Endeavour Mining – When Fundamentals and Technicals Align Take 2

Being early is the same as being wrong in my book because everyone’s timelines, objectives and opportunity costs are different. This one is no exception. Was wrong on this one. Back in September I profiled Endeavor Mining https://economicalpha.blog/2019/09/21/endeavour-mining-when-fundamentals-and-technicals-align/ and wrote back then that the fundamentals and technicals were aligning perfectly for a potential re-rate of the stock.

Since then it has done nothing trade sideways with a big drawdown and a heaping spoon of anxiety to boot. But finally, this week, it has woken up on the back of a number of positive factors.

For one, the Gold price environment is very favorable. One argument I have heard is that their hedging was capping upside. That seems to be more of a tailwind now as they start to come off.

With higher Gold prices comes with it better earnings, at least that is what’s supposed to happen. Not always the case. In Endeavour’s case they reported earnings earlier this week and they were solid. Guidance reaffirmed and beats on revenues and earnings, not to mention significant cash generated from operations. As the business continues to chug along, capital allocation will continue to pay down net debt and the company will be in a better position for more shareholder friendly capital allocation, such as introducing a dividend and investing more in the drill bit. Earnings release here: https://ml-eu.globenewswire.com/Resource/Download/fd300cc4-3678-48c2-95c1-de32c5348fcc

The roll up acquisition headwind was also an issue earlier this year. Endeavour had announced an all stock deal for Centamin that ultimately did not go through https://ml-eu.globenewswire.com/Resource/Download/8da1c0c4-a5a7-4c94-b657-56bded180b19.

However, when it failed the feeling on the street was what are they going to do next? Endeavour then announced a deal for SEMAFO. https://s21.q4cdn.com/954147562/files/doc_events/2020/200323-EDV-SMF-Joint-announcement-vf.pdf

There was initial angst about it considering security concerns at SEMAFO, and this remains a risk, but Endeavour has a good track record managing through these situations and are experts in the geographical area. This deal looks poised to close towards the end of June. It was an all stock deal, accretive and should transform the company into a 1m + ounces producer. As we get closer to the deal closing, the M&A / roll up headwinds will no longer be an issue and we are left with a very high FCF yield enterprise with upside leverage to gold, good operating track record, robust and improving shareholder friendly capital allocation strategy, increased capital markets liquidity and efficiency all underpinned by FCF metrics significantly ratcheting up.

Maybe Act 2 will be different this time. Stay tuned.

Disclaimer and Disclosures:

I am not a certified investment professional. Assume everything I say herein is wrong. In fact, I am wrong more often than right. Do your own due diligence and consult with your own investment advisor. Do not buy or sell on anything contained herein.

I did not receive any compensation for this blog post. I did not receive any compensation from the company mentioned. 

The content contained herein is strictly my opinion only. I do not warrant to the accuracy of the content or whether this is a suitable investment and disclaim any responsibility.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.