In an Aug. 4 research note, CIBC analyst Anita Soni reported that Endeavour Mining Corp. (EDV:TSX; EVR:ASX) achieved "a solid Q2/21 operational and financial beat" and confirmed that the outlook for the company's full-year 2021 looks good.
Soni outlined the changes CIBC made to its model on Endeavour to reflect the miner's successful Q2/21. The financial services firm increased its overall 2021 production estimate to 149,300 ounces (1.493 Koz), which falls within the higher end of Endeavour's guidance of 1,365–1,495 Koz.
On the other hand, CIBC lowered its 2021 production forecasts for Boungou and Mana. This is because, according to Endeavour, recovery rates at Boungou and mill throughput and grades at Mana will likely decrease in H2/21.
In another change to the Endeavour model, CIBC raised its all-in sustaining cost (AISC) projection for 2021 by 3% to $900 per ounce, the maximum AISC to which the miner guided. Expected increases in three sets of costs in H2/21 drove this change. They are AISC at Boungou due to higher fuel prices and security costs; AISC at Karma resulting from decreased grades, throughput and recoveries; and general and administrative costs. CIBC also bumped up its total 2021 capex estimate to $478 million ($478M) from $471M.
With respect to inflation driving up costs for the mining company, Soni noted that Endeavour expects little of that, given it recently renegotiated most of its contracts. However, the company does expect that capex for its next two projects, Fetekro and phase two of Sabodala-Massawa, will be higher than originally anticipated, due to inflation.
Soni indicated that in terms of 2021 free cash flow, CIBC continues to forecast it to be strong, around $793M. Endeavour, in fact, had $833M in cash at the end of Q2/21. Net debt was $97M.
Expected free cash flow "should more than support Endeavour's capital return to shareholders via its minimum dividend policy and share buyback," Soni affirmed.
CIBC has an Outperformer rating and a CA$41 per share target price on Endeavor Mining, one of its top picks. The miner's current share price is about CA$31.39.
"We continue to recommend Endeavour as a cornerstone name in an investor's portfolio as we expect it to continue to rerate as it earns back investor confidence after two acquisitions last year and the outflows from the Toronto Stock Exchange index exclusion," Soni explained.
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Disclosures from CIBC, Endeavour Mining, Aug. 9, 2021
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