West Africa gold miner surges after stellar quarter
Endeavour Mining Corporation (TSX:EDV) raced ahead on Friday after releasing second quarter results that ticked all the right boxes for a mid-tier gold miner operating in today's market.
In early afternoon trade the Vancouver-based company was trading at $0.52, up 10.6% on the Toronto Stock Exchange, at its high for the day. More than 685,000 shares in the $215 million company changed hands.
Q2 wasn't the first quarter the company delivered these kinds of results and investors have clearly picked up the trend: unlike most if its peers Endeavour's stock has enjoyed a positive 2015 – the counter is up 22% year to date. The company is also listed in Sydney (ASX:EVR).
Endeavour announced second quarter gold production of 131,165 ounces from its flagship Agbaou mine in Cote d'Ivoire and three other mines in Ghana, Mali and Burkina Faso.
Output was at a much reduced all-in cost that's been pushed below $900 an ounce from $946 in the first quarter (and an average of $1,137 in 2013) resulting in an all-in sustaining margin of $38.2 million. Net income in the first half was $50.5 million.
The company said it's tracking at the upper-end of the 475,000 to 500,000 ounces gold production guidance for the year after producing 255,000 in the first half. Similarly average costs for the year should come in at the low-end of the expected $930 to $980.
According to a statement, for the six-month period, Endeavour has generated $59 million of free cash flow (before tax and financing) to deliver 59% of the $100 million full year target based on guidance range mid-points.
That's enabled the company to make two $20 million unscheduled early payments on its debt – one in January and one in July – to bring outstanding debt to $260 million. Cash on hand is $52.7 million.
Endeavour CFO Ota Hally tells MINING.com at the ruling $1,100 gold price quarterly cash flows would be some $12 million below what's been achieved so far which means it could continue to pay down debt ahead of schedule.
Hally says the strong operational results are thanks to a primary focus on cost reductions and creating cash flow regardless of the price of gold: "Forex and cheaper oil has helped bring down costs, but our operations GMs still have room to make cuts when it's required."
The Agbaou open pit, which started commercial production at the beginning of last year, has been a transformational asset for the company says Doug Reddy, executive VP for business development.
That's thanks in no small part to some eye-watering margins at the soft oxide ore mine – $482 per ounce cash and $619 mine-level all-in during the latest quarter.
Reddy says the company's exploration program at Agbaou is replacing mined oxides and the company strategy has always been to do all the work and "take exploration all the way through to reserves."
The next step for the company which Reddy says would be as transformational as Agbaou is the Houndé project in Burkina Faso. Endeavour received the mining permit for the 90%-owned project with the West African nation holding the remainder, in February.
Houndé would add roughly 190,000 ounces per year over an initial 10 year mine life to Endeavour's output with the first two years averaging 248,000 ounces per year.
At 2 million ounces and average grading of 2.15g/t, it's one of the top projects in West Africa says Reddy. The mine's capital outlay is $325 million.
Endeavour's board, which includes among other high-profile members,Vancouver billionaire Frank Giustra and African gold mining luminaries Michael Beckett and Ian Cockerill, is set to make a decision on Houndé at the end of the year.
With costs on par with Agbaou "at $1,200 it's a no-brainer" says Hally, adding that while it's not an automatic green light "it will get built, it's just a question of when."