Metals and Mining -- Precious Metals and Minerals


Investment recommendation

We maintain our SPECULATIVE BUY recommendation on the shares of

Endeavour Mining with a revised target price of C$4.80 per share, up

from $4.70.

Investment highlights

? Endeavour reported Q3 EPS of ($0.00). However, after adjusting for

$18.4 million in unusual charges, the adjusted EPS was US$0.08,

beating our estimate of $0.01 on slightly higher gold sales, lower

costs and lower than expected taxes. In Q3, EDV sold 50,314 ounces

of gold at an average cash cost of US$688/ounce, beating our

forecast of 48,018 ounces of gold at a cash cost of $722/ounce.

? The Youga mine had a particularly strong quarter, producing

22,526 ounces of gold at a cash cost of US$565/oz. We were

forecasting production of 21,100 ounces of gold at a cash cost of

US$683 per ounce with the mine outperforming on temporarily

reduced mining rates and higher than expected throughput.

? Nzema production of 26,972 ounces of gold was in line with our

forecast; however, cash operating costs of US$688/oz (excluding

purchases ore) were lower than our forecast of US$723/oz.


With the Avion acquisition completed last month, Q4 will be the first

quarter of integrated financials for the combined company. We are

forecasting Q4 production of 72,000 ounces of gold at a cash cost of

US$789/oz. With the ramp up of Tabakoto and development of the

Agbaou project, we forecast growth to 431,000 ounces of gold in 2014 at

a cash cost of US$796/oz. After adjusting our model for the Q3 results,

our estimate of peak gold NAVPS (5%, US$2,000/oz Au) increased to

$6.06, up from $5.84. We continue to value the shares of Endeavour

based on a 0.8x multiple to our peak gold price estimate of NAVPS (5%,

US$2,000/oz). We estimate that EDV is currently trading at 3.1x 2013E

CFPS, 2.3x 2014E CFPS, and 0.45x P/NAV (5%, spot), compared with

the junior producer average of 8.0x 2013E CFPS, 7.0x 2014E CFPS, and

0.68x P/NAV(5%, spot).