Endeavour Mining - Forecasts up; valuation up

Endeavour Mining’s Q3 results were considerably ahead of our forecasts, despite a challenging rainy season. Nevertheless, production rose at three of Endeavour’s four mines and overall group production increased by 5.5% relative to Q2 (NB historically, production has tended to fall in Q3 relative to Q2), while net adjusted EPS almost quadrupled to 30.2c. As a result, we have updated our underlying FY19 forecasts (see Exhibit 1 on page 3 for a detailed analysis of EDV’s Q3 results and Exhibit 6 on page 7 for changes to our Q419 and FY19 estimates). In addition, we have incorporated our longer-term gold price forecasts into our financial model as well as the 25% expansion of the Ity processing plant from FY20. Otherwise, operating cash flow (before working capital items) more than doubled to US$1.05/share in Q3, return on capital employed increased to 15% (on an annualised basis) and net debt (excluding IFRS 16 leases) reduced by US$52m. Capex continued to fall, putting Endeavour in a strong position to benefit from the gold price and to deleverage rapidly, while maintaining growth optionality via its exploration activities.