Endeavour, Detour exit 2015 on a high note

Endeavour Mining (TSX: EDV; US-OTC: EDVMF) and Detour Gold (TSX: DGC; US-OTC: DRGDF) — two of the gold sector’s top share-price performers last year — reported strong fourth-quarter and full-year production results in 2015 after markets closed on Jan. 14.

Endeavour delivered 138,147 oz. gold in the fourth quarter, up 15% from the same period in 2014, with a record fourth-quarter output of 51,732 oz. from its Agbaou mine in Côte d’Ivoire. The Tabakoto mine in Mali also “delivered its best quarter since being acquired in 2012,” BMO analyst Andrew Breichmanas writes.

Excluding the Ity mine, which the company acquired on Nov. 27, Endeavour’s four West African gold mines — Agbaou, Nzema, Tabakoto and Youga — churned out 512,259 oz. for 2015, beating the full-year guidance of 475,000 to 500,000 oz. and Breichmanas’ forecast of 490,101 oz.

Including Ity’s 5,689 post-acquisition ounces, Endeavour delivered 517,948 oz., up 11% over 2014.

Martino De Ciccio, vice-president of strategy and investor relations, notes Agbaou was the main reason for the beat, with the mine increasing year-over-year production by 24%, adding that annual production at Tabakoto also improved 20%.

Estimated all-in sustaining costs for 2015 should come in below US$930 per oz. — an 8% year-over-year improvement — with costs expected to decline further this year.

“Since 2013, we continuously increased production and decreased costs,” De Ciccio points out.

The strong 2015 performance has helped Endeavour reduce its net debt 44% to US$143 million, and boost its cash position US$48 million to US$110 million.

Management is guiding 2016 production of 575,000 to 600,000 oz. at all-in sustaining costs of US$875 to US$925 per oz. It anticipates generating US$100 million of free cash flow this year at a US$1,150 per oz. gold price. 

“Production guidance this year was ahead of our expectations, signalling another strong year from Agbaou,” Raymond James analyst Chris Thompson said in an email.

The company is considering advancing its Houndé gold project in Burkina Faso, with a construction decision due in the first half of 2016. It has a strong cash position, plus US$110 million undrawn from a US$350-million revolving credit facility, and a US$75-million commitment from 30% owner La Mancha Resources.

“However, we are sensitive to companies planning on leveraging up their balance sheets to fund new development — such as Houndé for EDV,” Thompson writes. “As such, whilst we have an ‘outperform’ rating on the company, we expect the stock price performance of EDV to be somewhat muted, unless we see a move up in the gold price.”

Commenting on the company’s share price sensitivity to the gold price, De Ciccio notes that last year the company’s share price increased 80%, outperforming both the gold price and the S&P/TSX Global Gold Index, which each fell by 10%. “Being a low-cost producer gives us a buffer to a decreasing gold price environment, while a strong project pipeline provides a significant upside to the gold price.”

Endeavour closed Jan. 15 up 2.4% at $7.14 per share. BMO’s Breichmanas has a $12.50 target and an “outperform” rating on the stock.

Detour reported record fourth-quarter production of 146,417 oz. from its sole producing mine, Detour Lake in Ontario. This brought full-year production to 505,558 oz., beating the midpoint target of the 475,000 to 525,000 oz. guidance, and up 11% from 2014.

Estimated all-in sustaining costs are US$1,040 to US$1,060 oz., at the low end of the annual guidance, with the miner benefitting from the lower Canadian dollar. For the fourth quarter, all-in sustaining costs should fall between US$850 and US$875 per oz.

“We view the fourth-quarter 2015 operational results as good, and expect the stock to do well relative to peers,” Desjardins analyst Michael Parkin notes.

During the fourth quarter, Detour sold 132,209 oz., adding US$28 million to its cash position to end the year at US$161 million, despite the US$16-million inventory build, Parkin says. It has an US$85-million undrawn revolving credit facility.

“Overall, 2015 was a strong year, with mill throughput averaging above nameplate of 55,000 tonnes per day and grades [averaging 0.88 gram gold per tonne] reconciling with the block model,” Haywood Securities analyst Kerry Smith comments.

Sustaining capital for 2015 was US$90 million.

Meanwhile, the miner has kicked off the first phase of its 2016, 40,000-metre program, with five rigs on the Detour Lake property. Most of the drilling will focus on infilling Zone 58N “to better define the continuity and extent of the high-grade gold mineralization,” it says in a release.

Earlier this year, Detour extended its low-cost electricity contract with the Ontario Power Authority by five years to December 2024.

It will release its 2016 guidance and Detour Lake’s life-of-mine plan on Jan. 25. Smith points out that the plan will include the existing Block A resource, 2 million oz. adjacent to the current Detour pit.

The stock finished Jan. 15 up 6% at $16.25. Smith has $18.75 target, while Desjardins’ Parkin has a $17.50 target on the stock. Both analysts rate Detour as a “buy.”