ENDEAVOUR Mining would close the valuation gap between itself and its peer group by September, said CEO Sébastien de Montessus who likened the firm’s progress to that of Randgold Resources, the UK-listed gold miner that merged with Barrick Gold in 2019.
“It takes time to create that visibility and I think we are exactly on that verge,” said De Montessus in response to a question during the group’s first quarter presentation today. “We are now getting strong cash flow and we are being able to pull out all the levers with dividends and buy-backs.”
Shares in Endeavour Mining have generally underperformed the likes of B2Gold, a Toronto-listed gold miner, despite an aggressive merger and acquisition strategy last year in which it merged with SEMAFO and Teranga Gold, taking production to about 1.55 million ounces.
De Montessus said it took time to attract an improved rating citing the example of Randgold Resources which was built up over a ten to 15 year period by its founding CEO, Mark Bristow.
Clive Johnson, CEO of B2Gold had previous success with Bema Gold over a comparable period of time, De Montessus said.
“We will be in position from June and September to compete at the same level with those peers that have better valuation than us which makes us very attractive from an entry point,” said De Montessus. “That’s why I expect this gap to very quickly disappear, and hopefully – in the years to come – we are the new Randgold.”
The group generated positive cash flow of $154m in the first quarter (Q4: $191m) and paid a $60m maiden dividend in February.
De Montessus added that Endeavour Mining would accelerate its share buy-back programme which began only recently. He also didn’t expect shares in the firm to lose their indexation on the Toronto Stock Exchange despite the mid-June debut in London.
S&P, which compiles the TSX Composite Index, would keep an eye on where the liquidity in the share would trade. As Endeavour was not issuing equity with its London listing, the firm expected trade to be robust in both mining capitals, it said.
Earlier on Thursday, Endeavour announced it was on track to meet its 2021 production guidance of between 1.37 and 1.50 million ounces of gold. However, its first quarter numbers showed a decline in earnings partly owing to a quarter-on-quarter increase in its all-in sustaining costs (AISC), and a lower gold price.
The outcome for the three months ended March was 50 US cents in adjusted net share earnings which were half of the previous three months. Quarter-on-quarter gold production was a flat 347,000 oz. The realised gold price came in at $1,749/oz compared to $1,841/oz in the previous quarter.
The company has guided to AISC of between $850 and $900/oz for the year so the first quarter AISC of $868/oz was virtually slap-bang centre of guidance, but higher than AISC of $803/oz in the previous quarter.
Endeavour said in notes to its quarterly report that AISC increased sharply at Houndé, its Burkina Faso mine – up to $839/oz from $612/oz in the previous quarter – owing to an increase in the strip ratio and lower grade milled. As a result, production slid to 66,000 oz from 101,000 oz in the previous quarter.
Year-on-year, however, the company appears to be in good shape.
Newly emerged from an all-action 12 months on the corporate front, the company has higher production and increased growth options through exploration. De Montessus said the firm had its pick of three major projects in 2022: Kalana in Mali, Fetekro in Côte d’Ivoire, and the Sabodala-Massawa expansion in Senegal.
He acknowledged not all of the projects could be approved in a single bow. “We will make some decisions” in terms of best capital allocation, he said.
The reduction in operating cash flow in the first quarter coupled with the dividend payment saw the company moved in net debt again, as of end-March. But it expected to return “very quickly” to net cash at current gold prices, said Joanna Pearson, appointed CFO of Endeavour in January.