Endeavour Mining rises on West African promise and production

Strong production results and a promising preliminary economic assessment had Endeavour Mining (EDV-T) shareholders feeling the love.  

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

Continuing with the good news the company released a preliminary economic study for its Hounde project in Burkina Faso, which outlined a bigger mine with lower cash costs than it had expected.

The news helped bolster the company’s share price by 11% to $2.27 per share and Raymond James held its outperform rating for the company’s equity 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. By eliminating its hedge book, all gold sales going forward will be sold at spot prices.

As for Hounde, the PEA outlined a mine with a 10-year life milling 8,000 tonnes per day and turning out upwards of 161,000 oz. of 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. Hounde now has 23.7 million tonnes of indicated resources, grading 1.91 grams gold for roughly 1.5 million oz. It has another 12.2 million tonnes grading 1.91 grams gold in the inferred category for roughly 750,000 oz. of 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 will help generate an expected net present value of US$584 million using a 5% discount rate and US$1,650 per oz. gold price

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

The development of Hounde has another advantage, as well: it would also help it further diversify away from trouble spots like Mali and Cote 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 situated near the border with Senegal, a good distance from the trouble in the northern reaches 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 Cote d’Ivoire, which is currently under construction, and is expected to reach production in the first quarter of 2014.