viewEndeavour Mining Corp

Credit Suisse weighs up the attractions of mid-tier gold producers, at this stage Endeavour Mining comes out on top

Some mid-tier gold miners look more attractive than others

Conservatively, gold looks set to average US$1,280 this year, according to Credit Suisse

According to research recently published by Credit Suisse, political uncertainty - in particular, Brexit and the US-China trade war - seems likely to underpin the gold price through 2019.

Credit Suisse sets what it terms as a “conservative” average gold price target for the year of 2018, roughly where it is now.

READ: Endeavour Mining begins commercial production at second Côte d'Ivoire gold mine

But any number of factors relating to Brexit or China, or other global geopolitical events, such as tension in the Middle East or the Korean peninsula, could nudge that average significantly higher, allowing for increased margin for companies with existing gold production.

In the same note, Credit Suisse focuses on five such companies in particular. Two - Endeavour Mining (TSE:EDV) and Alamos Gold (TSE:AGI) - it rates as outperform. The other three, Centerra (TSE:CG), Eldorado (TSE: ELD) and New Gold (TSE:NGD) are rated neutral, at least for now.

Credit Suisse cites valuation, growth potential and track record as key metrics for the derivation of its valuations, with a further factor, geopolitical risk creating some uncertainty around Centerra in particular.

Endeavour, Credit Suisse argues, is ripe for a re-rating, as new production and the attendant new cash flow is set to come on stream this year, and is likely to show up in quarterly results due out in August. In the meantime, the shares have underperformed relative to the peer group.

What’s more, when set against Alamos on a cost basis, Endeavour comes out ahead by some margin. Three out of Endeavour’s four producing mines are cheaper in terms of all-in costs than any of Alamos’s mines, with only Agbaou, Endeavour’s most long-standing operation, returning costs above US$800 per ounce.

Only Alamos’s Island gold mine in Canada can boast of a better all-in cost number, and that accounted for just over 100,000 ounces of production in 2018, a significantly lower amount than the 173,000 ounces produced at Endeavour’s new Ity mine, and the 249,000 produced at Hounde.

Credit Suisse notes the significant debt carried on the Endeavour balance sheet following the build out of Ity, but doesn’t cite it as a particular concern. Indeed, the increase in cash flow that is set to come through from the new operation will cover the debt without any difficulty, and if the shares are re-rated the debt to equity ratio should fall as well.

Credit Suisse expects total production of 659,000 ounces of gold from Endeavour this year, at total cash costs of US$799 per ounce.

Alamos - attractive growth profile

Alamos meanwhile, earns praise for the attractiveness of its growth profile, including the potential for new projects and exploration upside at Island. It has a strong operational track record and no debt.

On Eldorado, Credit Suisse is cautious about the company’s debt, while on Centerra, although the operations look attractive, the risk in Kyrgyzstan remains significant, with companies like Chaarat Gold Holdings (LON:CGH) circling.

New Gold meanwhile still has significant development hurdles to get over at Rainy River.

Credit Suisse sets a C$32.00 target for Endeavour, a US$1.00 target for New Gold, a US$7.00 target for Alamos, a C$8.00 target for Centerra, and a US$6.00 target for Eldorado.

Quick facts: Endeavour Mining Corp

Price: 33.5 CAD

Market: TSX
Market Cap: $5.47 billion

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