Endeavour Mining rises on West African production and promise

Strong production results and a promising preliminary economic assessment have had Endeavour Mining (EDV-T) shareholders beaming of late.

The company released production results showing output of 310,778 oz. gold last year, beating its own guidance range of 282,000 to 304,000 oz.

Building on that good news, the company released a preliminary economic study for its Houndé project in Burkina Faso, outlining a bigger mine with lower cash costs than it had first expected.

The news helped bolster the company’s share price by 11% to $2.27 per share. Raymond James held its “outperform” rating for the company’s shares, with a $4.00 target price.

Endeavour expects the increase in production to continue this year, as it issued guidance of 310,000 to 345,000 oz. for 2013 at cash costs of US$790 to US$830 per oz.

By eliminating its hedge book, all gold sales going forward will be sold at spot prices.

As for Houndé, the PEA outlined a mine with a 10-year life milling 8,000 tonnes per day and turning out upwards of 161,000 oz. gold per year at a cash cost of US$563 per oz. And while those results were more robust than initially anticipated, the construction of the mine will cost more upfront than Endeavour had been banking on.

The study put an estimate on capex of US$345 million with an additional US$57 million needed for sustaining capital over the life of the mine.

The higher capex, however, is mitigated by larger resources. Houndé now boasts 23.7 million indicated tonnes grading 1.91 grams gold for roughly 1.5 million oz. It has another 12.2 million inferred tonnes grading 1.91 grams gold for roughly 750,000 oz. gold. That puts global ounces at 2.25 million oz. — a significant upgrade on the previous global resources of 1.6 million oz.  

The richer deposit generates an expected net present value of US$584 million using a 5% discount rate and a US$1,650-per-oz. gold price.

Encouraged by the PEA results, Endeavour is now pushing towards completing a feasibility study on the project. 
Getting Houndé into production will help the company get closer to its lofty goal of nearly doubling current production by 2016. It plans to fund such growth with cash flows generated from its current operations.

Houndé’s development has another advantage as well: it would help it diversify away from trouble spots like Mali and Côte d’Ivoire, where it also has mines.

Endeavour’s Tabakoto gold mine in Mali has thus far been uninterrupted by the turmoil in that country. The mine is near the border with Senegal, a good distance from the war in the north, where the French military has been bombing Islamic extremists linked to al Qaeda.

Additional near-term production growth of over 100,000 oz. per year is expected from the Agbaou gold mine in Côte d’Ivoire, which is currently under construction, and is expected to reach production in the first quarter of 2014.