THE second half of Endeavour Mining’s 2019 financial year would be given over to cash generation in order to test the investment mettle of the group’s Burkina Faso mine Houndé, and Ity CIL, a new operation undergoing commissioning in Côte d’Ivoire.
This was the view of Sébastien de Montessus, president & CEO of Endeavour Mining, who in responding to questions after a first quarter webcast presentation on May 1 said that the group would also prioritise internal brownfields growth above pursuing new projects, even if they were held within the company such as the Kalana project in Mali.
“2019 is the turning point for us,” said De Montessus, a comment that echoed statements in April in which he said the calendar year represented an “inflection point” for the company. “The first and second quarter are the end of significant capital expenditure that we started three years ago.
“Now it is time for cash flow in order to demonstrate our two core assets. Q3 and Q4 will be ones of significant cash flow. We will continue to look for opportunities in the market, but people (the company’s divisional managers) will have to compete for capital. The expansion of Houndé would be more attractive than Kalana,” he said.
A potential upgrade of Houndé was in the firm’s plans, however. De Montessus said there “might be an opportunity” to investigate the mine’s further expansion, although he hastened to add that “nothing had been decided” on that front.
Endeavour needs Ity CIL to deliver given that a strategic decision to process low-grade stockpiles across the group resulted in a 53,000 ounce decline in gold production year-on-year. The company was still on target to deliver between 615,000 and 695,000 oz as guided previously at an all-in sustaining cost of between $760 to $810/oz, but the short-term impact was to see cash fall to $84m at March 31 from $124m as of December 31.
The company is confident its ratio of net debt to earnings before interest, tax, depreciation and amortisation would fall to “far lower than 2x”. It was at 1.8x in the first quarter. Net debt was $635m compared to $536m previously.
Ity CIL was estimated to have been produced 18,000 oz of gold in April which was “a good start for the month”, said De Montessus. The mine, built at a cost of $420m, has a capacity of 160,000 oz/year, but it is expected to produce up to 200,000 oz/year in its current format. An expansion of the milling rate at marginal cost was currently underway.
Said De Montessus in April in a production update: “Given its current 15-year mine life and strong exploration potential, our ability to increase the plant [of the Ity CIL] size by one million tons a year (Mtpa) to 5Mtpa for minimal additional capital expenditure represents a very compelling investment and is in line with our focus on capital allocation efficiency and return on capital employed criteria”.
“With this upgrade, Ity has the potential to produce circa 300,000 oz per annual at a low AISC,” he added.
Shares in Endeavour Mining trended up slightly this week, but on a 12-month basis they have been somewhat under pressure falling about 13% over the period. The company is capitalised at C$2.1bn or US$1.56bn.
