RE:RE:RE:ExcellentThere are a few things holding EDV back 1. Around $200m net debt - not a good thing to have in a low gold price evironment. If the POG fell back to USD1000 what would the banks do them? What do the loan covenants say about such issues.
->I personally feel that EDV's level of debt is not in the realms of the uber-excessive, but yes, this is one reason why we are where we are in terms of share price.
If the price of gold were to drop back to $1,000/oz, then the gold mining industry as a whole would be in serious jeopardy, as this article (link below) suggests that the industry average AISC/oz (Q3 2013) is somewhere in the region of $1,006, based on their sample of 29 companies (including Endeavour Mining). I think this could be seen as a fairly representative sample, as implied total gross annualized production from these companies is approx 960 tonnes, or about a third of total global annual gold production. At $1,000 gold, half of the industry would become unprofitable, resulting in production declines, and lower physical supply growth. In the absence of a corresponding fall in demand, we'd expect this scenario to be supportive of price.
https://seekingalpha.com/article/1860791-the-cost-of-mining-gold-a-q3-2013-summary
As regards EDV's debt structure, below is an excerpt from EDV's 24/07/2013 news release re. re-financing terms:
https://www.endeavourmining.com/s/NewsReleasesArchive.asp?ReportID=594211&_Type=News-Releases&_Title=Endeavour-Mining-Increases-And-Extends-Debt-Facility-To-Strengthen-Financia...%20title=
"Increased and Extended Corporate Debt Facility Endeavour has signed a $350 million Senior Secured Revolving Corporate Loan Facility. Up to $300 million of the facility can be used for general corporate purposes including working capital and capital expenditures. As Endeavour had previously drawn $200 million under the original facility provided by UniCredit, the new facility now provides $100 million of additional credit. The remaining $50 million of the facility will be available after the construction of the Agbaou Mine and can be used to fund expansions and other capital projects. The key terms of the facility include: - Maturity date is five years from signing or July 24, 2018, and the available facility amount declines with six equal semi-annual reductions of $58.3 million commencing January 1, 2016
- The facility requires standard corporate financial covenants, including
- Interest Cover shall not be less than 3 to 1, calculated on a rolling 12 month basis
- Net Debt to EBITDA shall not exceed 3.25 times, calculated on a rolling 12 month basis
- Minimum tangible net worth of $600 million
- The Facility is in US dollars, and interest is based on LIBOR plus a margin ranging between 3.75% and 5.5% per annum (sliding scale based on the actual Net Debt to EBITDA ratio)"
2. They need to get AISC down to around USD900
->It would appear that this is their medium-term goal; the proposed development of the Houndé project, with potential to add 180koz @ around AISC/oz of $780, which could potentially result in aggregate total gross corporate production of say 595koz @ AISC/oz of $945 (315koz @ AISC $1,086 (Tabakoto, Nzema, Youga) + 100koz (Agbaou) @ AISC $800 + 180koz (Houndé) @ AISC $780 = 595koz @ weighted average AISC $945)
Not exactly sure when (if) this additional Houndé production will be coming online, but judging by our experience of Agbaou, it appears to take somewhere around 2 to 2.5 years to get a project from feasability to production.
Extract from Technical Report For Houndé Gold Project Feasibility Study (on SEDAR):
https://www.sedar.com/DisplayCompanyDocuments.do?lang=EN&issuerNo=00018439
"1.12 Project Execution
...The overall duration of the project from Board Approval to first gold is estimated to be 21 months..."
The question is: will cashflows over the next couple of years be sufficient to fund ongoing activities, service debt, AND make a dent in the estimated 'upfront' capital cost of the project ($315m)? The answer to this question is heavily dependent on the prevailing price of gold.
3. They stuffed up by buying back their hedges - lost $50+m?
->In the past, in the current share price, no longer a concern going forward.
4. Lost milliona by buying gold at high prices as a form of saving - fancy trying to save in gold when you are a gold mining company and have heaps of gold in the ground.
->I wasn't aware of this, but again: in the past, in the current share price, no longer a concern going forward.
6. African location is not a good advert for the company, all african goldies have been kicked in the gut due a range of issues there
->This is also priced in, but granted it could quite literally 'kick off' at any moment over there, as seen by the 'unexpected' troubles in Mali some time ago. As long as the entire West African region doesn't de-stabilise all at once, EDV is well-positioned with its geopolitical diversification over 4 regimes.
Howver, they did a very good deal buying Avion - possibly a company making move. The Agbou mine has been delivered on time and under budget and the Ivory Coast Headmen looked very supportive at the opening ceremony, which is great. It is a good longer term place to build mines - has lots of good tenements. Just watch out for local wars and change of gov policies down the track.
->I was invested in Avion Gold and did rather well in my investment in that company (it topped out a little over $2 from memory, at a mkt cap of around $1bn), and I think that EDV got a pretty good deal at 88cents, of course it would have been much cheaper to buy now!
I hold a few EVR (EDV) shares on the ASX.
Interesting comparison being made with SMF, which is over-rated. However, Burkina Faso is a lower taxing country.
->Talking of tax - I like the 5 year tax 'holiday' that EDV negotiated on their new Agbaou mine. It doesn't get much better than that IMO!
E17 (responding to loki (from downunder))