage to gold. The company currently owns the 80K-oz/yr Youga gold mine in Burkina Faso and plans to use its cash hoard to purchase another in-production gold mine, but it is taking an inordinately long time to do a deal. The stock has fallen back to an area of long-term support (see chart below), where it is a reasonable candidate for new buying. However, it will be difficult for us (or anyone) to become enthusiastic about EDV until after the company has announced its next gold-mining acquisition. |
30th March 2011, Interim Update (Stock Price: C$2.63, Warrant Price: C$0.90) | We removed EDV from the TSI Stocks List some time ago, but retained some exposure to this company via the warrants (TSX: EDV.WT.A). Whether or not EDV makes its way back into the TSI Stocks List in the future will depend on what the company does with its $200M cash hoard. It is currently under-valued and offers exposure to gold via its 80K-oz/yr Youga mine in Burkina Faso, but because cash constitutes about half of its net asset value it doesn't offer as much leverage to gold as we'd like. As we've mentioned in the past, we think it would make sense for EDV to use its cash to make a stock-plus-cash bid for Resolute Mining (ASX: RSG). RSG is under-valued and would make a good fit with EDV's West African assets. Following a successful bid, RSG's non-African assets could be sold off or spun off to make the expanded EDV an Africa-focused mid-tier producer with a strong balance sheet. This would likely lead to a substantial upward re-rating in the stock market that would benefit all shareholders. Although we aren't going to return EDV to the List at this time, we wanted to point out that it is a relatively low-risk buy near the current price. This is not only due to the low valuation and strong balance sheet, but also due to the stock chart. The chart (see below) shows that EDV has trended upward over the past two years via a "two steps forward followed by one-and-one-half steps backward" process. The rallies have generated trough-to-peak gains of 83%, 78% and 52%, while the intervening downward corrections have taken the stock price to just below its 200-day moving average. There's a good chance that the stock's most recent correction ended in the C$2.30s earlier this month. Consecutive daily closes above the 50-day moving average (currently C$2.72) would suggest that the next "two steps forward" rally had begun. If the next rally results in a trough-to-peak gain of 52%-83% then it will end at C$3.50-C$4.30. |
6th December 2010, Weekly Update (Stock Price: C$2.89, Warrant Price: C$1.13) | There has been a lot of strength in the gold sector over the past few months, with many gold stocks making large gains. Exploration-stage stocks with positive news in the form of good drilling results or resource upgrades have done particularly well, although there are plenty of junior gold miners that stand to gain immediate benefit from a higher gold price -- by virtue of having current production -- that have been left out of the rally. EDV is one such stock. Despite having current gold production of 80K ounces/year from a mine in West Africa, EDV's stock price has not responded to the 10% rise in the gold price over the past 2.5 months. Moreover, this stodgy performance can't be explained by valuation, because EDV looks under-valued at its current price even if we allow nothing for its profitable merchant banking business. It is possible that the market has the same concerns that prompted us to remove EDV from the TSI Stocks List in mid September (we removed the stock, but kept the Feb-2014 $2.50 warrants). Specifically: insufficient leverage combined with uncertainty about how the company's large cash reserve would be used. EDV will likely use its cash to acquire all, or part of, a junior gold mining company with current production in Africa, but the uncertainty -- and the lack of leverage -- will remain until a deal is done. EDV is a relatively low risk buy below C$2.90/share and would be a reasonable choice for someone who is just beginning to build a junior gold-stock portfolio, but it probably won't return to the TSI Stocks List until after its next significant gold-related acquisition has been announced. In the mean time, we'll retain some exposure to the EDV story via the warrants (TSX: EDV.WT.A). |
14th September 2010, Stock Selection Update #60 (Stock Price: C$2.70, Warrant Price: C$0.96) | Endeavour Financial (TSX: EDV) announced prior to the start of trading on Monday that it had agreed to sell its 43% stake in Crew Gold (TSX: CRU) to Severstal for US$215M. This equates to about C$4.90 per CRU share. We were expecting this deal, but were hoping that it would occur at a much higher price for CRU. Severstal will probably offer to acquire the 7% of CRU that it doesn't already own at C$4.90/share. This means that there isn't much downside risk in CRU at Monday's closing price of C$4.47, but also that the upside potential from here is capped at about 10%. The remaining upside potential is nowhere near enough to justify the stock's continuing inclusion in the TSI List, so we will make a quick exit for a small profit of around 5% (based on last week's entry at C$4.24). There was an opportunity to sell EDV in the C$2.90s immediately after the stock opened for trading on Monday, but unfortunately the early news-related gain quickly evaporated. At Monday's closing price of C$2.70 the stock is very under-valued with relatively low risk, but we have decided to remove it from the TSI List and record a profit of 61.7% based on our September-2009 entry at C$1.67. The reason we are exiting EDV, despite is relatively low risk and under-valuation, is that due to the exit from CRU it no longer offers sufficient leverage to gold. At least, it won't offer sufficient leverage until it puts its now-large cash reserve to work via another gold-related acquisition. We will re-evaluate the stock after the timing and details of the next acquisition become known. As previously mentioned, the sale of its CRU stake could pave the way for EDV to make a bid for Australia-listed Resolute Mining (ASX: RSG). We have no information to indicate that EDV is planning a tilt at RSG, but such a move would make sense considering a) RSG's low valuation, b) the West Africa location of RSG's major gold-producing asset, c) the fact that RSG and EDV are already JV partners on an exploration-stage project, and d) the likelihood that many RSG shareholders are unhappy with current management. Note that although we are removing the EDV shares from the TSI List, we are going to maintain exposure to this company via the warrants (TSX: EDV.WT.A). These warrants, which have an exercise price of C$2.50 and about 3.5 years to expiry, do offer plenty of leverage. They are also much riskier than the stock. |
30th August 2010, Weekly Update (Stock price: C$2.15) | Endeavour Financial (TSX: EDV) is a member of the TSI Stocks List and EDV owns 43% of CRU, which means that the TSI Stocks List has indirect exposure to CRU. Severstal, a Russian company, owns 50% of CRU, so the trading float is relatively small. Due to its recent stock-price decline, CRU is now an interesting speculation in its own right (rather than indirectly via EDV). It is a profitable gold producer with current annual production of around 210K ounces and a plan to increase production to around 270K ounces/year. It also has about 5M ounces of in-ground gold, mostly in the M&I category. At Friday's closing price of C$4.23 its current production and resources were being valued by the stock market at US$2,386 and US$102 per ounce, respectively, which is low for a company of this size. CRU's gold production comes from the Lefa project in Guinea (West Africa). This means that country risk must be taken into account (Guinea is not a model of political stability), although by their actions it is clear that EDV and Severstal do not consider the country risk to be substantial. CRU is a takeover candidate with Severstal being the likely buyer. In our opinion, if the offer price were right it would make sense for EDV to sell its CRU stake to Severstal and then use the cash to make a bid for Resolute Mining (ASX: RSG), especially considering that Etruscan Resources (recently acquired by EDV) and Resolute have a project in common. Whether or not you already have exposure to CRU via EDV, it could make sense to buy some CRU shares. We view CRU as a buy below C$4.30 and a strong buy below C$3.70. |
29th June 2010, Interim Update (Stock Price: C$2.22, Warrant Price: C$0.78) | EDV has made an offer to acquire the 45% of Etruscan Resources (TSX: EET) that it doesn't already own. The offer is a combination of cash and stock, and has been approved by EET's board. The $43M cash portion of the acquisition will be funded using a $100M credit facility recently arranged by EDV. Assuming that EDV ends up with 100% of EET, its gold business (100% of EET plus 43% of Crew Gold (TSX: CRU)) will have the following equity-accounted production and resources: - 189K-oz/yr production - 3.7M ounces of M&I resources plus 1.0M ounces of inferred resources (4.2M ounces total, assuming an inferred ounce is worth 50% of a M&I ounce) This means that at its recent price of C$2.22/share, EDV is being valued by the stock market at around US$1622 per ounce of production and US$73 per resource ounce. These figures are very low, and they don't allow anything for EDV's non-gold investments and its merchant banking business. We expect that EDV's gold business will eventually be spun off as a separate company, perhaps following one more acquisition. Putting the gold assets into a separate company would be an efficient way to boost shareholder value. EDV and the EDV warrants (TSX: EDV.WT.A) are suitable for new buying near their current prices of C$2.22 and C$0.78, respectively. |
13th May 2010 Update (Stock price: C$2.65) | ...Endeavour Financial (TSX: EDV) released its Q1-2010 financial results after the close of trading on Tuesday. These results revealed that the company had a net asset value (NAV) of C$5.54/share at 31st March. Right now the NAV is probably about C$5.00/share, which is almost double the current market price. Who said that the stock market was efficient? |
11th May 2010 Update (Stock price: C$2.44) | Endeavour Financial (TSX: EDV) is one stock suitable for new buying near its current price (C$2.44). |
3rd March 2010, Interim Update (Stock Price: C$2.35) | EDV has recently broken upward from its lengthy basing pattern (see chart below), but we wanted to point out that the increase in the stock price has not closed the gap between the company's market value and its net asset value. The reason is that the net asset value per EDV share has risen by as much as the EDV stock price. To put it another way, it could be argued that EDV is as under-valued today at C$2.35 as it was two weeks ago at C$1.80. Our long-term target for EDV's stock price is its net asset value. In other words, we are anticipating an eventual elimination of the discount at which the stock currently trades. The current net asset value is about C$4.50/share. The top of EDV's basing pattern (C$2.20) should now provide solid support, and the area around this support level is now the optimum realistic place for new buying. |
1st March 2010, Weekly Update (Stock Price: C$2.28) | In the 22nd February Weekly Update we said that the lengthy basing patterns of ADM.V and EDV.TO had been frustrating, but that patient holders of these stocks would be rewarded. EDV broke upward from its basing pattern late last week so it looks like the patience of EDV shareholders will be rewarded in the short-term. At the same time, however, ADM plunged to near the bottom of its 12-month range, meaning that a lot more patience will be required with this one. |
22nd February 2010, Weekly Update (Stock Price: C$1.82) | Andina Minerals (TSXV: ADM) and Endeavour Financial (TSX: EDV) have been two of our most frustrating stocks over the past 12 months. Both of these stocks are very under-valued and under-appreciated by the stock market, despite being extremely well positioned to profit from a rising gold price. We think that patient holders of ADM and EDV will be rewarded. As evidenced by the following charts, both stocks have been basing over the past year and have resistance at C$2.00-$2.20. |
15th February 2010, Weekly Update (Stock Price: C$1.83) | In late January EDV purchased an 810M-share (38%) stake in Crew Gold (TSX: CRU), a company with annual gold production of around 220K ounces from a mine in West Africa. EDV's cost per share was C$0.125. CRU ended Friday's session at C$0.215, up C$0.07 (48%) on the day. At Friday's closing price for CRU, EDV had an unrealised gain of about C$73M on its recent investment. Furthermore, at Friday's closing market prices EDV's net asset value was in excess of C$4/share (well over double its current stock price). The reason for Friday's surge in CRU's stock price was news that an affiliate of Severstal Resources, one of Russia's largest mining companies, had purchased 336M CRU shares (15.7% of the company) the day before at C$0.16/share. Severstal began building a gold-mining division in 2007 and appears to be interested in adding CRU to its stable of assets. Severstal's interest in CRU could create the opportunity for EDV to realise a large and very quick gain on its CRU stake, but even if Severstal doesn't make a bid for all of CRU its willingness to pay C$0.16/share for a 16% stake highlights the wisdom of EDV's earlier purchase at C$0.125/share. EDV is a buy near its current price. |
1st February 2010, Weekly Update (Stock Price: C$1.76, Warrant Price: C$0.67) | EDV's strategy over the past several months has been to purchase substantial stakes in financially-challenged junior gold miners at opportunistic times, such as when excessive debt has forced the companies in question to restructure. In September of 2009 this strategy led to the purchase of a 54% stake in Etruscan Resources (TSX: EET), a company with annual gold production of 88K ounces from a mine in Burkina Faso (West Africa). And last week it led to the purchase of a 38% stake in Crew Gold (TSX: CRU), a company with annual gold production of around 220K ounces from a mine in Guinea (also in West Africa). EDV is paying US$92M for 38% of CRU. Accounting for CRU's $108M of debt and $25M of cash, EDV is effectively paying $123M for 38% of a 220K-oz/yr mine, or about US$1500 per ounce of production. This is low and creates the potential for a substantial return on investment. EDV is very under-valued (the company's net asset value is well north of C$3.00 per share) and at some point this fact will be recognised by the stock market. It is an excellent candidate for new buying near its current price. Note: 1. EDV has a valuable investment-banking business and significant investments in non-gold resource companies, but with this latest deal its asset base is now strongly biased towards gold. We have therefore shifted it from the "Other Stocks" section of the TSI List to the "Gold and Silver Stocks" section. 2. We like the EDV warrants (TSX: EDV.WT.A), which have an expiry date of Feb-2014 and an exercise price of C$2.50. However, at current prices the stock offers better value than the warrants (the warrants are moderately expensive relative to the stock). |
25th November 2009, Interim Update (Stock price: C$1.86) | EDV's stock price plunged on high volume on Tuesday for no readily-apparent explanation. Our guess is that an institution with a sizeable position wanted to make an exit for reasons that have nothing to do with the investment merits of EDV shares. The stock traded as high as C$2.02 on Monday, then dropped as low as C$1.67 on Tuesday before rebounding to end Wednesday's session at C$1.86. This sort of volatility is quite common within the ranks of junior resource-oriented stocks, even stocks such as EDV that are nowhere near as speculative as the average exploration-stage miner (EDV is an investment-banking company that regularly takes equity positions in the companies it helps to finance). Smart speculators use this volatility to their advantage by placing under-the-market buy orders to catch the downward spikes and above-the-market sell orders to catch the upward spikes. The following chart shows that EDV remains mired within a lengthy basing pattern. By the way, chart patterns such as this are still easy to find at the junior end of the gold sector, which is more evidence that gold and gold stocks are nowhere near 'bubble territory'. EDV is also trading at a huge discount to its net asset value. Needless to say, its risk/reward is excellent near the current price. |
11th November 2009, Interim Update (Stock Price: C$2.10) | EDV announced its latest quarterly financial results on Tuesday 10th November. A substantial profit was achieved during the quarter ended 30th September, but note that the reported quarterly earnings number is not a good indicator of EDV's performance because it tends to fluctuate wildly from one quarter to the next in response to changes in the market values of the company's investments in junior resource stocks. Of particular interest to us was the reported net asset value (NAV) of C$3.17/share. Furthermore, the gain in the market value of EDV's stake in Etruscan Resources subsequent to the quarter's end will have boosted the NAV to around C$3.50/share. In other words, EDV ended Wednesday's session at a discount of around 40% to its NAV. The following chart shows that EDV is still attempting to complete its basing pattern. There is resistance in the low-C$2.20s and support at around C$1.80. It is presently not 'overbought', and is, in our opinion, a buy near its current price of C$2.10 based on its large discount to NAV and the likelihood that another gold-related deal -- similar to the recent Etruscan deal -- is in the works. It would be a very strong buy at C$1.80 or thereabouts. |
26th October 2009, Weekly Update (Stock Price: C$2.01, Warrant Price: C$0.85) | EDV gained 13% on Friday on high volume and is in the process of breaking out from the base that has formed over the past 12 months. As far as we can tell, Friday's surge was driven by news that the previously-announced deal to acquire 54% of Etruscan Resources had been completed. Near Friday's closing price of C$2.01, EDV is still a good candidate for new buying because it remains very under-valued and is not technically 'overbought' on even a short-term basis. We estimate that the company's net asset value now exceeds C$3.00/share, so the stock is trading at a large discount to the underlying assets. Moreover, EDV will still have almost $100M in cash after paying for its Etruscan stake and is planning to use this cash to do similar value-enhancing deals over the months ahead. |
30th September 2009, Interim Update (Stock Price: C$1.67, Warrant Price: C$0.70) | In last week's Interim Update we discussed the recent deal that involves EDV taking control of junior gold producer Etruscan Resources. In our opinion, the Etruscan deal proves that EDV has exactly the right strategy. The quarterly financial results reported by EDV earlier this week revealed a net asset value (NAV) at 30th June 2009 of C$2.78/share, of which C$2.16/share comprises cash and investments (the remainder is the book value of the merchant banking business). The NAV would have risen a little since then. This means that at Wednesday's closing price of C$1.67, EDV was trading at a hefty 40% discount to its NAV. To put it another way, EDV's stock would have to gain 66% to bring it into line with its NAV. Although the TSI Stocks List already has EDV exposure via the company's A-series warrants (EDV.WT.A), we are now adding the stock to the List. Doing so will hopefully enable us to record a profit at some future time -- by exiting either the warrant position or the stock position -- while retaining long-term exposure to the company. This is an opportunistic time to buy EDV, because after testing resistance at C$1.85 over the past week the stock price has since pulled back to within about 4% of support at C$1.60. |
23rd September 2009, Interim Update (Warrant Price: C$0.62) | EDV, an investment banker focusing on the junior resource sector, made an interesting announcement on Wednesday. The company announced that it is buying 54% of Etruscan Resources (TSX: EET) at a total cost of around US$51M, US$43M of which will go directly to EET to facilitate the restructuring of its financial position (including the closing-out of half its gold hedge book). EET owns 90% of the Youga gold mine in Burkina Faso and 40% of the Tabakoroni gold project in Mali. Youga is in production at the rate of 88K ounces/year, meaning that EET's stake is 80K ounces/year. Tabakoroni is an exploration-stage project with a current gold resource of around 800K ounces. Following the financial restructuring facilitated by EDV's investment in the company, we understand that EET will have debt and hedge liabilities of around $50M. Accounting for the debt and hedge liabilities, EDV is effectively paying about US$1900/ounce for existing gold production and getting exploration-related upside for free. We think this is a reasonable deal for EDV because it has added some leverage to the gold price without contributing much downside risk. Also, we like the fact that the company is actively looking for opportunities to take substantial positions in under-valued junior gold miners. It has the ability to do more deals like this, because after paying for its EET stake it will still have about $100M of cash and cash-equivalents. The following chart shows that EDV has been forming a base over the past 10 months and is now testing resistance. It could pull back from here, but it is not overbought and it remains significantly under-valued (by our calculations, the company's net asset value is at least C$2.60/share). We suspect that if it does pull back over the next couple of weeks it will find support at around C$1.60. Our exposure to EDV is via the A-series warrants, which ended Wednesday's session at C$0.62. At the current stock price, fair value for the warrants is around C$0.60. Both the stock and the warrants are good candidates for new buying at or below current prices. The warrants have more upside potential and more downside risk than the stock. |
13th May 2009, Interim Update (Warrant Price: C$0.52) | EDV, an investment bank that operates within the junior resource sector, currently has no debt and around C$2/share of cash and investments. The book value of its investment banking business is around US$55M, which means that the company's net asset value (net-cash plus investments plus investment banking book value) is around C$2.65/share. Cash makes up more than 40% of EDV's net asset value, so an investment in EDV shares is largely a bet that the company's management will be able to earn a good return on its cash over the years ahead. This is a good bet right now, particularly since the current large discount to NAV means that investors are effectively being compensated to make the bet. The following chart shows that EDV broke out of a lengthy consolidation at the beginning of this month, but has not yet moved far from its lows. The stock appears to be slowly gathering strength. We are playing EDV's long-term upside potential via the C$2.50 warrants that expire in February of 2014. At EDV's current price of C$1.65 the warrants are fairly valued in the low-C$0.50s. If the stock price were to move up to around C$2.50 over the next few months then the fair value of the warrants would rise to around C$1.00. |
23rd February 2009, Weekly Update (Warrant price: C$0.49) | We recently added the Endeavour Financial Feb-2014 C$2.50 warrants (TSX: EDV.WT.A) to the TSI Stocks List. This is just a quick note that these warrants have dropped back to an area where new buying would make sense for long-term speculators (they ended last week at C$0.48-$0.50). |
11th February 2009, Stock Selection Update #56 (Warrant price: C$0.49) | Over the past two months we have mentioned that investors could obtain exposure to a portfolio of junior resource stocks by purchasing Sprott Resource Corp. (TSX: SCP) or Endeavour Financial (TSX: EDV). We added SCP to the TSI Stocks List in mid December and continue to like it as an under-valued, well-managed long-term play on the junior resource sector. Today's email, however, is about EDV. EDV recently completed a very large equity financing that re-capitalised the company. This financing raised C$115M at C$1.77 per share, in the process tripling the company's share count and putting downward pressure on its share price. Also, the large increases in cash and shares outstanding reduced EDV's short-term leverage to the junior resource sector, as well as its risk. Despite the 200% increase in share count EDV is still trading at a sizeable discount to its net asset value. Specifically, based on the market value of the company's investments as at 31st December 2008 (the current value should be about the same as it was then) and incorporating the effects of the recent financing, we calculate that EDV presently has cash and investments with a combined value of US$163M. This equates to about C$2.00 per EDV share, which compares favourably with Tuesday's closing share price of C$1.58. However, EDV also operates an investment banking business with a book value of US$55M. Adding the book value of the investment banking business to the market value of the cash and investments results in a net asset value of C$2.77 per share. Assuming that EDV's management invests its cash prudently in junior gold and other resource companies over the year ahead, the company's net asset value should increase markedly. One reason is that there is a huge amount of value to be found in this area of the stock market. Another reason is that EDV, due to its connections and status, gets presented with a lot of good investment opportunities that are not available to the average person. In the short-term, however, the stock may not be a stellar performer due to the effects of the recent financing (higher share supply and watered-down leverage). For risk-tolerant speculators, the reduced-leverage issue can be overcome by purchasing the new EDV warrants rather than EDV shares. The warrants, which trade on the TSX under the symbol EDV.WT.A (the Yahoo Finance symbol is EDV-WTA.TO), have an exercise price of C$2.50 and an expiry date of February-2014, so as long as there's a bull market in junior resource shares at some point over the next 5 years there should be an opportunity to realise large gains on these warrants. Furthermore, there seems to be reasonable liquidity in the market for these warrants at around C$0.50 (950K warrants traded between C$0.49 and C$0.52 on Tuesday). We are going to add the above-mentioned EDV warrants to the TSI Stocks List at Tuesday's closing price of C$0.49. With the stock at around C$1.60 we calculate fair value for the warrants to be C$0.48-C$0.52. |