RE:RE:Some NumbersYou are very welcome UncleSam!
To my mind, it does appear that it is cashflow, and not profitability, which is at the heart of the problem for EDV right now. Although 4 mines are better than 1 from a diversification perspective, It is clearly more costly to maintain 4 mines than 1. Contrast EDV's 2014 Non-Operating cost base with that of SMF:-
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2014 Exploration
The 2014 initial exploration budget has been established at $18 million.
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EDV's 2014 sustaining capital cost is $50m (i.e. 5X the SMF sustaining capital budget, for only 2X the gold production) + $67m in 'growth' capex + $10m exploration budget
Compare this to their 2013 guidance:
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"For 2013, Endeavour has a budgeted capital spending plan of $207 million, including: - $17 million of sustaining capital which is equivalent to between $50 and $55 per ounce of forecast 2013 production. The sustaining capital includes: $3 million at Nzema, $9.5 million at Tabakoto and $4.5 million at Youga.
- $190 million of development capital, with the most significant items being $106 million for Agbaou construction, $7 million for Tabakoto mill expansion and $29 million for underground ramp and access development at the Segala and Tabakoto underground mines, $17 million for the Anwia-Teleku Bokazo access and resettlement at Nzema, and $12 million for the Houndé Gold Project feasibility study.
The 2013 exploration budget of $20 million prioritizes the Tabakoto and Kofi project areas in Mali. The Kofi property contains a number of deposits with mineral resources which total to 500,000 ounces of Indicated (6.9 Mt at 2.3 g/t gold) and 702,000 ounces of Inferred (12.4 Mt at 1.8 g/t gold), and the deposits identified to date are within 10 to 40 km by road to the Tabakoto mill."
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In 2014, EDV has one additional mine to 'sustain', but it will cost them an additional $33m. I assume that the 2013 sustaining capital budget of $17m was on the light side. It seems likely that, given the size of the other 2013 development capital requirements, management effectively elected to defer some sustaining capital expenditure until 2014. We can estimate true annual sustaining capital cost per mine by dividing the average annual expense ($33.5m), by the average number of mines in operation over the two-year period (3.5), and we get to a very similar number to SMF's sustaining capital budget for their single mine.
The mining industry is a hugely capital-intensive business, but can we hope to see a return on capex investment? How many additional ounces can we expect each dollar of growth capex to generate, and how does this affect the bottom line? It took $106m of direct development capital deployed in 2013 to add 100koz (Agbaou) (@ AISC $800) of gold to production in 2014, that's $1,060 capex cost per additional ounce added to production. At $1,250 gold the payback period is around 2 years, 4 months.
It would seem a distinct possibility that management might have to consider an equity capital raise at some point in the future, I'd hope that it would be at a price in excess of CAD$1, but maybe there are other options. It appears unlikely that EDV will be able to finance the proposed Houndé development from internally generated capital (at $1,250 gold). However, the project is at an advanced stage, with demonstrably favourable economics, and it lies only 30km South of SMF's Mana property. Does EDV really need a fifth mine? Wouldn't it make more sense to pursue growth by means of expansion projects with the aim of increasing throughput, production and LOM at their existing mines? If they were to sell their 90% interest in Houndé, and retain a royalty on future production, they could maybe look to 'kill three birds with one stone'; use proceeds to pay down debt, fund more aggressive expansion activites/exploration, and improve cashflow (a 2.5% NSR on Houndé production might generate cashflows to the company of around +$6m/annum over 8+ years, instead of a sustaining cost cash drain of ~-$10m/annum). Perhaps there's a few middle-ground options (JV? strategic partnership?) to be considered too; I am in favour of a solution which will address the cashflow issue.
Anyway - just my two cents. I am in favour of pursuing growth, and one thing you can say about EDV management is that they have been successful in growing company production and asset base, but growth 'at any cost'?