Endomines: Funding still a key issue - Evli Research
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.
https://pankki.evli.com/hubfs/ERP/Raportit/Endomines/Endomines%20200831%20Q2%20Company%20update.pdf
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