viewEndeavour Mining Corp

Endeavour Mining, a leading West-Africa-focused gold miner, sets sights on free cash flow and organic growth for 2021


Endeavour’s strategy is focused on increasing the quality of its portfolio to establish a leading West African gold producer with long life mines and low all-in sustaining cost (AISC)

Endeavour Mining Corp -

Quick facts: Endeavour Mining Corp

Price: 23.92 CAD

Market: TSX
Market Cap: $5.8 billion
  • One of the top 15 global gold producers and member of the World Gold Council
  • Aims to discover 10 to 15 million ounces of indicated resources by 2021
  • Quickly approaching a net cash position

What Endeavour Mining Corp does:

Endeavour Mining Corporation (TSE:EDV) (OTCMKTS:EDVMF) is a leading gold miner with several assets, focused on West Africa, which offers investors both near and long term growth potential.

The company's strategy is focused on increasing the quality of its portfolio to establish long-life mines and low all-in sustaining cost (AISC) through a focus on operational excellence, developing projects on time and on budget, unlocking value through exploration and maintaining a healthy balance sheet.

The company employs 4,700 staff and already has 23 million ounces of measured and indicated (M&I) resources to its name. It aims to have discovered between 10 and 15 million indicated ounces by 2021 and has so far notched up over 6 million.

In July 2020, the company successfully completed its acquisition from SEMAFO Inc and integrated SEMAFO’s two assets Mana and Boungou in Burkina Faso into its portfolio.

Endeavour operates six producing mines across Ivory Coast (two mines with Ity and Agbaou) and Burkina Faso (four at Houndé, Mana, Karma and Boungou). It also has four potential development projects (Fetekro, Kalana, Bantou and Nabanga) and a strong portfolio of exploration assets on the highly prospective Birimian Greenstone Belt across Burkina Faso, Ivory Coast, Mali and Guinea.

How is it doing:

On February 24 this year, Endeavour Mining reported positive pre-feasibility studies (PFS) for both its Fetekro and Kalana gold projects,  in Ivory Coast and Mali respectively, which showed long mine lives, attractive economics, and confirmed the company has a strong pipeline of assets, which it can grow organically.

The PFS for Fetekro showed a ten-year mine which could produce over 200,000 ounces a year with an after-tax net present value (NPV) of US$470 million and internal rate of return (IRR) of 33%, based on a gold price of US$1,500 an ounce. All-in-sustaining-costs (AISC) were put at US$838 per ounce.

In December last year, Endeavour announced that it had struck a deal to lift its stake to 80% from 65% in the Fetekro exploration project, having said in the previous August, that the project had the potential to be the company's highest-grade operation, after it more than doubled indicated resources there.

Meanwhile, the PFS for Kalana envisages an 11-year project with an average annual production of 150,000 ounces at AISC of US$901 per ounce. The Kalana project showed an after-tax NPV of US$331 million and an IRR of 49%, based on a US$1,500 per ounce gold price. Upfront capital costs were put at US$297 million.

A month earlier, the miner announced that it would sell its 85% stake in non-core Agbaou gold mine in Ivory Coast to Allied Gold Corp for up to C$80 million to concentrate on high-margin, long-life core assets. The sale is expected to conclude on March 1 this year, and Endeavour retains a net smelter royalty (NSR) royalty on ounces produced in excess of the Agbaou reserves as at an estimate at the end of 2019.

And on November 16 last year, Endeavour confirmed it was buying Teranga Gold Corporation (TSE:TGZ) (OTCQX:TGCDF) (FRA:0TGA), a low-cost, mid-tier gold producer with two producing gold mines in Burkina Faso and Senegal, in a C$2.4 billion deal. Once finalized, the combined company will have gold production of over 1.5 million ounces per year and boast one of the largest exploration portfolios in the Birimian greenstone belt.

Despite the challenges of the coronavirus pandemic, Endeavour generated a record 908,000 ounces of gold to end-December 2020, which was a 39% increase on 2019.

Fourth-quarter output came in at 344,000 ounces of the yellow metal, while its AISC decreased by 15% to around US$770 per ounce in the three months. It was the eighth consecutive year the group achieved its annual output guidance, it noted.

The group's net cash position was around C$70 million at the year-end, marking a reduction in net debt of around $245 million during Q4, 2020 and of around C$600 million during the whole year.

Significantly, Endeavour announced that it would pay a first dividend payment on February 5 this year, and said it may increase the dividend and/or carry out a buyback once it has reached a targeted net cash position of C$250 million.

Endeavour told investors that it would strongly focus this year on free cash flow generation and progressing its organic growth pipeline. A definitive feasibility study (DFS) is targeted for the Sabodala-Massawa plant expansion in the fourth quarter, it added. The group's 2021 exploration budget stands at between C$55 million and 60 million.

What the broker says: 

Following news on the positive pre-feasibility studies for the Fetekro and Kalana projects, broker Canaccord Genuity repeated a 'Buy' rating on Endeavour Mining and a C$48 per share price target (current price: around C$25).

"The company had expected to prioritize one of these projects to take to the feasibility stage, but based on the positive results (both projects have IRRs >30% at $1,500/oz), Endeavour now plans to advance both projects to feasibility; Fetekro FS expected in late 2021 and Kalana FS in early 2022," said analyst Carey MacRury in a note to clients.

"We expect Endeavour to build only one of these projects at a time (likely Fetekro) with a potential construction decision in 2022. Fetekro and Kalana are two of the company's most advanced projects in their deep pipeline, which also includes the Golden Hill and Afema projects acquired with the Teranga acquisition and Nabanga acquired with the SEMAFO acquisition."

Inflection points:

  • Fetekro feasibility study
  • Sabodala-Massawa plant expansion DFS
  • First-quarter results

What the boss says:

In the statement accompanying the  group's 4Q 2020 results, Sebastien de Montessus, Endeavour's president and chief executive, noted that 2020 had been a transformational year for the company as it consolidated its position in West Africa.

"In spite of the challenges presented by the global pandemic, we are proud to have achieved our annual production and AISC guidance for the eighth consecutive year. Looking ahead to 2021, our focus will be the integration of the Teranga assets and progressing our organic growth pipeline," he said.

Contact the author at giles@proactiveinvestors.com

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