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Endomines - Upgrade to HOLD

Endomines’ Q3 results were clearly below our estimates, as no concentrate from Friday was sold during the quarter. Mining operations have progressed well but issues with the commissioning of the mill delayed concentrate production. Full forecasted production rates at Friday are expected by the end of the year. We adjust our TP to SEK 4.7 (4.8) and upgrade to HOLD (SELL) following share price declines.

Estimates miss from mill commissioning delays

Endomines Q3 results fell clearly below our estimates, as no gold concentrate from the Friday-mine was yet sold, whereas we had expected minor sales. The gold concentrate production was affected by issues with commissioning the mill at Friday, which delayed previous plans of commencing production during Q3. Revenue amounted to SEK 1.6m (Evli 10.9m) and EBIT to SEK -16.4m (Evli -7.2m). Revenue was generated from gold recovered from the clean-up at Pampalo. Production at the Friday-mine has progressed well and a significant ore stockpile has been built up and Endomines expects to be reaching full forecasted production rates by the end of the year.

Bumps on the road in the near-term not unlikely

We have slightly revised our 2019 estimates downwards following the delay in concentrate production. The issues relating to the commissioning of the mill continue to pose risks for concentrate production in Q4. The impact of any further delays are however essentially not of any major importance and would only shift cashflows to a slightly later stage and the improved financial situation from the completed rights issue allows for some headwind.

HOLD (SELL) with a TP or SEK 4.7 (4.8)

Our view on Endomines post-Q3 in general remains intact. Our SOTP (Gold spot price) implies a value of SEK 5.4 per share but with the production uncertainty still present we continue to justify a discount and check our target price to SEK 4.7 (4.8) per share following SOTP adjustments. Due to a near 10% share price decline since our previous update we upgrade our rating to HOLD (SELL).

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