ANALYSIS -- ProspectingJournal.com -- For West African gold producer Endeavour Mining [EDV – TSX], 2011 was significant. The year-end witnessed the “Merger of Equals” with Australia’s Adamus Resources Ltd and shortly after, Endeavour reported meeting 2011 gold production targets.
With 2012 underway, projections for the price of gold place Endeavour in the spotlight, as has the Company’s latest press release: “Endeavour Mining Reports 2011 Financial Results And Demonstrates Significant Growth.” This release highlights the financial and operational results for the fourth quarter and year ended December 31, 2011.
Highlights
Operational highlights for the year, including the full year for the Youga Gold Mine and the Nzema Gold Mine, show considerable promise. Gold production totaled 177,290 ounces, with 90,026 ounces from Nzema and 87,264 ounces from Youga. Gold sales came in at 181,796 ounces from both mines, while the total cash cost (excluding royalties) was $614 per ounce produced. The operating cash flow from mine operations stood at $91 million and, significantly, Endeavour closed out 100% of the Youga gold hedge in November 2011 and 55% of the Nzema gold hedge in December.
“Endeavour had a solid performance in 2011,” stated COO Mark Connelly in a recent conference call. “We are producing gold at 180,000 ounces per year from two steady-state operations and expect to produce gold at a rate of 250,000+ ounces per year by the end of 2013 through the development of Agbaou.”
Full year 2011 highlights and 2012 production guidance from both Nzema and Youga show a significant opportunity for future growth. Youga exceeded 2011 guidance by over 3,000 ounces, while Nzema achieved its first commercial production on April 1.
Perhaps most importantly, as Connelly pointed out, Endeavour has “a good social relationship with the governments and the community.” This relationship proved crucial for the success of both the Nzema and Youga mines. At Nzema, 2011 saw the implementation of plans for the Salman Village resettlement (completed March 2012), which Endeavour undertook with support of the local community. At Youga, Endeavour was pleased to report a record 5 million Lost-Time Injury free hours worked by January 2012. As well, Endeavour supported social projects in the Youga village, which included building a fully equipped maternity clinic, the renovation of existing medical facilities and the expansion of the elementary school.
Exploration
When it comes to discovering additional resources, Connelly made Endeavour’s position clear: “we are committed to the exploration program in 2012.” Endeavour has approved an exploration budget of $30 million for 2012, with $16 million directed towards Nzema and Youga, $6 million towards Agbaou and $8 million towards Nzema and properties in Burkina Faso, Côte d’Ivoire, Ghana, Liberia, and Mali.
The successful near-mine exploration programs at Nzema and Youga resulted in the following: for Nzema, the addition of 65,000 ounces of measured and indicated mineral resources plus a 40% increase of inferred mineral resources of 186,000 ounces at a 0.5 g/t cut-off; for Youga, a 49% increase in proven and probable reserves (a gain of 179,000 ounces; including 2011 depletion) and extension of the mine life to 7.3 years.
Looking Forward
With the positive results from 2011, Endeavour is looking towards 2012 and beyond with optimism. The transformative merger with Adamus has produced a company with an aggressive exploration program and a focus on increased production, as highlighted below:
For Endeavour, the future will be about growth. The completion of the Agbaou mine will increase the production rate approximately 100,000 ounces per year. Assuming a gold price of just $1,600, the Company’s $150 million cash margin from mining operations will allow it to extend the Nzema and Youga mine lives through well-funded exploration. As a result, Endeavour expects gold production to range from 170,000 to 190,000 ounces at a total cash cost (excluding royalties) of $645 to $685 per oz.
“Overall, Endeavour has a strong base going forward,” stated CEO Neil Woodyer. “The Company has strong objectives for future organic growth, which we can finance ourselves, and strong objectives for shareholder growth.”
Ambitious growth, increased exploration, and the high price of gold all justify Woodyer’s positive outlook. And as long as production keeps pace with shareholder expectations and community relations remain an integral part of the Company’s strategy, we expect the coming months to bring big news for this promising miner.
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Chris Devauld
ProspectingJournal
Disclaimer: The author does not currently hold any shares of any of the companies mentioned in the article. However, some members of Prospecting Journal may or may not have interests in one or more of the companies mentioned at the time of publication. Staff members from the Prospecting Journal reserve the right to acquire interests in any of the companies mentioned after 36 hours have elapsed upon initial publication of this article. Endeavour Mining is a sponsor of ProspectingJournal.com.