Endeavor Mining (OTCQX:EDVMF)
Recent Stock Price: $15.57
Shares Outstanding: 84.39 million
Market Cap: $1.31 billion
52-Week Range: $3.30 - $15.57
Endeavor Mining is currently the best gold growth story in the gold mining sector, and the stock has been on a tear to start 2016. Despite this, I don't think the stock is getting the valuation it deserves, especially when you look at its future growth and compare its valuation to peers.
For those unfamiliar with the story at Endeavor, the company owns five producing gold mines that carry low all-in sustaining costs (less than $900 per ounce expected this year); total reserves stand at nearly 6 million ounces, with resources adding another 12+ million ounces; with two new mines coming into operation, there is a ton of growth ahead for the company, which I believe will transform the company into a senior gold producer and result in a share price re-rating. The addition of new mines lowers investors risk, as Endeavor is becoming a more diverse gold miner.
As I mentioned in a previous article, the story at Endeavor Mining has gotten a whole lot more interesting following the company's recent takeover of True Gold (OTCQX:RVREF) and its Karma gold mine, which is now in production. The acquisition boosts Endeavor's annual gold production by at least 110K ounces annually (not assuming any future expansions); Endeavor was already projecting more than 50% production growth by 2018, as it looks to increase production from 500K ounces in 2015 to 900K ounces.
This acquisition pushes the company close to the 1 million ounce figure, as you can see below. Other major growth will come from initial production at the Hounde mine, which is expected in late 2017. This growth estimate below represents a compound annual growth rate of 20.4%, according to the company presentation.
At the same time, Endeavor expects its all-in cash costs to drop to around $800 per ounce, so profitability should improve with the higher production.
(Credit: Endeavor Mining presentation)
The company is on the right track to achieving these long-term goals. Following the first-quarter results, I'm even more bullish on Endeavor Mining and convinced of this growth story. In the first quarter, its gold production came in at 132,000 ounces, putting Endeavor on track to meet its full-year guidance; all-in sustaining costs continue to drop, falling to $900 per ounce; free cash flow was $28 million, which was above guidance.
Meanwhile, the company's net debt was reduced to just $71 million at the end of the quarter, down from $259 million last year, due to higher free cash flow and cash acquired in the True Gold acquisition. The company ended Q1 with $182 million in cash.
| Company | Market Cap | Annual Gold Production 2016E | Gold Production 2018E | EV/EBITDA | Book Value Per Share |
| Endeavor Mining | $1.31 billion | 535,000 | 900,000 | 8.23 | $9.57 |
| Randgold | $8.58 billion | 1.2 million | 1.3 million | 22.28 | $35.70 |
(Source: Yahoo Finance)
To take a closer look at the company's potential, and I think we can do that by comparing the stock to one of the company's competitors, Randgold Resources (NASDAQ:GOLD), which also operates solely in Africa. It's a well known name in the industry.
Randgold produces over 1.2 million gold ounces annually at a similar cost profile to Endeavor. So, its production is currently double the size of Endeavor, at similar cash costs, yet, the company carries a market cap of $8.61 billion with a stock price of $91.60, so its more than 7X the size of Endeavor Mining. Randgold does have a better balance sheet, however, with $253 million in cash and no debt at the end of Q1. Still, Randgold carries an enterprise value of $8.35 billion compared to Endeavor's $1.41 billion.
In my view, Endeavor could easily be the next Randgold in the next five years, by growing its production to over 1 million ounces annually, paying a decent dividend, and repaying its debt in full. If it does these things, I think the stock will command a similar valuation. Randgold is currently producing over 1 million ounces of gold annually, which is where Endeavor wants to be before the end of the decade. By 2018, Randgold is estimating a slight increase in annual production to 1.3 million gold ounces.
With another acquisition and expanded production at its existing mines, I think Endeavor can easily get there. You'll see above that Randgold isn't forecasting much growth over the next three years, while Endeavor has ambitious (but attainable) growth plans, which also doesn't include any future acquisitions.
As I pointed out recently, I still think Randgold will be a winner over the long-term, but Endeavor Mining is a much better growth story and has larger upside potential. I think the company will continue to be active on the M&A side as it keeps growing its business. The stock looks cheap compared to Randgold and to other peers. I think long-term investors should look to add shares on any future pullbacks, and hang on for the ride.
My own view is largely in line with this article. After the steady (but major) rise even i (a long time believer) think it is going to hard sometimes. Gold is barely up $200 and edv quadrupled in value. However as you can see in the comparison with randgold, edv can still easily double from here, with gold flat!!
Therefore i am shaking my head for those who are selling at this point. Its a bull market, dont get left behind for a quick buck. You can sell small positions, if edv is becoming to big a part of you portfolio. But take in other positions in the same sector... Jmho!