Endeavour Mining is a name that I have been following for a long time, a name that I have been in and out of, but have not been able to profit from it. However, it has since resurfaced because I believe we are at a turning point in terms of fundamentals converging with a bullish technical pattern, a combination that is not an often occurrence and that has been extremely profitable in the past on investments I have done well with.
On the fundamental side, EDV has two flagship assets, ITY CIL and Hounde. These two flagship assets will produce 500,000 ounces at under $600 AISC. For 2019, the company on a consolidated basis is guiding production of 615,000 to 685,000 ounces at an AISC of between $760-$810. At current gold prices of $1,500, that would imply an EBITDA margin of $700 an ounce, 47%. In addition, there is growth upside to annual production for example, increasing capacity at ITY, that will take the company towards 800,000 ounces over the next year or two. So, we have a low cost high margin operation with production upside of 20% over the next 12-24 months.
From a capex standpoint, spend will come off from peak levels as ITY CIL mine and Hounde have been fully constructed and are both performing very well. The combination of higher gold prices, higher production, and lower capex spend means a significant step up in Free Cash Flow / Operating Cash flow going forward. The FCF will be used to de-lever ($600M net debt) very fast, explore to increase mine life as they have been able to prove up resources very efficiently and cost effectively, as well as for other growth initiatives. The result is an accelerated deleveraging while top line and cash flows are growing, a combination that supports a strong equity price move.
On the technical front, you can see that price has been consolidating in a long range for many years in a $16-29 range. Priced peaked at $28.81 in January of this year and since then it has failed to make a new high and has just consolidated. This is the first time, since the consolidation has taken place, which is nearly 4 years in the making, that the company is positioned both fundamentally and technically to take advantage of the current pricing environment: portfolio repositioned; two flagship low cost anchors; rising FCF; falling AISC. What’s is left is execution. So far so good.
For these reasons, it is on high priority watch and will look to take a long position on a convincing breakout with volume. Long bases like these typically breakout in an impulsive fashion and that is why I like the R/R here. Price is currently above all key moving averages, the 8ema, 20sma and 50sma as well as the longer-term 200sma. Price also recently found support on the Ichi Cloud and immediately rebounded from it.
Here’s the chart. Looks explosive. Has looked that way before. If not now, never.
Denver Gold Presentation: http://www.denvergold.org/company-webcast/dgf19/41/
Ownership via CapIQ