Monday, May 9, 2016

Endeavour Mining - The Old Question Marks Remain; One New Added

In my first article on Endeavour Mining I stated that there were too many question marks over the company. Let me remind them and add a few current observations:

One mine story

The company is a one mine story - of the four operating mines only Agbaou delivers decent results. Fortunately, in 1Q 2016 the Ity mine, the newest operation in the company's portfolio, also delivered quite a nice operating profit of $6,539 thousand:

I am very curious how this new mine will be performing in the future. Looking at 1Q 2016, I am becoming confident that it may be a very decent operation.

The Nzema mine

It is still a laggard. What is more, in 1Q 2016 its performance had even deteriorated - operating costs went up from $934 to $1,111 per ounce of gold sold (an increase of 19%):

Well, the main factors standing behind this poor performance were grades and recovery ratios:

As I noted in my last article, Nzema takes part of its ore from the third party. This ore is generally of better quality than the ore coming from Nzema. In 1Q 2016 the company was not able to bring a sufficient amount of the ore from the third party (only 7,819 ounces of gold were produced from the ore from outside; in 1Q 2015 it was 10,780 ounces). Hence, higher costs and worse results. 

Acquisition of True Gold

On April 26 the company announced the completion of the acquisition of True Gold. As a result, Endeavour has added a mine under construction, called Karma (located in Burkina Faso). 
My readers know that, in my opinion, Endeavour has overpaid for True Gold but I am very keen on getting more knowledge on Karma's performance. The data should be available very soon - Karma commercial production is expected in June.  

Hounde Project

Hounde is another project under construction and no new relevant events took place since my last article on Endeavour.

Current valuation metrics.

Similarly to the previous article, below I am putting a chart showing current valuations of a few African miners:


In my previous article on Endeavour Mining I did not recommend its shares as a buying opportunity. I sustain my stance on the company. In 1Q 2016 the company delivered more or less similar results as in 1Q 2015. Of the four operating mines, Agbaou showed decent results, Nzema performed worse than last year and the new mine, Ity, in my opinion, delivered very decent results. 
The other the so-called question marks (Karma, Hounde) are still unknowns. 

Additional note

Endeavour Mining mines are owned not only by the company. Other stakeholders, mainly the governments of resident countries, hold the following stakes:

  • Agbaou - 15%
  • Nzema - 10%
  • Tabakoto - 20%
  • Ity - 45%

And here is another problem. The best mines are Agbaou and Ity. Unfortunately, in the case of Ity, as much as 45% of net income, generated by this mine, goes to the other stakeholders; the company gets only 55% of the cake. It is not a nice info for the company's shareholders because one of its best mines delivers only a fraction of its earnings to Endeavour shareholders. 

On the other hand, 90% of Nzema loses is attributable to the company's shareholders. 

It means that one of the best mines delivers only 55% of its profits to Endeavour shareholders and the worst mine charges these shareholders with 90% of its loses. As a result, despite the fact that Endeavour 1Q 2016 net earnings were $11,131 thousand , only $4,054 thousand was attributable to the company's shareholders. 

It is another negative factor investors should remember when planning to invest in Endeavour Mining shares.


  1. Excellent article This and the latest post you did on SA I liked the fact you put it succinctly ity is only 55% owned by EDV Something most authors covering this miner had missed out

    1. Roger,
      I've missed it too (my first article on Endeavour Mining). Fortunately, I like reading financial statements so I could correct it.