Endeavour Mining (TSX:EDV) - Compelling High-Margin Gold Projects Set for Growth Spurt

• Endeavour Mining is a top 10 global gold producer focused on West Africa with 4 mines across 3 countries.
• Strong shareholder returns - $800M returned via dividends and buybacks over the past 3 years. Attractive overall yield.
• Organic growth with 2 new mines beginning production in 2023 - Lafigué and Sabodala-Massawa expansion.
• Major discovery at the Tanda-Iguela property - 4.5Moz indicated resource acquired for only $50M. Significant value creation.
• Disciplined focus on portfolio quality - divested higher cost assets to keep AISC below $950/oz. Future growth potential but balance sheet strength are also a priority.

West African Gold Producer With Quality Organic Growth Ahead

Endeavour Mining is positioned as one of the top 10 largest global gold producers, with a strategic focus on the prolific West African region where it has established a diversified portfolio of assets. In a recent interview, CEO Sébastien de Montessus outlined the company’s quality-over-size approach and extensive organic growth opportunities ahead.

With 4 operating mines across 3 West African countries - Senegal, Côte d’Ivoire, and Burkina Faso - Endeavour Mining produces around 1.1 million ounces of gold per year. The company targets an ideal production range between 1.4 to 1.6 million ounces annually to balance growth with preserving its industry-leading cost position. Endeavour’s current all-in sustaining costs stand below $950 per ounce, well below the sector average of approximately $1,300 per ounce.

“The beauty of West Africa is we’ve been partly immune to some of it, simply because...we’ve been working a lot on growing local talents, which means that we’re proud to say that we want to develop local talents. So if we have expatriates that are not happy with their salaries, we’ve been training new people in the region, which are extremely good, and we are not short of labour," said Montessus.

Shareholder Returns in Focus

By maintaining low-costs even amid inflationary pressures, Endeavour has been able to generate strong cash flows to fund both growth projects and shareholder returns. Over the past 3 years, the company has returned close to $800 million to shareholders via dividends and buybacks. And with the stock trading at a discount to gold prices, Montessus sees room for this robust shareholder return program to continue, even if gold fails to maintain its current run over $2,000.

Organic Production Growth on Track

Endeavour Mining has 2 core mines under construction in Côte d’Ivoire and Senegal that remain on schedule to commence production by mid-2024. This should boost overall production up to approximately 1.3 million ounces per year. Importantly, both projects are being delivered on time and on budget. Montessus attributes this successful project execution to Endeavour’s in-house construction expertise. With the mines coming online, the company anticipates returning to a net cash-positive position on its balance sheet by next year's end.

The company has taken additional steps this year to refine its portfolio by divesting higher-cost, shorter-life assets in Burkina Faso. This has further enhanced the cost profile with lower exposure to countries with rising geopolitical risks. The phased $300 million of proceeds received has helped fund the construction of the new projects.

Major Exploration Success Points to the Next Phase of Growth

In addition to near-term production upside, investors have taken notice of Endeavour’s exploration success at its Fetekro greenfield property in central Côte d’Ivoire. Last year’s maiden resource outline of approximately 3 million ounces has rapidly grown to a much larger 4.5 million ounce indicated resource at the Tanda-Iguela deposit. What stands out further is the exceptional grade of 2 grams per tonne of gold and the remarkably low discovery cost of $50 million expended by the Endeavour exploration team so far.

“This is a major discovery and to give you some perspective...I mean Predictive Discoveries have 4.1 million ounces at 1.6g. After 2 years, we are already at 4.5 million ounces at 2g per ton,” stated Montessus enthusiastically when comparing Tanda-Iguela to recent high-profile gold discoveries in the sector.

Montessus views the Tanda-Iguela deposit as a “next tier one phase of construction” for Endeavour post-2024, once the 2 core mines are complete. So, investors have visibility to significant organic production growth in the coming years from this major new gold discovery.

Maintaining a Disciplined Focus

With sector-leading low costs, cash flows, near-term production expansion, exciting exploration upside, and ongoing shareholder returns, Endeavour Mining offers investors quite an appealing value proposition in the gold sector currently.

Yet the overriding message from Montessus is that Endeavour Mining remains disciplined and focused on portfolio quality and maximizing investor returns. There is no emphasis on growth for the sake of size or unnecessary M&A deals that could erode its strategic positioning. As long as the company maintains this balanced approach - developing discoveries into mines at attractive returns without overreaching - Endeavour seems poised to continue outperforming its peers.

The Investment Thesis for Endeavour Mining

• Currently discounted valuation relative to quality portfolio, significant upside potential
• Robust ~5% dividend yield enhanced by additional buybacks provides attractive income and total returns
• $950/oz AISC and 1.3-1.4Moz production provides margin expansion in a rising gold price environment
• Organic production growth clearly defined from 2 mines starting up in mid-2023
• World-class Tanda-Iguela discovery (4.5Moz @ 2 g/t) signals the next phase of low-cost growth
• Proven mine builders and operators in West Africa
• Experienced management prioritizes shareholder returns
• Diversified across 3 core West African countries

near termEndeavour Mining presents investors with a rare combination of current income generation fueled by rising output and margins in the near-term, world-class in-house organic growth on deck, exemplary capital discipline focused on quality over size, sector-leading low costs, and experienced in-country operating teams. As gold equities catch up with record-high gold prices, re-rating potential remains high for Endeavour. Risks appear muted by the company's strategic focus and consistent execution. Exposure is recommended while valuations lag peers.