ENDEAVOUR Mining, the West African gold producer, unveiled a share buy-back programme, equal to about 12.2 million shares – about 5% of issued share capital – and gave notice it didn’t intend further merger and acquisition (M&A) activity.
“M&A is clearly off the table,” said president and CEO, Sébastien De Montessus, in a presentation to analysts and media today, suggesting the prospect of more deal-related share dilution may have inhibited the share price.
“Endeavour believes that the market price of its ordinary shares does not always reflect its underlying value and future prospects,” the company added in a commentary to its year-end numbers also published today. The buy-back of shares would begin on March 22 and would end no later than March 21 next year.
Shares in Endeavour closed just over four percent higher in Toronto on Wednesday taking gains over the last 12 months to about 10%.
The share buy-back programme, which had received approval from the Toronto Stock Exchange, was intended to dovetail with a $60m maiden dividend, equal to 37 US cents per share, which it announced in November.
De Montessus said the combination of the dividend with the share buyback, along with the proposed listing of its shares in London, would offer “… a compelling value proposition”. De Montessus said the premium London listing, scheduled for June, would make it the largest pure gold producer on the bourse. It was anticipating FTSE100 Index inclusion.
Endeavour reported $345m – $2.51 per share – in adjusted net earnings for the 12 months ended December, a year-on-year increase of 368%. This was achieved on the back of nearly 300,000 ounces more gold production – to 803,000 oz – and a 29.6% improvement in the average gold price received of $1,718/oz.
The upshot was free cash flow of $261m and a reduction in net debt of $250m during the last quarter of the financial year. Endeavour closed its accounts on December 31 with net cash of $75m.
De Montessus said previously the company would build a cash pile of $250m before reconsidering its dividend policy, currently to be paid semi-annually. It will receive $200m in a previously agreed share subscription from shareholder La Mancha as part of its acquisition of Teranga Gold Corporation, against which some $370m in debt will be carried over as part of Teranga’s balance sheet.
De Montessus added 2020 had been “a transformational year”. It began with a decision to step back from the proposed acquisition of Egyptian gold mining firm, Centamin, in favour of two separate all-share deals, only months apart, for SEMAFO and Teranga Gold propelling the firm into the world’s top 10 largest gold producers.
Despite the corporate activity, and a more recent stated intention to build out production of 359,000 oz a year by means of $635m in two internally generated projects, the share price performance has disappointed.
Endeavour upgraded its 2021 production guidance to 1.35 to 1.48 million ounces from previous guidance of 900,000 to 990,000 oz/year. All-in sustaining costs (AISC) guidance also changed, falling $40/oz to $840 – $890/oz.
Commenting further on M&A, De Montessus said: “My view on M&A is that it is a tool to get to the right portfolio. We had those opportunities in 2020. I don’t see further use for M&A”. Endeavour had geographic diversity and was on a pathway for production of 1.5 million oz in annual production. “The future for Endeavour is organic growth,” he said.
There was a possibility of extending the share buy-back, however, he said. Responding to one analyst question, he said: “We are looking at our capital allocation strategy which will give us better visibility on cash flow.” The firm would balance the demands of organic production growth against shareholder returns, bearing in mind it wanted to maintain a dividend yield of about 1.6%.
The early redemption of a $300m convertible bond, set to mature in 2023, was another potential capital use consideration. De Montessus indicated a cash payment in part or whole for the bond was an option, especially as further dilution was not preferable.