Endeavour beats down costs, targets debt

VANCOUVER — Gold producer Endeavour Mining (TSX: EDV; US-OTC: EDVMF) should be happy with its results over the past year. The company has dropped its all-in sustaining costs, brought a new project online and hit a gold production record.

This year Endeavour is looking to crank up its free cash flow and knock down a relatively heavy debt burden following a fast-paced, three-year acquisition and development cycle.

Over the past few years the company has carved out a niche for itself in West Africa. Endeavour produced just 80,000 oz. gold from a single operation back in 2010, which makes the 465,770 oz. it cranked out in 2014 look all the more impressive. The result beat an annual guidance range of between 400,000 and 440,000 oz., and represented a 44% year-on-year boost in production.

The company now operates four gold mines: Youga in Burkina Faso; Agbaou in Côte d’Ivoire; Nzema in Ghana; and  Tabakoto in Mali. 

Endeavour has also reined in its costs despite operating in jurisdictions that have, over the past two years, generated sociopolitical challenges.

“We met our goal last year, which was to decrease the all-in sustaining costs. Obviously by virtue of our guidance estimates for 2015, we achieved that in a way we believe is sustainable,” comments senior vice-president of business development Doug Reddy.

Endeavour’s efforts brought all-in sustaining costs from over US$1,100 per oz. in 2013 to under US$1,000 per oz. last year. For 2015, the company expects more improvement, with costs ranging from US$930 to US$980, with gold production pegged between 475,000 and 500,000 oz.

Operational success was driven by new sources of mill feed at Tabakoto, as well as Agbaou, which shot off the line and exceeded expectations in regards to both throughput and recoveries.

At Tabakoto, Endeavour hit higher-grade ore in early January. The company now has six stopes open at its Segala underground, while the newly commissioned Kofi C open pit boasts a 4.13-gram-gold-per-tonne reserve grade.

“Tabakoto has been through a big change since we acquired it. We doubled the processing rate so we aren’t constrained and we have a hungry mill, so we had to figure out how to feed it,” Reddy continues.

“Agbaou came on-stream early last year, and really exceeded our expectations. That came about from several factors, though the principal reason is that the oxides had a higher recovery rate than we had estimated in our economic studies. We had some test results that demonstrated higher recoveries, but we hadn’t anticipated that being the result across the board,” he adds. “Aside from that, the resource model slightly underestimated the in-situ gold, and the throughput rate at the mill operated significantly above nameplate rates.”

And Endeavour has a potential driver for even more growth in its back pocket. The company is sitting on the Houndé project in Burkina Faso, which has been approved by government and is awaiting a decree from the president. The project is expected to cost US$315 million to build — inclusive of an owner-operated mining fleet — and tack on 180,000 oz. gold to the company’s production profile.

According to a 2013 feasibilty study, Houndé would have all-in sustaining costs of US$800 per oz. and feature an after-tax internal rate of return of 22.4%, assuming a US$1,300 per oz. gold price.

Reddy adds that Endeavour will use the same personnel that built Agbaou and Nzema, and says that the team “really knows how to build in West Africa, and they already have boots on the ground.”

One sticking point may be political instability fuelled by the recent resignation of President Blaise Compaoré, which resulted in Burkina Faso falling under interim military control. 

Endeavour points to the recent success of junior Roxgold (TSXV: ROG; US-OTC: ROGFF), however, which received the final permit on its Yaramoko gold project in early February.

“We knew that Burkina Faso’s social situation would be volatile during that time regardless of the political outcome. We didn’t expect it to be as violent, but the military did step in and the president of the transitional government knows he cannot stand in the election, which remains slated for October,” Reddy explains. “Although it was a flash point, it has cooled down, and the positive thing we noticed is that the bureaucracy carried on and our permitting was only delayed by two or three weeks.”

But Endeavour has another financial challenge to tackle before it sizes up its growth. The company is aiming to decrease its debt load, which includes a US$300-million revolving facility that will carry US$20 million in financing costs this year. 

The company hopes that US$100 million in anticipated free cash flow can help lessen the burden.

Endeavour finished the year with a US$62-million cash balance, and it has 413 million shares outstanding for a $249-million press time market capitalization. 

The company has traded within a 52-week range of 38¢ to $1.02, and jumped 46% over the first two months of 2015 en route to a 62¢-per-share close.