Endeavour Mining Q2 Earnings: Lower Revenues This Quarter (OTCMKTS:EDVMF)

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Introduction

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

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EDVMF Assets map Presentation (Endeavour Mining)

Important note: This article is an update of my article published on June 27, 2022. I have been following EDVMF on Seeking Alpha since 2021.

1 – 2Q22 Results Snapshot

On August 3, 2022, Endeavour Mining announced that gold production for the second quarter of 2022 was 345.104K ounces and sold 343.688K ounces.

Revenue for the quarter came in at $629.6 million, down from $753.4 million last year.

Endeavour Mining indicated that it is well-positioned to achieve its 2022 guidance production and AISC for continuing operations of 1,315-1,400K Oz at an AISC of $880-930 per ounce.

CEO Sebastien De Montessus said in the conference call:

We are pleased to report that we have continued our strong momentum from Q1 into Q2, which has positioned us well for the rest of the year.

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EDVMF Operating Cash Flow 1Q22 versus 2Q22 (Endeavour Mining Presentation)

2 – Investment Thesis

Endeavour Mining presents an excellent financial profile and is friendly toward its shareholders with a good dividend and shares buyback policy. Moreover, the company has significant cash of over $1 billion and has no net debt.

One crucial issue is that the company’s assets are located in West Africa, and we should not discount the risk of doing business there. On the positive side, Endeavour Mining has well-diversified assets, reducing risk.

The gold mining sector continued to struggle due to a risk of recession triggered by rampant inflation that forced the FED to hike the interest rates already two times by 75-point. So far, the gold price has held nicely and closed today at $1,765 per ounce. However, despite a solid gold price, most of the gold miners I am following have dropped significantly following the Market. However, I believe it is a temporary issue, and the gold miners will eventually rally down the road.

The best way to profit from such an unusual situation is to trade short-term LIFO of about 30%-40% of your total position and use your short-term gain to increase your core long-term position for a much higher target when the market decides to get back to this industry.

3 – Stock Performance

EDVMF has dropped significantly from its high in March-April and is down 18% on a one-year basis.

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Data by YCharts

CEO Sebastien de Montessus said in the conference call:

we are currently the lowest cost producer when ranked against senior and mid-tier producers. We firmly believe that this low-cost positioning is now a strong competitive advantage, and we are pleased on the hard work to reposition our portfolio over the recent years is now paying off.

Endeavour Mining – 2Q22 Balance Sheet And Trend – The Raw Numbers

Endeavour Mining 2Q21 3Q21 4Q21 1Q22 2Q22
Total Revenues in $ Million 753.43 691.71 697.17 686.20 629.6
Net income attributable to shareholders in $ Million 126.78 113.59 -106.36 -42.20 189.4
EBITDA $ Million 359.90 341.85 85.27 215.40 417.3
EPS diluted in $/share 0.50 0.45 -0.48 -0.17 0.76
Operating Cash flow in $ Million 300.48 311.91 355.78 304.30 253.20
Capital Expenditure in $ Million 144.04 132.47 132.30 85.20 140.30
Free Cash Flow in $ Million 156.44 179.44 223.49 219.10 112.90
Total Cash $ Million 832.88 760.37 906.20 1,054.30 1,096.8
Total Long-term Debt in $ Million 929.76 850.43 841.90 916.80 885.10
Shares outstanding (diluted) in Million 253.43 252.13 251.82 249.64 249.59
Production Au Oz 2Q21 3Q21 4Q21 1Q22 2Q22
Total Production Gold 409.0 382.2 398.0 367.0 345.1
AISC (co-product) from continuing operations 853 904 900 848 954
Gold Price realized 1,791 1,763 1,787 1,911 1,832

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

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

1 – Quarterly Revenues for the Second Quarter of 2022

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EDVMF Quarterly Revenues history (Fun Trading)

Revenues were $629.6 million in the second quarter of 2022, down 16.4% from a year ago and 8.2% sequentially. The revenue decrease is mainly due to lower production and sales from Sabodala-Massawa and Boungou, in line with the mining sequence. Also, the gold price was lower this quarter at $1,832 per ounce compared to $1,911 per ounce for 1Q22.

The adjusted net earnings were $111.3 million in 2Q22 compared to $174.5 million last year.

The net income attributable to shareholders was $189.4 million or $0.76 per diluted share in 2Q22 compared to a net income of $126.78 million or $0.50 per diluted share in 2Q21.

The operating cash flow was $253.20 million in 2Q22, down from $300.48 million in 2Q21.

2 – Quarterly Free Cash Flow History

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EDVMF Quarterly Free cash flow history (Fun Trading)

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

The company’s free cash flow for the second quarter was $112.9 million, and the trailing 12-month free cash flow was $734.93 million.

In 2021, Endeavour implemented a shareholder return programmed with a dividend of $150 million for 2022. It is a minimum dividend that could be supplemented with additional dividends and buyback assuming gold price remains above $1,500 per ounce and net leverage debt to adjusted EBITDA remains below 0.5x.

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EDVMF Dividend program Presentation (Endeavour Mining)

Sebastien de Montessus, President and CEO, said in the press release:

In line with our strong shareholder returns commitment, we are pleased to declare a H1-2022 dividend of $100 million, which represents a 43% increase over last year’s dividend and is reflective of our improved financial position and confidence in our business outlook. Moreover, we are now targeting a minimum dividend of $200 million for the year, which is $50 million more than the initial minimum commitment. We are also continuing to supplement our shareholder returns with share buybacks, having completed $38 million over the last six months and $176 million since launching the programme in April 2021.

3 – Debt Situation in 2Q22. No net debt and total Cash of $1,097 million

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EDVMF Quarterly Cash versus debt history (Fun Trading)

Cash and cash equivalent and investment were $1,096.8 million, and the debt (including current) was $885.1 million at the end of June 2022. The company continues to be net debt-free or net cash.

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EDVMF Cash and debt situation 2Q22 (Endeavour Mining Presentation)

4 – Quarterly Gold Production Analysis

4.1 – Gold Production

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EDVMF Quarterly Gold production history (Fun Trading)

2Q22 gold production from continuing operations was 345.104k ounces, a decrease of 6% over 1Q22, mainly due to lower production at Sabodala-Massawa and Wahgnion.

4.2 – Gold production per mine. Comparison between 2Q21 and 2Q22

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EDVMF Quarterly production per mine 2Q21 versus 2Q22 (Fun Trading)

Note: Karma mine was sold in March 2022.

4.3 – Quarterly Gold price realized and AISC

AISC for all operations decreased slightly this quarter to $848 per ounce, which is still excellent, especially considering the increase in inflationary pressures.

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EDVMF Quarterly AISC and Gold price realized history (Fun Trading)

5 – 2022 Guidance unchanged

2022 production is expected to be 1,315K-1,400K oz at an AISC of $880-930/oz.

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EDVMF Guidance (Endeavour Mining)

6 – Sabodala-Massawa project expansion

Construction commenced in April 2022 and remained on budget and schedule for completion in H1-2024.

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EDVMF Sabodala-Massawa expansion (Endeavour Mining Presentation)

Production at Sabodala-Massawa decreased as a result of lower grade areas mined. The company focuses on waste extraction associated with the commencement of mining at the Massawa North Zone pit. Tonnes processed slightly decreased, and recovery rates were flat.

Average grades decreased as mining of the higher-grade Sofia Main pit was completed in the previous quarter.

Commentary And Technical Analysis

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EDVMF TA Chart short-term (Fun Trading StockCharts)

Note: The chart is adjusted for dividends.
EDVMF forms a descending Channel pattern, with resistance at $22.1 and support at $17.9.

The trading strategy that I suggest is to gradually sell about 30%-40% of your EDVMF position between $21.1 and $23.3 and accumulate between $18.5 and $17.8 with potential lower support at $17.1.

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

Watch the gold price like a hawk.

Note: The LIFO method is prohibited under International Financial Reporting Standards (IFRS), though it is permitted in the United States by Generally Accepted Accounting Principles (GAAP). Therefore, only US traders can apply this method. Those who cannot trade LIFO can use an alternative by setting two different accounts for the same stock, one for the long-term and one for short-term trading.

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

Author’s note: If you find value in this article and would like to encourage such continued efforts, please click the “Like” button below to vote for support. Thanks.

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