Endomines |

Pampalo production increased 215% year-on-year

Endomines released an operational update for Q1 2023 that included updated gold production figures for Pampalo. The company was able to produce 3588 ounces of gold during Q1 2023 which was 215% higher when comparing to last year (1137 ounces in Q1 2022). In addition to strong production figures, the company's drilling program in the Karelian gold line developed according to plans during the first quarter. Endomines has completed roughly half of the planned drilling in the Korvilansuo area, and the results are expected to be published in April-July.

We increase our production estimate for H1 2023

We increase our H1 2023 production estimate to 6893 ounces (5817 ounces) driven by the strong production figures for Q1. Endomines expects production increase of 35-55% for FY 2023 when comparing to FY 2022, our current production estimate is at the top end of the guidance range. There is further upside to our production estimate if the company can maintain the rate of production achieved in Q1 over the upcoming quarters. We also increase our profitability estimate for 2023 driven by the increased volumes in the first half and overall improved profitability for the full year due to the combination of lower energy prices and higher gold prices in relation to 2022.

BUY with a target price of EUR 6.5

Our view of the company remains unchanged, Endomines is implementing its strategy effectively in Finland and is benefitting from the strong gold market. However, we continue to see risks associated with the value realization of the company's asset portfolio in the United States. In addition, there is limited visibility regarding the company's exploration activities and the future Pampalo production. Due to the existing uncertainties, we base our valuation on the lower end of our SOTP-based valuation range. We retain our BUY-rating and TP of EUR 6.5.

Update increases ore reserves to 29 400 ounces of gold

The published update increases Pampalo reserves by 60% when comparing to the ore reserve status at the end of 2021. The ore reserves are doubled in ore tonnes as the open pit grades dilute the total grade, the Pampalo underground gold grades are at similar level compared to the previous ore reserve update. Most of the reserve increase comes from the underground drilling programme that was completed in 2022, the programme included 117 drill holes in total between the levels 815 and 875.

Visibility remains rather low

The current ore reserves in Pampalo are sufficient for roughly three years of gold production at the current production rate. The remaining production potential depends on the successfulness of the company’s exploration efforts in both Pampalo underground mine and in the Karelian gold line. The company’s mid-term target is to define over one-million-ounce gold mineralization on the Karelian gold line by the end of 2025. To reach the target, the company has started exploration drilling in the area. Despite limited visibility for exploration, the company's targeted zones, which have not been thoroughly investigated before, show promising potential.

BUY (HOLD) with a TP of EUR 6.5 (6.5)

We have made only slight adjustments to our SOTP-model. The increased reserves provide slightly better visibility for the production in Pampalo, on the other hand, we continue to see risks related to the value realization of the US asset portfolio. Endomines trades currently at a slight discount to its peers based on EV/Resources multiple when including the company’s historic resources (Figure 1). Due to a 13% share price decline since our previous update, we upgrade our rating to BUY (HOLD), noting however that junior gold miners entail significant risks.

Volumes developed as expected

Revenue in H2 amounted to EUR 7.9m, roughly in line with our estimate of EUR 8.1m. Gold production amounted to 5,123 oz vs. our estimate of 5,402 oz. Both EBITDA & EBIT missed our estimate as EBITDA for H2 2022 came at EUR -3.0 (Evli EUR 0.6m) and EBIT at EUR -5.4m (Evli EUR -0.8m). The second half of the year was negatively affected especially by increased cost of raw materials and energy. The second half was also negatively affected by non-recurring costs related to the transfer of domicile from Sweden to Finland.

2023 is an important year for the company

Endomines focused on building the foundation for its strategy implementation during the second half of 2022. In 2023, the company aims to build on this foundation and start to implement its strategy on a wider scale. In our view, the most important operational factors for the company in 2023 include improved mining operations in Pampalo, exploration activities in the Karelian gold line and the partnership negotiations in the United States.

HOLD with a target price of EUR 6.5

We have done slight adjustments to our estimates for the Pampalo mining operations as the company’s expectations for 2023 were slightly stronger than we had earlier estimated. We currently include only reserves and resources between the 755-815 and 815-875 levels in Pampalo to our estimates and therefore we do not estimate production post 2024. In our SOTP valuation approach, the rest of the value for the company’s operations in Finland is derived from a real option model which considers the possibility of Pampalo LoM increase and the possibility for the utilization of Karelian gold line satellite deposits. Despite the cautiously positive outlook for 2023, we still see uncertainty regarding the successfulness of the company’s exploration activities and the value realization of the US assets. We retain our HOLD-rating and TP of EUR 6.5.

• Revenue in H2 amounted to EUR 7.9m, roughly in line with our estimate of EUR 8.1m. Gold production amounted to 5,123 oz vs our estimate of 5,402 oz.
• EBITDA in H2 was at EUR -3.0, lower than our estimate of EUR 0.6m. 
• EBIT in H2 amounted to EUR -5.4m (Evli EUR -0.8m)
• During H2, at Pampalo, gold production increased by 47% when comparing to H1. FY production came in at 8,601 oz, slightly lower than the middle point of 2022 FY guidance of roughly 8000 – 9400 Oz.
• Profitability in H2 2022 was affected by cost inflation and non-recurring costs related to the transfer of domicile from Sweden to Finland
• For 2023, the company expects gold production of roughly 11,600 – 13,300 Oz, our estimate for 2023 gold production is currently at 11,693 Oz.
• In terms of profitability, Endomines expects its financial performance to improve considerably from 2022 driven by lower energy prices, positive development of gold prices, lower production costs especially during H2 2023 and higher volumes.

High-grade drill results from Pampalo

Endomines is currently extracting ore from the 755-815 level and have inferred resources (Pampalo deep) at the 815-875 level. The new drill hole intersected 6.0m grading 9.2g/t gold at the 1050 level, roughly 175-235m below the 815-875 level. The company has historically been able to produce approximately 20k ounces of gold per 50 meters at the Pampalo underground mine.

Probability of extending Pampalo Life of Mine increases

The results are based on a single drill hole and further drilling is needed to determine the economic feasibility of the mining area. Even though it is too early to determine if the company is able to economically extract the ore, the result confirms the continuation of the deposit. The gold was found in a location where the company expected, which shows that the mineralization continues according to the company’s previous expectations.  

HOLD with a target price of EUR 6.5 (5.4)

We have not made changes to our production estimates based on the published results. Our valuation for the company’s Pampalo mine is based on DCF which considers the ore reserves and resources between the 755-815 and 815-875 levels. The rest of the value is derived from a real option model which considers the possibility of Pampalo LoM increase. We have made adjustment to the real option model regarding the possible scale of the LoM increase. As a result of the changes to the model and the favorable gold price development, we increase our target price to EUR 6.5 (5.4), HOLD-rating intact.

Endomines to raise gross proceeds of EUR 13m

Endomines seeks to raise gross proceeds of EUR 13m (SEK 141m). The 2.6 million new shares offered represents 38.9% of the current shares outstanding. The subscription price is EUR 5.00 (SEK 54.25 at the current FX rate). In case of oversubscription, the company’s BoD may increase the number of shares issued up to 3.6m shares with a one million share upsize option. The net proceedings from the issue (excl. upsize option) are roughly EUR 12.3m (SEK 134m). The company has received commitments from investors worth of EUR 12.2m in total (or roughly 94% of the total offering) of which roughly EUR 3.4m is paid in cash.

Proceeds used to fund exploration activities in Finland

Endomines updated its strategy earlier this year which set the company’s focus back to Finland. The company aims to conduct wide scale exploration activities in the Karelian gold line with a mid-term target of defining a deposit with more than one million ounces of gold resources. The proceeds of the issue are used for the implementation of the new strategy and especially for exploration activities along the Karelian Gold Line.

HOLD with a target price of SEK 59 (64)

We have adjusted the shares outstanding and net debt figures with an assumption that the offering will be fully subscribed. In addition, we have made changes to our estimates and the SOTP valuation. The favorable gold price development is outweighed by the dilution effect from the offering and the uncertainty regarding the successfulness of the company’s exploration activities, the value realization of the US assets and changes in the FX rates. We decrease our target price to SEK 59 (64), HOLD-rating remains intact.

• Following the reverse share split, the number of shares will decrease from 267,198,378 to 6,679,959
• From today, 30 September 2022, the share price will reflect the effect of the reverse share split
• In addition to the reverse share split, the EGM resolved to approve the planned cross-border downstream merger
• As a result of the merger, Endomines Finland will be the new parent company of the group
• Shareholders of the company will receive one new share in Endomines Finland for each share owned in the company
• Final conditions of the merger are expected to be fulfilled on or about 16 December 2022 
• We have updated our models regarding the number of shares, there are no changes to our estimates. We update our TP to SEK 64.0 (1.6) due to the reverse split. HOLD-rating intact.
• The gold price has stayed roughly at the levels seen during our last update
• No updates to other assumptions regarding the company’s financials 
• Therefore, the target price change is purely driven by the change in number of shares

Issues in the United States have continued to weaken the performance
During the recent years, the company has faced issues in the Friday mine and processing plant ramp-up. According to the new strategy, the company’s assets in the United States are developed through partnerships, additionally, divestments are considered as a potential option. In our view, the company’s ability to realize value in the United States is essential for the investment case.

Focus on the Karelian gold line
Production in Pampalo mine was commenced in Q1 2022 supported by the current favorable gold prices. Endomines was able to produce 2 227 ounces of gold in the second quarter of 2022 and posted a positive EBITDA for the Pampalo operations. In the coming years, Endomines is planning to commence production from the satellite deposits and conduct a wide scale exploration campaign in the Karelian gold line. There is also likely to be life of mine increases in Pampalo underground mine as the company is currently extending the decline deeper. We see potential upside for the valuation via successful exploration and mining efforts.

HOLD with a target price of SEK 1.6 (1.7)
We decrease our target price to SEK 1.6 (1.7). The positive assumptions changes regarding the Pampalo underground potential and the Karelian Gold Line satellite deposits are outweighed by adjustments to gold price estimates driven by souring gold market sentiment.

Operative H1 figures quite in line with expectations
Endomines reported H1 operative figures well in line with our estimates. Pampalo gold production amounted to 3,478 oz vs our estimate of 3,622 oz. Revenue amounted to SEK 59.1m (Evli SEK 60.4m) while EBITDA amounted to SEK -38.0m (Evli SEK -36.6m). EBIT of SEK -107.1m came below our estimate (SEK -73.6m) due to amortizations of Friday assets. EBITDA of Pampalo operations turned positive in Q2, at SEK 7.7m. Endomines expects production in H2/2022 to increase by 30-70% compared with H1, putting the full year estimate at roughly 8,000-9,400 oz (Evli updated estimate 8,847 oz). No production is expected from Friday in H2.

Strategy focusing on Finland and partnerships in the US
Endomines updated its strategy, with focus on Pampalo and development and exploration along the Karelian Gold Line. Focus in the US will be on partnership models, meaning that Endomines will not operate any assets by itself. We expect production to rely on Pampalo in the near-term, with potential to bring Hosko and/or Rämepuro to production in H2/2023, not yet included in our estimates. A significant amount of resources will be used for exploration along the Karelian Gold Line and the further funding in the near-term remains on the agenda. The new strategy brings further uncertainty to the future of the US assets but given the company’s resources and funding needs the logic is sound.

HOLD with a target price of SEK 1.7 (2.2)
With the new focus and corresponding changes to our SOTP- model, having lowered the implied value of Friday and revisions to gold price estimates due to recent volatility and changing interest environment, we adjust our TP to SEK 1.7 (2.2). Our HOLD-rating remains intact.

• Revenue     in H1 amounted to SEK 59.1m, in line with our estimate of SEK 60.4m. Gold production amounted to 3,478 oz vs our estimate of 3,622 oz.
• EBITDA in H1 was at SEK -38.0, in line with our estimate of SEK -36.6m.
• EBIT in H1 amounted to SEK -107.1m (Evli SEK -73.6m), including an impairment charge of SEK 54.9m for the Friday tangible assets. 
• During H1, at Pampalo, gold production increased by 78% in Q2 to 2,227 oz compared with Q1. H2 production at Pampalo is estimated to be 30-70% higher than production during H1/2022, i.e. ~4,500-5,900 oz (Evli 5,671 oz).
• Production at Friday remains halted and no gold production will be realized during H2/2022. Current focus is on investigating partnership options for both the mine and the Orogrande processing plant operations. 
• At US Grant, Endomines is planning to undertake initial permitting activities and continue studies to define necessary development steps during H2/2022.
• Endomines updated its strategy, which appears to lean on Pampalo and other deposits and exploration at the Karelian Gold Line, while focus in the U.S. is shifting towards partnership models.

Building up production volumes at Pampalo
Endomines has seen continued two-fold progress during H1 so far, with ramp-up of operations at Pampalo progressing quite as planned while the mining operations at the Friday mine appear to be halted for a prolonged period of time. At Pampalo, Endomines produced 1259oz of gold during Q1. Focus has been on achieving a state of steady gold production at the processing plant. Endomines also announced plans to open the East open pit at Pampalo, which according to the company would increase gold production volumes with 10-20%. Operations at the open pit are expected to continue for approx. two years. At Friday, Endomines has carried out an underground diamond drilling campaign, with promising results. Further drilling is however still required and will be considered in late 2022.

Investigating potential in Finland amid macro uncertainty
Our estimates for Friday now assume production to be restarted during H1/2023 (earlier assumption mid-2022). The company noted that it is investigating partnership options, which could be beneficial given the company’s current lack of cash flows and continued need for additional financing. Production ramp-up at Pampalo and the assumed start-up of the East open pit this year provides some additional leeway but further financing will in our view be needed to further increase production. Endomines has also investigated possibilities to develop known deposits within the Karelian Gold Line. Gold is still enjoying rather favourable price levels, but precious metals have as safe haven assets been under pressure due to a stronger dollar and anticipated interest rate hikes. Any gold price deterioration would in our view clearly limit the economic feasibility of the other assets in Finland.

HOLD with a target price of SEK 2.2 (2.3)
With estimates revisions both operatively and due to completed and anticipated financing arrangements along with gold price uncertainty we adjust our TP to SEK 2.2 (2.3), HOLD-rating intact.

Limited production with new challenges at Friday
Endomines reported weaker than expected results. At the company’s only producing site (in Q4/21), Friday, mining operations were halted due to irregularities in the ore bodies. Gold production as such was limited, at 460oz, with earlier guidance of ~1,200oz. Revenue amounted to SEK 3.2m (Evli SEK 17.3m) and EBITDA to SEK -41.6m (Evli SEK -28.0m). Due to the developments at Friday Endomines carried out impairments of SEK 73.8m and EBIT was thus also clearly below expectations, at SEK -121m (Evli SEK -33.7m).

Assuming renewed ramp-up at Friday in mid-2022
The halting of mining operations at Friday is unfortunately timed, as most preparations for achieving full production capacity has been set in place. With the needed underground drilling and analysis we for now assume a six month delay, seeing renewed ramp-up efforts during the summer. News on Pampalo were far more encouraging, with development so far essentially on schedule and budget and first gold concentrate deliveries in January. The Pampalo mine and mill are expected to achieve full production capacity during Q1/2022. When in full production, the annual gold production is estimated to be between 10,000-11,500oz. Endomines has considerably strengthened its financial position through several transactions after Q4. Cash flows from Pampalo will also begin to support financial development, with gold prices at renewed higher levels. In our view additional financing needs are however still on the table, as the company on the longer run will seek to bring more assets to production.

HOLD with a target price of SEK 2.3 (2.7)
Following adjustments to our SOTP-model and the delay at Friday we adjust our target price to SEK 2.3 (2.7) and retain our HOLD-rating. With the challenges at Friday, upside potential from bringing other assets to production is still distant.

• Revenue in Q4 amounted to SEK 3.2*m, below our estimate of SEK 17.3m. The company fell short of its earlier production guidance of around 1,200oz, with production of 460.3oz, at a head grade of 2.89g/t.
• EBITDA in Q4 was at SEK -41.6m*, below our estimate of SEK -28.0m given the lower revenue.
• EBIT in Q4 amounted to SEK -121.4m* (Evli SEK -33.7m), including larger write-downs on the Friday project.
  *Figures derived from Q1-Q3 and H1 figures
• During Q4, at Pampalo, ore production from the mine reached mine development started. The decline reached target levels in September. The mill was refurbished and tested in December and the first concentrate was delivered in January.
• Ramp up and ore processing continued at Friday. Ramp up was delayed by a need to conduct underground definition drilling due to ore irregularities. The production guidance for 2022 is as such under review and can be updated once new resource estimates have been completed.
• Production guidance for 2022: The Pampalo mine and mill are expected to reach full production capacity during Q1/22. When in full production the annual gold production is expected to be 10,000 to 11,500oz. The production guidance for Friday is under review.

Friday restarted; full capacity seen to be reached in 2021
Endomines reported its Q3 results which, as production was still starting up, were not particularly eventful in terms of production. Revenue* amounted to SEK 1.7m (Evli 0.0m) and EBIT* to SEK -38.2m (Evli -33.0m) *not reported, derived from Q1-Q3 and H1. At Friday initial production started up during the quarter, with most of the technical challenges that have faced the commissioning of the mill having been addressed. The planned production capacity of 150 tons per day is expected to be reached the end of Q4. The re-opening of Pampalo has gone largely as planned. According to current schedules ore production will start in December 2021. Ore processing at the mill is expected to commence early 2022.

Financial position remains challenging
As a result of refocusing the Pampalo production schedule to Q1 2022 from previously planned Q2 2022 Endomines adjusted its short-term Q4 2021 production guidance to 1,200 oz (prev. 1,500oz) and we have adjusted our short-term estimates accordingly. Production should pick up clearly during 2022, with our estimates for Friday and Pampalo at approx. 8,300oz and 6,300oz respectively (co’s mid-term full production goals 7,800-9,000oz and 10,000-11,500oz respectively). The cash flows remain essential, as Endomines has been without production the last 12 months and has had to seek financing several times. The liquid assets at the end of the period were only SEK 8.4m.

HOLD with a target price of SEK 2.7 (2.8)
We have made some adjustments to our SOTP-model relating to share issues and changes in the financial position, based on which we adjust our target price to SEK 2.7 (2.8). Financing remains a key concern but the company is steadily nearing decent production figures, which would sort out some concerns.

• Revenue in Q3 amounted to SEK 1.7*m, with our estimates at SEK 0.0m. Revenue in Q3 was still as expected not significant, as the Friday mine and mill are only just re-starting production.
• EBITDA in Q3 was at SEK -36.3m*, below our estimate of SEK -28.0m.
• EBIT amounted to SEK -38.2m* (Evli SEK -33.0m).
  *Figures derived from Q1-Q3 and H1 figures
• During Q3 the Pampalo mine decline was driven down to a new production area. Work remains within budget and timeline. At Friday, the technical challenges relating to the mill have mostly been resolved. An underground core drilling program is being carried out, to be completed during Q4.
• The Orogrande processing facility is under commenced production and is forecasted to reach planned milling capacity (150 tons/day) by the end of Q4 2021. Ore production at the Pampalo mine will start in Q4 2021 and ore processing at the mill will begin early Q1 2022.
• Liquid assets amounted to SEK 8.4m at the end of Q3.
• Due to the refocusing of the Pampalo production schedule from previously planned Q2 2022 to Q1 2022, the short-term Q4 2021 gold production guidance for the operations has been amended to approximately 1,200 oz by year end.

Working on production start-up
Endomines reported its Q2 results. With Friday still under care and maintenance during Q2, Endomines as expected did not produce any new gold concentrate and no revenue. Costs were higher than anticipated as the ramp-up of operations progressed and with significant D&A, relating largely to the Friday mine, Q2 EBIT of SEK -76.9m was clearly below our expectation of SEK -20.0m. Endomines continued its efforts to bring the Friday-mine back into production, having invested one million USD on upgrading the Orogrande Processing facility and enhancing the production capacity of the mine. Endomines has also begun n exploration surface drilling program for the Montana gold assets, a fundamental part of Endomines’ long-term value creation potential.

Seeing Friday + Pampalo production of ~20k oz in 2023
Endomines updated its mid-term goals for the Friday and Pampalo assets, expecting annual gold production of 7,800-9,000 oz and 10,000-11,500 oz respectively, at full production. Full production for Friday is expected by Q4 2021/Q1 2022 and Q2/Q3 2022 for Pampalo. The new Friday estimate is slightly softer than the previous 9,000 oz initial production target but future capacity expansion could still be viable. We have now also included estimates for Pampalo, expecting production to rise to some 20k oz in 2023 as both sites should have reached target capacity by then. With further near-term delays in the start-up of the mill at Friday (expected in late August) the 2021 production estimate was lowered to 1,500 oz (prev. 3,000-4,000 oz), which given pre-Q2 news was not completely surprising.

HOLD (BUY) with a target price of SEK 2.8 (2.9)
We have made some adjustments to our SOTP-model, based on which we adjust our target price to SEK 2.8 (2.9). With the recent share price increases we lower our rating to HOLD (BUY).

• Revenue in Q1 amounted to SEK 0.0*m, with our estimates at SEK 0.0m. The Friday mine was put into care and maintenance during Q3/20 and no significant new gold concentrate production took place during Q2.
• EBITDA in Q2 was at SEK -25.9m*, below our estimate of SEK -16.0m, with costs in the second quarter larger than estimated.
• EBIT amounted to SEK -76.9m* (Evli SEK -20.0m). Depreciations and write-downs of SEK 51.2m were clearly higher than expected.
  *Figures derived from Q1 and H1 figures
• During Q3 2021 gold production will restart at the Orogrande Processing facility. Restaffing at both mine and the mill has taken slightly longer than Endomines expected due to market conditions caused by COVID-19, which along with delays in delivery of some vital mill equipment and components has caused a slight delay to the mill start-up from July to late August.
• Liquid assets amounted to SEK 28.0m at the end of Q2.
• The gold production guidance for the remainder of the year is now expected to be approx. 1,500 oz (prev. 3,000-4,000 oz).
• Friday: When in full production Endomines expects the annual gold production from the Friday mine to reach 7,800-9,000 oz. Full production estimated by Q4 2021/Q1 2022.
• Pampalo: When in full production Endomines expects the annual gold production from the Pampalo mine to reach 10,000-11,500 oz. Full production estimated by Q2/Q3 2022.

No major surprises in figures
Endomines revenue was as expected insignificant (Act/Evli SEK 0.1m/0.0m), as operations were still at a halt. Costs were somewhat higher than expected and EBITDA of SEK -14.5m lower than our estimate (Evli SEK-11.0m). Focus during the year has so far been on ramp-up of operations and strengthening the organization through key recruitments. To our understanding the startup of operations has proceeded quite according to plans and the issues with the tailings dewatering system at the Orogrande processing facility have reportedly been addressed.

2021 production guidance 3,000-4,000oz
Endomines gave a production guidance for 3,000-4,000oz during 2021, above our previous estimate of 2,869oz. Our revised estimate puts production at 3,061oz, not yet including estimates for Pampalo, which given the likely startup in late 2021 and the low-grade development ore should be quite limited. With the mill at Friday seen to reach full capacity by year end the production figures are expected to pick up clearly in 2022. Cash flow from operations was at SEK -63.0m but around half of it was due to transactions relating to the US Grant and Kearsarge projects. Liquid assets stood at SEK 68.0m. The financing package with LDA Capital (subject to AGM approval) could bring a further EUR 14m, which should cover financing needs until sufficient own cash flows are achieved.

BUY (HOLD) with a TP of SEK 2.9 (2.7)
We have not made larger changes to our estimates or SOTP model apart from the slightly increased production figures for 2021. With the anticipated lower financial risk from the LDA Capital financing package (not yet included in our estimates) and favourable gold price development we adjust our target price to SEK 2.9 (2.7) and upgrade our rating to BUY (HOLD), noting however the significant risks relating to junior gold miners.

Earnings clearly short of estimates
Endomines as expected did not report any significant revenue in Q4 (SEK 0.7m/0.5m act.*/Evli), as Friday has been under care and maintenance. EBIT fell clearly short of our estimates (SEK -99.0m/SEK -16.9m act.*/Evli) due to payments for claims of the US Grant project and write-downs of assets performed at the year-end. As expected, no dividend distribution was proposed. *Figures not reported, derived from Q1-Q3 and 2020 figures.

Production to ramp-up in H2
Endomines did not give a production guidance for 2021, aiming to give a guidance in connection with the Q1 release. Deepening of the Pampalo is expected to start mid-H1 while the goal is to have the first gold production by the end of the year. Production start at Friday will be somewhat dependent on how long the spring thaw will last but Endomines expects to be able to ramp-up production by early summer. Endomines completed its rights issue in January, raising approx. SEK 214m, which is a much-needed support to the previously very tight liquidity situation. Although the proceeds fell short of the target, the outcome is in our view still quite decent given the pressed financial situation the company has been facing. The Coronavirus pandemic is still causing some stir in supply chains but should not have any major short-term impact given the time the company has had to prepare for restarting production at Friday.

HOLD with a target price of SEK 2.7 (2.9)
We have made changes to our estimates, with the outcome of the rights issue vs. the assumed full subscription causing the largest changes to our SOTP model, along with the slight pressure to gold prices in Q1. We adjust our target price to SEK 2.7 (2.9) with our HOLD-rating intact.

• Revenue* in Q4 amounted to SEK 0.7m, with our estimates at SEK 0.5m. The Friday mine was put into care and maintenance during Q3 and as such no significant new gold concentrate production took place during Q4.
• EBITDA* in Q4 was at SEK -39.6m, below our estimate of SEK -14.0m. Adj. EBITDA* excl. payments for claims of the US Grant project amounted to SEK -9.7m, slightly better than expected.
• EBIT* amounted to SEK -99.0m (Evli SEK -16.9m). EBIT was affected by a clear increase in depreciations and write-downs due to write-downs performed at year-end.
  *Figures not reported, derived from Q1-Q3 and 2020 figures
• At Pampalo, deepening of the mine is expected to start in late March/early April after mining contractor has been selected and mobilized to the site and mining to start later in the year. At Friday the technical problems at the mill are being addressed and production is expected to start as soon as weather conditions permits in late spring.
• Liquid assets amounted to SEK 11.3m at the end of the quarter.
• During January 2021 Endomines carried out its rights issue, raising approximately SEK 214m.
• Endomines has not given a production guidance for 2021 but aims to specify its production guidance in connection with the Q1 release.

Previous years have not gone quite as planned
Endomines established operations in the United States in 2018, after having been active only in Finland throughout the majority of the 2010’s. The past years have seen focus being on bringing the first asset, Friday, to production. The company has been met with challenges along the way, relating both to technical and financial challenges, but production commenced at the site in 2020. Continued technical challenges and a tight liquidity situation, however, forced the company to put the site under care and maintenance towards during the latter half of 2020.

Seeking 40k oz p.a. production within four years
Endomines is seeking to bolster its financial position to be able to restart production. With the high gold prices, plans have also been made for restarting production at Pampalo in Finland, as production was halted due to the then unfavourable gold price levels. Financial challenges have unfortunately been an inherent feature in the past years, as the company has not been able to create reliable cash flows. Now with assets that can be rapidly brought to production due to existing infrastructure and the favourable gold price levels Endomines is looking to improve production figures, targeting a production of 40k oz p.a. within four years. With the recent year track-record, however, the company in our view still has quite a lot to prove.

HOLD with a target price of SEK 2.9 (3.5)
We lower our target price to SEK 2.9 (3.5) following adjustments to our assumptions with the information provided regarding the rights issue and production plans. We retain our HOLD-rating.

Friday operations put under care and maintenance
Endomines reported weaker than expected Q3 results, as the operations at Friday were put under care and maintenance due to a very tight financial situation. Ramp-up at Friday was previously delayed by problems with the tailings dewatering system and although solving the problems would not have been a large investment, the limited cash flows and very tight cash position (Q3/20: SEK 12.0m) forced the company to take more drastic measures. Q3 revenue and EBITDA of SEK 1.9m and SEK -23.1m were as such clearly below our estimates (Evli SEK 11.1m and -15.6m respectively).

Taking measures to improve financial position
Endomines announced intentions to initiate a SEK 281m rights issue, at a subscription price of SEK 2.5 per share, along with possible directed share issues of near SEK 75m to cover guarantee undertakings and bridge financing claim set-offs. With some 60 percent of the rights issue covered by subscription undertakings and guarantee commitments Endomines should in our view be able to secure enough funding to restart operations at Friday and potentially also Pampalo if the gold price remains at >1,800 USD/oz levels. We estimate a six to eight month delay in ramp-up of Friday due to the funding challenges.

HOLD (SELL) with a TP of EUR 3.5 (5.5)
With the estimated impact of the rights issue on share amounts and net debt we adjust our TP to SEK 3.5 (5.5), assuming that the rights issue is subscribed in full. The gold price remains at beneficial levels and is continuing to see upwards pressure despite minor short-term declines. We raise our rating to HOLD (SELL).

• Total revenue* in Q3 amounted to SEK 1.9m, with our estimates at SEK 11.1m. Gold production during 1-9/2020 amounted to 538.1.1oz (Evli 986oz), with a head grade of 3.52g/t (Evli 3.39g/t). Gold concentrate was produced from pre-production development material, thus resulting in low head grades.
• EBITDA* in Q3 was at SEK -23.1m, below our estimate of SEK -15.6m.
• *Figures not reported, derived from Q1-Q3 figures
• Due to challenges with the tailings dewatering system and as a result a faster than anticipated use-up of working capital, as production and revenues were delayed, the operations at Friday were put under care and maintenance in August. The start-up will be dependent on securing the required financing.
• Liquid assets amounted to SEK 12.0m at the end of the quarter.
• The BoD of Endomines has resolved on a rights issue of SEK 281m, at a subscription price of SEK 2.50. The rights issue is covered by subscription undertakings and guarantee commitments up to SEK 168m. Dilution for existing shareholders choosing not to participate in the rights issue will be approximately 46 percent assuming full subscription.
• Endomines has not given a production guidance for 2020.

Sales commenced but head grades still low
Endomines Q2 results were slightly below our estimates, with revenue of SEK 7.5m (Evli 9.0m), EBITDA of SEK -17.5m (Evli -20.6m) and EBIT of SEK -27.7m (Evli -24.5m). The first concentrate sales at the Friday mine were made, but with pre-production development material being milled head grades were low and with the still low capacity revenue was not yet significant. COVID-19 related challenges to supply chains and recruitment have further pushed back the ramp up timetable of the processing facility and design capacity will unlikely be reached in 2020.

Friday ramp-up delayed due to COVID-19
We have clearly lowered our 2020 estimates post-Q2 following the ramp-up delays and update on the stockpiled pre-production development material. We expect 80% of design capacity to have been reached in Q4 and atypical head grades throughout the year due to stockpiled development material. We now expect revenue of SEK 41.0m (prev. 77.1m) and EBITDA of SEK -68.9m (prev. -38.3m). Endomines reported that plans are being made for a possible re-opening of Pampalo given the current gold price, which in our view could provide a production boost somewhere towards H1/21 if initiated.

SELL with a target price of SEK 5.5
Despite production and sales having recommenced, the unfortunate side of the Q2 report was the cash burn rate, with liquid assets again largely depleted and some exploration activities having been put on hold. Gold price levels are clearly attractive but with the expected cash burn rate during H2/20 and so far lack of more permanent financing solutions risks are still substantial. We retain our TP of SEK 5.5 and SELL-rating.

• Endomines made its first shipments of gold concentrate from the Friday mine during Q2.
• Revenue* in Q2 amounted to SEK 7.5m, with our estimates at SEK 9.0m. Gold production amounted to 326.1oz, with a head grade of 2.9g/t. Gold concentrate was produced from pre-production development material, thus resulting in low head grades.
• EBITDA* in Q2 was at SEK -17.5m, slightly above our estimate of SEK -20.6m.
  *Figures not reported, derived from Q1-H1 figures
• At the processing facility at Friday Endomines was able to operate at an average rate of 41.1 tonnes per day. Ramp up to design capacity (3,445 tonnes per month) continued. The COVID-19 pandemic has continued to severely impact production ramp-up due to supply chain disruptions and slowdowns in hiring. Endomines now expects that near design capacity could be reached towards Q4 (previously expected in Q2).
• Endomines did not give any numeric production guidance for 2020.
• Endomines sees interest in investing in the decline at Pampalo at current all-time high gold prices.
• Liquid assets amounted to SEK 3.4m at the end of the quarter.

No gold concentrate sales in Q1
Endomines Q1 report contained limited new information of value. No gold concentrate sales from Friday occurred and revenue amounted to SEK 3.1m due to Pampalo clean up gold. Lesser cost activation saw costs higher than our estimates and as a result a weaker EBITDA, at SEK -27.8m (Evli -13.6m). 3,700 tonnes of lower grade (5.7 g/t) ore was mined during the first quarter. Design capacity (3,445 tonnes/month) at Friday is sought to be reached in Q2, however, COVID-19 impacts on staff and component availability may cause delays. The first gold concentrate shipment from Friday was made during Q2.

Financing arrangements to aid cash position
Post-Q1 financial transactions will bring much needed relief to Endomines’ strained cash position (Q1/20: SEK 1.3m), raising some SEK 81m through two loans and a rights issue. We expect further financing to be needed during 2020, as evident by the signing of an engagement letter with a financial advisor for long-term financing. Closing of the transaction with Transatlantic Mining provides additional production potential, although little is yet known of the assets. 2020 will in our view revolve around ramping-up production at Friday and planning for production at other assets from 2021 onwards.

SELL with a target price of SEK 5.5 (5.0)
Following adjustments to our valuation approach following the favourable gold price development and taking into account the transactions in Q2 we raise our target price to SEK 5.5 (5.0). Our SELL-rating remains intact.

• Endomines did not sell any gold concentrate from Friday in Q1. An agreement for the sale of gold concentrate was signed and the first shipment of gold concentrate from the Friday mine was done in May.
• Revenue in Q1 amounted to SEK 3.0m, with our estimates at SEK 3.1m.
• EBITDA in Q1 was at SEK -27.8m, below our estimate of SEK -13.6m following higher than expected costs.
• At the processing facility at Friday Endomines was able to operate at a rate of 36 tonnes per day. Ramp up to design capacity (3,445 tonnes per month) continued. The goal is to reach design capacity during Q2, however, the COVID-19 pandemic poses some challenges with staff and part availability and continued effects of the pandemic may postpone the reaching of design capacity. Endomines has mined approximately 3,700 tonnes of ore at a grade of 5.7 g/t at Friday in Q1.
• Endomines did not yet give any numeric production guidance for 2020.
• Liquid assets amounted to SEK 1.3m at the end of the quarter. After the quarter Endomines raised SEK 81m net proceedings through the issuance of two loans and a directed share issue.
• An agreement with Transatlantic Mining was signed after Q1 to buy US Grant Mine and mill and the Kearsarge Gold Project.

Nearing commercial production at Friday

Endomines continued to post meager figures in Q4, as gold concentrate sales from Friday have not yet commenced. Bottom-line figures were as a result clearly in the red, with EBITDA at SEK -15.1m. Endomines expects to ramp-up production at Friday to design capacity (3,445 tonnes/month) in March 2020. The concentrate sales agreement is yet to be confirmed but should in our view be signed during Q1. Built up ore stockpiles will speed up production ramp-up, but we expect head grades to be well below expected typical grades during the first half of 2020.

Financial position again at risk

Endomines financial situation has again become a reason for concern, as group cash fell to SEK 15.7m (Q3/19: SEK 61.9m) in Q4. The Friday production facility investments are largely behind and cash flows will improve once production at Friday picks up. Friday cash flows will however not suffice to develop new assets and Endomines will in our view seek additional financing in the near future. Previous debt-financing options have not been favourable and a rights issue could be on the table.

SELL (HOLD) with a target price of SEK 5.0 (4.7)

Endomines is finally nearing production start at Friday and has continued consolidating its land assets in Idaho and is seeking to expand further through the transaction with Transatlantic. The gold price development has further remained favourable. The positive drivers are in our view, however, overshadowed by the near-term financial risks. We adjust our target price to SEK 5.0 (4.7) and downgrade to SELL (HOLD).

• Endomines did not sell any gold concentrate from Friday in Q4 and had in early February announced the expected start-up of commercial production in March 2020, which was not included in our estimates.
• Revenue* amounted to SEK 0.7m, with our estimates at SEK 22.0m, as we had expected gold concentrate sales from Friday.
• EBITDA* in Q4 was at SEK -15.1m, below our estimate of SEK -0.8m given the lack of gold concentrate sales.
• (*Not reported, derived from H1 and Q1-Q3 figures)
• During December Endomines processed 420.5 ore tonnes with a head grade of 2.65g/t Au (low-grade pre-production development ore) resulting in 2.65 tonnes of concentrate grading 189.2g/t Au. In December Endomines took over all mining activities from the mining contractor at Friday. Endomines has mined approx. 5,000 tonnes of ore up to date, stockpiled at the mine and mill areas. Full mining production delayed to coincide with mill commissioning.
• Endomines did not give a numeric production guidance for 2020, expecting ramp-up to design capacity (3,445 tonnes per month) in March 2020.
• The BoD expectedly proposed that no dividend will be paid for 2019.

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).

• Endomines did not sell any gold concentrate from Friday in Q3, while gold recovered from the clean-up at Pampalo generated some revenue. Mining has progressed well at Friday and a significant ore stockpile at the mine and the mill sites has been produced.
• Revenue* amounted to SEK 1.6m, with our estimates at SEK 10.9m. We had expected minor gold concentrate sales from Friday, while Q3 revenue consisted solely of sale of clean-up gold from the Pampalo mill.
• EBITDA* in Q3 was at SEK -13.2m, below our estimate of SEK -3.2m given the limited gold concentrate sales. (*Not reported, derived from H1 and Q1-Q3 figures)
• In the third quarter Endomines was able to commence the ramp-up of the Friday mining and milling operations and the work is now fully ongoing. Issues relating to the commissioning of the mill delayed the start of gold concentrate production. Successful commissioning of the mill is expected to take place during Q4.
• Endomines did not give an updated production guidance for 2019. The ramp-up of the Friday mine is on-going and an updated guidance will be given once completed the mill is successfully commissioned and ramp-up completed

No production in Q2, production guidance yet to be given

Endomines’ Q2 results were uneventful, as no gold concentrate production occurred during the quarter, as expected, and no new production guidance was given. Costs were limited compared to our expectations and EBITDA as such was SEK -9.3m compared to our estimate of SEK -15.0m. Ramp-up at Friday appears to be progressing rather well given the delays experienced so far. Based on the information given in Q2 we have, however, adjusted our Q3 production estimates further downwards, and now expect 2019 production of ~3,000oz.

Friday ramp-up key in the near-term

Endomines long-term plan is to produce over 40,000oz by the end of 2023, with near-term production relying on the Friday mine followed by the Rescue ore body (production in 2021). With essentially no production currently on-going the successful ramp-up of Friday remains vital to secure cash flows for on-going operations, although the recently completed rights issue substantially alleviated near-term financing concerns.

SELL with a TP of SEK 4.8 (4.4)

Our NPV values Endomines at SEK 4.8 per share, up from SEK 4.4 since our previous update following net debt adjustments based on the Q2 balance sheet and expected rights issue proceeds. We assume a 1,400USD/oz LT gold price, reflecting analyst estimates and the nature of the recent gold price increases. Drivers for long-term gold price through supply/demand remain in place but near-term gold price development remains uncertain following the more short-term macro event driven price increases.

• Endomines did not produce any gold concentrate in Q2.
• Revenue amounted to SEK 1.4m (42.1m in Q2/18), while we had not estimated any revenue for Q2. The Q2 revenue derived from clean-up gold from the Pampalo mill.
• EBITDA in Q2 was at SEK -9.3m, above our estimate or SEK -15.0m.
• Construction of the Mill was ongoing and developmental drifting at the Friday Mine was the focus for Q2.
• Endomines did not give an updated production guidance for 2019. A production plan is being worked on based on the results of the drilling campaign and test mining as well as the commissioning of the plant and an updated guidance will be given once completed.

Production to fall short of 2019 guidance

Endomines announced on August 9th that its production guidance for 2019 (5,000-8,000oz gold) will not be achieved due to reparations of damages to Friday’s tailings pond causing longer than expected delays to production. Ramp-up of the processing plant is expected to take a couple of weeks before being fully commissioned. No new guidance was given. We now estimate a gold production in 2019 of 4,340oz. Although the added delay to production timewise is relatively short, this will cause additional strain on the already limited near-term cash flows.

Sounder financial situation following the rights issue

With the completion of Endomines’ rights issue, having raised gross proceeds of SEK 156m, the company’s financial situation is now at a much sounder level. The raised funds should as such cover the by the company earlier estimated next twelve-month capital need of SEK 100m. Proceeds will mainly be used to short-term debt repayment and ramp-up of Friday as well as start-up of other assets.

SELL (N/A) with a target price of SEK 4.4 (N/A)

Endomines’ share price has seen recent rapid increases, as the gold price has climbed to levels last seen in 2019, driven by macroeconomic uncertainties. Although the rise in gold prices certainly is a welcome development, the current valuation in our view does not reflect the high uncertainty relating to Endomines’ gold production, with Friday having seen several delays and additional costs, and production has not yet commenced. We re-establish our rating with SELL (N/A) and a target price of SEK 4.4 (N/A), in line with our SOTP.

Seeking to raise SEK 165m

Endomines is through a rights issue seeking to raise gross proceeds of around SEK 165m, with expenses related to the rights issue estimated at SEK 10m. Endomines has estimated that its current financial position does not cover the capital needs for the following twelve months. Trading in subscription rights will take place during the 14-25 June 2019 while subscription using the subscription rights will take place from the 14th of June to the 1st of July, 2019.

Proceeds mainly to cover debt and project development

Of the proceeds some SEK 36m would be used to repay debts and interest relating to the TVL Gold acquisition. The larger share of the proceeds from the rights issue are intended to be used for development of its projects in Idaho. To our understanding some of the proceeds would be used for further development of the Friday mine while the bulk would be allocated to development of the Rescue, Kimberly, and Unity projects. Furthermore, part of the proceeds would be used to continue exploration along the Karelian Goldline as well as to cover general corporate costs. The cost allocation and project timelines are described in further detail in figures 1 and 2.

Rating withdrawn during rights issue

Evli Bank is the financial advisor of the rights issue, and although a segregation of duties is followed, we refrain from expressing our views on the rights issue. Our estimates have not been revised to include any new information given in the prospectus and we withdraw our rating and target price (prev. HOLD, TP SEK 6.0). We will publish an updated view after the rights issue.

Friday production expected in Q2

Endomines’ Q1 revenue and EBIT amounted to SEK 2.1m and -13.0m respectively. Ore production at the Friday mine is on-going but due to damage to the processing facility no new gold concentrate was produced and revenue was only generated from sales of remaining concentrate from Pampalo. Ramp-up of gold concentrate production at the Friday site is expected to start in Q2. Although the concentrate production was delayed Endomines has remained on schedule with the mining of ore and retained its 2019 guidance production for Friday of 5,000-8,000 oz gold concentrate.

Financial situation concerning

Endomines’ financial situation has increased causes for concern. The liquid funds at the end of the period amounted to SEK 7.8m, despite issuance of the EUR 3.7m bond, as Q1 cash flow after investments amounted to SEK -46.7m. The situation should be alleviated with the ramp-up of production at Friday, with the larger investments also having been done. With the additional costs of the processing plant at Friday the financial situation is in our view now even more fragile and Endomines can’t really afford more setbacks in production start-up without additional financing.

HOLD (BUY) with a target price of SEK 6.0 (8.0)

Endomines is in our view in a delicate situation financially and the need for additional financing, at least to finance any new projects, seems inevitable. Endomines already issued a rather expensive bond and further financing will likely not come easily or cheap. We downgrade to HOLD (BUY) with a target price of SEK 6.0 (8.0).

• Endomines did not produce any gold concentrate in Q1. The revenue was generated by sales of remaining Pampalo gold concentrate. Gold concentrate production at Friday has been delayed due to damage to the tailings area of the processing plant. Concentrate production is expected to commence in Q2.
• Revenue amounted to SEK 2.1m (29.4m in Q4/18), below our estimates of SEK 8.0m due to our estimates not having accounted for the processing plant damage.
• EBITDA in Q1 was at SEK -11.5m, below our estimates of SEK -3.9m, mainly due to the lower revenue.
• Friday’s processing plant repairs expected to amount to USD 400,000 and to take four to six weeks to complete.
• Guidance reiterated: Annual gold production at the Friday mine in Idaho, USA, is expected to be approximately 9,000oz at a cash cost of 650-900 USD/oz, depending on the area of production, over the life time of the mine. Endomines anticipates production of 5,000 – 8,000oz gold (~156-249kg) in concentrate during the year.

Friday gold production 5,000-8,000oz in 2019

Endomines’ gold production in Q4 amounted to 27.9kg (98.7kg), impacted by the suspension of mining operations at Pampalo. Revenue and EBITDA in Q4 amounted to SEK 7.9m (Evli 5.4m) and SEK -6.1m (Evli -6.4m) respectively. Mining operations at the Friday-mine have commenced but production has seen slightly behind schedule due to delays in equipment deliveries at the processing plant. The project’s capex estimate was revised to USD 9.5-10m (prev. 7.7m) due to cost overruns. Production of gold concentrate in 2019 is estimated at 5,000-8,000oz.

Acquired additional assets, seeking to secure financing

Endomines acquired leasing rights to the Unity mine adjacent to its Rescue property. We expect the company’s development operations during 2019 to focus on Unity/Rescue along with Friday. We have shifted our production estimates as we view any significant production figures (apart from Friday) to be achieved during 2020 unlikely. Endomines commenced the sale of an up to EUR 5m bond with associated warrants (strike price EUR 0.90). Although the financing covers at least the near-term investment needs we expect Endomines to need additional financing to develop additional assets.

BUY with a target price of SEK 8.0 (7.2)

The gold price saw favourable development during H2/2018, returning to above 1,300USD/oz levels, driven by the increased market uncertainty. Our revised estimates put our NAVPS at SEK 8.5. We retain our BUY-rating with a target price or SEK 8.0 (7.2).

• Endomines gold production in Q4 amounted to 27.9kg (98.7kg), affected by the suspension of the Pampalo mine in October. Milled ore amounted to 7,559 tonnes (39,692), at head grades of 2.6g/t (3.0g/t). Cash cost was 948 USD/oz (1,264).
• Revenue amounted to SEK 7.9m (28.5m in Q4/17), above our estimates of SEK 5.4m.
• EBITDA in Q4 was at SEK -6.1m (Evli -6.4m) and EBIT at SEK -14.2m (Evli -11.7m).
• Total cash flow was SEK -43.5m (1.8m).
• Guidance: Annual gold production at the Friday mine in Idaho, USA, is expected to be approximately 9,000oz at a cash cost of 650-900 USD/oz, depending on the area of production, over the life time of the mine. In the first quarter of 2019, Endomines has commenced ramp-up of the mine and anticipates producing 5,000 – 8,000oz gold (~156-249kg) in concentrate during the year.
• Endomines has commenced the sale of a up to EUR 5 million senior secured bonds and warrants. The bond carries a coupon of 12.0 per cent and has 3-year maturity. The number of the associated warrants is 5,555,555 and their exercise price is EUR 0.90 per warrant.

EBITDA positive despite mining operation suspension

Endomines gold production amounted to 81.6kg in Q3. Production figures were aided by the high head grades of 3.9g/tonne. Revenue and EBITDA in Q3 were SEK 25.9m and 0.6m respectively. Mining operations at the Pampalo mine were suspended in mid-September, which along with the higher head grades contributed to a positive EBITDA, despite lower volumes. Gold production during 1-9/2018 was 303.5kg, with another 15kg produced in October and the total 2018 output expected to exceed 320kg.

Limited new information in the earnings release

Endomines’ third quarter earnings release contained limited new information regarding the Idaho projects. The start-up timetable of the Friday mine was updated, with production anticipated to start in December. Details on the progress of the exploration activities in the vicinity of Pampalo were given, noting some samples with anomalies warranting further evaluation. Endomines had earlier specified the expected cash costs of the Friday mine, estimated to be around USD 650-900 per oz following ramp-up. We have updated our estimates for the cash costs for Friday and expect levels of around 900 USD/oz during 2019 and a decrease to 700-800 USD/Oz levels towards later production phases.

BUY with a target price of SEK 7.2 (7.8)

Following our revised estimates, we lower our target price to SEK 7.2 (7.8) but retain our BUY rating. The gold price has hovered at around 1,200 USD/oz following declines in Q3 but has seen slight upward pressure following recent stock market uncertainty.

• Endomines had pre-announced Q3 production figures, with gold production of 81.6kg (94.1kg). Milled ore amounted to 26,876 tonnes (37,422), at head grades of 3.9g/t (3.0g/t). Cash cost was 768 USD/oz (1,081).
• Revenue amounted to SEK 25.9m (26.7m in Q3/17), above our estimates of SEK 21.1m, driven by the higher head grades.
• EBITDA in Q3 was at SEK 0.6m (Evli -11.4m) and EBIT at SEK -11.2m (Evli -21.7m), with depreciations and write-downs of assets of SEK -11.8m. The suspension of mining activities in mid-September and higher revenue contributed to the higher than anticipated EBITDA. Adjusted EBITDA, excluding costs associated with the TVL acquisition and co-operation negotiations amounted to SEK 4.3m.
• Total cash flow was SEK -27.7m (1.6m).
• Guidance: Gold production in January-October amounted to 318.5kg. Total output from Pampalo, including additional gold recovery in connection with maintenance of the processing facility, is expected to exceed 320kg.
• Initial production at Friday is anticipated to commence in December 2018. No substantial production volumes are expected before the year-end.

Acquisition and strengthening of balance sheet

Endomines recently acquired TVL Gold and its five gold projects in the Orogrande mining district in Idaho, USA. In conjunction with the acquisition and completed rights issue, with net proceeds of some SEK 180m, Endomines completed a series of financial transactions after which the company has no remaining bank debt.

Production focus to shift to the acquired assets

With the current reserves Endomines targets production of 250-300kg gold at the Pampalo mine after which investments into an extension would need to be made. Production at the first of the acquired assets is expected within a year of the acquisition and within 2-5 years at the other assets.

Potential coupled with uncertainty

The acquisition and a planned expansion of the exploration program offer increased potential but we note a high uncertainty relating to the TVL Gold assets as resource estimates are limited and no production is currently on-going at the assets and resources at Pampalo are nearing depletion.

Initiate coverage with BUY and target price of SEK 9.3

We initiate coverage of Endomines with a BUY rating and a target price of SEK 9.3. Our target price is based on a 0.95x multiple to our NAVPS estimate, taking into consideration the stability of the operating jurisdictions and the early stages of the assets.