Endomines - Expecting strong results
Endomines reports its H1 figures on 14th of August. Increased production coupled with strong gold price should have aided the company to record profitability in H1. Strong performance is expected also going forward, yet the pricing looks elevated.
Market tailwind and promising exploration results
Gold spot price has increased some 30% during the first seven months of the year as uncertainties related to global trade and geopolitics have continued. According to World Gold Council, the demand from central banks has continued and the outlook for demand remains healthy. At the same time, the consensus gold price forecasts have increased notably during the first half of the year. On the exploration front, Endomines reported a very promising UKKO-001 drill hole which intersected three high grade gold zones. While the first drill hole was exceptional, the other published drill holes from Ukkolanvaara have showed relatively traditional grades for the Karelian Gold Line.
First half results should come in strong
Endomines produced 8,832 ounces of gold during the first half of the year. The Q2 production fell slightly short of our previous estimates as we had forecasted production of 9,099 ounces for the first half. While production was lower than expected, it was still on a good level as production grew 25.8% y/y during the first half. The gold price has risen, with the average price around 3,300 USD/oz in Q2 and approximately 3,100 USD/oz in H1. On the negative side for Endomines, while EUR/USD was closer to parity at the start of the year, the dollar has weakened notably since. This has a negative effect on Endomines as all invoicing for its gold concentrate is in USD terms. According to our estimates, the unfavorable FX movement has had a negative effect of some EUR 1m for the first half. We have made several adjustments to assumptions behind our SOTP-model. We have increased the potential future production in the Karelian Gold Line after the positive exploration results from Ukkolanvaara. In addition, we have increased our estimate for future gold price and added the acquisition of Power Mining to our estimates.
SELL (prev. ACCUMULATE) with a TP of EUR 24.5 (prev. 15.9)
The company’s share price has increased some 90% since we upgraded our rating. The current price is above the fair value derived from our SOTP-model. Based on EV/Resources multiple (excl. historical resources), the company is priced roughly two times higher than the peer group average. We continue to base our TP in the middle of the fair value range derived from our SOTP-model.